‘DESIGNER FOODS’ TO GROW THROUGH MERGERS AND ALLIANCES BETWEEN GIANT CONSUMER COMPANIES AND THEIR PHARMACEUTICAL COUNTERPARTS
Scientific rigour and demand for personalised foods will drive these partnerships
A business war game contest on Monday 30th April between Oxford University’s Saïd and Cambridge’s Judge Business Schools, run by Fuld + Company predicted the outcome of the so-called ‘Battle for Designer Foods’ (nutraceuticals).
The world of food is about to change, and the companies represented by the MBA students in the war game (Abbot Nutrition, Danone, GlaxoSmithKline and Nestlé) are amongst those that will be part of the revolution. It is uncertain whether consumer packaged goods or pharmaceuticals will take control of this new space. Can the food companies complete against the pharmaceutical companies, some of which are moving back into the PPTC market, including the nutraceuticals business? Pharma companies, looking for growth opportunities as drug patents expire may be better-equipped to endure the costly and time-consuming clinical trials for products. So which industry – food or pharma – and which companies, were best-positioned to win “The Battle for Designer Foods”?
A strategy game, or ‘War Game’, is an enlightening and engaging analytical exercise that can lead to truly creative strategies. Briefly, two sets of MBA student teams represented the companies mentioned. Working in breakout rooms they created a picture of the company and developed strategic options it expects to pursue. The teams reassembled and presented their company’s marketing strategy. Teams, judges and observers had an opportunity to analyse and critique each others’ strategies. Based on what they learned they retreated to their breakout rooms to refine their strategies then returned for a further critiquing session.
The facilitators then offered a fictional but plausible surprise event for the teams to consider. At that stage, they could talk to each other if they wished, and negotiate deals.
One of the war game’s predictions include the fact that giant consumer packaged goods companies are likely to join forces with their pharmaceutical counterparts to catapult the nutraceuticals (Designer Foods) business in Europe and in the U.S. into a major market, projected to be worth $250 billion in just a few years. With the European Food Safety Agency beginning to regulate designer foods, the war game arguments made it clear that this category will be subject to increased regulatory scrutiny on both sides of the Atlantic, requiring some of the clinical trial expertise and capabilities pharmaceutical companies bring to the market with consumer companies adding their knowledge of customer segmentation and mass market resources.
“We are confident about this prediction, as past competitions have accurately forecasted events and competitive activities in a number of industries,” commented Leonard Fuld, Fuld + Company president. “This is the ninth such event run in as many years and the first between these universities with a centuries’ old rivalry.“
In addition to the above general prediction, other key insights emerged, including:
- Tailored foods will be coming to a grocer near you: A ‘One size fits all’ model will be supplanted in the future nutraceuticals market. Consumers present many nutritional challenges and will require companies producing variety in their nutraceutical portfolio to fulfill the need for each consumer segment.
- Regulators will impose stricter requirements, forcing producers to demonstrate either a product’s efficacy or health claims: At the moment, the designer foods industry offer products that do not require them to put their products through advanced, scientific testing to prove more than the basic health claims. As the interest of companies in designer food products increase, companies will migrate to issuing products that may contain compounds offering specific medicinal value – for example, treating diabetes or cardiovascular disease. While the games’ judges cited the difficulty in adding drug compounds to foods because of dosing and other issues, companies that do seek to differentiate with drug-like treatments to achieve higher value and possibly higher prices for products in this category will find regulators likely to require firms to conduct rigorous and far more expensive clinical trials, which is not the case at the moment – particularly for designer foods sold by consumer package goods companies.
- The greatest advances in designer foods will come from firms with highly focused objectives and highly focused portfolios: The game exposed the fact that the large multinational players are likely to be at a disadvantage by having to manage too wide a portfolio of products, not allowing them to focus on the designer foods segment. Smaller – perhaps start-up companies – will be the ones to discover breakthroughs in this industry sector.
In the Designer Foods War Game Fuld conducted in the United States in 2011 on the same topic risk, or fear of risk, was a central theme but this was less of a discussion point among the Oxford-Cambridge participants. In the Oxford-Cambridge game, teams demonstrated some concern about the risk of investing in functional foods but chose instead to form alliances and propose acquisitions.