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Innovation in UK fmcg has been both a necessity and a battleground in recent times. From legislative pressures around less healthy foods to shifts in consumer purchasing patterns, brands have been battered by headwinds.

But those who have used those winds of change to drive change have won out on the innovation front. For the top 10 branded manufacturers, over 11% of sales in 2023 came from branded NPD, and over 43% of growth was driven by branded NPD sales.

Such statistics not only highlight the importance of innovation, but also its role as a lifeline in a market grappling to find real growth amidst ongoing inflationary pressures that have impacted consumer desires to expand their baskets.

In other words, growth can still be found despite market challenges – if brands find relevance and recruit new shoppers.

Tough landscape

In today’s environment, new products have to work harder than normal to bump other products off the shelves, as retailers optimise their assortment in favour of private-label options with stronger margins.

Regulatory changes have also had an effect on the innovation landscape. The introduction of HFSS legislation in late 2022 meant categories typically focused on introducing new products, such as snacks and confectionery, instead moved to reformulate existing products to comply with new standards.

And yet, despite a seeming plateau in the rate of new market entrants in recent years, innovation has not halted. Rather, it has shifted. Significant activity is still apparent in sectors like beverages and petfood, where short-term gains have often been the innovation target.

Not all winning innovations have particularly long lifespans, but they at least tend to drive meaningful growth in the short term. Failing to introduce new products risks going backwards, as innovation is pivotal for maintaining brand presence and securing retail space.

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Economic rewards

The availability of innovative products can significantly influence shopping behaviours, drawing consumers to stores more frequently. 

Indeed, innovations tend to attract heavy spenders – those who invest over £213 annually on new products – to larger stores. This creates a symbiotic relationship that boosts both consumer satisfaction and retailer performance. This dynamic underscores the complexity of innovation’s role in retail growth, which, though nuanced by economic conditions, remains a robust element of strategic retail management.

This isn’t just about the big four. The impact extends to discount retailers like Lidl, though somewhat differently, as they push hard on innovation within their private-label selections.

New products such as Boots No7’s Future Renew skincare products, which topped our latest innovation rankings, also demonstrate that effective innovation can command premium pricing and drive category growth, particularly in sectors like health and beauty, where brand loyalty and product efficacy are crucial.

Another brand to showcase the power of innovation is PerfectTed, a matcha tea energy drink and Dragons’ Den television show winner. PerfectTed delivered the most incremental product by value to both the category and the brand.

It holds another lesson, in that its growth wasn’t in the obvious places. It found incrementality by adding 42% of trips from existing energy drink shoppers, more than the percentage increase from trade-ups or new market penetration.

Finding a balance

Looking ahead, the path of the fmcg sector will likely be influenced by both broader economic factors and specific consumer behaviours.

The so-called ‘lipstick effect’ may support growth in certain categories, reflecting a consumer propensity to indulge in affordable luxuries during tougher economic times. Effective innovation will, therefore, require a careful balance between creative impulse and pragmatic market analysis.

Achieving scale, longevity, and incrementality simultaneously is a Herculean task, often leading to disillusionment about the innovation process itself. So brands working on innovation need to be very clear about what they are trying to achieve upfront and focus on it relentlessly.