European consumer goods industry sees decline in product innovations amidst sales slump

In the consumer goods industry, innovation has long been considered a vital spark of growth and market dominance. However, recent times have witnessed a concerning trend as the sector faces a decline in product innovations amidst a sales slump.

As major brand manufacturers struggle with economic challenges and shrinking consumer demand, a growing apprehension towards the perceived risks of launching new products has led to a slowdown in introducing novel offerings to the market.

Circana, known for its expertise in consumer complexity, released its 'Race for Resilience: Innovation Pacesetters' study, focusing on Europe's six largest markets (France, Italy, Germany, Spain, the United Kingdom and the Netherlands).

The report unveils a worrisome decline in product innovations over the past two years, particularly among major brand manufacturers. This trend is attributed to a growing apprehension toward the perceived risk of launching new products amidst falling sales in Fast-Moving Consumer Goods (FMCG) products.

In 2022, Europe witnessed a drop in new product launches, with only 144,432 items hitting the shelves compared to 172,997 in 2021 (-16.5%). Among the studied markets, France saw the most significant reduction, witnessing a decline from 27,317 new product releases to 19,843 (-27.4%).

The decrease in innovations can be attributed to both manufacturers and retailers prioritising their existing core product ranges to maintain shelf availability and protect market share. Additionally, the uncertain economic climate might have led to declining confidence in commanding premium prices usually associated with new products, as businesses grappled with inflationary turbulence.

The study found that small and medium-sized manufacturers, using their ability to respond swiftly to changing market pressures, were responsible for 75 per cent of all new product launches. This represented 68 per cent of total new product value sales. In contrast, large brand manufacturers brought only one in every four new product launches to market over the period; they produced a higher share value (32% of new product value sales) due to distribution and supply chain advantages.

"The evidence from the analysis means that innovation continues to be a sustainable source of organic growth, despite difficult trading conditions and the cost of living crisis," stated Ananda Roy, Global SVP, Strategic Growth Insights, Circana.

Roy said while brand manufacturers' ability to command a big premium is curtailed, new product releases continue to deliver the volumes required to maintain growth and market dominance."

According to the global SVP, when there is increasing competition for shelf space, especially when the industry is experiencing declines in FMCG product sales volumes, new product launches can feel like a gamble.

Roy, however, asserted that there is no doubt that it can add immense value, offering brands the opportunity to expand an existing portfolio or even create an entirely new one. Despite inflationary obstacles, innovation is resilient and helps to boost demand, Roy added.

The study also indicated the shifting consumer attitudes and behaviours that influence the success of new product launches. For example, shoppers expect new products to add value by introducing new features (77%) and combining multiple benefits (72%).

Additionally, sustainability has emerged as a critical aspect, as 71 per cent expect it to be better for them and 68 per cent demanding environmental friendliness. Trustworthiness (65%), and to fit with their lifestyle (73%) and to help them achieve their goals (67%) were also important factors influencing consumer preferences.

Additionally, shoppers are more inclined to try new products that are more affordable (59%), easily available (50%), convenient to buy and use (56%) and fit into their routines (46%). Recommendations from family and friends, as well as a large well-known company, are also crucial (both at 47%). Despite their capacity to raise awareness, celebrity or influencer suggestions or endorsements only convince nine per cent of customers to try new items.

Furthermore, the study revealed that satisfied trialists have high expectations for the physical availability of the new product the next time they shop. Nearly half, 48 per cent, of trialists look for the new product the next time they shop, with less than 20 per cent asking in-store or purchasing online if it is not available. Also, 23 per cent will look for a similar innovative product, usually from a different brand.

"To remain competitive, brand owners must make the benefit of innovation relevant to evolving consumer needs," Roy said. He emphasised that focusing on and marketing the transformative aspect of innovation, rather than just the product feature, can help address the evolving space of consumer goods in 2023 and beyond, especially as the rules of the consumer goods sector continue to be rewritten.

This developing innovation eco-system will be the driving force for change in an industry that is striving to adapt to a shifting customer landscape, he added.