How Big Food is Shifting Focus from Disruption to Core Business & From Building to Buying Innovation
In recent years, large Food & Beverage players, often referred to as "Big Food," have been shifting their focus from disruptive innovation, which use to be an hyped word in many Board conversations, to reinforcing their core business. This transition is accompanied by a move from building internal innovations to buying external ones. Here’s an in-depth look at this strategic shift.
1) Decreased Internal R&D Budgets.
To secure profitability, Big Food companies have had to decrease spending on internal R&D, which was already limited. Irrespectively from recent specific events and their consequences (COVID-19 pandemic, supply chain insecurity due to geopolitical instability, inflation) the R&D intensity (R&D spent per revenue) in the Food & Beverage industry is not only low but also stagnant compared to other sectors, showing only a modest increase of 2-5% from 2010 to 2020.
Sources: NSF, CBO, FoodDrinkEurope, Article
Notably, R&D intensity in this sector peaked in 2016 and has not yet recovered, with the EU experiencing a 33% decline.
Sources: FoodDrinkEurope.
Top12 F&B, Source: Article by Moore FoodTech
2) Focus on Core Business
As a consequence of these pressures, Big Food companies are redirecting their internal R&D efforts towards their core business areas, emphasising established, market-leading brands over new and disruptive innovations. This shift follows a series of disappointing explorations into new areas, with some examples as:
3) The Move from Building to Buying Innovation
Despite the pivot to core business, Big Food still needs to stay competitive amid evolving consumer preferences and the increasing complexity of ingredients and products. Acquiring and investing in external innovative technologies has become a more cost-effective, time-efficient, and less risky approach compared to developing these innovations internally. This strategic shift has also led to a reduction in internal company builder initiatives, with many evolving into later-stage equity investments:
Numerous F&B companies have launched Corporate Venture Capital (CVC) arms to invest in external startups (source).
AB InBev’s ZX Ventures divested from internal company building & exploratory initiatives (personal insights).
Mondelez’s SnackFutures shifted from building ventures to acting as a corporate-venture capital hub investing in scale-up companies (source).
General Mills transitioned G-Works, an internal company builder, to Gold Medal Ventures, a growth equity fund launched alongside 301 Inc. (source).
Visible data indicates a clear shift in innovation spending within Big Food companies. While these companies may not openly admit to reducing internal R&D budgets, the redirection towards open innovation and external investments is evident. This strategy allows them to stay agile and competitive without significantly impacting their balance sheets.
Conclusion
Big Food is strategically evolving, balancing between reinforcing core business strengths and leveraging external innovation to meet market demands and consumer preferences, a move that mirrors that of Big Pharma and the rise of biotech years ago.
We believe that FOOD FOUNDERS Studio is perfectly positioned to explore and validated unexploited ideas and tech opportunities that will strengthen Big Food Innovation pipeline.
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