Terra Technology, a retail forecasting software provider, said it reached the conclusion after a survey showed the number of new products on shelves has soared by 32% since 2010 while overall sales of surveyed companies has; expanded only 4%.
“Everybody’s looking for next big thing but I don’t know that people are weighing the added cost and complexity sufficiently when making those trade-offs,” said Robert Byrne, Terra Technology’s chief executive and author of the report.
The report surveyed 14 large multinational consumer-products companies making up $250 billion in annual sales. While companies add new flavors of potato chips, change the wrapping on cookies and seek out seasonal fads—like pumpkin-spice beer—the vast majority of the new items rarely register at store checkout lines. In many cases, sales of a new flavor simply come at the expense of sales for an original product.
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Despite the poor return, a “growth through innovation” strategy remains popular, Mr. Byrne said. But, he said, many companies aren’t planning ahead for the complications new products bring to supply chains, including new sourcing and volatile changes in inventory needs based on uncertain demand. Each added item needs new packaging, new artwork, a new process for introducing the product to retailers and a person or team of people in charge of managing the flow of those materials.
Companies “should really look at the cost of innovation—the cost of carrying inventory and the impact on service,” Mr. Byrne said.
“To me, it’s mind-bending to say half the items out there amount to 1% of sales,” he said. “It’s so extreme, it’s hard to believe there couldn’t be some improvement.”