Covering the six largest markets in Europe (UK, France, Italy, Germany, Spain, and Netherlands), this report unveils a decline in product innovations over the past two years. This decline is particularly evident among larger brand manufacturers, indicating a growing aversion to the perceived risk involved in launching new products. The decline in sales of fast-moving consumer goods (FMCG) products further emphasizes this trend.
In 2022, there were 144,432 new products launched across Europe, compared to 172,997 in 2021, reflecting a decrease of 16.5%. This decline can be attributed to manufacturers and retailers focusing on their existing core ranges to maintain shelf availability and protect market share. Additionally, there may be a lack of confidence in commanding premium prices typically associated with new products, as businesses continue to deal with inflationary challenges.
Interestingly, small and medium-sized manufacturers played a key role in driving innovation, accounting for 75% of all new product launches and contributing 68% of total value sales from these launches. On the other hand, although large brand manufacturers were responsible for only one-fourth of new product launches, they captured a greater share of the value sales (32%) due to their distribution and supply chain advantages.
Ananda Roy, global SVP of strategic growth insights at Circana, emphasizes that despite challenging trading conditions and the cost of living crisis, innovation remains a sustainable source of organic growth. Although the ability to command significant premiums is limited, new product launches continue to generate the volumes necessary for brand manufacturers to maintain growth and market share.
While new product launches may be perceived as risky, especially given the increasing competition for shelf space and declines in FMCG sales volumes, there is no doubt that they can add immense value. They provide brands with the opportunity to expand their existing portfolio or even create completely new ones. Innovations continue to be resilient and help drive demand, even in the face of inflationary headwinds.
Here are the key findings from the report:
1. Consumer attitudes and behaviors that determine the success of new product launches have changed. Shoppers now expect new products to add value, have new features, be versatile by combining benefits, be sustainable, and fit with their lifestyle and goals.
2. Shoppers are more likely to try new products that are available at a lower price, easy to shop and use, and fit their routines. Recommendations from family and friends and well-known companies also play important roles in influencing their choices.
3. Satisfied trialists expect physical availability of the new product next time they shop. If it isn’t available, they are more likely to look for another innovative product from another brand than ask in-store or go online to buy it.
4. New product launches in the chilled and fresh category delivered the most value, despite fewer products being launched. Manufacturers embraced healthy eating trends such as plant-based and natural options, contributing to a value share increase of 22% in the sector.
5. Innovation drove 6% of total baby food value sales, experiencing a growth of 75% over the previous year. This growth is attributed to parents seeking healthier options that cater to different tastes, ingredients, and dietary requirements. New products in this category now represent €12bn in value sales.
6. Innovation in pet food rose by 39% as more people adopted pets. Manufacturers focused on providing healthier treats and food for furry friends. The value share contributed by innovation in this sector increased by 51%, reaching 4.3%.
7. Frozen food saw a 40% increase in product value compared to the previous year. This growth is driven by consumers choosing frozen food over chilled and fresh options to align with new food planning behaviors and reduce waste.
8. In the brewing industry, there was a reduced emphasis on new product launches, with a focus on low/no alcohol and ready-to-drink segments. Alcohol volume sales overall show a significant decline. As a result, the value share derived from new products decreased by 15%.
9. Range rationalization poses challenges for new products to survive, as retailers continue to maximize returns on shelf space by removing slower-selling items. Of all new products launched in 2021, only 74% remained on shelves in their second year. However, 23% of launches experienced significant growth, doubling their sales value in the second year.
In conclusion, to remain competitive, brand owners must ensure their innovations are relevant to evolving consumer needs. They should market the transformation rather than just the product features. A targeted innovation strategy can help address the ongoing search for growth in 2023 and beyond, especially as the consumer goods category continues to evolve. This constantly changing innovation ecosystem will drive change in an industry grappling with a shifting consumer landscape.