Food product introductions continue to decline in 2000 - Statistical Data Included

New food product introductions in the United States declined for the fifth consecutive year in 2000. The decline marks a significant reversal of increasing numbers of new products introduced during the first half of the 1990s. New product introductions rose dramatically from over 10,000 in 1990 to a peak of nearly 17,000 in 1995; however, that number fell to slightly more than 9,000 in 2000. The decline represents a 46-percent decrease between 1995 and 2000.

New food product introductions in 2000 were down in all food categories, compared with product introductions in 1995 (table 1). The top five categories (in terms of number of new products) in 2000 declined significantly over the 1995-2000 period: candy, gum, and snacks (down 22 percent); condiments (down 51 percent); beverages (down 55 percent); bakery products (down 55 percent); and dairy (down 47 percent).

Introductions of new nonfood products, however, were up in 2000. Growing numbers of new health and beauty aids, pet foods, and tobacco products offset a decline in household supplies and paper products.

New food product introductions include new national and regional brands, seasonal products, and private label products. According to A.C. Nielsen, a market research company, 77 percent of new products are "me-too" products--different versions of the same product offered by different manufacturers. Only about 1.5 percent of new products are "classically innovative" products, and 6 percent are line extensions, such as different sizes of the same brand. Seasonal products make up 13 percent of new products introduced each year.

Many new products have a short lifespan. Only between one-fifth to one-third of all new products are successful. Most new products reach distribution in 75 percent of sales outlets within the first 9 months of year one in the product's life. Sales of successful products continue to grow in years two and three; sales of failed products decline in years two and three. The success of a new product may spell the failure of an existing product, however, as new products succeed mainly by capturing sales from other products.

Although new product introductions have declined, the variety of products in U.S. grocery stores has grown considerably as manufacturers continue to introduce successful new products. These successful products address continually changing consumer demands for food products providing more convenience, ethnic variety, and diet and health benefits. The total number of food products available in today's marketplace now exceeds 300,000 (although not all at once and not in every store), and the median number of items carried by supermarkets is about 40,000, compared with about 26,000 10 years ago.

Small- and medium-sized food manufacturers introduced 86 percent of new products in 2000 (fig. 1). This share represents not only smaller national manufacturers with national brands but also regional manufacturers with regional brands. The 20 largest U.S. food companies introduced only 14 percent of new products in 2000.

New product introductions are critical to both manufacturers and retailers. By meeting constantly changing consumer demands for new food products, manufacturers and retailers attract new customers and increase sales, profits, and market share. Manufacturers that have a record of introducing successful new products are likely to have success negotiating with retailers for additional shelf space for their products.

Reasons for Declines

Any of several factors may have led to the decline in new food product introductions. First, consolidation in food manufacturing has reduced the number of companies offering new products. Firms involved in new acquisitions or consolidations may be more concerned with reorganizing profitably than with developing new products. Consolidation also may reduce the number of product lines when newly formed firms eliminate redundant lines.

Second, efficient consumer response (ECR) technology has enabled manufacturers to more effectively conduct market research prior to and after new product introduction. Computer-aided analyses of checkout scanner data and focus groups help product developers better determine what types of products consumers are purchasing and enable manufacturers to closely monitor the sales rates of new products (see "Innovation by Food Companies Key to Growth and Profitability" elsewhere in this issue). Thus, manufacturers can use ECR as a market research tool to identify growth areas and to weed out product failures quicker, putting downward pressure on the number of products introduced.

Third, new branded products face more competition from private label products for grocery store shelf space. As retailers devote more shelf space to their own private label products, the amount of available space for new products decreases. Increased competition for shelf space, plus slotting fees and promotion allowances, may combine to put downward pressure on the number of new branded products. Slotting fees are monies paid to retailers by manufacturers to secure shelf space. Promotion allowances are concessions offered by manufacturers to entice retailers to stock specific branded products.

Lastly, some food categories may be nearing product saturation. Too many products, especially line extensions, can confuse consumers. Instead of providing shoppers with more variety, larger and larger numbers of products may result in a confusing proliferation of essentially identical products.

Natural and Organic Increase; Reduced-Fat and Low-Fat Rebound

New "all-natural" food products increased 178 percent from 1995 to 2000, while new organic products increased 57 percent (table 2). In 2000, 1,130 all-natural food products were introduced to the marketplace, compared with 1,057 reduced- or low-fat new products. New organic food products totaled 844 in 2000. The growing number of natural or organic products reflects the desire of consumers to eat more "naturally." The adoption of new USDA organic standards by the food industry also increased consumer confidence in organic claims and consumer demand for these products as well.

The number of new food products labeled "reduced-fat" and "low-fat" in 2000 was 49 percent lower than in 1996. However, despite dropping 59 percent from 1998 to 1999, the number of these new products more than doubled between 1999 and 2000. The increase in reduced- and low-fat product introductions may reflect the food industry's use of fat replacement ingredients that consumers find more acceptable.

Developers of new products have not overlooked the area of new "functional foods." These products are enriched with calcium and other nutrients specifically targeted toward health-conscious consumers. Calcium-fortified and soy products are new functional foods that are popular with consumers. In 2000, food manufacturers introduced 158 new food products with added calcium or claiming to be high in calcium. Consumers are also demanding more foods enriched with vitamin A, vitamin C, and fiber.

New Convenience Products Growing

New convenience foods continue to contribute significantly to the number of new product introductions, particularly handheld or prepackaged entrees and other products that offer convenience and require little preparation. New products that require some amount of preparation by the consumer, such as meal kits or packaged sauces, are also important new convenience products. New convenience foods reflect the response of manufacturers and retailers to the loss of sales due to the rising popularity of dining out.

According to Prepared Foods, a food trade publication, the number of new convenience meals and meal components remained strong in 1999 (table 3). The top new product introductions in this category were sauces (610), pizzas and entrees (432), soups (254), seasonings (238), pasta (231), and vegetables (158). Quick, convenient sauces and seasonings enable consumers to add increasingly popular ethnic flavorings to their foods. Heat-and-serve entrees and meal kits provide further convenient alternatives. Salad kits containing new ingredients, such as sliced carrots and snow peas, were also introduced.

According to the Institute of Food Technologists, convenience, freshness, and sophistication are the principal trends in consumer food demand shaping the look of new food products. The primary form of at-home convenience foods are new products that require little preparation, save time, and come prepackaged for cooking. Another popular type of convenience food is "home-spun" meals, which include prepackaged ingredients, require little knowledge of food preparation, and require little after-meal cleanup.

Consumers are also demanding super-savory and sophisticated new foods--especially foods with an ethnic flair. Food product developers are increasingly influenced by the rising diversity in the United States, especially the growing Hispanic population.

Consumers also favor new foods that are "clean, pure, natural, and safe." These foods primarily include foods labeled as "natural," "containing no preservatives or additives," or "organic." Food manufacturers are expected to continue responding to consumer demands by developing and introducing more natural foods and functional foods that may promote better health.

[FIGURE 1 OMITTED]

Table 1

New Product Introductions of Beverages and Bakery Products Dropped by
More Than Half, 1995-2000

Category                    1990      1991      1992      1993
                                   Number of new products

Food Categories:
  Baby food                   31        95        53         7
  Bakery products          1,546     1,966     1,854     1,803
  Beverages                1,143     1,367     1,538     1,845
  Breakfast cereals          123       104       122        99
  Condiments               2,028     2,787     2,555     3,147
  Candy, gum, and snacks   1,486     1,885     2,068     2,043
  Dairy                    1,327     1,111     1,320     1,099
  Desserts                    49       124        93       158
  Entrees                    753       808       698       631
  Fruit and vegetables       325       356       276       407
  Pet food                   130       202       179       276
  Processed meat             663       798       785       454
  Side dishes                538       530       560       680
  Soups                      159       265       211       248
  Total, food             10,301    12,398    12,312    12,893

Nonfood categories:
  Health and beauty aids   2,379     3,064     3,690     3,864
  Household supplies
   and paper products        491       588       627       612
  Tobacco products            31        19        45        38
  Pet products                42        74       116       160
  Total, nonfood           2,943     3,745     4,478     4,674

Total, food and nonfood   13,244    16,143    16,790    17,571

Category                    1994      1995      1996      1997
                                   Number of new products

Food Categories:
  Baby food                   45        61        25        53
  Bakery products          2,180     2,432     1,759     1,622
  Beverages                2,250     2,854     2,003     1,606
  Breakfast cereals          110       128       121        83
  Condiments               3,271     3,698     2,815     2,631
  Candy, gum, and snacks   2,450     2,462     2,310     2,505
  Dairy                    1,323     1,614     1,345       862
  Desserts                   215       125       100       109
  Entrees                    694       748       597       629
  Fruit and vegetables       487       545       552       405
  Petfood                    161       174       121       251
  Processed meat             565       790       637       672
  Side dishes                980       940       611       678
  Soups                      264       292       270       292
  Total, food             15,006    16,863    13,266    12,398

Nonfood categories:
  Health and beauty aids   4,368     4,897     5,702     6,226
  Household supplies
   and paper products        609       571       381       371
  Tobacco products            38       102        54       127
  Pet products                55       139       169       202
  Total, nonfood           5,070     5,709     6,306     6,926

Total, food and nonfood   20,076    22,572    19,572    19,324

Category                    1998      1999      2000
                              Number of new products

Food Categories:
  Baby food                   35        21        16
  Bakery products          1,471     1,126     1,087
  Beverages                1,547     1,576     1,271
  Breakfast cereals           84       114        88
  Condiments               1,994     1,676     1,808
  Candy, gum, and snacks   2,065     1,983     1,924
  Dairy                      940       921       858
  Desserts                   117        73        78
  Entrees                    678       543       550
  Fruit and vegetables       375       254       192
  Petfood                    105       158       157
  Processed meat             728       646       583
  Side dishes                597       421       317
  Soups                      299       254       216
  Total, food             11,035     9,766     9,145

Nonfood categories:
  Health and beauty aids   6,467     6,257     6,573
  Household supplies
   and paper products        265       453       384
  Tobacco products            51        32        42
  Pet products               120       138       143
  Total, nonfood           6,903     6,880     7,142

Total, food and nonfood   17,938    16,646    16,390

Source: New Product News, selected issues.
Table 2

All-Natural Products Introduced to Marketplace Nearly Tripled, 1995-2000

Category (1)                 1995      1996      1997      1998
                                     Number of new products

Added/high calcium             21        35        28        45
No additives/preservatives    167       143       142       149
Low/no cholesterol            163       223       106       124
Added/high fiber               40        12        33        43
Reduced/low salt              205       171        87        80
Organic                       538       645       505       842
All natural                   407       645       587       743
Reduced/low calorie         1,161       776       742       456
Reduced/low sugar             422       373        78       164
Reduced/low fat             1,914     2,076     1,405     1,180

Category (1)                1999       2000
                               Number of new
                                  products

Added/high calcium           119        158
No additives/preservatives   346        269
Low/no cholesterol           244        189
Added/high fiber              67         81
Reduced/low salt              97        131
Organic                      783        844
All natural                  522      1,130
Reduced/low calorie          302        261
Reduced/low sugar             74         61
Reduced/low fat              481      1,057

(1)Nutritional claims categories are not additive since new products may
carry more than one claim.

Source: New Product News.
Table 3

Sauces and Seasonings Weigh Heavy in number of New Convenience Foods in
1999

                        Number of
Category           products introduced

Sauces                     610
Pizza and entrees          432
Soups                      254
Seasonings                 238
Pasta                      231
Vegetables                 158
Meal kits                   76
Other side dishes           71
Potato products             60
Rice                        59
Prepared meals              35

Total                    2,224

Source: New Product News/Global New Product Database and Prepared Foods.

References

Dornblaser, Lynn. New Product News, selected issues.

Dornbalser, Lynn. "Consistently Convenient," Prepared Foods, Vol. 169, No. 4, April 2000, pp. 53-8.

Food Institute. Food Institute Report, Vol. 74, No. 28, July 16,2001, p. 4.

Gallo, Anthony E. "Fewer Food Products Introduced in Last 3 Years," FoodReview , Vol. 22, Issue 3, September-December 1999, pp. 27-9.

Neff, Jack. "What Makes Products Succeed?" Food Processing, Vol. 61, No. 11, Putnam Media, 2001, pp. 31-4.

Roche, Eileen. "Line Extensions Often Backfire," Harvard Business Review, Vol. 77, No. 2, March-April 1999, pp. 19-22.

J. Michael Harris (202) 694-5386 [email protected]

The author is an economist with the Food and Rural Economics Division, Economic Research Service, USDA.

COPYRIGHT 2002 U.S. Department of Agriculture
COPYRIGHT 2004 Gale Group