The food industry: less innovation, more streamlining

The energy crisis and the inflation of raw materials are upsetting the food industry. Manufacturers are forced to review their strategies and streamline their offers. In supermarkets, 80% of the shelves have lost references, which rises to 89% in e-commerce. In other words, the choice is decreasing. More seriously, innovation is decreased. By sacrificing it on the altar of sobriety, manufacturers risk cutting themselves off from some of their consumers.

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Summary

• Inflation turns the food industry upside down
• Streamlining means fewer items on the shelf
• Streamlining means less innovation
• Conclusion: where is the food industry headed?

Inflation turns the food industry upside down

As we predicted at the beginning of 2022, the food industry is profoundly changing. Not only are sales declining (e.g., 2.9% in volume in France in the first half of 2022), but consumers are also sometimes making radical choices. The decline in sales reached 8% in volume in May-July 2022. The crisis has hit the organic food industry hard, which has forced consumers to sacrifice their ideals. As it is now customary to say, the end of the month prevails over the end of the world.

The crisis forces consumers to sacrifice their ideals.

In the context of inflation, consumers are now looking for bargains. “First-price” products are up by 5.6% in the first half of 2022. This sudden transition heralds the rise of private labels, which should pick up again in the second half of 2022. Their market share has tended to erode over the last few years, and the inflationary crisis we are going through should boost them.

Streamlining rhymes with fewer references on the shelves

Since the outbreak of the war in Ukraine and the soaring inflation, food manufacturers have made radical decisions to control their costs. First of all, we talked about shrinkflation and cheapflation, 2 techniques which consist respectively in:

• reducing the size of the packaging while keeping the price constant (less product for the same price)
• changing the recipe by using cheaper and lower quality ingredients to keep the cost price down

These measures need to be revised, and we are now witnessing a new phenomenon: streamlining product ranges. In other words, manufacturers are streamlining their product ranges to make them:

• less complex to manage
• less complex and less expensive to produce

In France, for example, Danone has eliminated its Taillefine range and integrated the products into Light & Free.

In France, Danone has streamlined its range and eliminated Taillefine products in favor of those belonging to the “Light & Free” range

These streamlining effects are now beginning to be seen in the stores. In France, a country of supermarkets and hypermarkets par excellence, the offer has decreased by 1.9% in the first half of 2022. To put it another way, there are, on average, 1.9% fewer references on the shelves than in 2021. To materialize even more precisely what this represents, this 1.9% decrease corresponds to the following:

• 418 fewer references in hypermarkets (22,000 references proposed at the end of 2021 on average)
• 209 fewer references in supermarkets (11,000 references proposed at the end of 2021 on average)

However, the situation varies depending on the surface area and type of retailer:

• 8.2% in the food and beauty departments of e-commerce websites
• 4.1% in stores of less than 800m².

Space is at a premium (both online and offline). We must keep the consumer with a plethora of options. Consequently, we cut the offer with an axe, proposing only the essential.

Streamlining rhymes with less innovation

The pace of innovation in the food industry has slowed significantly in 2022. We were able to observe this at SIAL 2022. Although plant-based meat was the most important underlying trend in 2022, other innovations were relatively rare compared to other years. This is due to the streamlining policy that is now the norm in the food industry.

Companies are cutting their innovation budget to reduce their fixed costs and thus try to compensate for the increase of their products on the shelves. The strategies implemented are similar (see our article on the subject).

This decrease in innovation raises many questions about the future of food brands.

Conclusion: where is the food industry headed?

Finally, we must question the direction in which the food industry is heading. Of course, sobriety has become imperative for all companies. For the food industry, a clean sweep of product ranges that had become unreadable was necessary. But aren’t we going too fast and too far? In June 2022, 13.2% of the references disappeared from local stores.

By Pierre-Nicolas Schwab Dr. Pierre-Nicolas Schwab is the founder of IntoTheMinds. He specializes in e-commerce, retail and logistics. He is also a research fellow in the marketing department of the Free University of Brussels and acts as a coach for several startups and public organizations. He holds a PhD in Marketing, a MBA in Finance, and a MSc in Chemistry. He can be contacted by email, Linkedin or by phone (+32 486 42 79 42)