Ca-Ching! Cost-Reduction Formulations

Have you ever been on a delayed flight when the captain announces he pulled a few tricks and the flight will land at the scheduled arrival time? Just what were those tricks, and why don’t they simply get incorporated into the regular flight pattern so that travel times are always reduced? Or did he do something unsafe to make up that time?

Most of us will agree that the airline industry is not worth the time or energy to try to figure out; however, the question remains: What were those tricks?

Formulating tricks

Food manufacturers are often asked by management to cut costs. In other words, pull a few tricks to improve the bottom line - but oh, by the way, don’t jeopardize quality or safety.

Because you cannot take the strawberries out of strawberry yogurt or the chocolate out of chocolate milk, cost-reduction formulating can be a tricky trick. Can you reduce the amount of strawberries without the consumer knowing? Can cocoas be blended and some chocolate extract added to reduce chocolate costs? What about replacing milkfat in premium ice cream with extra stabilizer? And how about blending nutritive and non-nutritive sweeteners?

Tough times call for extreme measures, but when do you draw the line?

“Modern consumers have clear expectations of what food should deliver and at what cost. Today’s challenging economic environment means manufacturers are under pressure,” says Robert Allin, director of marketing, North America, National Starch Food Innovation, Bridgewater, N.J. “Delivering optimum value with every purchase is the food industry’s common goal. Re-evaluating processes and ingredients is one way to achieve it.

“Achieving the balance between good value, functionality and quality is the holy grail of product positioning. Add convenience and consumer-friendly labeling into the mix and the stakes are even higher,” adds Allin. “If you are replacing ingredients for a more economical offering, you cannot compromise performance or quality.”

James Duffy, director of applications at Comax Flavors, Melville, N.Y., adds, “The first step in cost-reduction formulating is to evaluate alternative sources or suppliers of the same ingredient, especially if it’s a commodity product.”

There’s always that chance that one of your suppliers offers the same ingredient you are purchasing from another company. Sometimes you can receive a discount by purchasing multiple ingredients from the same supplier. Some suppliers position themselves as a one-stop shop, and the more you buy, the greater the savings.

“If that’s not effective, the next step is to obtain samples of all potential lower-cost ingredients. Because finished product quality is of upmost importance, each ingredient must be evaluated for functionality,” says Duffy. “Most likely there will be some functional impact, or you would have used the lower-cost ingredient in the first place. What the company needs to decide is if the potential cost savings is worth the effort in changing the formula, as well as possibly having to change the packaging because of the new ingredient’s impact on the ingredient statement. Also, will the consumer notice the difference?

“One way to minimize detectable differences is to take a multiple component approach to cost reduction,” says Duffy. “For example, in chocolate-swirled vanilla ice cream containing crushed peanut butter cups, maybe the chocolate swirl is reformulated to contain less chocolate but gets a boost from a cocoa extender. The same goes for the peanut butter cup. But you don’t change the vanilla ice cream base.”

It is important to keep in mind that sometimes in order to maintain quality, it is necessary to use more of a lower-cost ingredient. In the end there’s no cost savings. The fact is, more expensive ingredients used at a lower usage level may actually save money. This is particularly true with flavors, where the perception in the industry is that artificial flavors cost less. But the reality is that usage levels often increase, as compared to when natural flavors are used. Changing from natural to artificial flavoring also impacts product labels. Marketers must determine if this will have an impact on consumers.

Stabilizing costs

Dairy manufacturers know all too well the volatility of raw material costs, as milk and milkfat seem to be on never-ending roller coaster rides. Further, the volatility of oil prices has increased shipping costs for all products, as well as raised the cost of ingredients and labor.

Thus, another approach to reducing ingredient costs is to opt for dry ingredients that cost less to ship. A good example might be coffee-flavored ice cream, where the coffee extract can be dried by the supplier and shipped at a reduced cost. Additionally, the dry blend would typically be more stable and have an increased shelf life.

The potential cost savings of replacing milkfat with a texturizing system is twofold. Not only would a savings be realized by the simple replacement of a costly ingredient with one that is more economical, the texturizing system would most likely be a dry powder, vs. the liquid milkfat that must be shipped under refrigeration. 

“There are texturizing systems that deliver mouth-coating creaminess, viscosity and product opacity and act as a fat mimetic in all types of dairy products,” says Allin. “Such ingredients are available all year round at a reliable cost, freeing the dairy processor from the effects of unpredictable price rises.”

During tough times, smaller dairies have been known to rent warehouse space to store dry ingredients that are not impacted by storage. This allows the company to continue using higher-quality, more expensive ingredients, but they are now able to receive a discount for purchasing a full truckload.

Sweet savings

Because many dairy foods use plenty of sweetener, potential cost savings exists in this area. “Historically, sweetener-related cost savings became possible with the development of alternative, lower-cost carbohydrates such as corn syrup, high-fructose corn syrup and maltodextrins,” says Steve Young, principal, Steve Young Worldwide, Houston. “Considerations involved in the use of such ingredients included the need to maintain key product properties such as sweetness, flavor, body and texture.

“In the past few years, the addition of new sweeteners including novel, high-intensity sweeteners, improvements in sweetener manufacturing efficiencies, and accompanying competitive pressure have created more than just significant reductions in the cost-per-unit sweetness of a variety of sweeteners. This includes both nutritive and high-intensity types. Thus, the rules of engagement relative to achieving cost reduction by managing sweetness and thus, sweetener usage have changed as well,” Young adds. “At the same time, the industry is giving more consideration to the use of non-traditional ways of applying sweeteners of all types. As a result, novel approaches leveraging sweetener functionality, sweetness and cost-per-unit sweetness are now possible.”

Often times, replacing a portion of the carbohydrate-based, nutritive sweetener with a high-intensity sweetener blend allows for a significant cost savings. When all of the sugar is replaced, solids must be adjusted, and a cost savings may incur…but the greatest savings comes from partial replacement. Thus, reformulating dairy foods and beverages using a blend of nutritive and non-nutritive sweeteners could be an opportunity for caloric reduction and cost savings if consumers do not perceive a difference between the two products.

Formulators must remember that cost optimization is not a one-to-one, one-size-fits-all replacement of an expensive ingredient with a cheaper alternative. And in the end, if the consumer doesn’t buy in on the cost reduction, there is no savings because there are no sales.  

Sidebar: IFT Session Alert

If you will be attending the IFT 10 Annual Meeting + Food Expo in Chicago this July, you may want to sit in on General Session 14: An essential market update for product development in today’s challenging economic environment. This not-to-be-missed market update will focus on how customers are adapting to today’s recession and how they are reprioritizing their needs and wants. It will also profile new product introductions and how they have adapted to the recent economic environment. The session runs on Sunday, July 18, 10:30 a.m. until noon in room S401cd.

Sidebar: Turn Off the Water

It sounds so simple. Water use inside a manufacturing plant is the most overlooked, yet easiest way to cut costs. Simply don’t turn it on until you are ready to use it, and then shut it off when you are done.

Water is an important resource, but one that is becoming more scarce with time. Make an inventory of your production process and identify all of the possibilities to optimize the use of water. Don’t forget to include mixing zones and washing areas. Findings can be implemented immediately, resulting in direct savings in operational costs.