The waning of disruptive food products, according to Rabobank

Weaker demand for innovations, economic uncertainty and higher interest rates are taking a toll on many disruptive products looking for a market – and investors.

The next few years in the consumer food industry will see fewer total “disruptive” innovations, as large processors refocus their attention on incremental changes to help their bottom line and manage turbulent economic pressures in the short term.

That’s according to a new research report from Rabobank, a Netherlands-based but global cooperative bank with significant emphasis on food and agriculture.

“Disruptive food products prove to be more hype than bite,” is the title, and the report proclaims “Disruption as the focus of innovation strategy has already reached its peak in consumer foods – for now.”

“The same group of investors that drove the 288% increase in deals from 2010 to 2022 appears to have put the brakes on deals so far in 2023,” says Tom Bailey, consumer foods senior analyst at Rabobank.

“Moving forward, disruptive innovations will likely face more rigorous evaluation, resulting in fewer but potentially more successful disruptive products that have endured more intensive vetting.”

According to the report, food companies will likely focus more on commercially viable incremental innovation, prioritising improving taste, convenience and health rather than being caught up in the hype of disruption.

Incremental innovation – creating new value through minor product or service adjustments –is considered safer, the report says, specifying line extensions, packaging changes, new flavours and functionality twists.

“The main benefit of incremental innovation is that it offers more immediate benefits: supply chain simplicity, sustainability, cost reduction and generally keeping customers happy and interested,” Bailey continues. “Furthermore, it is better suited to keeping prices low for consumers in an inflationary environment like the one we have today.”

More prudence

Those who continue to invest in disruptive innovations will need to exercise even more prudence when it comes to food products, the report states. They will need to take more steps to ensure product alignment with consumers in terms of taste, health and convenience.

However, those investors who continue to seek disruptive innovations will be a good source of insight for large food companies that are currently shifting to incremental innovation but need to keep an eye on the longer-term horizon.

The consumer food industry experienced an explosion of investments in disruptive innovations over the past decade, driven by an increase in venture funds entering the food industry, companies seeking to disrupt categories, and the desire to stay relevant amid changing consumer demands, among factors.

These disruptions included plant-based meats, insect protein bars, synthetic fat replacers, precision fermented milk proteins and sugars and many more.

Venture capital funds accounted for around 50% of those deals in 2010-2022. Arguably the most significant driver of this explosion in investments was the lower interest rate environment, which drove the peak of deal activity in 2021.

“However, many of these investments have not seen growth or been as profitable as investors would have liked due to numerous challenges in the industry, including supply chain disruptions, changing consumer behavior, rising interest rates, and regulatory constraints,” the report concludes.

“Moreover, the intimate relationship that consumers have with their food makes it difficult to disrupt deeply rooted personal preferences and even cultural practices.”