BOSTON — Major food companies are seeing increased competition from smaller brands and rising costs of production, even in the face of industry wide growth, according to a new report from Lux Research.
“While it was once beneficial to be big, to have an integrated supply chain and costly capital equipment as a defensive barrier against smaller competitors, those small competitors are using digital tools, novel routes to market and other innovations to reduce the value of those defensive barriers,” said Sara Olson, PhD, research director at Lux Research and co-author of the report.
Lux Research identified key adjustments companies will need to make to meet these challenges. The report, titled “The Food Company of 2050,” outlines six megatrends shaping the food industry: Food for health, sustainability, ubiquitous sensing, the microbiome, new industry structures and future consumption habits.
“Consumers are increasingly demanding, aligning spending habits with health and sustainability,” said Thomas Hayes, analyst at Lux Research and co-author of the report. “Food companies will need to take some big risks to stay competitive in the long run.”
This includes satisfying an expanding list of expectations beyond satiety and nutrition. Companies will need to move beyond reducing the prevalence of “bad” ingredients and focus on incorporating more “good” ingredients, the report said.
Lux predicted nearly all food and beverages sold will pivot to make health-related claims. Formulations that rely less on sugars and fats are expected to dominate, with an emphasis on protein and fiber contents to promote satiety and net reduced glycemic impacts.
“Companies seeking to survive the coming decades will need to focus product development efforts on ‘better-for-you’ products and specific performance-related ingredients,” Ms. Olson said.
Cognitive health is another area of focus, but with ingredients like nootropics and other phytonutrients suffering from intangible claims, companies will need to do the work of separating fact from fiction, the report cautioned.
“Work hard to avoid chasing pseudoscience,” Ms. Olson said. “Clinical trials to verify an ingredient’s effectiveness will be critical to long-term success and are worth the cost, time and effort to execute.”
Awareness about the impact of the microbiome on overall health also is growing. This area of innovation has the potential to increase personalization by defining optimal microbiome profiles for individual consumers.
Along with improving overall health, consumers increasingly are concerned about the health of the environment. From packaging to production to distribution, products will need to pivot to reduce food waste and work toward decarbonization efforts.
“Corporate statements will not suffice,” Ms. Olson said. “Truly doing more with less must be the aim.”
Another megatrend, ubiquitous sensing, refers to the variety of omnipresent sensors available to companies and consumers. The sensors have the ability to continuously collect data in real time and are used to monitor food quality and safety as well as consumer health.
“The global pandemic is generating renewed urgency around virus sensing and self-monitoring and has also changed the consumption habits of consumers,” Mr. Hayes said. “Understanding how consumption is changing, including the shift to fresh foods and plant-based proteins, and how allergens are impacting people’s lives, will be key to future success.”
Subscription and delivery options, traceability and digital tools to drive faster food innovation are among the new industry structures companies will need to adjust to, according to the report.
When it comes to new technologies, Lux Research advised companies work backwards by starting with the problem that needs to be solved.
“Adopting tech for its own sake is a slippery slope toward wasted pilot budgets and an organizational resistance to experimentation,” Ms. Olson said.