Posted by Selerant on Nov 6, 2018

Selerant_Devex-PLM_sugar-tax

The introduction of a Soft Drinks Industry Levy (SDIL) on soft drink beverages, sodas and fizzy juices in April of this year in the sweetened the deal for health-conscious consumersand soured the existing formulations of many beverage manufacturers.

The UK is just one of over 30 countries, such as Ireland, Mexico, France, South Africa, around the world that have or will introduce these types of “sin” taxes in recent years on sugar and other ingredients perceived as unhealthy components of today’s consumer diet.

The laws, which attempt to reduce consumers’ dependencies on and access to sugar and artificial sweeteners that have been linked to obesity, diabetes, hypertension and more, spell change for both consumers’ habits and manufacturers’ product development processes.

The intended effect—higher prices for sugary drinks and reduced sugar in global brands—does seem to be taking hold. Coca-Cola, one of the largest detractors of the UK sugar tax law, reported an 18% increase in growth for its Coke Zero Sugar and Diet Coke products this year[1]. Similarly, When Mexico introduced a 10% flat tax on sugary drinks in 2013, the increase in the price of goods led to a 5.5% and 9.7% drop in sugary-drink sales in the first year and second after the bill was signed into law.[2]

Whether driven by consumer preferences at grocery store aisles or regulatory choices made from legislative halls, the message to manufacturers is clear: reformulate products with healthier alternatives or absorb the costs into product pricing.

James Brown, a pricing strategy specialists Simon-Kucher & Partners, said: “We’d expect much of this tax to be passed on to consumers through higher shelf prices, but also in hidden ways such as smaller pack sizes and lower promotional discounts.”[3]

In addition to updating packaging, many manufacturers have anticipated these changes by aggressively reformulating products to include substitutions such as fruit juices and raw and natural sweeteners, which are exempt from most sugar tax laws. In some cases, these changes reflect a broader trend in consumer behavior, which has a stronger demand for natural ingredient sources, transparent labeling, and health-conscious choices. Following on the heels of sugar taxes, the call for the removal or reduction of saturated fats, artificial flavors and colors and more will impact baked goods, confectionaries and other types of manufacturers across a broad range of product categories.

“The full focus is now on the beverage industry, but sugar taxes will also be implemented for other food products shortly,” noted Tereos’ Produce Manager of Sweeteners, Kristine Van Den Steen. “The search for affordable alternative food ingredients of a natural origin has started. What is proven is that taste remains key, meaning that consumers will have to pay more for a good tasting full sugar product, if the low-sugar alternative does not succeed in meeting their expectations.”[4]

How Manufacturers Can Conduct Reformulating and Process Re-engineering Quickly with PLM

Reformulation in advance of (or in response to) sugar taxes can take up valuable time, and competition rests with how aggressively product developers can reformulate products and translate innovative ideas into new products on the market.

Replacing a common ingredient like sugar and its artificial varieties with the most economical and competitive alternative requires insight and transparency across a complex portfolio of products, recipes and distribution markets.

Manufacturers with a PLM system can cut through the time-consuming portfolio analysis with:

Faster Material Cost Calculations

As manufacturers make rapid decisions about new ingredient substitutions, a comprehensive cost comparison is critical for assessing the impact of using new materials within complex recipes. When data is spread across Excel spreadsheets and a siloed ERP system, manufacturers often waste valuable time tracking down data and performing incomplete assessments that can’t compare across enough for

By maintaining all product and financial data in one system, the Devex PLM formulation module enables manufacturers to quickly assess how new material costs will change production costs, product pricing, packaging, and regulatory limits by:

  • Calculating the cost of using a different supplier or ingredient.
  • Modeling how different materials will impact overall product costs by integrating ERP and CRM data into each ingredient.
  • Calculating thresholds for ingredient percentages, nutritional requirements, regulatory limits and other attribute statuses.

In fact, many beverage manufacturers are already performing these calculations regularly to keep products in such a competitive space. For instance, a senior member of the Research and Development team at a leading juice manufacturer said she uses Devex’s formulation module to compare materials across multi-use recipes and determine how different materials will affect cost and regulatory viability in specific markets.

“I can’t say enough about material cost savings,” she said. “This tool with the cost function allows us to evaluate any material cost functions without leaving our desk. [We want to know] is this new item more or less expensive than what we have now? We do a lot the work at our desk evaluating efficiency. We can hit M&I targets.”

Comprehensive Reformulation Across Multiple Products

Once the right material cost calculations have been made, many manufacturers struggle over months or years to compile the data as to where and how ingredient varieties are being used, especially in multi-layered formulas that may only use a very small percentage of a component.

PLM systems provide instant transparency into ingredient use that greatly reduces this research and data gathering. With a single view into all active and previous formulations and their related specifications, Devex allows manufacturers impacted by ingredient taxes to reformulate quickly by:

  • Generating ingredient statements listing all product attributes and where they reside within product lines.
  • Mass updating ingredients across numerous multi-layer formulations.
  • Identifying which formulas would be affected by ingredient changes.
  • Creating new formulas and updating ingredient lists across material masters.
  • Activating and deactivating formulas and specifications as needed. 

For example, a US-based global alcohol and spirits manufacturer needed to update more than 70 formulations after European regulatory bodies delisted a specific additive that gives the beverage a juice-like appearance. Using Devex PLM, the manufacturer was able to do a search to find all the affected formulas that currently contained that additive at once and start stability testing for a different cloud-based component in all 70 formulas.

By quickly implementing ingredient changes across multiple products and formulations at once, using a PLM system like Devex means attributes can be reformulated in a matter of hours and manufacturers can deliver nutritional fact panels and compliant products to market on more competitive timelines.

A member of the Quality Assurance team at a large baked goods manufacturer, which uses also uses Devex for formulation management, noted,

“With the quick ability to find data through your basic searches, you can self-serve data in [a] pretty sophisticated use. With the where-used functionality, you can search for an ingredient in multiple levels of use. There’s so much power and flexibility here.”

Deeper Portfolio Analysis and Project Management for New Product Launch

Instead of trying to balance flavor and cost with no-sugar products or low-sugar alternatives, many manufacturers will choose to invest their R&D budget into new product lines entirely.

Emma Wright, Consumer Analyst for GlobalData, noted that the industry can expect to see a shift in product category innovation in response to the tax. “Manufacturers can capitalize on this trend by launching new products within untaxed categories, such as ready-to-drink coffee and tea, flavored water, and milkshakes, appealing to indulgent consumers who are willing to experiment with new flavors and formulations,” she noted.[5]

Tracking the progress and impact of innovation created in response to regulatory changes requires manufacturers to have a solid, real-time understanding of how different stage gates, ingredients, and material costs compare across the product portfolio.

Devex provides manufacturers with a total project and loss analysis, enabling to view innovation, both at individual steps and as, as a total percentage of sales by: 

  • Combining item numbers, viewing profitability by total project or individual item and assessing the impact of blended margins.
  • Understanding financial impact at different stage gates to easily view the total operating income for individual items to assessing which items are the most and least profitable.
  • Controlling key deliverables with workflows, approvals, and status reports that increase productivity and output at every stage gate.
  • Viewing reports by base business, new project development processes and more.
  • Generating dashboard reports that offer portfolio breakdowns by category, market, brand, number of projects by stage.

A more than 150-year-old global chocolatier, which uses Devex to track the impact of innovation through its portfolio, said that systematically tracking the implementation of new ideas is critical to maintaining profitability no matter the regulatory or consumer climate. “As much as innovation is about new ideas, it’s about using your resources most efficiently. You want to deliver the best product to your customers while manufacturing it in an economical way,” said the company's PLM Manager. “With Devex, we can see the financials on each individual item, so we can improve our financial decision making.”

With sugar and other “sin” taxes on the table, flexibility in process and innovation efficiency, transparency in formulation design and ingredient use is necessary to stay in the game and stay compliant. Manufacturers who can unearth insight across numerous types of formulation possibilities, financial data and departments using PLM tools will have a leg up in responding quickly and putting the most competitive, cost-effective products on the market.

Sources: 

[1] “Portfolio shift: Sugar tax knocks Coca-Cola Classic: but Zero Sugar up 50% in Great Britain.” Beverage Daily. October 2018.  https://www.beveragedaily.com/Article/2018/10/29/Sugar-tax-knock-for-Coca-Cola-Classic-in-Great-Britain-but-Zero-Sugar-up-50

[2] “Can Sugar Taxes Work?” The Telegraph News. April 2018. https://www.telegraph.co.uk/news/can-sugar-taxes-solve-obesity-diabetes/

[3] “Coca-Cola and other soft drinks firms hit back at sugar tax plan.” The Guardian. March 2016. https://www.theguardian.com/business/2016/mar/17/coca-cola-hits-back-at-sugar-tax-plan

[4] “UK sugar tax comes into force: Key suppliers react to levies, as low sugar claims strongly influence purchases.” Food Ingredient First. April 2018. https://www.foodingredientsfirst.com/news/uk-sugar-tax-begins-key-suppliers-react-to-levies-as-low-sugar-claims-strongly-influence-purchases.html

[5] “Sugar taxes inspiring beverage companies to innovate with alternative sweeteners.” GlobalData. February 2017. https://www.globaldata.com/sugar-taxes-inspiring-beverage-companies-innovate-alternative-sweeteners-says-globaldata/

Topics: Product Lifecycle Management Software, reformulation, product formulation, sugar tax

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