When the going gets tough, the tough find ways to reinvent their companies, brands and product lines, says editor Dan Malovany. In these economic times, even the toughest bakers and snack producers can find that challenging.

Toughen Up

When the going gets tough, the tough find ways to reinvent their companies, their brands and their product lines.

Unfortunately, innovation in most snack and bakery product categories took a step back in a big way in 2009 as the number of new products launched in the United States tumbled by a whopping 30% from total amount of introduction in 2008. What makes this particularly interesting is that no other country across the world experienced such a collapse in new product rollouts as in the United States, notes Lynn Dornblaser, director of CPG Trends Insight at Mintel in Chicago.

In fact, the drop off in new products was so significant that Dornblaser and the folks at Mintel huddled together to see if they made a mistake or if they missed something in their new product database.

Well, the analysts at Mintel concluded they didn’t do anything wrong. Rather, the U.S. market just has some unique idiosyncrasies that make it vulnerable to a global economic meltdown.

For instance, the United States has so many small, often-regional companies that introduce just a few products each year. When the recession hit, they either went out of business or they are hunkering down until the economy turns around, Dornblaser says.

At the same time, the major players have been on a huge initiative in recent years to reduce their SKUs (stock-keeping units) and are taking a much more cautious approach to how many new products they’re rolling out annually. The recession just exacerbated this situation.

And then there’s the big hamper. Retailers are trimming shelf space. In some cases, Dornblaser says, they’re actually eliminating aisles and tailoring their product assortment in each store to more closely meet what consumers need. Retailers are slashing inventory of unimportant products as they mine their databases to determine exactly what’s performing and what isn’t. In this economy, they’re keeping the top two brands and private label. That’s it.

“It’s that third and fourth brand in the market that is really feeling the pinch,” she says.

In addition to expanding their private label offerings, retailers are looking for more aggressive deals from bakers and snack producers who, in addition to discounting, are using their marketing budgets to promote their existing brands and products, Dornblaser adds. That one-two punch simply stifles rampant innovation.

“It’s a tough call for companies to make,” she says. “Do you put your money behind your existing brands or do you try to capture another part of the market with something new? Every company is going to have a completely different answer to that.”

The economy, she notes, also has caused a significant erosion in brand loyalty. That’s especially the case in the crowded bread aisle where consumers can easily trade to a similar, often cheaper products sold under another brand. It’s tough to ante up $4 for a loaf of bread when a competing brand is offering two loaves for almost the same price.

Still, Dornblaser adds, there are exceptions where some brands simply cannot be replaced in consumers’ minds. For example, a unique, iconic product such as an Oreo cookie has been often imitated but never duplicated so that brand is less likely to be cannibalized by cheaper knock-offs.

New product introduction should rebound in 2010, but not as dramatically to make up for last year’s declines.

“Just as they say it’s not a V-shaped recession, it’s not going to be a V-shaped pattern for new product introductions,” Dornblaser says. “We’re not going to see a 30% increase in 2010.”

Add in a shipload of uncertainty with the current government crackdown on front-of-package claims and the upcoming renewal of dietary guidelines and that makes this year a challenging one for companies to be innovative.

And it doesn’t matter how tough you are.

Editor’s Note: For the latest statistics from Mintel Global New Products Database, check out Snack Food Today on page 76 of the April 2010 digital edition. Go to www.mintel.com for more information.