September 2010 Management Briefing - Innovation in the Drinks Industry – Part III
The present difficult economic conditions in Europe, North America and Japan are not hugely encouraging for promoting innovation or for the spending of large sums of money on research by drinks manufacturers. It may be a little different for leading brands such as GlaxoSmithKline (GSK), Coca-Cola, and Pepsi, but even these are changing their approach.
“Certainly a lot of suppliers to the retailers are very risk-averse at the minute, they’re being very cautious,” says John Sorsby, head of the Food Innovation Centre at Sheffield Hallam University in the UK.
The centre has a strong reputation internationally and works with a food industry advisory board where it receives insight into overseas markets through contact with drinks companies such as Nestlé. It recruits students internationally, including recently from key emerging market China (and Hong Kong).
“There’s a lot of innovation going forward at the moment but we have to be clear what we mean by this," Sorsby says. "It’s really all about incremental innovation, near-market innovation. The days of breakthrough innovation, involving step change and paradigm shift, are probably limited at present.”
Sorsby believes that what is interesting now is a realisation on the part of the big drinks companies that “they don’t have all the answers any more”. Many companies have therefore embarked on a so-called ‘open innovation strategy’ – meaning that they actually work together and pool their intellectual property to develop new technologies and business. The concept derived from the digital boom in Silicon Valley in the US, “where a lot of people have moved out of the big R&D fortresses the big companies had created and by doing that they’ve created a much richer landscape of knowledge that was outside that particular company,” he says.
Drinks companies are now going after that kind of knowledge – “instead of being very closed in their R&D ideas they’re actually out there prospecting for new ideas," Sorsby says. "Certainly, GSK and a number of the other big drink manufacturers are doing that, and that’s a big change, I think, in terms of innovation within the drinks sector.”
One push for innovation is the legislative drive to remove some of the preservatives in drinks. “That in itself has implications for the life of a product which in turn has an implication for waste," he says. "In trying to solve one problem you exacerbate another."
Where there is particular scope for innovation in the drinks sector is on the packaging side. “We’ve seen a lot of new packaging ideas for drinks and that will continue,” Sorsby says. At Sheffield Hallam University’s Centre for Food Innovation, “we’re doing some project work around the ergonomics of opening drinks bottles. What you tend to find is that people with arthritis, or the elderly, have a lot of trouble opening bottles or jars,” he says. The 50-years-old-plus generation of people are living longer than before, he notes, and are loyal to brands. “It’s an emerging demographic sector," he notes. "The question is what the drinks industry is doing for that demographic. It could be a big area”
Asked whether there are possible gaps in the drinks market worldwide, Sorsby says: “I don’t see the next opportunity in the drinks sector as being that obvious at present.” However he underlines the connection between recent successful innovations and health issues, noting GSK’s success in taking Lucozade into the sports drinks market and increasing the sales of Ribena fruit juices.
It will be seen as no accident that GSK, probably best known as a drugs company, has proved so successful in increasing drinks sales in recent years. Speaking to just-drinks, Lois Schorah, director of global insight for Lucozade at GSK, stresses that “functional drinks is definitely our heartland”. Globally, GSK has found that “health and wellness are growing concerns”.
“What we find is that the overweight population are generally in the lower socio-economic classes and there are significant minority pockets where health and wellness are not filtering down as a driver.” But, this is changing. Health concerns are emerging at all levels “and it’s definitely something that’s guiding our innovation strategy”, Schorah says.
Sorsby is also full of praise for the “instructive innovation” shown by Japan’s Yakult in terms of bringing in probiotic yoghurts into the dairy drinks sector. “That was something very new and innovative and that seems to be here to stay,” he believes. Another winner with a ”very positive impact” has been the introduction of ‘smoothies’ fruit juices by UK-based Innocent.
Sorsby believes that future developments in the drinks industry worldwide might rest on major manufacturers linking up with researchers engaged in nutrition. This has happened with great success in the so-called 'neutraceutical hub' in Skåne in southern Sweden where the idea for probiotic yoghurts came from. “You’ve got leading research institutes and leading universities in a kind of co-location with the dairy companies," Sorsby says. "It’s a close proximity of manufacturing knowledge linked to research and next-generation expertise.”
Considering the global pressure government budgets are under, especially in the developed world, it is increasingly important for the drinks industry to link itself to “really innovative companies”.
“Certainly at the university here, we have a really strong public health, public nutrition expertise," Sorsby says. "We’re trying to understand what will be the next thing in public health. We want to understand what’s going to happen in the next five to ten years and what it will mean for the drinks industry, how it will meet the challenges of public health.” In the nearer term however, the present economic climate means that people are going to down-trade in terms of what drinks they buy and will be looking for “value proposition rather than premium”. But they would “still want the premium opportunities around”, he believes.
One issue for drinks industry marketers is how to prosper from major events that can be used to raise profile and sales. An obvious international example, and one that will be relevant to Sorsby in the UK, is the Olympic Games, which will be staged in London in 2012.
Sorsby thinks it is also the case that, as a sector, the UK drinks industry is still learning about what the Olympics could do for its bottom line. One area that could provide rewards is a demand for novel drinks in novel packaging. “Do we really understand what the Olympics is going to do for the industry or what we can do for the Olympics?” he asks. “If you look at Athens and Sydney, after they hosted the Olympics, there was a spike at the time but then afterwards there was a bit of a sea change in the way people viewed health, the link between diet and health, and the way they consumed. It did have an impact and the question is do we really understand that?”
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