2005 R&d Survey:
New Drinks Include a Health Benefit in ’05
By CATHERINE PENN
Beverage Industry’s 2005 R&D survey finds the energy drink phenomenon has overflowed to juice processing labs and is beginning to leak into R&D at water bottling facilities. When it comes to developing those energy-boosting beverages, energy drink manufacturers include consumer trends and supplier suggestions in the process. Juice R&D has not yet embraced customers and suppliers, but their desire to deliver a health benefit may mean their labs start to do so. They could learn from coffee and tea-makers who leverage suppliers for formulas and samples.
Each beverage segment has its own formula for success. Soft drink manufacturers and coffee and tea-makers are focusing on packaging this year. Water bottlers, breweries and distilleries look to marketing and distribution to increase their odds of success in launching new drinks. Chief executive officers lead and decide new product development at water bottling facilities, coffee and tea-makers and breweries. Wineries conduct R&D in secret.
Product development is led by the desire to increase sales, create growth, and enlarge market share. Other motivators include expansion, diversification, new markets, adding value and being proactive. New product ideas, however, are another matter. Here, processors rely on consumers to correctly anticipate the desires. Most beverage processors with more than $100 million in annual sales conduct their own consumer research.
The costs of developing a new drink, from concept to consumer, are positively correlated to company size.
Almost half of juice processors outsource some of their new product development work and four of five purchased ingredients for R&D in 2004. Most experimented with juices, flavors, sweeteners, citric acid, vitamins/minerals/ iron/colloids and sucralose. Top-selling juice flavors in 2005 are expected to be orange, chocolate, lemon, mango and apple, and the data suggest tomato should also be included in this list.
|RESOURCES FOR NEW DRINKS BY ANNUAL REVENUE|
|Less than$1 million||$1 million-10 million||$10 million-100 million||More than$100 million|
|Percent of total employees in R&D||33%||11%||2%||1%|
|Average cost: concept to consumer||$73,000||$225,000||$290,000||$3,200,000|
Three of four processors can develop a new juice in less than six months; 26 percent can do it in less than three months. Speed in developing new juices was a priority in 2004, and 44 percent of processors worked out a way to do it faster than they did in 2003. Of those setting new speed records, half were able to knock a whole month off turnaround time. One of three new juices developed was released to market in 2004, and at market, a new juice drink has a 50/50 chance of success.
|Ingredients purchased by juiceprocessors in 2004|
|Ingredient||% of processors purchasing|
|Vitamins, minerals, iron, colloids, etc.||51%|
Nine of ten processors use a team approach to create new juices. Almost all teams include sales and marketing and upper management — this is most likely to be the CEO providing guidance and advice. Two of three teams include R&D and production; and quality control and purchasing sit on most teams. Suppliers are present 40 percent of the time, and those admitting suppliers say they provide ideas and offer new ingredients.
For their wish lists, juice developers would like more equipment, especially lab equipment. Also, 35 percent would like new ingredients specifically highly soluble calcium, flavors, highly soluble soy proteins, and organic preservatives. Another item on the wish list is packaging such as secure closures and aseptic innovations.
The crux of an unsuccessful new juice is miscalculating consumer demand. Processors must also pay attention to distribution, taste, price and reliable market research, according to respondents.
New juice drinks will be hot to trot in 2005: 57 percent of processors plan to create more this year compared with 2004. Juice processors are the most enthusiastic new product developers in the beverage industry. As support for the creativity, 41 percent are increasing their R&D budgets this year compared to last.
Beverage Industry’s 2005 R&D survey finds processors experimenting with delivery of health benefits to consumers. The research shows 51 percent of R&D labs purchased vitamins, minerals, iron and colloids in 2004. These processors might be mistaken in not including suppliers on new product development teams, especially considering that each new juice drink launched is at the mercy of consumer demand. An idea might be to incorporate suppliers on condition that they come armed with consumer research and trend data.
Half of all soft drink manufacturers outsource new product development, and two-thirds bought ingredients for R&D in 2004.
Other ingredients purchased by a least one in three soft drink manufacturers include gums, stabilizers, ace k, emulsifiers, cocoa/chocolate, acidulants, anti-foaming agents, coffee and essential oils.
Top flavors for soft drinks this year will be cola, citrus, lime and cherry. Although 32 percent say it takes at least 12 months to develop a new soft drink, 53 percent can do it in six months or less. Last year, 42 percent of manufacturers were able to develop new soft drinks faster and most say they were able to shave three months off 2003’s development time.
Of all the new soft drinks developed in R&D, 68 percent were released to market. Of those launched, the success rate was 61 percent.
|Ingredients purchased by mostsoft drink manufacturers in 2004|
|Ingredient||% of manufacturers purchasing|
|Vitamins, minerals, iron, colloids||67%|
Three of four manufacturers use a team approach to developing new soft drinks where sales and marketing and production personnel are the most important members. Upper management is included 69 percent of the time. If the CEO is involved, he or she is likely overseeing the process. R&D and flavor chemists are included on two-thirds of teams, and most include quality control.
|Ingredients purchased bywater bottlers in 2004|
|Ingredient||% of bottlers purchasing|
|Vitamins, minerals, iron, colloids||33%|
Packaging is the No. 1 item on the soft drink R&D wish list; equipment and ingredients are second- and third-tier considerations. Perhaps this explains why these manufacturers are least likely to include suppliers on their new product development teams. Suppliers provide ideas and new ingredients for other processors, but soft drink developers are focusing on packaging this year. Manufacturers put their faith in marketing and advertising in launching a new soft drink, which again implies the importance of packaging.
Two of three soft drink manufacturers will keep their new product development at 2004 levels throughout 2005; this applies to their overall R&D budgets, too.
Thirty-eight percent of water bottlers outsource new product development work and three of four purchased ingredients for R&D last year.
The most frequently purchased ingredients for water bottlers are flavors and citric acid. It is interesting to note that one in three purchased vitamins/minerals/iron/colloids last year. This suggests that water bottlers may be following energy drink and juice processors in experimenting with the delivery of health benefits in a drink. Top-selling flavors for water this year will be tropical and grape.
Water bottlers seem to take a bit longer than other industry segments to develop new drinks. Although 36 percent say it takes more than a year, 45 percent say it takes six to nine months. Three of four new water drinks are released to market, and two of the three releases are successful.
Nine of ten water bottlers use a team approach to new product development. Sales and marketing dominates R&D, and upper management representatives sit on almost all teams. The upper management is likely to be the CEO, who assumes a leadership and decision-making role. Production and R&D are included on most teams developing water products.
Water bottlers list equipment, packaging and market data on their R&D wish lists. Concerns in launching new bottled water center around marketing and distribution.
This year, 41 percent of water bottlers will increase the number of new drinks they dev-elop compared with 2004. To support the effort, 43 percent will increase their R&D dollars during the coming months.
|Ingredients purchased by dairies in 2004|
|Ingredient||% of dairies purchasing|
|Vitamins, minerals, iron, colloids||36%|
Water bottlers do not purchase many ingredients; they basically test flavors. It sounds easy — water bottlers just add a flavor and, presto, they have a new drink — but these processors spend more time than most in development. This study finds that many of these R&D departments purchased health-based ingredients last year, and perhaps this accounts for the extra time.
Coffee and tea
Two of three coffee/tea-makers outsource new product development work. Ingredients are very important for this segment and 96 percent purchased them for R&D last year.
Top ingredients for coffee and tea R&D include flavors, sugar and organics. The top-selling flavor for 2005 will be vanilla. Caramel, lime and blueberry are also thought to be important flavors this year.
Two of three coffee/tea-makers say they can develop a new product inside of six months. Also, 41 percent developed new products faster in 2004 compared with 2003. Those with speedier R&D halved their new product development turnaround time last year.
Coffee/tea-makers release one of every two new products they develop to market. For each two products launched, only one will be a success.
Nine of ten coffee/tea-makers use a team approach to new product development and upper management is the most important member. Almost always, the CEO is on the team where he or she is most likely providing ideas. Sales and marketing, R&D and production personnel are included on most teams. Suppliers are included one-third of the time, offering new ingredients, formulas and samples.
Packaging is No. 1 on the wish list for coffee/tea-makers. These manufacturers also are looking for processing and extraction equipment. The data show that consumer demand and uniqueness are key to the success of a new coffee or tea.
Three of four coffee/tea-makers will keep this year’s new product releases at last year’s level; however, 38 percent plan to increase R&D dollars in the coming months.
The CEO of coffee- and tea-making facilities controls new product development. Through-out the process, suppliers are leveraged for their formulas and samples, and at the end of the day, a new coffee or tea drink has a 50/50 chance of success. Packaging and consumer demand are critical for a successful launch.
Most dairies do not outsource new product development, but almost all purchased ingredients for R&D last year.
The most popular ingredients in developing new dairy drinks are stabilizers, flavors, citric acid, sucralose, gums and emulsifiers. The top selling flavor for this year will be — surprise, surprise — chocolate. Orange may also be a 2005 flavor.
|Ingredients purchased bycoffee/tea-makers in 2004|
|Ingredient||% of manufacturerspurchasing|
Two of three dairies can develop a new drink within six months. Very few dairy drinks developed ever reach the market. For every five dairy drinks in R&D, one only actually reaches the market. The success rate once the launch occurs is 60 percent.
Sales and marketing and production representatives are the most important members of new product development teams at dairies. Upper management, R&D and quality control personnel are frequently available to teams. When the CEO is involved, he or she is an overseer for new product development. One in three dairies include suppliers who provide new ideas, new ingredients and consult during meetings.
The most important item on dairies’ wish lists are ingredients, specifically trans-fat alternatives and protein stabilizers. Second, dairies are looking for marketing and sales input, including distribution and product placement assistance. Two of three dairies say their main concern in releasing a new dairy drink is miscalculated consumer demand.
Next year, most dairies will keep the new drinks rolling at last year’s rate; 29 percent will increase the number of new products they develop. One in three will increase their R&D budgets in the coming months.
Half of energy drink and sports drink manufacturers outsource new product development, and all purchased ingredients for R&D last year, according to respondents. The data show that labs developing energy drinks have the delivery of nutrition and health benefits as a top priority. Top-selling flavors this year will be orange, lemon and lime. Also, citrus, fruit and cherry will be popular.
Two of three manufacturers can develop a new energy drink in less than six months. For every three new drinks developed, only one is released to market, and its chance of success is 50/50.
Almost all energy drink teams include sales and marketing and R&D representatives. Upper management is important 73 percent of the time, where the CEO provides ideas. Unlike any other beverage segment, two of three energy drink developers include customers on their new product development teams. Suppliers are present 64 percent of the time, offering ideas and attending meetings. Quality control, packaging, production, flavor chemists and nutritionists are also on most teams.
The two items at the top of the wish list for energy drink developers include packaging, specifically aluminum cans, co-packers with production capabilities, and ingredients. These manufacturers also are interested in market data such as trends, research and information on functional beverages.
Three of four manufacturers will be increasing the number of new energy drinks they develop this year, and will expand their R&D dollars accordingly.
Energy drinks represent the most aggressive new product development segment in the beverage industry. These manufacturers will be working like gangbusters throughout the year. Their focus is to deliver health benefits to consumers and they work mostly with nutritionally based ingredients, but not organics. Unlike other segments, these developers incorporate customers and suppliers in developing new energy drinks.
Wineries like to work in secret, and very few outsource R&D. New wine development occurs in years, not months, and sometimes takes more than three years. The data show that wineries are in no hurry to increase their leisurely pace of new product development. The long gestation pays off because wineries have the highest success rate in the industry for new products.
The new product development team at wineries is a triumvirate of the CEO, production and marketing personnel. Unlike any other sector, the winery CEO is considered a team member, rather than a leader.
Equipment is the No. 1 item on the wish list at wineries, specifically lab equipment, processing equipment, faster bottling lines, commercial kitchens, in-line carbonators, small batch equipment and tanks.
Although one in four wineries say they have never had an unsuccessful launch, others consider it prudent to worry about taste and “me too” wines already on the market. One in three wineries plan to develop more wines this year compared with 2004.
Breweries do not outsource new product development work and are typically experimenting with malt, hops, yeast and extracts in R&D.
Three of four breweries can develop a new beer in less than six months. For every three beers developed, two are released to market. Once released, a new brew has a 50/50 success rate.
Upper management is the most important team member in developing new beers. This is highly likely to be the CEO who takes a leadership and decision-making role. Sales and marketing, production and packaging representatives are on most teams.
Breweries say that new lab equipment, pilot breweries, improved in-house printing and market data would greatly assist them in R&D.
|Ingredients purchased by energy/sports drink manufacturers in 2004|
|Ingredients||% of manufacturers purchasing|
|Vitamins, minerals, iron, colloids, etc.||86%|
When things go wrong, breweries are most likely to blame distributors and competitors. This study shows that marketing and investment are critical in launching new brews.
Most breweries will keep the number of new beers released to market this year at last year’s rate.
Half of distilleries outsource new product development work, and four of five R&D labs purchased ingredients in 2004. Key ingredients include flavors, juices, sweeteners and sugar. The data show distilleries expect black cherry to be a top-selling flavor in the coming months.
Most distilleries take nine months to two years to develop a new spirit. Last year, 40 percent of distilleries were able to develop new spirits on a faster turnaround. For every three new spirits, one is released to market. The success rate at market is 63 percent.
The No. 1 team member at distilleries is the sales and marketing representative. Most distilleries also include production, upper management, purchasing and a flavor chemist on a new spirit development team. This year, three of four distilleries will keep to last year’s R&D budget, and the number of new spirits released will be at or below the level of those launched in 2004. The data show that distilleries are very dependent on marketing and sales for success in releasing new product to market.
Researchers at Penn and Associates Inc., marketing research services, collected interviews with beverage processors who develop new products located throughout the United States. Beverage processing facilities located in the west represent 32 percent of the sample and those in the south account for 29 percent. The northeast represented 22 percent of interviews, and 18 percent have facilities in the midwest. Ten percent of processors have facilities throughout the United States and a few are located in Canada.
By annual sales revenue, 14 percent of the sample report annual revenue more than $500 million, 13 percent have $100 million to $500 million, and 9 percent have $50 million to $100 million. Eighteen percent report annual revenue between $10 and $50 million, 27 percent between $1 and $10 million, and 19 percent report revenue less than $1 million.
In terms of occupation, 46 percent of respondents were from sales and marketing, 29 percent upper management, 21 percent from R&D, and 16 percent from purchasing. Production employees represent 12 percent of the sample, and 6 percent are engineers. BI