The UK food and drink industry is investing heavily in healthier products, but high development costs, regulatory uncertainty and the risk of consumer rejection are making it increasingly difficult for manufacturers to justify further investment, according to a new report from the Food and Drink Federation (FDF).
The report titled Operational realities of healthier product innovation, produced with Argon & Co, found that 69% of manufacturers surveyed had products that failed to reach launch, while the same proportion reported having healthier products delisted after launch.
A further 63% had experienced reduced consumer acceptance, and just 13% said healthier product innovation had a consistent positive impact on profitability. operational-realities-of-health…
The hidden cost of reformulation
According to the report, healthier innovation is rarely as simple as replacing one ingredient with another.
Reducing sugar, salt or fat can affect taste, texture, shelf life and manufacturing performance, with the most complex reformulation programmes taking more than five years to perfect. Smaller manufacturers typically take a year or less to move a product from concept to launch, while larger businesses generally take two to three years. operational-realities-of-health.
The biggest costs are also not necessarily the ingredients themselves. Product trials and scale-up testing were identified as the leading direct cost drivers, while skilled staff time and project management were the biggest indirect costs.
For reformulation, 69% of respondents identified staff time and project management among their top indirect cost drivers, rising to 75% for healthier NPD. Indirect costs accounted for around half of the total cost of both activities. operational-realities-of-health…
The financial exposure can be significant. None of the large manufacturers that provided cost estimates put direct reformulation costs below £50,000 per project, while some estimated both direct and indirect costs at £1m-£5m per project. operational-realities-of-health…
One manufacturer also reported that a single round of consumer testing could cost £100,000-£120,000, while packaging and artwork write-offs associated with reformulation could reach £300,000-£500,000.
Regulation adds to the pressure
The report argues that these costs are being incurred against a backdrop of increasingly complex regulation.
Since 2018, manufacturers have had to navigate measures including the Soft Drinks Industry Levy, HFSS location restrictions, HFSS volume and price restrictions, devolved HFSS promotion rules, HFSS advertising restrictions and mandatory folic acid fortification, alongside further changes to the Nutrient Profiling Model being considered.
Against this backdrop, 69% of respondents ranked greater regulatory certainty as the top condition for supporting further healthier product innovation. The issue was also raised by every manufacturer interviewed, according to the report.
The report says shifting requirements can make it difficult for manufacturers to plan investments that may take several years to deliver. It also claims some manufacturers are diverting resources from new product development towards modifying existing products, while others are using third-party manufacturers, including overseas facilities, for innovation launches. operational-realities-of-health…
SMEs face a bigger challenge
The pressure is particularly acute for smaller manufacturers, which often have limited technical, regulatory and R&D resources.
The report found that healthier products were a strategic priority for just 6% of SMEs, compared with 50% of large businesses. It argues that this reflects differences in available resources and risk capacity rather than necessarily a lack of appetite among smaller companies. operational-realities-of-health…
The report points to Scotland's Reformulation for Health programme as an example of targeted support. Since 2019, the programme has supported more than 100 SME manufacturers, with more than £424,000 in external funding used towards nutritional analysis, trial ingredients and production-line testing. operational-realities-of-health…
Consumer acceptance remains the biggest hurdle
For manufacturers, meeting the regulatory definition of a healthier product does not guarantee that shoppers will buy it.
The report highlights examples of products being rejected by consumers within weeks of launch and subsequently reverting to their original recipes. It argues that if reformulation changes taste or texture too significantly, consumers may instead switch to another, potentially less healthy, product. operational-realities-of-health…
One case study highlighted in the report is Mondelēz's Cadbury Dairy Milk 30% Less Sugar. The product took three years to develop, involved more than 20 scientists and was supported by a multi-million-pound marketing campaign, but was eventually withdrawn in 2023 after demand declined. operational-realities-of-health…
FDF calls for greater policy stability
The report's recommendations centre on giving manufacturers greater certainty over the regulatory environment.
It calls for a five-to-10-year planning horizon, better alignment of regulation across the UK and a published minimum stability period for core regulatory parameters. It also argues that new policies should be allowed to run their course and be formally evaluated before further changes are introduced. operational-realities-of-health…
The FDF also wants government-backed consumer education to accompany healthier product development, targeted grants for SMEs across England, Wales and Northern Ireland, and incentives that encourage healthier sales across the supply chain. operational-realities-of-health…
For retailers, the report's message is particularly relevant: healthier innovation does not end when a product leaves the factory. Consumer acceptance, shelf performance, retailer support and continued marketing investment can all determine whether a reformulated product survives.
The report concludes that manufacturers' willingness to develop healthier products is not the central barrier. Instead, it argues that the combination of development costs, limited SME resources, changing regulation and commercial risk is making each new project harder to justify. operational-realities-of-health…
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