BOCA RATON, Florida — Food manufacturers are increasingly looking to work closer with ingredient suppliers as they accelerate the pace of developing products and respond to changes in what consumers look for in the items they eat, Ingredion's top executive told Food Dive.
Ingredion CEO Jim Zallie said there is a "genuine urgent need and interdependency that has not existed" between CPGs and ingredient suppliers before. In the past, he said, large companies would write up lengthy contracts that would take several months to gain clearance from their legal teams. Today, that time has been whittled down to a few days or weeks as its customers have become much more open, transparent and trusting.
"I come from an era where large companies had the luxury of being very careful and cautious as it relates to how they would engage with you, what kind of contracts they would want to sign. Those days don't exist. Those days are gone," Zallie said in an interview at the annual Consumer Analyst Group of New York conference last week in Florida. "The patience isn't there on the other side, the recognition is there that that's not going to win the day" in a rapidly changing food space.
Food and beverage companies such as PepsiCo, Mondelez International, Conagra Brands and AB InBev are moving faster to introduce products to the market that meet consumer interests ranging from plant based, lower sugar and gluten free to organic, non-GMO and clean and simple ingredients. Much of the need to innovate not only comes from these industry giants, but from small and mid-sized companies that have disrupted the marketplace with more on-trend offerings.
"I come from an era where large companies had the luxury of being very careful and cautious as it relates to how they would engage with you, what kind of contracts they would want to sign. Those days don't exist. Those days are gone."
Zallie said the ability of small and mid-sized companies to disrupt a segment of food — like Chobani in yogurt or Kind in bars — has changed how Ingredion works with them. Ingredion used to tell these businesses to work with its suppliers; now it works directly with them to quicken their product development.
"They are literally disrupting certain categories and the volume opportunities are not insignificant or small," Zallie said. "They're not something we can dismiss because literally one of these customers can gain share in a category."
'We do have to be very selective'
The pace of product development also has forced Ingredion to make changes to how it runs its own business. The Illinois company has created a business unit that works with small, emerging start-up companies to accelerate their innovation process. Ingredion also has made changes to how it markets products in its portfolio and the way it goes about training its sales staff.
Ingredion is doing more co-creating of ingredients with food companies, too. Zallie said recently a large dairy company asked his firm to work with a flavor provider to create a fruit-flavored, dairy-based beverage. Within 60 days, the companies were able to create the concept, formulate it, develop the recipe, tweak it, test the recipe and get it out to store shelves.
But Zallie said Ingredion has to be selective and must limit who it works with to jointly develop new products because it has limited resources. This is especially prevalent in plant-based, a category where ingredient sales are expected to reach $9.4 billion by 2024, according to data supplied by Ingredion from Persistence Market Research.
"We do have to be very selective because we have everybody and their brother coming out of the woodwork that wants to work with us" on plant-based products, Zallie noted. "And honestly, we're stretched thin because we have only so much bandwidth to partner in that area, which is experiencing explosive growth."
Ingredion, which offers more than 1,000 ingredients to most large CPG companies, as well as smaller, local businesses around the globe, increased its total spending in plant-based ingredients to $185 million by the end of 2020 to capture growth in the segment.
Creating a flavor powerhouse
The ingredient space has been a hotbed of M&A activity as companies look to combine their research and development capabilities and areas of expertise to churn out new ingredients faster and with higher quality than they likely would have on their own. They're also able to create an ingredient and flavor powerhouse that can address more of a food manufacturer's needs, including meeting multiple trends such as functional and better-for-you foods.
Last December, DuPont announced it would merge its nutrition business with International Flavors & Fragrances in a deal the firms valued at $26.2 billion — creating a mega-company with dominant positions in taste, texture, nutrition, enzymes, cultures, soy proteins and probiotics.
With meaningful growth and potential synergies, it's no wonder companies are looking to combine. According to Allied Market Research, the global flavors market for food and beverages was worth $13.2 billion in 2017. It is projected to hit $20.1 billion by 2025, for a compound annual growth rate of 5.4%.
Ingredion has been bulking up its portfolio through M&A. In 2017, it acquired Sun Flour Industry, a rice starch and flour business based in Thailand, and TIC Gums, a manufacturer of texturizers and gums such as acacia and guar. In 2019, it purchased Western Polymer to expand its reach in potato-based ingredients and entered into an alliance with Matsutani on the rare sugar allulose.
Zallie said Ingredion would consider either smaller bolt-on deals or bigger M&A if it helped increase its presence in the five areas it has targeted for growth: starch-based texturizers, clean and simple ingredients, plant-based proteins, sugar reduction and specialty sweeteners and food systems.