After nearly three years of shifting priorities, the dairy industry is starting to prioritize new product development and innovation again.
Cypress Research, Kansas City, Mo., conducted a confidential survey of US dairy processors on behalf of Dairy Processing to determine industry trends in product innovation and development. Dairy Processing provided a representative sample of its subscriber database for use in the industry research. The online survey was fielded to dairy processing professionals – primarily those within research and development roles – in July and August 2022.
The survey included 113 respondents, 50% of which were with companies with annual company sales of $100 million or more that manufacture cheese, cultured products/yogurt, ice cream and fluid milk. Participants were primarily from research and development/food science (35%), operations (23%) and executive management (22%).
Respondents surveyed represent a cross-section of principal products processed, including cheese (50%), culture products/yogurt (35%), ice cream (33%), fluid milk (32%) and frozen desserts (21%).
“In this study we used targeted, qualifying criteria,” said Marjorie Hellmer, president, Cypress Research. “They had to be dairy processing professionals who could answer questions about their company’s product development and R&D trends. So, the job roles that dominate the study sample are going to be R&D, some operations and some executive management.”
About a third of respondents in this study sample reported six or more processing facilities, whereas a quarter of the sample is either a co-manufacturer or they get their products from a co-manufacturer.
The focus of the study had three key areas, the first of which was on product innovation and trends in dairy processing, as well as trends in invention or true “breakthrough products” new to the market. This typically involves the introduction of a brand-new product or a new brand versus innovation, which Hellmer classified as tweaking products within existing brands and within existing categories for companies.
The survey also touched on formulation, which includes adopting new ingredients within existing brands and products and line extensions.
While the data was collected mid-year, participants were asked about trends pre-pandemic, during the pandemic, and within the next 12 to 18 months.
“Even with us fielding this mid-year this year, we were asking them to project their product development priorities all the way through to the end of next year,” Hellmer said. “So, this gives us a line of vision all the way through next year.”
According to the survey, prior to the pandemic, 77% of respondents said they were focusing on new product innovation within existing brands or categories. While that number fell to 46% during the pandemic, it has rebounded – 76% of respondents said innovation will be a priority over the next year. That rebound was even more significant when it came to updating formulations and using new ingredients within existing brands – just 57% of respondents said that was a priority pre-pandemic, while 65% said that it is a focus post-pandemic.
One of the most notable data points comparing pre-pandemic to post-pandemic priorities falls within ingredient and formulation cost savings. Prior to 2020, 65% of respondents said these cost savings were a priority. Looking ahead over the next year, that number jumped to 81%.
“During the height of the pandemic, we can see just overall this dramatic reduction in R&D department activity,” Hellmer said. “Everything kind of pulled back, except for cost savings, which started to bump up. Innovation just really shrank as a company focus. Even formulation took a big hit, almost a 10-point hit from pre-pandemic to the height of the pandemic levels.”
During the pandemic, there was a dramatic pullback in invention-related product development initiatives. Dairy processors were shifting their attention to produce as many of their existing products as they could.
“Much like we see across other vertical sectors of the food processing industry, there was just that all-out attempt to keep their existing products on the shelves as consumers were really eating a lot at home,” Hellmer said. “And so R&D just pulled back in some of those truly key areas of innovation and invention. Now, as the business impacts of the pandemic have slowed, as processors look ahead to next year, the activity within product development is shifting back into high gear.”
A focus on cost savings
Despite a reprieve from the pandemic-related pressures, 49% of survey participants cite cost savings as a primary reason as to why there is a lesser focus on new product innovation in the next 12-18 months. Just under 20% of participants also cited inflationary pressures.
“The industry’s commitment to cost savings is stronger than seen at any time in the past four years,” Hellmer said. “That’s the main driver for keeping that focus, for not returning full steam to invention or innovation.”
Additionally, approximately three in 10 professionals reported that their companies are challenged in the area of product development as it’s tied to challenges with lack of labor or limited capacity and having fewer internal R&D resources, which will affect a company’s ability to develop products.
As far as where dairy processors are looking to put their product development attention next year, Hellmer said it will still be with one eye on cost savings and supplier rationalization and then also looking at innovation and formulation driven initiatives.
“I think that that’s what this study is telling us,” Hellmer said. “Pre-pandemic, that major product development focus was on innovation, on invention, and now it’s on cost savings, supplier rationalization, and then with another eye toward invention and formulation. So, it’s a different world now within product development, at least for the next year.”