Article:

Drive for innovation in the Food and Drink sector

04 November 2021

Our 2021 Food & Drink Report found that new product development, R&D and innovation was a key focus for 77% of food and drink manufacturers. R&D in the Food and Drink industry most commonly relates to the development of new or improved products and manufacturing processes.  With an increasingly healthier customer, looking to reduce sugar, salt, fat or adopt more natural, organic products, or the drinks industry attempting to develop low/no alcohol alternatives, the industry is under pressure to continually innovate.

This article highlights three areas Food and Drink companies need to be thinking about as they drive innovation to ensure they’re not missing out on R&D relief.

Reformulating to deal with raw material shortages

It’s no secret that in recent months, the world has become a very different place.  Consequently, Food and Drink companies are also facing raw materials shortages and therefore have to look for alternative options.  These alternatives must maintain product performance (taste, organoleptic properties, appearance), manufacturing efficiency and product shelf life.  This inevitably leads to R&D activities in reformulating the product and ensuring the manufacturing assets can still process these effectively.

Innovative packaging developments

However, the R&D doesn’t just exist within the actual product development or manufacturing process.  It also extends into the packaging.  After all, it’s great to develop a new product and be able to manufacture it in a viable way but it also must be able to protect it through the supply chain and achieve the required shelf life.

Additionally, with the introduction of the new plastic packaging tax due to come into effect in April 2022, companies are having to look for alternative sources of packing that is compatible with its products and manufacturing.  This again will lead to R&D activities being undertaken.

Missed or under-claimed R&D

It’s inevitable that businesses will continue to expand their product range and seek to optimise their production capacity, and if this involves an element of head-scratching and problem solving to overcome technical difficulties, it’s likely the project will qualify for R&D incentives.

Many food and drinks businesses miss out or under-claim R&D relief because applying the definition of R&D and the associated tax criteria can seem difficult or they don’t appreciate the full breadth of activities and expenditure that can be included.  In fact, HMRC’s latest statistics (2018-19 tax year) showed that the average benefit received by food and drink companies was only c £55k.

More so than ever, cash flow is even more important and companies continually investing in innovation activities.  So, in an industry that continually invests in product, packaging and manufacturing development, exploring R&D incentives (which can generate a c 10-33% benefit), could generate the additional cash to invest.

Download the Food and Drink report for more insights.