Rising ingredient costs push CPGs to modify formulas

WESTMINSTER, COLO. — Nearly 90% of manufacturers surveyed by TraceGains said higher ingredient prices have shaped the way they’re doing business today. For many, that means modifying or creating new formulas altogether.

For its “2022 State of Supply Chain Disruption” report, TraceGains surveyed more than 300 food and beverage manufacturers about the impact of macroeconomic conditions like ingredient availability and the pandemic on innovation, product development and the trickle-down effect on consumer prices and availability. The networked ingredient sourcing platform also gathered input from new product development professionals at companies with revenues upwards of $500 million.

The report found mixed results in terms of the impact on innovation. Respondents were evenly split between CPGs continuing to innovate and those making R&D cutbacks.

“As consumers, we feel the pain of supply chain issues each time we walk out of a grocery store,” said Gary Nowacki, chief executive officer of TraceGains. “This survey sheds light on the problem directly from a CPG brand’s perspective and lets other food and beverage companies know they’re not alone in this fight. Forward-thinking brands have used this unfortunate time as a wake-up call to modernize antiquated operations and those who already have are much better positioned to mitigate disruptions with as little impact as possible.”

New product development and formula modifications have been critical to compensating for higher ingredient prices, according to the report. Thirty-seven percent of companies acknowledged modifying more than 20 product formulas. A quarter admitted to modifying between 6 and 20.

Two-thirds of companies said they were forced to raise prices in the last two years. Nearly 50% halted production on some products. Another 46% said they have been unable to keep up with consumer demand.

TraceGains also asked respondents about lessons learned for the future. Increasing supplier diversity was the most important strategic shift followed by leveraging contract manufacturers. Nearly 7-in-10 companies said they plan to expand their supplier networks in the next 24 months. A quarter will reshore their supply base to deal with continued instability, and 41% plan to change or eliminate product offerings altogether.