No new is bad news for food biz

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Profit-pressed food marketers have failed to deliver innovation in the supermarket aisle. That has retailers fearing a new-product crisis-and a dramatic drop in slotting fees.

Instead of making expensive, risky new-product bets, a cautious food industry is focusing on fewer brands and narrower extensions of tried-and-true favorites. Retailers that have long received slotting fees for new products seeking shelf space are worried this lucrative revenue stream could dry up.

"I've been in the grocery business 36 years and this is the worst I've ever seen in terms of a lack of new products," said one Midwest retail executive. He said manufacturers are "focusing on the core, making sure they have a solid base and promoting the same old thing."

One consultant called it a shift from "innovation to incrementalism." Ironically, some say it is the slotting fees themselves that are to blame for this evolution, as they have added to the cost of testing genuinely new products for already-cash-strapped marketers. Others cited factors such as the backlash against fad-following, caused by the implosion of the low-carb market .

Such a turn of events has caused concern among upper management at grocery retailers. "My bosses want to know how come they're not seeing new items? It's dead," said another Minneapolis-area retail buyer.

BLAMING RETAILERS

But retailers have only themselves to blame, observers argue. "Retailers set this all into motion almost 20 years ago when their addiction to fat stocking fees began and now they continue to ward off new-product innovation by expecting immediately the kind of turnover that only came over time from the blockbusters of yesteryear," said Lauren Cercone, a food-industry consultant in Salinas, Calif.

New products used to be given two to three years to turn a profit, but now retailers, Wall Street and corporate upper management all expect profitability in a mere six months, Ms. Cercone said, which explains why major food companies are doing only incremental efforts themselves and buying proven innovation from more risk-taking independent entrepreneurs.

Datamonitor's Productscan Online database of new products shows there has been a steady decrease of new food and beverage products that fall under the heading of innovative, with the percentage dropping from 5.6% in 2000 to 3.4% last year. Not coincidentally, far fewer products hit Information Resources Inc.'s $100 million first-year sales blockbuster mark in its annual New Product Pacesetters report last year, with fewer than 1% achieving such status. (The leader, Breyer's CarbSmart, a victim of the low-carb-diet crash, has since nearly halved in sales.)

"Maybe we're all waking up," said one food-company executive who said that after seeing many less-than-stellar launches, his company is placing bets on far fewer products.

"A year or two ago people really started to recognize the number of new-product failures in the marketplace-roughly 90%-and started to get cold feet, especially given the expense," agreed Ryan Lynch, director of brand strategy at Landor.

The failures, though, might be avoidable. Bryan Mattimore, co-president of ideation firm Growth Engine Co. in Norwalk, Conn., said part of the problem is a dearth of creative talent. "For anyone at all creative, the corporate thing got to be too much," he said, driving the bulk of innovation experts to start up their own consulting or research firms.

Given their current staffing levels and the retail considerations, risk-averse food marketers are putting more of their ad dollars into marketing existing brands. "We see a lot of energy toward driving core businesses harder via promotions or general brand building vs. `What's the next flavor?"' said Greg Warren, managing director of i4 Design.

That said, however, new products may be on the distant horizon. Mr. Mattimore said business on new-product ideation has been booming again over the last six months.

But this time around, post-Atkins, observers agree, companies will aim to be a bit more prudent. Landor's Mr. Ryan predicted ideas will be better-researched and more rigorously screened with as many going into the funnel but "fewer, better, smarter coming out the other end."

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