Julian Mellentin from New Nutrition Business (NNB) writes in a new report Failures in Functional Foods & Beverages that senior managers at large food and beverage firms are wary of potential costs that they have to explain to shareholders, who “pressurise management to innovate, but also punish them for any failures”.
“As a result, most major companies have in recent years become increasingly risk averse and have failed to innovate, instead relying on acquiring small innovative startups,” Mellentin says.
Management’s over-estimation of the size of a potential market for a product and possible growth rates are one of the biggest “enemies of success”, he says, and is the reason many brands are withdrawn prematurely.
“Some of the most successful functional brands have taken as long as seven years to reach breakeven and over 10 years to produce a positive return on investment,” Mellentin writes.
Brands increasingly appeal to niche markets
When large companies do create brands their risk aversion leads to unrealistic expectations that a brand should quickly thrive in a high volume mass market, he says.
But following this policy with a functional beverage brand leads means it ends up in front of mainstream consumers unwilling to pay a price premium for health benefits or take a risk with a new product.
Citing Symphony IRI’s 2014 New Product Pacesetters report, Mellentin notes that 58% of new US launches earn less than $7.5m in retail sales in Year One, while only 4% achieve $50m, which he says reflects the reality that new products increasingly appeal to more discrete consumer segments.
Speaking to BeverageDaily.com about one functional drinks failure Nestle’s Nesfluid – NNB’s report also covers brands such as Good Belly that initially targeted the mass market, stumbled, then came back strong with a niche focus – Mellentin also criticized Nesfluid’s diffuse functional focus.
For your first 5-10 years you need focus!