A new study has claimed that retailers and manufacturers are wasting more than £2.7 billion a year developing new products that either fail to take off with shoppers or that end up costing more to produce, wiping out any potential profit.
The report, by retail and manufacturing consultancy Newton, found that 62% of consumers like products to evolve, offering developments like different flavours and new packaging, all too often retailers and manufacturers within the food and drink industry are basing their innovations on “gut feel” rather than on insight into what customers really want.
Newton found that over an estimated £600 million is lost annually on launching new and rebranded products, or refreshing the packaging, on products that don’t return the investment in terms of increased sales. More worryingly, Newton’s report claims that more than £2.1 billion is wasted producing new items, such as products that are costlier to make than those they are replacing, have more expensive ingredients, or that cause manufacturing problems.
Paul Harvey, head of grocery at Newton, says retailers and manufacturers shouldn’t “Innovate for innovation’s sake.”
He added: “Regardless of the nature of innovation or the rationale behind it, one point remains of paramount importance – innovation must either add value to the end consumer or reduce costs for the company producing it.
“An understanding of what a customer really wants is critical to the success of innovation and new product development. Research that sets out to prove a company’s own hypothesis right, rather than understanding the needs of the end consumer, is more likely to result in products that fail.”
Not only is poor innovation costing the industry money, Newton believes they are missing out on hundreds of millions of pounds every year in profit on new products. Less than 3% of new product launches generate over £35 million in profits – Newton estimates that improvement in revenue from better new product innovation could generate £233 million.