Record number of new products in 1991

Record number of new products in 1991 – includes related article on food marketing system

Anthony E. Gallo

Last year, manufacturers introduced more products than ever before in our Nation’s retail food stores. Of the over 16,000 products introduced, 77 percent were food.

The majority of the new products, 59 percent, headed to supermarkets. Gourmet food stores received 30 percent of the new products, while the remainder went to health-food stores.

Eighty percent of new products were shelf stable and the rest were evenly divided between refrigerated and frozen.

The 1991 total reflected a 22-percent increase over the 13,244 products introduced in 1990, and more than doubled the introductions in 1985. This growth occurred despite 1990 and 1991 being recession years, with food sales rising less than food prices.

Between 1982 and 1991, manufacturers brought to market over 90,000 new food products. However, breakthrough concepts are rare. Most new products–up to 90 percent–are extensions of existing lines, with the addition of new flavors, sizes, packages, or cooking alternatives.

Condiments Lead the Way

Nearly 2,800 condiments were introduced in 1991, amounting to over a fifth of new food items. Many new sauces were introduced, as ethnic style foods gained in popularity. For example, Americans now use more salsa than catsup.

Candy, gum, and snacks–usually the leading category–followed, with 15 percent of the products introduced. Bakery products, beverages (mostly soft drinks), and dairy products (mostly cheese and ice cream) were the other leading categories with new products.

Table 1

Number of New Items Offered in Retail Food Stores Doubled in

the Past 6 Years

Selected category 1985 1990 1991

Number of introductions

Food:

Baby food 14 31 95

Bakery foods 553 1,239 1,631

Baking ingredients 142 307 335

Beverages 625 1,143 1,367

Breakfast cereals 56 123 108

Condiments 904 1,486 2,787

Candy, gum, and snacks 1,146 2,028 1,885

Dairy 671 1,327 1,111

Desserts 62 49 124

Entrees 409 753 808

Fruit and vegetables 195 325 356

Pet food 103 130 202

Processed meat 383 663 798

Side dishes 187 538 530

Soups 167 159 265

Total 5,617 10,301 12,398

Nonfood:

Heath and beauty aids 1,446 2,379 3,064

Household supplies 184 317 423

Paper products 42 174 165

Tobacco products 27 31 19

Pet products 14 42 74

Total 1,713 2,943 3,745

Total 7,330 13,244 16,143

Source: New Product News, various issues.

Together, these five categories accounted for nearly 70 percent of all new products in 1991. During the past 6 years, manufacturers introduced over 41,000 products in these categories, ranging from nearly 11,000 candy products to 6,500 beverages.

Food Processors Respond to Health Concerns

In recent years, food processors have introduced food products in response to health concerns. In 1991, nearly 5,800 new food products advertised health claims, more than three times the number in 1988. Over three-fifths of all new foods with health claims were foods labeled as reduced calorie, fat, cholesterol, or salt.

Also rapidly growing was the number of new “organic” products–foods produced without any synthetic fertilizers or chemicals. In 1991, over 6 percent of the new foods making health claims were labeled organic. Besides fruit and vegetables, consumers can buy organic-labeled breads, cereals, crackers, and cookies.

New Products Are a Form of Competition

New products, along with advertising, are an important means of nonprice competition. With food being a stable but slow-growth industry, sales growth for food manufacturers must come through gains in market share. To get more consumers to buy their foods, firms develop new products that are different from those of their competitors. And, new firms must introduce new products to gain market entry. Therefore, the rate of product introductions provides a measure of competition among firms and indicates the result of research and development activities.

Table 2

Many New Food Products Claim They’re More Healthful

Product claim 1988 1989 1990 1991

Number

Reduced or low calorie 475 962 1,165 1,214

Reduced or low fat 275 626 1,024 1,198

Low or no cholesterol 126 390 694 711

Reduced or low salt 202 378 517 572

All natural 215 274 754 561

No additives or preservatives 153 186 371 526

Reduced or low sugar 52 188 331 458

Organic 98 140 324 370

Added or high fiber 56 73 84 146

Added or high calcium 4 27 20 15

Note: Data contain some double counting because new products

may carry more than one health claim.

Source: Prepared Foods, various issues.

Failure Rate High

The proliferation of new products, even line extensions, poses a problem for shelf space. Manufacturers introduced over 16,000 products in 1991, but most supermarkets stock from 25,000 to 35,000 items. If the average size of new stores continues to decline as it has in recent years, future supermarkets (excluding hypermarkets and super stores) may handle fewer products.

But, most new products fail to push aside established products and gain permanent shelf space. While there are no precise figures, some trade analysts estimate that between 80 and 95 percent of all new products fail.

However, manufacturers do not intend for every new product to be sold by all retail food stores. Instead, they develop products to reach specific customers in local and regional markets. Products developed for national distribution are less than half of all introductions. Also, other new products are meant to have a limited life cycle, such as Halloween candies.

Product Introductions Are Costly

Manufacturers, wholesalers, and retailers bear the costs and risks associated with each new product, which can reach over $100 million per item. If the new product is successful, they all benefit. If unsuccessful, they all lose.

Food manufacturers pick up the largest portion of this cost, which includes research and development, test marketing, advertising and promotion, inventory, and various other production, marketing, and finance expenses.

Food retailers risk handling and warehousing costs and lost sales when removing an existing product for a new product. With profits based on sales per square foot of shelf space, food retailers cannot afford to stock a product that does not sell. To minimize the risks, retailers sometimes charge manufacturers “slotting fees,” or rent, for shelf space. Some retailers also charge “failure fees” to cover the costs of removing the failed products from inventory and shipping them back to the manufacturers.

How to, and who should, pay the costs associated with the vast number of failed new products is generating much debate within the food marketing system. But no matter how the issue is resolved, manufacturers will continue to introduce thousands of new products. And, they will continue to be challenged to develop new products that successfully compete to meet consumers’ needs.

Anthony E. Gallo is an agricultural economist in the Commodity Economics Division, Economic Research Service, USDA.

Profile on the Food Marketing System in 1991-92

* Sales in the food marketing system slowed for the third consecutive year in 1992.

* But, profitability from operations remained the same and after-tax profits increased because of lower interest rates and a weak dollar.

* The industry was characterized by declining debt levels, modestly higher wages, and a slight pickup in merger activity.

For more details, get your copy of The Food Marketing System in 1991-92 (stock #AIB-659) for $5 by calling toll-free 1-800-999-6779 (outside the United States and Canada, please dial 703-834-0125).

COPYRIGHT 1992 U.S. Department of Agriculture

COPYRIGHT 2004 Gale Group