When working with food manufactures and agribusiness on innovation, I often hear that one of the main challenges stopping development of new products or adding new technology into a business is finding the money. Agrifood businesses across Australia usually cite a lack of available funding within the top three reasons why businesses don’t innovate. There could be many reasons why people see this as a problem, but it always comes down to risk and risk appetite. Because risk and investment are directly linked in all aspects of food innovation, providing funds to support innovation helps reduce the risks. One of the main tools governments (and others) use to motivate change in business are grant programs, or ‘carrots’. In fact, grant programs are probably the cheapest money around to help investment in innovation as they usually don’t incur interest, nor does the money need to be returned, in most cases. The BHF platform provides funds supported by our partnership with Food Innovation Australia and VicHealth, evidence of the common belief in carrot-supported innovation…but first, let’s briefly consider the alternative.
The stick in this story has two prongs. One is government policy and regulation, the other is failure to match the changing needs of customers. Often this ‘stick’ will hit business at the same time, because what becomes unacceptable to customers can quickly become regulation. (And those who advocate strongest for government regulation are often those representing, or claiming to represent consumers, but that's a story for another time). Another reason for policy change is that there are highly motivated and passionate groups of people within government and NGOs seeking positive social change. For example, the development of the Victorian Healthy Eating Enterprise (VHEE) is an initiative of the Victorian Government. The VHEE sees groups of like-minded people form variety of organisation within the food chain working together to inform and deliver healthy eating policies, a key feature being the Healthy Eating Advisory Service and the associated traffic light (red, amber, green) system to guide food product options in Victoria Government settings (including hospital cafes, recreational parks, YMCAs and internal purchasing. The Building Healthier Foods platform is a partner of the VHEE network and its primary role is to assist food businesses to adapt to changes and meet market needs that are being created by changing policy and customer needs. Whilst there may be some contention about the role of government and even systems like “traffic lights”, it is difficult to challenge the intended purpose of these efforts. The purpose that drives the network, and motivates the people, is the vision that increased consumption of healthier food is an effective method of addressing the rapidly escalating healthcare and medical costs and associated social challenges.
The other prong, which is arguably more important for food businesses, is that customers change their purchasing behaviour. There are many stories that demonstrate the failure of business from not being aware of and responding to changing customer behaviour and trends. My favourite is the Kodak story. Kodak, was the household name in photography failed to effectively respond to a changing operating environment, the development of digital imaging technology. The irony that Kodak actually owned patents for digital photography and yet still failed to respond effectively to changing customer behaviour makes this a memorable lesson for me. In the food industry, this would be akin to beef of chicken producers owning the technology for producing plant/cell based proteins products that offer the same look, mouth feel and taste as the animal derived options; and then not marketing products for customers that seek non-animal sourced proteins. Whilst this is a hypothetical scenario, it is also a subtle message to our friends and colleagues within established agri-food industries!
'Stick-led' innovation is never good for business. It’s always better to be the first to satisfy new customer needs and be ahead of the competition. In this case, there is even a chance your brand becomes the household name (think ‘Kleenex' or 'Kodak moment’...). Also, if regulation is forcing changes to product or production, then it is likely that customers have already moved and other businesses have already established new market share (which often have the best profit margins). So your business is playing catch-up in a commodity market. Not to mention the unplanned or forced cost of change that could creating the 'perfect storm' of cash flow problems…
The solution is to be aware of changing trends and take advantage of new customers that these trends invariably create, before others do. This is the mantra of any decent innovation program. You may be thinking, 'but it’s too risky'! Maybe you’ve folded your arms already and shaking your head in the firm belief that "no-one can 'see into future' with any certainty to justify the expense to develop products for future customers, sounds a little more like science fiction than good food business practice!" But this, very rational concern and position, can be managed too.
A technique that Food Innovation Australia Limited, and most other design-led or lean-innovation approaches recommend, is to start small, test the idea, and then increase scale once the assumptions about customer needs are validated (ideally through early sales). The best part of this approach is that currently in Australia we have many government grant programs to support this kind of innovation. Business can find support from all levels of government to de-risk innovation, or supporting 'carrot-led’ innovation. The Building Healthier Foods platform offers a development grant to reduce salt in products. We are currently exploring offering a similar program to support food businesses to reduce sugar in their products. Let me know if you think this is a good idea or if you want to partner with us.
There is consensus that global trends are moving towards healthier food options, more convenience and even developing specific products and meals to match our individual needs (informed by our DNA). Customer demands around healthier eating are changing on a global scale. The opportunity for Australian food producers and manufacturers is growing and I see two options; explore new opportunities and be early to market, or wait and be late. Our partners in Building Healthier Foods believe in supporting businesses who want to be early to market, and that’s why we promote and provide ‘carrots’ to help build healthier foods. We want to support our food manufacturing partners to reduce the financial risk as we work towards the shared goal of creating more healthier and profitable food options to support improved lifestyles.
Let me know if you need help finding some carrots!
Further reading to learn more about the VHEE, global trends and FIAL Innovation programs:
Angus Crossan is currently the Leader of The FIAL Matrix and Innovation Manager at Food Innovation Australia Limited. The FIAL Matrix is a new collaborative portal system supporting innovation in agri-food businesses in Australia. Angus is also an experienced start-up venture builder, innovation trainer, and investor in agri-food research and innovation. linkedin.com/in/anguscrossan