A question of cost

Manufacturing and raw material costs are on the up, but food and beverage companies want to avoid consumer price hikes. Cost driven product reformulation is emerging as a potential solution, but what does a company need to consider?

Reformulating products for health reasons – such as reducing sugar and salt – has been a major industry focus for the past five years. With the fall in sterling and consequent rise in manufacturing costs, reformulating for cost reasons is also gaining attention.

However, using this approach to offset increases in manufacturing costs requires careful thought. Changing recipes can harm consumer satisfaction and brand health. Manufacturers should consider the merits of reformulation alongside alternative options.

Alternative options

The accepted narrative on the issue of product price is that consumers will balk at an increase. There is, however, a broader discussion taking place about the cost and availability of food. Might this be an opportunity for your brand to join – or even lead – the debate? Is it time to talk honestly about the true cost of products and break the paradigm that food must be cheap and readily available?

Such a shift in perception is not going to happen overnight. Yet the premiumisation trend shows some groups of consumers are willing to pay more for certain products if they perceive those products to offer them something ‘extra’ or ‘special’. This might relate to product quality or ethical credentials.

Another strategy is to mitigate rising costs by reducing product size. Mondelēz’s public announcement regarding changes to Toblerone sizing in the UK is a high profile example. Consumer media has dubbed this practice ‘shrinkification’. Handled carefully though, it can be an effective approach, which also aligns well with the health trend. When a product is made smaller, calories, fat and sugar are reduced by default.

Careful consideration needs to be made as to how the consumer will perceive the change to the product. When an existing product is made smaller, consumers can feel cheated, especially if the approach is perceived as underhand. On balance, it is probably better to be upfront and honest with consumers.

Changing the amount or type of packaging could also play a role in cost reduction in some cases. This is often the most expensive element of a product and consumer attitudes towards waste are evolving rapidly.

Short term options might include sourcing materials from cheaper suppliers to bring costs down. But in the longer term, innovation is required to boost sustainability and improve cost profiles. Edible and reusable packaging options are emerging, as well as smart packaging which gives consumers information about the product.

Wider shopping trends will also have an impact on the future of packaging. Home delivery of groceries makes it the retailer’s responsibility to keep chilled or frozen food at the required temperature during transit. And as the personalisation trend grows, novel dispense of goods in retail spaces may become more mainstream, with major implications for packaging.

In some cases, addressing technical aspects of the manufacturing process might be more effective than changing the product itself. Many UK food and beverage manufacturers are using dated equipment for procedures that were developed 50 years ago. It can be prudent to tackle this proactively, rather than waiting until equipment breaks down. Investing in new technologies and processes can deliver significant cost savings and improved efficiencies. Associated benefits can also be realised, as evidenced in British Sugar’s channelling of waste carbon dioxide and heat from its factory to an 18-hectare greenhouse for growing crops.

When reformulation is the answer

Sometimes reformulation is the best option to reduce production costs.

The first step is to try substituting one ingredient for another, which can be a complex process. Product developers have been working in this space for many years to improve the nutritional profile of products by removing fat, salt and sugar. Reformulating a product for cost reasons poses similar technical challenges.

Every ingredient has a role to play and they often function interdependently. The experienced technician considers all potential interactions between different ingredients to reap the benefits without negative side effects.

Product developers need to model several scenarios to pinpoint which ingredient or ingredients should be the focus of the reformulation exercise. The decision needs to be based on the ingredients which are likely to save most money while having the smallest impact on the recipe. Reformulating for cost cannot be considered in isolation – it needs to be aligned with broader reformulation strategies, such as salt or sugar reduction. Naturally, reformulating for cost must not affect product safety, and ideally it should not increase rates of microbial spoilage as this will impact shelf life.

At Leatherhead, we’ve developed a scientific approach to reformulation rooted in product blueprinting. A blueprint maps the ingredients in a product, the state of those ingredients, how they are distributed and which ingredients create the product properties. Microscopy, rheology (the deformation and flow of the product) and sensory research are key techniques deployed in blueprint development. Armed with this knowledge, manufacturers can set baselines for innovation and reformulate with greater confidence because they understand the function of existing ingredients, the role that any substituted ingredients will need to fulfil and the impact on consumer acceptance.

Technical spotlight

Unstable pricing of ingredients can be a major driver for their replacement. The hydrocolloid gum arabic, a thickener and emulsifier widely used in beverage applications, is a prime example. It’s extremely soluble, and can be used at levels ranging from one to two per cent up to 40 to 50 per cent, depending on the viscosity and emulsification properties required. However, it is sourced from acacia trees in African gum belt countries such as Sudan and Nigeria. Political and climatic variances can cause sudden spikes in cost, leading many manufacturers to attempt replacing it with alternative starches and pectins.

This process is technically challenging as each hydrocolloid has a unique fingerprint. Replacement of a functional ingredient such as gum arabic is complex and needs to be handled on a case by case basis, with careful analysis and measurement of the role it plays in the given product.

Wider repercussions

Rigorous food safety assessments need to be conducted on any product which has undergone reformulation. These include challenge tests, chemical analysis, survival analysis and mathematical modelling to predict microbial activity and determine shelf life.

Manufacturers reformulating for cost also need to be confident that changes are met with consumer approval, in terms of taste and overall perception. This is especially true of long established products. Consumer and sensory testing comparing original versions of products with variants can provide a detailed understanding of how changes impact overall enjoyment of a product.

Changing the price, recipe or look of an existing product can never be taken lightly. Decisions should be rooted in a full consideration of consumer implications and an understanding of alternative solutions. Clearly, food manufacturers need to operate profitably. But introducing changes by stealth is not good practice, and it can backfire spectacularly in the social media age.

It seems the time is right to begin communicating more openly and honestly with consumers about the true cost of their products.