If Tyson succeeds with Hillshire acquisition, it will become number two player in US frozen

If Tyson succeeds with Hillshire acquisition, it will become number two player in US frozen

Sales in the frozen aisle have been lacklustre in the US for some years. However, increased competitive activity from the likes of Nestle, ConAgra Foods and Tyson Foods could help rejuvenate the sector, Katy Askew suggests.

The world's first quick-frozen food business was launched in 1925 by American inventor Clarence Birdseye. The process was developed for fish and quickly extended to meat, poultry, fruit, and vegetables. By 1930, the company - which was ultimately to become the Birds Eye Frozen Food Co. - had began gauging consumer reactions.

The frozen food category was born.

But it wasn't until the 1980s that frozen really hit its stride. The technological advances that saw microwaves make their way into consumers' kitchens meant frozen products - already positioned as a convenient alternative to canned - became that much more convenient.

Brands like Lean Cuisine - currently owned by Nestle - and Healthy Choice - now owned by ConAgra Foods - were becoming the pick of many an American housewife. By the 1990s, the sector was successfully communicating messages around health and wellness, freshness quality.

However, as always, the drum beats on. Consumer demand evolves and frozen food makers have not necessarily kept pace with the changing face of this.

Ironically, many of the attributes formerly associated with frozen foods - freshness, quality, health - are now linked to fresh alternatives.

Frozen foods have come to be associated with "junk food". People still want convenience, but they are also increasingly looking to cook from scratch. The development of speed scratch-cooking products have given rise to some stiff competition.

According to data from Nielsen, US frozen food sales have contracted by almost 2% over the past 2 years.

Frozen diet meals have been among the biggest losers, with sales falling a total of 7% in the period. Blockbuster brands such as Lean Cuisine and Healthy Choice have failed to update and modernise their image. Consumers no longer want to associate with hard diet and instead require products that promote healthy, balanced lifestyles.

Both Nestle and ConAgra have identified these weaknesses and developed actionable plans to turnaround the performance of their diet frozen offerings.

Speaking on the firm's most recent conference call, ConAgra CEO Gary Rodkin revealed the company is "working to turn around" Healthy Choice.

"We have specific action plans under way to stabilise and improve performance through product and packaging changes, focus messaging and more impactful in-store initiatives. Some of these changes will happen quickly and others will take place across the next several quarters," he said.

Meanwhile, Nestle outlined plans to improve the fortunes of Lean Cuisine at a recent investor event in Boston. Executives said they will "modernise positioning from diet to healthy lifestyle". The company will shift tack from a "diet food expert for weight loss" to a "modern wellness partner for a healthy lifestyle" in a bid to shed its self-confessed "80s brand" reputation. 

Nestle wants to leverage its frozen capabilities and brands to capitalise on the bright spots of growth within the declining category. These include snacks and breakfast items, areas that have both witnessed overall sales expansion. Nestle will achieve this by extending brands such as Lean Cuisine and Stouffer's, the company revealed. 

Nestle is not alone in its bid to expand in the growing areas of the freezer aisle.

Speaking to just-food following the announcement of its bid to acquire Hillshire Brands, Tyson CEO Donnie Smith stressed that, upon completion, Tyson would leapfrog ConAgra to become the second-biggest player in US frozen.

According to figures from IRI, a Tyson-Hillshire combination would generate annual frozen sales of US$3.7bn. This would position Tyson behind Nestle's $7.2bn in sales but ahead of current number two ConAgra, which generates annual frozen sales of $3.3bn.

Significantly, Smith told just-food, the acquisition of Hillshire would increase Tyson's exposure to frozen breakfast and snacking products.

"Frozen is still an important category. But when you look at the category as a whole you have to look at the parts that are growing. What is growing in frozen? Well, breakfast and hand-held. And where does Jimmy Dean play a very important role? Hand-held and breakfast," Smith stressed.

"If you take the parts that are growing and are meaningful to consumers it is important to be there. And certainly it is an advantage to be the number one player in a growing [part of] the category. If you look at the category growth in the last couple of years for frozen chicken and you look at the category growth in breakfast, there is a huge opportunity for us to create value for our shareholders and - by the way - consumers in the frozen category."

As the contracting sector becomes a tougher place in which to operate, it is also becoming more competitive. Companies are battling for position in those sub-categories that are deemed to be of greatest relevance. At the moment, these would appear to be breakfast and snacking (although it is worth noting that areas such as "natural", meal components, entrees and sandwiches are also in growth).

At face value, this increased level of competitive activity could suggest the going will get tougher for firms as they vie for an increased share of a shrinking total dollar spend.

However, a fresh focus on NPD and marketing coupled with a reassessment of how frozen products can be applicable to the needs of modern consumers bode well for the category as a whole. Perhaps this increased level of activity will revitalise the neglected - yet sizeable - frozen category in the US.