Ingredion enhances CPG innovation with focus on texture and health

Ingredion’s recently created $2.4 billion global texture and healthful solutions segment allows it and the manufacturers with which it works to tap into trends with higher selling prices and margins, shared Ingredion’s EVP and CFO, Jim Gray in a presentation during the Consumer Analyst Group of New York (CAGNY) conference yesterday.

The company is investing $100 million into its flagship texture and healthful solutions facility in Indianapolis, Ind., with returns expected in the high-teens to 20%, explained Rob Richie, Ingredion’s SVP of food and industrial ingredients in US and Canada.

Texture will play a role across the five major food categories

Ingredion is focused on investing in five major food categories where texture plays a crucial role: savory, dairy, bakery, snacks and beverage – where these categories are driven by ever-evolving factors, like consumer preferences, regulations, labeling and cost, Gray explained

“Texture is omnipresent in our consciousness as a consideration for a food purchase or preference, and food companies are increasingly recognizing the opportunity that this represents and the opportunity for texture innovation is global,” he said.

Unlike flavor, texture does not have “standardized descriptors” in the US – while other countries like China or Japan use hundreds of terms to describe the mouthfeel of a food, which is an “opportunity to invent entirely new terms” to “market foods with interesting and appealing textures,” he added.

Mochi’s chewy and elastic texture is a staple in Asia, and its popularity is growing in the West, Gray said. Ingredion’s range of tapioca and rice starches is positioned to continue this growth while providing a cost-effective option for customers, he added.

The company’s investment in the texture and health segments reflects ingredients’ critical role in product formulation, particularly around sugar or fat reduction and boosting protein and fiber.

“These five categories make up 90% of the global sales opportunity for texture,” Gray said.

Currently, the business operates at a 28% gross profit margin with an expectation to expand over the next four years through volume growth with incremental, fixed cost absorption, Gray explained.

Last year, Ingredion achieved “another record year” of gross profit margins of 24%, up 270 basis points, earnings per share of 13% and $1.4 billion in operating cash flow, with a 30% return for shareholders, Gray said.

The texture and healthful solutions segment currently operates at 28% gross margins, with a projected 5-6% sales growth and 8-10% operating income growth over the next four years, he added.

Long term EBITDA margin targets are set at 20% for this segment, according to Gray.

Leveraging diverse range of texture, sweeteners, protein and fiber ingredients

Ingredion will leverage its portfolio of specialty starches (e.g. corn, tapioca, rice, potato, pea), hydrocolloids, functional fiber and pea protein isolates, in addition to high-intensity natural sweeteners like stevia to address the growing demands for clean label, protein and fiber foritification and sugar reduction.

Last week, Ingredion and sweet protein producer Oobli announced a partnership that will focus on sugar reduction offerings using stevia and sweet proteins.

The company also restructured its food and industrial ingredients segment by region to focus on “core sweeteners and industrial solutions to their relevant geographic customer base reinforcing” service standards, quality and cost competitiveness, Gray said.

Sugar reduction and protein fortification were set as separate growth-oriented units, capitalizing on trends toward lower sugar and higher protein formulations, he explained.

“The segmentation focus that Ingredion now has in place provides a complementary structure for the enterprise at large, towards cash generation, innovation and growth. The heart of Ingredion’s strategy is to grow and enhance the margins of our global texture and healthful solution segment through innovation. This is supported by a significant opportunity that we see to be a go-to provider for textural innovation, while also helping customers formulate healthier options,” Gray elaborated.

Establishing a local supply chain to ‘derisk business’

In response to global supply chain challenges, Ingredion moved towards more local production and service models to reduce risks related to tariffs and international disruptions, explained Richie.

“We now have a global team in place. We serve multinational packaged food brands in multiple countries. Following 2021 global supply chain tightness, we have moved toward more local production and service model in many of our trading geographies. So, while we’re not immune to the impact of potential tariffs, we source raw materials locally. We produce locally, and we serve customers locally, which is very helpful to derisk our business. The global reorganization is enabling us to pursue optimization and cost savings,” he said.

Ingredion’s cost saving measures include optimizing its global operations by closing smaller plants in Brazil, Canada and the UK, with a goal of achieving $50 million in run-rate savings by 2025, Richie said.

The company is also investing in sustainable packaging and bioplastics, partnering with customers to support the pauperization trend and eco-friendly food packaging, he added.