CPG innovation down 20% across Europe, study finds

The level of innovation within the consumer packaged goods market across Europe dropped 20% last year, as a result of the challenging economic environment and rising inflation, according to new data shared exclusively with Marketing Week.

At the same time, sales from new products declined by 17%, from €28.9bn (£25bn) in 2023 to €24.1bn (£20.1bn) last year, according to Circana’s Europe’s Innovation Pacesetters 2025 report, which tracked more than 75,000 new product launches in 2024.

Innovation in the UK was particularly impacted by rising inflation, with value sales of new edible products falling 28% year on year, one of the biggest drops across the six European markets looked at as part of the study.

Despite the slowdown in sales, the UK remains a standout for innovation in CPG, the report suggests, with NPD contributing 7% of category sales – the highest among the six countries (the UK, France, Germany, Italy, Spain and the Netherlands) analysed.

But this can be a double-edged sword and can lead to overexposure, according to Circana’s senior vice-president and industry advisor in CPG thought leadership, Ananda Roy.

“[Promoting innovation] is particularly relevant in the UK, where consumers are relatively exposed to more new products than they are in the other five European markets that we study,” he explains.

Roy suggests the overall drop in NPD is a result of brands being discouraged from innovation in favour of managing prices and offering deals to satisfy demand issues.

“It’s almost like the strategic horizons have been pulled forward and [there has been] a tactical emphasis on pricing and promotion to maintain sales, which has been the biggest barrier to innovation,” he says.

During lockdown, manufacturers prioritised keeping products on shelves as consumer behaviour shifted dramatically. In the aftermath, the focus turned to tightening portfolios, with Circana identifying tactics like shrinkflation being used as a cost-effective way to drive sales and protect margins throughout the cost of living crisis.

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Challenger brands vs heritage brands

The report has identified several areas where innovation is thriving in the UK, the first of which is within smaller challenger brands, which have higher proportions of profit coming through NPD.

One such business is pork brand Jolly Hog, which has made NPD a core part of its proposition.

“Consumers, more and more, are seeking newness, particularly foodie consumers at the premium end of the meat category,” says Christine Everett, marketing director of Jolly Hog. “They’re excited by it.”

She adds: “[Innovation] drives brand awareness for a brand like us, which is obviously what we’re trying to build at the moment – getting things out there that people want to talk about and seek out and drive conversation.”

She believes it is Jolly Hog’s agility that is driving its success through innovation.

“We’re much more flexible in terms of what we can produce. I think there’s much less red tape and fewer sign-offs required to get something ready,” she explains.

On this, Roy says: “I think heritage brands have a much bigger challenge of re-engaging with not only their loyal consumers, but with the markets at large.”

While large brands often have higher recognition among consumers, this can also lead to “blind spots”, he says. If a shopper is looking at a shelf full of Cadbury’s products, for example, it could become a sea of purple and prevent consumers from seeing a new flavour.

Retailers know where shoppers are. They know what’s selling, where and why.

Ananda Roy, Circana

Conversely, Circana has identified that heritage brands are able to innovate well because of their already established brand recognition and the cash flow required to absorb the costs of innovation.

This is relevant when considering that revenue generated by NPD is dropping. Around 62% of launches in 2024 generated less than €100,000 per SKU, compared to an 80% average in previous years, according to the report.

Despite seeing success with innovation at Jolly Hog, given her experience at bigger brands, such as Nestlé, Everett is also aware how much that extra cash flow for promoting innovation can make it easier to make things profitable.

“Landing it with consumers and getting awareness, and the investment that it takes is the hard bit,” she explains.

“The biggest innovations tend to have quite big media budgets behind them and obviously, small brands struggle at that end of the spectrum.”

Demand for innovation

British consumers also remain highly engaged with innovation, with more than three-quarters (78%) saying they notice new products on shelves. More importantly, shoppers are prepared to pay for launches that deliver versatility, relevance and lifestyle benefits rather than simply the lowest price.

The report points to several standout examples of how innovation is playing out in the UK. WHSmith successfully reinvented itself with the launch of its Smith’s Family Kitchen food-to-go range, the report suggests, which has already achieved €29m (£24m) in value sales.

Meanwhile, Glen’s Vodka has disrupted the market by extending into ready-to-drink cocktails, using its local provenance and sustainability credentials to appeal to new audiences.

And Circana also singles out smaller brand Trüfrü, with its frozen chocolate-coated strawberries generating more than €5m (£4m) in sales, which it says shows innovation doesn’t need to be complicated.

 

You need fantastic products, but also how do you take those products to market?

Ananda Roy, Circana

Categories such as milk-based drinks, sports and energy drinks, and frozen foods are also proving fertile ground for innovation as consumers seek convenience, value and functional benefits, it finds.

Meanwhile, private label innovation is making shopping more fun and experiential again, adding pressure on established brands to stay relevant.

“Private labels are very much playing the brand game,” adds Roy.

“They’re now talking to you about who’s behind this company, who’s behind this product. What are the sustainability claims? If it’s a product which has animal content, what are the animal welfare standards that [a supermarket] is following?”

Looking ahead

With brands fighting for consumers’ attention when launching new products, Roy believes the way to distinguish one brand’s NPD from another’s is to encourage brands to also innovate in terms of how they take products to market.

He says: “You need fantastic products, but also, how do you take those products to market? Whether it’s through vending machines, in-store, digital signage, retailer media, using online ecommerce or quick service delivery, handling: put the products and services together.”

He believes finding innovative ways to get new products into the hands of consumers is essential in a world where purchases are made more increasingly impulsively.

“Gone are the days when you need to plan your purchase or plan well ahead. You now have the ability to order online and have it delivered to your house within 15 minutes, especially in the big urban centres,” he says.

He points to Aldi in Germany, which has launched a new sports app alongside its protein range as an example of this.

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He also urges brands to work more closely with retailers and use their first-party consumer data to better target customers.

In the case of a premium tea brand, he says, “it’s not likely that you need to be stocked in every shop in the UK. What you do need to know is that [you are] in the six or seven key urban centres, in the high-income post codes, with the right audiences.”

He continues: “Retailers know where shoppers are. They collect this data at the tail. They collect it through their online apps. They know what’s selling, where and why.”

More generally, however, Roy urges brands not to let the factors of a cost of living crisis discourage them from innovation, and to instead invest in customer research.

Alongside this, he encourages brands to look at new customer needs and aspirations, since customers are now ready to “re-engage with new products”.

“[Consumers] have new lifestyle choices, new dietary choices. They are looking for interesting, new products that make shopping fun again. They’re looking for evidence or something that’s worth paying more for.”