NPD: Why FMCG Brands Must Innovate to Grow

Sales of branded NPD only represent a small percentage of overall sales in UK supermarkets. However, in a challenging environment, and with changing customer habits and preferences, innovation continues to play an essential role. It allows brands to recruit new consumers, drive sales in-store and sustain growth. We look at the biggest innovation trends in the FMCG sector.

The strong appetite for new grocery products

IGD’s ShopperVista research on innovation carried out in January 2019 shows that UK shoppers have a strong appetite for innovation. In the year ahead, the majority of shoppers say they intend on trying more new recipes, flavours and foods (66%) as well as new / different products (59%). The desire for new and different is even more prominent in certain categories, such as breakfast cereals, confectionery and crisps.

IGD predicts “Experimentation” will be one of five mega-trends to stand out the most for shoppers by 2025. According to the organisation, 80% of shoppers are open to trying new / different food and non-food products, services and experiences (vs. only 3% who are not).

Another study from IGD reveals Asda shoppers are leading the charge for new products: 74% are broadly welcoming of product innovation and 17% say they would like to see as many new products as possible.

Changing customer habits and preferences

UK consumers are paying more and more attention to what is inside the products they are buying. Clean labels are even more important than brands. According to research from functional ingredients manufacturer BENEO, when shopping for new products:

• 51% of UK consumers look at the product description
• 51% of UK consumers read the ingredient list
• 43% of UK consumers pay attention to the brand.

Apps like Think Dirty allow consumers to check for ‘dirty’ ingredients in personal care products.

UK consumers are also more environmentally conscious and feel they can make a difference to the world through their choices. A survey from ThoughtWorks on the issues that will change how people buy food in 2030 shows:

• 62% of British shoppers are concerned with the need to reduce packaging and use more recyclable materials
• 36% of British shoppers say they will place much more importance on where the food they buy is grown, fished or reared
• 32% claim they will seek assurance that food has been ethically sourced from a sustainable supply chain.

Millennials, who now represent 39% of the general population, have even stronger expectations, demanding that consumerism be a force for positive change.

Key trends

These new expectations create new opportunities for brands with several key trends:

Organic and natural: Organic continues to grow, across all categories. The UK is the seventh market in the world for organic sales. British shoppers spend nearly £45 million a week on organic products (up +5.3% in 2018) and want more organic everything according to the Organic Market Report from Soil Association.

Nestlé for example just launched the first organic version of its premium Nescafé brand. Neil Stephens, Managing Director of the Beverage Division at Nestle UK, told Food & Drink International: “This is our first organic offering from Nescafé. Demand for organic products continues to grow in Britain and remains a big factor for many consumers, particularly those interested in the environmental benefits of going organic.”

The organic and natural trend is particularly strong in the beauty and well-being market. 42% of UK personal care consumers buy organic and natural personal care products because they believe they are better for the environment. The growth of certified organic and natural beauty continues to outpace the wider wellness industry, with double-digit growth in 2018. Vegan product launches increased by 175% between July 2013 and June 2018.

Free-from: According to research from Mintel, nearly half of UK adults are choosing to avoid certain foods or ingredients. Another survey from Harris Interactive reveals that 43% of British consumers regularly buy free-from food and drink. For many consumers, this is part of a healthy living philosophy. Gluten free is currently the largest sector, but dairy free and meat free are fast catching up.

Cathy Mosely, founder of the upmarket snacking brand Boundless Nuts, told Food Manufacture: “We are definitely seeing a rate of growth from people who are choosing to eat free-from foods rather than having to. Even though they don’t have intolerances there is a natural inclination to step away from eating too much gluten, soy and sugar. People are more informed about where their food has come from and what nutritional value it gives them.”

Nitrite free is also gaining traction and some believe it could be the next big free-from opportunity. Northern Irish food manufacturer Finnebrogue launched its Naked Bacon without nitrite and E numbers in January 2018. Finnebrogue expects that sales of Naked Bacon will add £23m to its turnover by 2022.

Small brands: Small brands increasingly appeal to consumers, who feel they are more authentic, artisanal and less “industrial”. The Financial Times reported on this trend in a piece titled “Consumer goods: big brands battle with the ‘little guys’”.

Several major FMCG players have acquired small brands to boost their growth. Unilever for example acquired Pukka, an organic tea and supplements brand which is part of the B Corp movement, using business as a force for good. The Pernod Ricard group bought Monkey 47, an artisanal gin brand. Coca-Cola is the owner of the Honest brand, a range of ready-to-drink organic teas with a strong sustainability focus.

The beer market dynamics also reflect this desire for small brands. Demand for craft beer remains strong in the UK.

These pockets of high growth hold great opportunity for product innovation.

Making innovation relevant

For innovation to be successful, it is important to make sure it answers customer needs. For that, innovation should be based on customer insights. However, according to manufacturing consultancy Newton, innovations are too often based on intuition and “gut feel” rather than on data.

Newton estimates food manufacturers and retailers in the UK grocery industry waste £2.7 billion annually on product innovations that consumers do not want, or prove too expensive to produce.

Paul Harvey, Head of Grocery at Newton, told Foodbev Media: “Regardless of the nature of innovation or the rationale behind it, one point remains of paramount importance – innovation must either add value to the end consumer or reduce costs for the company producing it. An understanding of what a customer really wants is critical to the success of innovation and new product development. Research that sets out to prove a company’s own hypothesis right, rather than understanding the needs of the end consumer, is more likely to result in products that fail.”

Some of the best new products of 2018

Winners of the 2018 edition of The Grocer New Product Awards, which celebrate outstanding innovation in the UK FMCG sector, include:

• Frank Roberts & Sons Heroic Wholemeal Bloomer: Consumers believe the “rustic, upmarket” bag made the product look “organic and fresh”, as well as “environmentally friendly”. Consumers also say the bread is of “good quality”, praising its “smooth texture” and “good malt flavour”.
• Blue Skies Dairy Free Mango & Passion Fruit Ice Cream: Consumers “loved everything about it”, calling it “gorgeous”, “delicious”, “heavenly” and “smooth”. The judges pointed out you “wouldn’t know it was dairy-free” with its “silky smooth” texture and “great mango flavour”.
• Prewett’s Mini’s Chunky Choc Chip Cookies: Consumers believe they make “a lovely little treat with coffee” and are a more indulgent gluten-free treat. The expert panel liked the “lovely packaging” and thought they were “great for snacking” and “a little healthier than the norm”, adding that they tasted better than a lot of gluten-free products on the market.

As a conclusion, it is important for consumer brands to innovate and constantly reinvent themselves. Only by doing so will they be able to attract new consumers and boost sales in store. New customer habits and preferences create new opportunities in the organic, free-from and small brand segments. By leveraging these key trends answering customer needs, and by choosing the right communications strategy and distribution channels, FMCG brands should sustain growth in 2019 and beyond.