Are small food businesses more innovative?

26 September 2023

In recent years, the landscape for small and medium-sized food manufacturers has been fraught with challenges. However, fresh research reveals that small food businesses played a pivotal role in driving innovation, while their larger counterparts took a more cautious approach.

According to the recent “Race for Resilience: Innovation Pacesetters” report by research firm Circana, SME (Small and Medium-sized Enterprise) manufacturers in Europe took the lead by launching 75% of all new products last year. Their agility and responsiveness in shifting market dynamics proved to be critical assets.

The report, which encompassed the six largest European markets – the UK, France, Italy, Germany, Spain, and the Netherlands – underscored the substantial impact of smaller food businesses. Together, they contributed to a remarkable 68% of the total sales generated from new products.

This shift has happened against a backdrop of declining product innovations in the past two years. Many businesses, daunted by the cost-of-living crisis and challenging trading conditions, have been reluctant to seek uncharted territory.
So, what fuelled this drive for innovation among smaller food businesses while their larger counterparts adopted a more conservative stance?

SMEs and smaller food businesses have a unique edge in innovation thanks to their proximity to customers, swift decision-making abilities, and willingness to embrace risk. This close connection translates into a profound understanding of their customers’ needs, pain points and desires, making it easier to identify market gaps, spot emerging trends and bring exciting new products to market.

They also tend to have a flatter organisational structure that translates to greater agility and adaptability in response to shifting market dynamics. SMEs typically tend to be driven by an entrepreneurial spirit, which leads them to prioritise innovation and creativity over concerns about yield and shelf space. They are willing to take calculated risks to define their place in the market with challenger-style products that offer something unique.

Meeting diverse customer needs

This agility and responsiveness have become indispensable in today’s market landscape, where consumers increasingly seek products that align with their values and support a healthier, more sustainable lifestyle. Whether it involves adapting to the shift towards plant-based diets, using organic ingredients, offering free-from options, or embracing sustainable packaging, SMEs are well-positioned to pivot swiftly and seize these market opportunities. For instance, the rising interest in health, nutrition and sustainability is a crucial driver in the food and drink industry.

Today, these changing consumer demands are encouraging food producers to get innovative. Unlike their larger competitors, they tend to keep a closer ear to the ground, which allows them to be more attuned to consumer needs, meaning they can meet demand more effectively.

What do customers expect from new products?

In today’s evolving consumer landscape, marked by health-consciousness and environmental awareness, new product launches have become both a challenge and an opportunity for producers. While competition for shelf space intensifies, new product innovation remains resilient and holds the potential to add substantial value. According to Circana’s report:

  • Consumer preferences for successful new product launches have shifted, with a focus on added value through new features (77%), sustainability, trustworthiness, and lifestyle compatibility. Shoppers are also more inclined to try lower-priced (59%) products.
  • Despite fewer launches, chilled and fresh category innovations have yielded substantial value, capitalising on trends like plant-based and natural foods, representing 22% of FMCG innovation value share (€4.8bn).

Opportunity for food manufacturers

Brand owners must innovate in line with changing consumer needs to stay competitive. In the UK, research shows that more and more Brits are opting for free-from food, for example.

As these products move to the mainstream, manufacturers can cater to these preferences and educate their customers about the health benefits of their products.

Today, small companies are proving to be big players in innovation. Companies like Grow With Iris, founded by Amy Langfield to offer a plant-based milk alternative for children with allergies, exemplify the abundant opportunities to do things differently. You can hear more about Amy’s fascinating journey and innovation insights in our recent podcast.

If you’re a start-up that wants to take its idea to market, or a larger food business that wants to tap into innovation, book a discovery call today.