The hype about food disruption may be over, analyst says
Some of the hype around disruptive food may be starting to slow, a Rabobank analyst says. Rabobank senior consumer food analyst Thomas Bailey said in the next few years the global consumer food industry would see a shift in innovation strategies. That would mean fewer disruptive innovations as large food companies, including in New Zealand, refocused their attention on incremental changes. The consumer food industry witnessed an explosion of disruptive innovation over the past decade, such as plant-based meats, insect protein bars, synthetic fat replacers, and precision-fermented milk proteins, but this disruption had reached its peak, Bailey said. Weaker demand for disruptive innovations, economic uncertainty, and the higher interest rate environment exacted their toll on many disruptive products coming to market, he said. The same group of investors that drove the 288% increase in deals from 2010 to 2022 appears to have put the brakes on deals so far in 2023, he said. Investment in disruptive innovations, such as precision fermentation, had declined, he said. Disruptive innovations would probably face more rigorous evaluation, resulting in fewer but potentially more successful disruptive products that endured more intensive vetting, he said. His report suggested companies would focus on things like improving the taste, convenience and health of their products rather than chasing disruption. In food, incremental innovation looks like line extensions, packaging changes, new flavours, and functionality twists, he said. The main benefit of incremental innovation is that it offers more immediate benefits: supply chain simplicity, sustainability, cost reduction, and generally keeping customers happy and interested. Furthermore, it is better suited to keeping prices low for consumers in an inflationary environment. He said McDonalds and US yoghurt manufacturer Chobani had said they were looking at incremental changes. But Bailey said the quality of disruptive food products in future would be higher. Disruptive food companies that developed or partnered with someone who had scale, infrastructure, sales networks, and a large trusted customer base, or exceptional executive leadership and financial backing would be successful, he said. Such a company would have to meet core requirements such a taste, convenience, and health. With many companies investing in novel foods to combat climate change and the effects of farming on the planet, Bailey said incremental innovation and dealing with climate change were not mutually exclusive. Clearly the products that have been launched that were promising to displace farming have not yet been a preferred substitute, excluding some alternative milks. But even they have a ceiling of penetration into the traditional milk category, he said. Westpac senior agri economist Nathan Penny said some consolidation was to be expecte. The big food companies will cherry-pick the things that they see as viable and incorporate them into their large food businesses and continue to grow a portfolio of food products. "They'll have their traditional foods and have alternatives as part of their portfolio. A lot of investment into novel foods was driven by Silicon Valley and funded by venture capital, he said. "Failure is part and parcel of that kind of business model. For every 10 or 50 failures you get one Facebook or Uber. That pays for your investments in the companies that don't make it," he said. "It's a complex question, is alternative food products going to replace or rival traditional food sources? Yes, and no. There will always be a place for traditional produced foods.It is a question of preference.The technology may be awesome but if people don't like it, it doesn't really matter," Penny said. Penny said given the challenges of food security, a growing population and climate, "we need all the food options we can get".