Innovation is critical for all in the food industry but developing, making and then selling any new product is fraught with pitfalls - only a small percentage make it from the drawing board to supermarket shelf. Analysts IRI has issued its list of the top ten best-selling food and beverage products in the US last year. IRI's Sheila McCusker talked to Dean Best about the ingredients a brand needed to succeed in 2007 - and gave the analysts' forecasts for NPD in 2008.

just-food: What characteristics did some of the products in the top ten share last year?

McCusker: Every one of the top ten has some kind of health and wellness benefit. That is really unique about this year's list. We've had health and wellness as a major factor over the last two years but it has really come on exceptionally strong this year. Even in products that may look more indulgent on the surface, as you peel back the layers a little bit, they all have a health and wellness benefit. That's the big story this year.

j-f: Each of these products must have had marketing muscle behind them - how important is that factor?

McCusker: It's hugely important. Each one of these products does have major advertising and marketing campaigns supporting them. For the most part, that really is essential to reach the kind of numbers that we are seeing here in terms of year-one sales. The shelves are extremely crowded right now and to stand out on those shelves, you need heavy-duty marketing.

j-f: However, despite the marketing dollars, these products still need to resonate with consumers, though…

McCusker: These products really hit the mark with consumers because they are completely aligned with the consumer trends that we are seeing. We have seen that the focus among consumers on health and wellness has become more and more refined over the last few years. For example, we are not only looking for diet products now as we were four or five years ago but we are looking for very specific health benefits. Consumers now are really tuned into the specific ingredients in products and are looking for specific health benefits.

j-f: What propelled Campbell's low-sodium soup to the top of that list?

McCusker: The product delivers a benefit that consumers want but also helps to educate consumers on why low sodium is important. What I found particularly interesting about their campaign was yes, low sodium is aiding baby boomers who are facing hypertension and other diseases linked to high sodium but their campaign really targeted the whole family. There is a lot of emphasis in their marketing on the importance of low-sodium for the whole family, not only those consumers facing health conditions. I thought that was a brilliant campaign.

j-f: As margins have been squeezed, have you seen manufacturers scaling down their expenditure on innovation?

McCusker: We don't have a system in place to really track that expenditure. In terms of activity levels, there has not been a slowdown.

j-f: Why are rates of success in innovation so low?

McCusker: In general, new product development processes are not working, they are inefficient. Typically, we see that it takes a long time for products to get to market. That is starting to come down but historically there hasn't been a system for methodically identifying the key steps you have to take to come to market with a successful product. One of the biggest gaps in the marketplace is learning from existing new product successes and learning from best-case scenarios, and learning from those products that haven't worked so well. There has been a lack of information in the marketplace. There is a gap that is starting to close.

j-f: Is it only the larger packaged food companies who can invest to see success in product innovation?

McCusker: Certainly, there are success stories out there for smaller brands. There are niche players, there are regional players and their standards may be different in terms of what defines success for their products. The products that we track are those that have the highest year-one sales. Based on that definition, 99% of the time, it is the bigger manufacturers. However, if you are small manufacturer, you may have very different measures of success. There are products out there that don't have US$7.5m of sales - which is the cut-off for our New Products Pacesetters - but, given the development costs may be lower, given the marketing costs may be lower, they may be very profitable.

j-f: What will be in the over-riding trends in new products in the US in 2008?

McCusker: We are definitely going to see the health and wellness trend becoming even more specific, especially around the area of functional foods. This year, for example, we had Dannon Activia Light, which aids digestion, and we had Dan Active drinks that aided immunity. We are going to see a lot more functional benefits that provide disease prevention and management.

Another interesting thing we are seeing for next year is more indulgent products. Consumers still allocate the majority of their spending to indulgent products. For a while there, some manufacturers put the breaks on indulgent product development and were really focusing in on health and wellness - and rightly so, because they needed to establish a place in health and wellness. But, circling back, manufacturers are also going to invest in some of these indulgent products too because consumers do want some indulgence in their lives.

j-f: Probiotics is still a fledgling sector in the US - how sceptical are US consumers about their health benefits?

McCusker: There is some scepticism - there has even been some legal action - but, I'll tell you, consumers are rallying around these products in the marketplace. The fact that we have more than one on the top ten list is pretty phenomenal. If you think of the low success rates of new products, the fact that you have both DanActive and Dannon Activia Light on the top ten list says to me that consumers are ready for it. Despite the fact there may be some scepticism in the market, a whole lot of consumers are buying these products.

j-f: Which product categories will see the most activity in terms of functional foods?

McCusker: Dairy is huge. I think we'll see more in the bread aisle. There has been a ton of innovation around bread. I think we'll see more in the cereal aisle, another highly, highly innovative category. If you look at our top ten list - General Mills Fiber One, for example - fibre is a functional ingredient and consumers are woefully lacking in fibre consumption. General Mills has linked fibre in the marketing right to specific health benefits, so we are already seeing that right in our top ten list.

j-f: With consumers tightening their belts, will functional products really take root if they are slightly more expensive than their standard counterparts?

McCusker: Consumers in general are willing to pay a bit of a premium for healthy products. Our studies show us that a high proportion of consumers do fall into that segment. I don't think that is going to be a big issue.

j-f: Do you see any private-label products breaking into IRI's top ten?

McCusker: That's an interesting question. It would not shock me at all if private-label leaders within the US retail market developed functional products. It's not been a big factor to date but maybe even in the coming year. In the US now, some of the big US players have a huge position in natural and organic products and in many cases, stepped out in front of the branded manufacturers, so while they are not out in front of the branded manufacturers in the functional space yet, they could catch up pretty quickly.

For more detail from IRI's New Product Pacesetters Report, please click here.