Whats wrong with Nestlé product development?

Nestlé’s apparent decision to phase out its Boosted Smoothies brand just four months after launch (see box) highlights the difficulties facing multinational food companies in creating exciting and successful innovations.

The smoothie brand, a joint venture with Australian company Boost Juice Bars, was the first product to come out of the UK innovation unit that Nestlé set up last year. Many believe the unit is likely to launch other products soon, but the indecent haste with which Boosted is being withdrawn, and Nestlé’s refusal to offer even a hint of an explanation, does not bode well.

Even so, innovation consultants believe that Nestlé is at least starting to tackle the innovation crisis gripping multinational food groups.

The world’s largest food company may be riding high in developing markets and clocking up strong hikes in sales values, but without effective innovation it risks being left high and dry in an array of old-fashioned food categories.

The success of Innocent smoothies and other entrepreneurial brands, such as Green & Black’s and Abel & Cole, has underlined the failures of the global food corporations to keep abreast of modern trends. The start-ups have jumped on the bandwagon of naturally-sourced, organic products with integrity and provenance, leaving the multinationals looking distinctly 20th century with a collection of outmoded heritage brands.

Nestlé’s biggest categories are very much the creations of past times. It sells a quarter of the world’s instant coffee – a mature market being overtaken by the trend for freshly ground coffee – while powdered baby milk, invented by company founder Henri Nestlé in 1866, is subject to increasingly stringent marketing restrictions. Nestlé is still strong in dairy and confectionery, though again it struggles to give these areas a natural, healthy flavour in keeping with modern trends.

Nestlé is tied to a science-based approach to innovation and employs some 5,000 food scientists to create new food processes and products. Its description of Nescafé Cappuccino: “The secret lies in innovative hi-tech micro-structural science and engineering to create instant foam by dispersing micro-bubbles of gas in a specifically formulated milk-based creamer” contrasts with the simple copy used by Innocent Drinks: “Our 100% pure fruit smoothies. No sugar. No concentrates. No funny business.”

Nestlé aims to become the world leader in nutrition and “wellness”, which means creating functional health benefits for its products. Boosted Smoothies tick this box – one version promises to “aid concentration and memory”, another to have a “positive effect on fat oxidisation” and a third to “strengthen the body’s defences”.

But Vicky Bullen, chief executive of design agency Coley Porter Bell, says: “The way the brand portrays itself doesn’t look like a naturally healthy product.” However, she believes that Nestlé’s strategy of creating functional benefits for foods is potentially powerful, as people are increasingly aware that certain foods have natural benefits and can be called “superfoods”.

Nestlé’s success has tended to be with incremental innovations. Its strategy has been buying companies – from Rowntree and Buitoni to Ralston Purina – or creating joint ventures such as Cereal Partners. As one observer says: “They are good at consistency, distribution and marketing and growing acquisitions. But they are not famed for trailblazing in new categories.”

Setting up innovation units that operate separately from the rest of the organisation is one way for hidebound multinationals to find breakthrough new products outside existing areas of expertise. Nestlé says the UK unit, which is headed by managing director of new business Jon Walsh, aims to “help drive the company’s development into the UK’s leading nutrition, health and welfare company”.

According to Gordon Peterson, a partner at innovation consultancy What If, which advised Glaxo­SmithKline on setting up its innovation division, such units are essential in helping companies step beyond their usual areas of business. “Big companies such as Nestlé are about efficiency, so innovation tends to be incremental with stuff close to home,” he says. “They can give people a space where they can free themselves from the structures of a big organisation and think differently.”

It is important, he believes, that executives at these units are given a remit to act as entrepreneurs and that the products they create are allowed to fail as long as the executives learn from this and apply what they have learned in future.

However, he is surprised that Boosted Smoothies should have apparently failed because Nestlé did not get the smaller sized bottles into retailers, which would have encouraged sampling. “It is the area where you would think Nestlé’s purchasing power would enable it to get that distribution.”

The entire food industry and company investors are no doubt wondering what Nestlé’s UK innovation unit will come up with next.