After years of stagnation, innovation in the food and beverage sector is on the rise. Historically, the industry has seen limited investment and slow new product development, with some even describing it as being one of the "worst offenders" in terms of innovation. However, industry experts are now seeing clear signs of a turnaround. This resurgence is driven by a growing consumer demand for fresh, exciting products—particularly from younger generations like Gen Z. While challenges remain, there are numerous opportunities for businesses willing to embrace change and take risks. In this article, we will explore the current landscape of food and beverage innovation, highlighting the key drivers of change and what executives need to know to stay ahead of the curve.
A Slow Start, But Things Are Changing
For years, food and beverage innovation lagged behind other consumer packaged goods (CPG) sectors. According to Jonny Forsyth, Senior Director of Food and Drink at Mintel, this stagnation was widespread, but food and beverage companies were particularly slow to adapt. In fact, Mintel’s data suggests that 38% of adults actively seek out new food and beverage products, with nearly half of Gen Z consumers consistently exploring new options. This growing interest is good news for brands looking to capture market share.
What’s behind this change? Experts point to a surge in innovation from smaller challenger brands, which are increasingly stepping up to disrupt the market. Richard Peake, Managing Director at Merchant Gourmet, emphasizes that these upstart companies are the ones "leading the charge," bringing fresh ideas to market and pushing larger players to rethink their strategies. These challengers often succeed where established brands struggle—by taking calculated risks and embracing the unknown.
The Divide: Big Brands vs Startups
While innovation in the food and beverage industry is expanding, the pace of change remains uneven. On one hand, challenger brands are thriving. On the other, larger, established companies often face significant barriers to introducing innovative products. High costs, low success rates, and intense competition in mature markets like Europe and North America contribute to a cautious approach. As Peake explains, "The danger with being a big, iconic brand in a predictable category is that you stop truly innovating. At best, it’s renovation."
Even with these challenges, major players like Nestlé and Mondelēz International are starting to invest more heavily in innovation. For instance, Nestlé recently announced plans to expand its R&D efforts in Singapore, focusing on affordable nutrition. Similarly, Mondelēz launched SnackFutures Venture, an independent innovation hub aimed at disrupting the snacking industry. While these moves indicate progress, the overall pace of innovation at large corporations is still slower than that of smaller disruptors.
Snacking and Functional Drinks: Bright Spots in Innovation
Despite the broader slowdown in food and beverage innovation, there are certain segments that are experiencing significant growth. Snacking, in particular, is one of the fastest-growing areas, with new products emerging at a rapid pace. Functional drinks, such as smoothies and health-focused beverages, are also seeing a surge in innovation. However, there are regional differences in how these segments are evolving. European producers of functional drinks, for example, are facing challenges due to stricter regulations, while markets in the US, China, and Japan are forging ahead without the same constraints.
For food and beverage companies looking to capitalize on innovation, snacking and functional drinks represent key opportunities for growth. These segments align with growing consumer demand for healthier, on-the-go options that also provide functional benefits, such as increased energy or enhanced immunity.
The Role of AI in Accelerating Innovation
Looking ahead, one of the most significant factors influencing innovation in food and beverage is the integration of artificial intelligence (AI). AI is helping brands accelerate product development, refine flavor profiles, and create new categories of food and beverage products at a much faster pace. As Forsyth notes, AI is enabling brands to develop new products "at a fraction of the cost and time," which can result in a dramatic increase in the rate of innovation across the industry.
Startups like NotCo, a Chilean company, are already demonstrating the power of AI in food development. NotCo used AI to create a plant-based milk product, NotMilk, which took only five months to bring to market. This rapid development process is an indication of how AI is shaping the future of food innovation, making it possible to introduce disruptive products more quickly and efficiently than ever before.
Overcoming Challenges to Innovation
Despite the opportunities, the road to innovation in the food and beverage industry is far from smooth. Companies still face significant challenges, particularly related to complex supply chains, high margins, and the need for temperature-controlled logistics. These barriers can make it much harder to innovate in food and beverage compared to other industries, such as beauty or household goods. As Forsyth explains, “The barriers to entry are therefore much greater than if you are starting a business in categories like beauty and personal care.”
However, the right strategies and a commitment to creativity can help companies overcome these obstacles. Encouraging a culture of risk-taking and fostering an environment that supports innovation are essential for long-term success.
Conclusion
The food and beverage industry is at a crossroads, with innovation gradually making its way back after years of stagnation. While large companies may struggle to keep up with agile challengers, the rise of snacking and functional drinks offers significant opportunities for growth. AI is playing a pivotal role in accelerating innovation, enabling brands to develop products faster and more efficiently than ever before. For executives looking to stay ahead, embracing risk, fostering creativity, and leveraging new technologies will be essential for success in the evolving food and beverage landscape.