The global food industry is huge. Too big to accurately count even, but easily in the trillions of pounds. And logically, then, the global food and beverage R&D budget is vast too. There is constant pressure on producers to make food healthier, cheaper, free-from, ethical, long-lasting, organic… Whether this pressure comes from regulators, consumers or other sources there is always a need to innovate.
As you walk around a supermarket, the cynical side of you may see shelf after shelf of marketing gimmick: ‘New and improved’, ‘25% less sugar’, ‘organic’. And we would not dispute the power of marketing within the food and beverage industry.
However, behind some of this marketing will be extensive resource poured into backing up those claims on the packet or in the advertising. And behind that are a myriad of drivers that stimulate R&D in the food and beverage industry.
Five drivers of R&D in the food and beverage industry
So what does drive R&D in the food and beverage industry? We have identified five areas that keep food technicians in the UK and around the world busy.
- Commercial factors– These may not be the most exciting reasons for undertaking research and development with food, but they are nonetheless important. They include factors such as improving shelf-life – a demand that may be made by a key distributor like a supermarket chain that can’t afford to see stock spoiling on its shelves. Or alternatively an efficiency drive – again, unsexy but important for making food and drink affordable to consumers and profitable for producers!
- Legal and regulatory change – Another fairly dry one, but significant. In fact, compulsory. This is when government, or a government agency puts its foot down and demands a certain standard is met. It can often be high profile, like the 2016 sugar tax announced by then chancellor, George Osborne. This said that fizzy drinks which contain more than 5g or 8g of sugar per 100 millilitres would face levies predicted to be 18p and 24p a litre respectively. Arbitrary changes like these can send R&D units into overtime as they have to decide how to reformulate their products without compromising on taste.
- Consumer trends– This is perhaps the most fluid driver of R&D in the food and beverage industry, and the one which can become most blurred with marketing gimmick. “How can we appeal to Millennials?”, “What are we going to do about a declining breakfast cereal market?”, “What should we add next to our free-from range?” There may be a strong corporate edge to this kind of thing, but really it reflects companies trying to deliver what consumers want. If they didn’t serve this function and drive innovation, we may all still be eating spam! Healthy choices, organic, free-from, local are all examples of trends to which food companies have to adapt.
- Ethical factors – A trend in itself, ethical considerations cover enough ground to warrant their own separate section. From animal welfare to fair trade, recyclable packaging to the debate around genetically modified food, there are numerous things that can drive research and development in the food supply chain.
- Process change – Behind the scenes, there are all kinds of things that go on that require research and development in the food industry, particularly for manufacturers who operate on a large scale. Any requirement to increase output, improve standards or introduce new machinery is likely to require extensive testing to ensure that the end product remains consistent.
So we see that food companies are being pushed and pulled in all directions in trying to make products that meet the demands of consumers, supply chains, investors and regulators. Once a decision is made that change is necessary, then projects will likely take place that involve R&D.
Examples of R&D projects that food and beverage manufacturers may undertake
New product development
A new food or beverage product is one of the most obvious projects in which R&D will be involved. Market research is a notable exception to what may qualify as R&D for tax purposes, but many other parts of the new product development process may be eligible in an R&D tax credit claim. These include:
- Time spent refining recipe formulation,
- Experimentation with equipment,
- Managing environmental factors such as temperature and humidity,
- The cost of consumables like the ingredients that are tested, heat, water and power,
- Applicable staffing costs, including plant labour for R&D trials.
So whatever the original driver of the project is, all the costs associated with the above should be considered for an R&D tax credit claim.
Projects driven by process change may be less obvious candidates for R&D at face value.
But at a large scale everything must be tested thoroughly. Think about a food firm introducing a robotic arm onto a production line. Probably, the reason for such a process change will be to reduce staffing costs, increase output and improve consistency: all potentially big benefits to production. But before these gains are realised, bespoke calibration of the equipment may need to take place. This could involve, for example, the technical expertise of engineers, consumable costs such as ingredients as they are run through the production line to test for a consistent output. And of course, power and water.
Research that ForrestBrown carried out in 2016 showed that business leaders are much less likely to consider a change to an existing product or process as R&D, when compared to developing a new product or process. This understanding is incorrect. So in the case of the food and beverage industry, changing a recipe to, say, reduce the sugar content by 25% could be a major project that would qualify for the R&D tax incentive. The cost of ingredients when experimenting with different formulations, staff costs and energy costs will all likely be applicable to the claim, with up to 33p in the pound being on offer as a tax credit.
R&D in action – cake innovation at ProperMaid
ProperMaid are a client of ForrestBrown. They supply food retailers with innovative cakes made with ‘proper’ ingredients, mainly sourced from Yorkshire, and artisan production methods. They have even featured on Dragon’s Den gaining offers from two dragons before accepting the offer from Deborah Meaden.
Two of their R&D projects that we have worked on are excellent examples of R&D in the food industry.
The first was driven by the commercial decision to expand out of their largely local markets. The challenge that ProperMaid had to overcome was that their cakes, made from fresh ingredients and without additives or preservatives, deteriorated to an unsatisfactory level when distributed over longer distances. ProperMaid’s solution, was to develop a ‘Fresh to Frozen’ range for distribution via Ocado.
To achieve this, ProperMaid had to deploy staff, experiment with ingredients and use energy (gas and electricity) – all qualifying costs for R&D tax credits. Areas of research included working out the optimum temperature of freezing (including freezing in stages), trialling fat and liquid content to manage taste and texture consistency and ensuring ice crystals did not form.
Additionally, they had to ensure that the products were robust enough to be defrosted in different conditions. i.e. while they could rigorously control the freezing process, the consumer – at home or in a small business – could be defrosting within a wide range of conditions that could affect the cake. They wanted to minimise the potential for adverse effects.
The second project involved developing gluten-free products. As we explored in this blog, free-from products, including gluten, are a rapidly expanding market. In the case of gluten, it is thought that 1% of the population has coeliac disease, meaning they have to avoid gluten. ProperMaid wanted to develop a cake range to cater for this market.
When developing a gluten-free cake there are numerous technical challenges that need to be overcome – in doing so there is the potential that some of the costs can qualify for R&D tax credits.
In the case of the ProperMaid project, these included developing recipes with gluten-free ingredients that have acceptable texture and taste standards; ensuring a cake is structurally sound and will not fall apart; testing the cooking process to make sure the cakes cook evenly; dealing with changes to the availability of ingredients. All of which come with costs that represent qualifying expenditure for the government R&D tax incentive.
Another important consideration in the food industry, and relevant to this project, is scaling up. It is one thing developing a recipe on a small scale, but significant further testing is usually required to ensure it can be reproduced using mass production techniques. This includes guaranteeing that the cakes are gluten-free, even if wheat-based products are being produced in the same factory.
These examples demonstrate how apparently everyday projects in the food and beverage industry can qualify for R&D tax credits. Food for thought for producers who haven’t explored the incentive!
Marketing gimmick or R&D?
Back to the question in the title of this article. Is innovation in the food and beverage industry R&D or a marketing gimmick? We think that most of the time, it is research and development – even when marketing is the driver of the innovation. Thanks to high modern standards and market forces that demand an evolving, diverse range of food, almost any new or modified product could trigger extensive research and development.
If you are spending money developing new food and drink products or modifying existing ones, why not pick up the phone to ForrestBrown? We can help you evaluate whether your activity counts as R&D under the tax incentive. Or, if you are already claiming, use our expertise to ensure you are including everything for which you are eligible.