A recent survey found they earned just 21 per cent of their sales from new products, compared with 32 per cent for consumer packaged-goods companies and 38 per cent across all industries. Another survey found that of the 15,000 new food and drink products launched globally in 1999, less than six per cent were truly innovative. The result is food giants are gobbling small, innovative brands, especially in America where valuations are depressed. Both are in two hot new markets ethical foods and functional foods. Healthy and natural foods are the only chance for big companies to grow earnings.
Small companies innovate best.
Though Unilever, Nestle and Novartis, a drugs company, are developing their own range of foods, with ingredients like bacteria to promote good digestion or cholesterol-lowering enzymes, sales are small. Meanwhile, Slim-Fast, unlike its shakes, looks appealing. Its revenues are growing 20 per cent a year and operating margins, a plump 20 per cent, are the stuff of Unilever s dreams.