EU companies consolidating to boost R&D investments

Recent announcements by Unilever, Geest, Mondi and Ulma demonstrate that some know where their future product development will come from -- internally and not externally.

However, these four companies are exceptions. Both industry sectors are hesitant to invest in R&D due to the continuing low profit margins in Europe, and the resulting cash flow squeeze.

EU companies have notoriously low investments in food industry R&D. As a percentage of output, the EU only invests around 0.32 per cent in R&D, far below the 0.43 per cent average set by its main competitors, according to a study by the EU Confederation of Food and Drinks Industries(CIAA).

According to the CIAA study, 48 per cent of food and drink companies are not planning to expand their R&D operations and four per cent are considering closing down R&D activity.

However, those companies staying with R&D are placing more money on new developments. Expenditures are growing an average of €10m per year since 2003, according to the CIAA.

These statistics have caused concern that EU companies may fall behind as their foreign competitors develop new consumer-targeted products for the market. Those that recognise the problem have been spurred to consolidate their research facilities in a bid to increased R&D productivity at lower costs.

Unilever is an example of one company that has found itself pressed to reorganise the way its research and development arms operate. The ongoing changes are part of the company's battle to reinvigorate its organization and products after years of lackluster sales performance.

R&D is at the heart of product innovation in the reorganised Unilever, according to the 2005 annual report.

"The contribution of innovation is affected by the level of funding that can be made available, the technical capability of the research and development functions, and the success of operating management in rolling out quickly the resulting improvements,"​ management stated in describing the new focus.

During 2005 the company's food division focused its laboratory resources on completing an assessment of 16,000 products for levels of trans fats, saturated fats, sodium and sugars. The assessment was part of a programme to reduce levels of such ingredients in a bid to cater to the healthier eating trend.

As part of the shake up, the company also restructured its R&D in 2005 to operate as a single, integrated organisation. The changes would enable the company to leverage its global scale and allocate resources more productively, management said in the annual report.

And while R&D spending actually fell in 2005 by about four per cent, to €953m, the company said it began investing more at the end of the year. It plans to boost funding during the second quarter of this year.

The reorganisation is already beginning to pay off, at least in terms of recognition for the company's efforts.

The company's ice cream and frozen food laboratory in Lowestoft, UK shared the top award with Geest in the annual Oxoid Food and Brewing Awards. The award was for the top food-testing lab in the UK during the past year.

The Unilever laboratory team is responsible for the safety, quality and legality of all Birds Eye frozen food products from the factories at Hull and Lowestoft. The laboratory carries out microbiological and chemical analysis, and provides advice and support to all areas of the business.

It also assists in new product development by working with other units of the business and with customers. The laboratory impressed the judges with the improvements they had made not only to their working practices but also to internal company relations.

"They had adopted a "one lab" project that combined the talents of the chemistry and microbiology laboratories, leading to new policies, procedures and ways of working while, at the same time, gaining ISO17025 accreditation,"​ Oxoid said in awarding the prize. "The laboratory now offers the services of an internal 'Customer Service Representative' that can help and advise on analytical methods that may assist, for example, in new product development."​

Geest, which shared the award with Unilever, is another food company that is investing in testing and R&D. The company's central laboratory in Lincolnshire, won the award for introducing new and improved testing methods and expanding the level of testing undertaken.

The improvements were achieved at the same time the company consolidated two laboratories into one, while implementing a new laboratory information management system.

To keep up with the changing demands of manufacturers, food-packaging companies have also joined in by investing in their R&D operations. Mondi, for example announced last week it had opened its newest R&D centre inKorneuburg, Austria.

The centre incorporates laboratories and pilot production lines under one roof. The €4.5m facility has two laboratories and ten scientists that specialise in both flexible packaging and printing.The operation will cover the development of a wide range of packaging materials from adhesive lamination to zipper pouches.

Scientists will be working to develop new extrusion processes, digital printing, lacquering, glue and adhesive lamination, slitting and laser perforation and bag and pouch production with various functional add-ons such as valves and spouts.

Mondi says that their packaging materials will increasingly be focused on biodegradable polymers, transparent barrier materials, paper and polymer membranes, which show high consumer and producer demand.

Ulma Packaging is another company taking the R&D plunge. The company has also created a new R&D centre for their machines. The Spain-based company announced last week that its new product technology centre is part of a broader move to upgrade its line of packaging machines.

The company has also invested in an in-house stainless steel production facility to better manage the production of their machine components.

Consolidating operations is one way that companies are setting aside money for further R&D initiatives. Ulma's UK director Derek Paterson stated that the company's future relied on their new facility to stay ahead of the competition.

"Our focus remains on providing the UK market with innovative, flexible packaging solutions which offer added value, quality construction and ease of use. This current investment will support those aims,"​ he said.

It is only a matter of time before EU companies recognise that R&D is vital to their continued growth. To remain competitive in an increasingly integrated, global market, investments into R&D will have to be made or the EU risks being left behind.