By Eesha Nayak and Alexander Belderok
Today's consumer is very conscious when it comes to food. As a result, product labels have evolved from simple product descriptions to complex labels, including list of ingredients, nutritional facts and dietary allowance recommendations, food allergens, health claims, origin and certifications. This results in new challenges in Food & Beverages (F&B) formulation, leading to more complex value chains, whilst creating opportunities for flavor houses and food ingredient companies. Each company will need to consider strategies and key questions if it wishes to capitalize on the new landscape and the deepening application spaces.
Clean label. A key trend which has a high impact on new product development is the shift towards 'natural' and 'free-from'. Consumers are increasingly focused on clean-label products with fewer ingredients on the labels.
Ethical and environmental. Consumers are becoming increasingly aware of the environmental impact of the food chain, and are therefore making conscious choices.
Tastier, healthier food. An increased consumer focus on health has been a major trend for the past several years and has further accelerated during the COVID-19 pandemic.
Plant-based. Another key trend in the industry is the shift towards plant-based meat and dairy alternatives. Increasing numbers of people are adopting veganism and flexitarian diets.
Natural/clean label. The increased focus on clean label and replacement of synthetically-derived ingredients is expected to continue to drive product complexity as similar functionalities will need to be achieved with fewer and new/natural ingredients
Plant-based. Formulating plant-based proteins into alternative food products comes with challenges related to taste and clean label. Pea protein, for example, is a high-growth ingredient with high consumer acceptance. However, formulating this ingredient into a product comes with challenges related to taste, texture and mouthfeel. Solving for taste, texture and mouthfeel by adding texturants, emulsifiers and flavors, though, at odds with the increased consumer focus on clean labels.
Health. Adding functional ingredients to a food product often comes with challenges related to product taste, stability and shelf life. The market for bacteria probiotics for food applications, for example, is growing fast due to a growing amount of claims around gut health, immune system health and mental health. The integration of living bacteria into F&B product matrixes, however, requires application expertise to ensure stability and deliver an end-product that tastes good and provides viable probiotics to the consumer.
Sugar plays a key role in multiple F&B applications, and has an impact on multiple functionalities beyond sweetening. When, for example, sugar is removed from a beverage and replaced with a sweetener such as stevia, the mouthfeel needs to be corrected (taking out sugar will create an 'emptiness'), as will sweetener intensity and bitterness.
"Private label, smaller/local brands and food service are growing in importance to ingredient companies. The customer journey and supplier requirements of these segments differ from large, global F&B brands."
The F&B industry faces similar challenges with salt replacement and fat replacement, driving end-product complexity and giving rise to a need for improved application understanding.
F&B manufacturers are moving away from product development for various reasons.
Large CPG players are sharpening their focus on core competencies in consumer understanding, brand building, and go-to-market. Outsourcing innovation to ingredient companies helps them become leaner, faster, and more efficient.
Local / smaller brands lack the scale for in-house application and product formulation capabilities. These brands cater to novel and local preferences, and given regional taste differences, tend to be more geared to local consumer tastes. They depend on ingredient suppliers to provide this expertise.
Lastly, retailer private label products and the food service are seeing rapid growth. In terms of supplier expectations, they seek speed of development, local expertise and technical support in manufacturing.
"Flavor companies increasingly go beyond flavors, putting the profit pool of ingredient companies under pressure. As a reaction, food ingredient companies must develop crucial application and solution skills,and must focus on co-creation with food & beverage manufacturers to remain relevant now and in the future."
How Flavor Houses Drive Innovation and Value in the Food Industry
Flavor houses have a deep understanding of customer needs. Historically, they have been able to drive growth and sustain their margins by developing better flavor compounds. However, the decline in innovation headspace in flavors, combined with increasing consumer focus on health and clean label, helped fuel the move for flavor houses into naturally-derived flavors, sweeteners and colorants as their next platform for growth.
Firstly, targeted acquisitions and R&D investments to drive this transition have strengthened the consumer insights capabilities of flavor houses, often putting them ahead of other food ingredient players.
Secondly, flavor houses have access to the right levels of customer organization at CPG players. Due to the product-defining role and high value-add of flavors, they have developed strong customer co-development capabilities.
Finally, flavor houses have built robust application capabilities that they can leverage to address key F&B challenges and position themselves to play a broader role.
Traditionally, food ingredient suppliers adopt one of two strategies: a “deep strategy" geared towards select technologies or end-use areas, or a broad strategy towards “integrated solutions" which combines and integrates strengths around both technology and application.
Opportunities for flavor houses and food ingredient suppliers to create value by meeting evolving customer expectations in response to consumer trends
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