3 ways to cost-optimise your food and drink products to protect profits
8 February 2023
Mike Adams, Product Innovation Lead and Birsen McArdle, Value Optimisation Lead
With the food and drinks market set to expand rapidly, manufacturers and suppliers face myriad opportunities. But at
the same time, they must contend with several inherent challenges – raging inflation, reduced consumer spending, supply chain insecurity and
global political turmoil. Manufacturers ill-prepared to navigate these conditions risk ceding market share to hungry competitors.
But how can companies best capitalise on this
growing market and protect themselves against emerging obstacles?
One way is through product optimisation. Regularly optimising
the products in your portfolio helps you to satisfy consumer requirements more cost-effectively while identifying new ways to improve
operations and boost your profits.
Product optimisation, however, involves
many moving parts and can leave companies feeling lost with how to proceed. Here we demystify a critical aspect of product optimisation –
cost optimisation – outlining three effective approaches that you can use to cost-optimise your products.
So, what is cost optimisation?
Cost optimisation is one of two critical components of product optimisation
Cost optimisation focuses on maintaining the value and quality of a product while improving the cost efficiency of
producing, distributing, and storing it. In practice, this means critically analysing the drivers of product costs and then pursuing
sustainable measures to streamline them, being careful to ensure that product safety, integrity and appeal are in no way compromised in the
Product optimisation can be divided into two main categories: value optimisation and cost optimisation.
Both are crucial and inextricably intertwined.
Critically, cost optimisation encompasses a variety of approaches. Here, we focus on three impactful examples:
product reformulation, supply chain mitigation, and portfolio rationalisation.
1. Product reformulation
Product reformulation is an umbrella term covering several effective cost optimisation processes – namely, recipe /
packaging reformulation, product downsizing, and introducing manufacturing efficiencies.
Recipe reformulation involves switching or
eliminating ingredients in existing products. When executed correctly, it offers a powerful and effective way to trim costs while keeping
key attributes, such as taste and quality, the same.
What’s more, recipe reformulation doesn’t necessarily mean scouring the globe for suppliers of alternative
ingredients – the solution may be much closer to hand. For example, many companies find that alternative cost-saving and quality-preserving
ingredients are already present within their current portfolio.
Sometimes, however, you’ll have an ingredient that can’t be substituted, much less removed altogether. That’s where
optimised ingredient processing can bring significant cost savings. Indeed, we supported
vodka company Black Moth in doing just this. We developed a process by which
they were able to quadruple the flavour extracted from their vital — but incredibly expensive — European Périgord truffle ingredient for
their truffle vodka, reducing the amount of this costly ingredient required per batch, and so greatly improving the cost-efficiency of the
Composition isn’t everything when it comes to product reformulation.
Downsizing – reducing the pack size, weight or volume without changing the
price – is also an effective option for cost optimisation, especially when faced with challenges such as inflation.
However, manufacturers should approach downsizing carefully, as
consumers may not be willing to purchase a smaller product –
especially if the difference is noticeable. Consumer acceptance testing is, therefore, paramount.
Manufacturers must also consider and test for adverse affects on other packaging and product performance elements
that could inadvertently be impacted by having a less-full pack.
Streamlining manufacturing and reducing waste
Considering how your product is processed can unlock further efficiencies. For example, can you optimise
manufacturing to reduce costs while retaining your product’s appeal to consumers? In most cases, the answer is yes, whether through more
energy-efficient equipment, or investing in training or new machinery for waste reduction. And the impact can be huge, as demonstrated by
Pukka Pies, who we supported in their achievement of a 40% reduction in pastry waste
for one of their products.
2. Supply chain mitigation
Another powerful strategy in the cost optimisation arsenal is supply chain mitigation. With global product
availability constantly fluctuating and at the mercy of external factors, companies can be left struggling to source ingredients, incurring
high, unexpected costs.
Building supply chain resilience is therefore key. In practice, that means understanding all ingredients in your
product and having a back-up plan for swift ingredient substitution should supply chains be threatened. Importantly, this doesn’t need to
involve the full replacement of an ingredient. Simply knowing how to reduce your ingredients without significantly impacting quality can do
wonders for your bottom line during challenging times.
3. Portfolio rationalisation
Without proper, regular evaluation, product portfolios can balloon. While this offers more choice to consumers, the
additional stock-keeping units (SKUs) can significantly add to your portfolio costs by complicating supply chains and manufacturing. That’s
why product portfolio rationalisation is another critical aspect of cost optimisation.
Portfolio rationalisation involves eliminating non-value-adding products from your portfolio. Making sound decisions
on where to cut relies on a careful analysis of product-contributing margins and net revenues. Ideal candidates for elimination are those
with both low volume and low margin. Done effectively, portfolio rationalisation helps you leverage purchasing scale, increase cash flow,
and improve your gross margins.
And that’s not all
Keeping ahead of the competition demands that companies continually grasp opportunities and strategically protect
themselves against risks. To do this, regular and proactive cost optimisation of products is essential.
Recipe reformulation, supply chain mitigation and portfolio rationalisation are three powerful tools in the cost
optimisation arsenal. But they aren’t the only ones. Download our eBook today to discover a fourth cost optimisation strategy, as well as
many other ways to maximise your products’ revenue and profitability by considering both value and cost.
Mike is the Process Innovation Lead, within the Consulting, Technology Group at Campden BRI and joined the organisation in April 2016.
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