For the large part, it’s missing – that’s where entrepreneurialism is in Big Food.
We’ve talked in the past about the need for companies to reinvent themselves using the same entrepreneurial practices that allowed them to become successful in the first place. And, in particular, we’ve focused in on the need for the big food companies to continue to revise and reinvent their legacy brands. Instead, big food companies have a tendency to want to have their older, long-term brands carry themselves in the marketplace – which hasn’t been working well in the modern marketplace. And, while these same food companies continue to talk about their desire to come up with new products – their answer to sales and marketing – their budgets for innovation continue to shrink. The WSJ relates that companies like Nestle and Kraft Heinz are steadily losing market share to entrepreneur-led food companies that have reacted more rapidly to a preference by customers for healthy and convenient products. And, incredibly, the big food companies, instead of putting more money into new product innovations, have, instead, reduced those budgets. Nestle, for example, had only 1.8% of its 2018 sales revenue directed to its research and development arm. Which, by the way, was the same percentage as a decade earlier. And, Unilever spends less as a percentage-of-sales today than it did in 2008. Kraft Heinz invests far less in research and development – only 0.4% of its sales revenue. For some reason, in recent years, the big food companies have come to rely far less on their research and development teams to concoct new and reinvented products, and, instead, have turned to “specialist food ingredient companies” to work with global brands behind the scenes and come up with new ideas. One of the things that these ingredients companies do for big food is to overhaul the recipes of their staple brands. And they accomplish this in a variety of ways, including adding “trendy” probiotics to the mixture, taking out excess sugar or gluten, etc. Nestle recently used an ingredients company to remove some sugar from its Nesquik flavored drinks, and Kraft Heinz switched from artificial to natural colors in their Macaroni & Cheese, using the same process. It’s anticipated that the “healthy foods” trend will keep ingredients companies working for years. Sixty percent of artificial ingredients have been replaced with natural alternatives, thus far, in Europe and the Middle East. North America and Latin America are still at the 25% level for artificial ingredients removed from products sold there. Thus, with this kind of potential, it’s anticipated that it is actually the Ingredients companies who will outstrip the market performance of the Big Food companies – particularly Nestle, Mondelez, Kraft Heinz. Perhaps it’s time for Big Food to get serious about their own entrepreneurship and direct more of their annual revenue to better-developing innovation departments in-house.
ALL THE MOVING PARTS – it’s all the parts of an organization that make a company successful. In this case, the existence and success of an innovation part will be vital to the better operation of established companies.