Food and Drink Industrys Innovation and Barriers

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Executive Summary

The paper presents a study of the innovation in food and drink industry, specifically fast food sector. The fast food sector has innovated itself to meet the changing consumer need and therefore have invested in biotechnology, food technology and robotic sciences. They have invested in development of skilled labour that can contribute to the innovative processes. The paper discusses the innovations adopted by the fast food sector and provides a description of their innovation model. The paper provides the reasons that influence the need to innovate in the industry and the barriers that stop innovation from taking place. It further provides an explanation into why innovation in fast food industry is important, and provides a trend in innovation in the industry in past and present.

Introduction

The fast food market is a part of the food and drinks sector that posits a complex and diverse structure. The sector provides various possibilities for innovation but also creates many barriers such as human resource issues and financial to curb those innovations. As food industry is also related to health of the consumers and associated with the different senses, it is necessary to provide adequate innovation to provide safe and healthy food that is also satisfactory to the senses.

The specific sector within the food and drink industry that we intend to study is the fast food sector. Fast food industry has increased by 92% in 2012 since the 90s (Food for thought 2012). Though one of the issues that the food and drink industry, especially the fast food industry faces, is the rising problem of obesity and other health issues emerging that would affect the trend in the market (Michman & Mazze 1998). It is a known fact that the unhealthy menu offered at McDonalds or KFC provide higher profits to the companies, however, without product-innovation that would address the health issues that their products create, continuity of business may be jeopardized (Cutting edge fast food innovations of 2013 2013).

In this paper, I will focus on the fast food sector in the food and drink industry to understand the innovation trends that has been undertaken to adjudge the sectors compatibility to the emerging trend towards healthier food.

Fast Food Sector

Fast food is actually any food that can be prepared very quickly (Is eating out back in? 2014). In 2012 and 2013, the food and drink industry in US rose by 0.6 percent while that in Russia by 7.8 percent and Germany by 1.8 percent. Industry trends show that the fast food sector has shown greater growth in 2012-13. Full-service industry in Europe faced as decline in customers in full service restaurants declined by 13 percent and in 2013 (Is eating out back in? 2014). However, the same in fast food sector saw an increase of 54percent turnover (Is eating out back in? 2014). Therefore, the fast food sector, though faces a threat from changing food habits in urban population, has shown an increase in sales in Europe even during recession.

Past and Present Trend in Innovation

Skills Innovation

Fast food industry, especially the larger companies like McDonalds require, (a) employees with low skill levels and (b) highly skilled workforce such as scientists, food technologists, and food engineers. However, the unavailability of such skilled workforce has created a great barrier to innovation for the fast food industry. The unavailability of such high skilled scientific personnel may be due to general perception being low-tech and low wage industry. The share of skilled educated workers in the food and drink industry is believed to be 6.6 percent tin Europe as compared to 13.7 percent in other manufacturing sectors (Leis, Gijsbers & Zee 2011). Still 2005, the share of training provided by the companies to its employees was far below the manufacturing industry standard.

In order to meet with the shortage of high skilled workers, large fast food industries are investing in building programs that would train food technologists and scientists who would reduce the gap of labor demand and supply in the fast food sector.

Further, the larger companies in the sector are investing in robotics industry in order to utilize the advent of artificial intelligence to device cheaper labor alternatives.

Sector Innovations

Some trends that can be observed in the fast food industry that are creeping in are the trend of adoption of organic, more natural food. The large-scale fast food industries like McDonalds and KFC developed in the fifties in the US. The development of genetically modified food and animal cloning technology has become a part industry since the 80s. The issues that plagued the fast food industry are health concerns such as obesity, diet-caused illness, allergies, reduction of immunity, aging, etc.

The fast food industry benefits a lot from advancement in the advancement of science and technology, especially biotechnology, molecular biology, etc. presently, fast food chains selling pizzas and other snacks are criticized as they are believed to increase chances of obesity. Thus, the main issue here is imbalance in the nutrition provided by fast food. McDonald, one of the largest fast food chains in the world, have made an effort to change this image of unhealthy food by incorporating healthier options such as salad in their menu (Cutting edge fast food innovations of 2013 2013). For instance, Nestle will start using natural ingredients for all its ice cream freezers from 2015 (Eagle 2014). Further, innovation is not only required in food but also in the packaging in fast food sector. Innovative packing and designing has to move fast, other affecting the relevance of the food in the industry (Arthur 2014; Nesta 2014). Using IT solutions for better customer service and customization of products is required for food industry (Spinner 2014; Blank 2014). Thus, sustainable and innovative fast food could become an option for the future (OECD 2014).

Therefore, the factors that affect the innovation in the fast food industry are as follows:

Availability of skilled workers: the availability of scientists, food technologists, food designers, and product designers is essential for innovation in food industry. Therefore, availability of labor and innovation in skill is essential for creating new and better product.
Trend towards Organic and Healthy Food: Health issues are correlated to food and drink industry as the consumers eat and digest the product sold. Hence, proper health and safety measures must be in place. Further, fast food industries face a threat from the changing trend towards healthier food options (Department for Business Innovation & Skills 2014). Therefore, the fast food sector must innovate its product offering to provide healthy fast food.
Providing better service: Food industry is an amalgamation of product and service industry. Therefore, fast food companies like Pizza Hut and McDonalds have to concentrate to provide good customer experience. In order to enhance customer experience, innovation in services through adoption of software like ERP or RFID is essential.

Innovation in Fast Food Sector

So what kind of innovation do we observe in fast food sector? The understanding of the past and current trend in fast food sector innovation, a model for innovation can be developed (Innovation Union Scoreboard 2014). The trend in food market demand and the change in labor market have induced the changes in the fast food market are observed in figure 1. The two factors from the external environment that may affect innovation are trend in labor market and demand for healthier fast food. This model is consistent with the interactive model of innovation as the forces from the external environment enforce the changes on the fast food sector, therefore changing its internal operations.

*Figure 1: Model for Fast Food sector Innovation*

Barriers to Innovation

The barriers to innovation in the fast food industry are that from social and technological innovations point of view, are related to the inputs for innovation in science and technology. Risks related to the innovations and the sustainable use of the innovation becomes a barrier to innovate. Technological innovation in other sectors like automobile does not usually imply success in innovation as a source of economic profit. But in the fast food industry innovation that transforms the unhealthy food to healthy food is definitely a source of economic profit. The barriers to innovation definitely are the unavailability of skilled innovators.

Conclusion

The investment in innovation and R&D by fast food companies is much lower than other manufacturing companies, but they are as dedicated to build an innovative product and service line as any other companies due to the rapid change in consumer preference. A detailed analysis into the trends of innovation set in the sector shows that the industry leaders like McDonalds have tried to engage in innovative product offering and developing their skilled workers. Further, trend has been observed to innovate packaging of their products, incorporate healthier menu (Hayden 2014; Sozzi 2014), investment in ERP software and robotic technology. Overall, the assessment of innovativeness of the sector shows though not equally at par with other manufacturing industries, it has equipped itself to be more innovative in the future.