Manufacturers need to build category knowledge to maximise distribution, IRI says

Manufacturers need to build category knowledge to maximise distribution, IRI says

The rate at which food products are launched in the UK has been declining. Tim Eales, director of strategic insight at IRI, suggests why manufacturers may have held back from innovating but argues they must be bold - and offers advice on how the innovative can succeed.

In 2015, there was a 10% fall in the number of food products launched in the UK, compared with 2014 and by 13% since 2013.

Some food categories experienced deeper declines than others, with confectionery, for example, seeing a 30% drop in the rate of innovation, cheese 46% and baby food 61%. 

This is one impact of the recent range rationalisation strategies adopted by major retailers in the country. In the UK, the total range of packaged groceries stocked in stores has fallen by around 9% since January 2013 and, that, combined with price wars that have cost the sector around GBP1.5bn a year, has had a major impact on product innovation. 

So why is this important? Put simply, new product innovation is the lifeblood of the grocery sector. It creates critical category interest, often driving growth with advertising that encourages consumers to buy more; not just the new innovations but other products in the category as well. For food categories, branded new product innovation contributed 1.7% of sales to the category in the UK over the past two years, a drop from 2.9% in 2011. 

Innovation also provides manufacturers with an opportunity to charge a price premium, which can be critical at a time when prices are on a continuous downward spiral. 

While prices have been squeezed in the last few years, fuelled by retailer price wars and an increase in products sold on promotion, the premium pricing commanded by new food products in the UK has increased to 53% above the category average from 41% in 2010/11. 

There is no doubt food manufacturers across Europe are finding it harder and harder to get product listings. At the same time, many manufacturers are producing fewer new products or deciding not to support new product launches with promotions as much as they used to. The fact food is so closely linked to people's personal health and wellbeing increases the risk and challenge of launching food products, something which inevitably plays a critical part in the recent stagnation in innovation.

A factor in that premium could also be a decision by food manufacturers to reduce promotional support for new products so that the jump to full price after the period on promotion is not such a shock to consumers. This also affords them the benefit of reaping more reward from the high cost of their research and development associated with the launch. 

While the rate of new product innovation in food has reduced, the low success rate remains unchanged, a factor that may also be in part contributing to the decline in new food launches. 

Just 22% of food products launched into the market are successful, according to our data – in other words, they sell better than most of the competition where they are stocked. New food products find it far harder to break through than non-food products do (29% of new all FMCG products find success and 39% of non-food products). Again, the perceived risk factor that shoppers associate with buying food is part of the lack of success of new food products. However, it does not seem to stop those new food products that appeal to the health conscious nature of shoppers. Products perceived to be healthier are doing better than the rest of the market at the moment.

To be successful, food manufacturers will often aim for 75% distribution within 12 weeks. However, only one in 20 launches achieve this target. On average, the maximum distribution achieved by new products in multiple retailers is 44% and three points lower for food products. 

It seems as retailers concentrate on reducing range, it has become more difficult to grow distribution for new products. 

Successful new products add value to the category where they are stocked and as distribution grows, naturally sales increase. However, some new food products do the hard part, by outselling most of their competition but still do not maximise sales. When manufacturers launch a product that is selling better than the market in some stores, they sometimes fail to capitalise by moving it to more stores. Manufacturers may lack the knowledge, understanding and context that enables them to take their pitch for additional distribution to retailers.  

Food manufacturers must find the formula that attracts shoppers and then ensure they maximise distribution. One does not work without the other and failure to find the right balance only adds to the innovation stagnation gripping the food sector. The answer is finding something that people really need and giving them a good reason for buying it - but manufacturers also need to be able to interpret sales data for their own brands against the rest of the category and pick up on hot trends, such as health, convenience, value for money and quality.