The cost-of-living crunch could well be fortuitous for frozen food makers as sales momentum slows from the Covid-induced stimulus.
Frozen foods were enjoying somewhat of a renaissance before the global pandemic but retail sales really gathered impetus from Covid-related stockpiling – when freezer purchases went through the roof – followed by lockdowns and working from home.
While growth has tailed off two years on from the outbreak as people start to return to offices and restaurants, manufacturers say a cultural shift is playing out in frozen foods around convenience and innovation. A new baseline of demand and market value has been established as consumers, especially the younger generation, recognise the strides made in quality and diversity in the selection on offer.
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By GlobalDataPressure on disposable incomes is now expected to reinvigorate sales as price and affordability become important considerations for grocery shoppers, particularly low-income families.
Sales by Nomad Foods, the largest frozen food supplier in Europe, have largely tracked the lockdowns and subsequent easings. While they differed by country, the UK first went into lockdown in March 2020, with restrictions eased in May that year, followed by two further lockdowns in October and January 2021.
Nomad, the owner of the Birds Eye, Findus and Iglo brands in Europe, saw sales surge in the first two quarters of 2020 from a year earlier. But growth decelerated through the rest of the year and into the early part of 2021 before picking up again over the final six months.
However, the company, which wasn’t able to contribute comments for this article, rounded out 2021 with sales of EUR2.6bn (US$2.8bn), compared to EUR2.2bn in 2018.
The pattern is mirrored in figures from Kantar, showing frozen food sales in the UK grew 17.6% in the year to 21 February 2021 to GBP7.5bn (US$9.9bn), before declining 6% to GBP7.01bn over the following 12 months – but still above GBP6.34bn in the year to February 2020.
Modernisation theme
In the context of another crunch – the US credit crisis that sparked a global recession in 2008 – Clive Black, a director of investment group Shore Capital, says from a UK perspective: “Frozen comes to life when there is a concern about food security. Bad times are good for frozen food, it’s as simple as that.”
Inflation and the Ukraine-Russia conflict aside, frozen food manufacturers have realised an important theme to keep consumers engaged – modernisation.
Nestlé and US counterpart Conagra Brands have endeavoured to introduce products that cater to the clean ingredients trend, which has gathered pace during the pandemic due to considerations around health and wellness, and not just with plant-based offerings.
Both companies are on the same page in recognising the Gen Z and Millennial fraternity are playing a part in driving the growth of the category, and on the assumption a new normal of hybrid working will leave people reaching for the freezer to cook lunch, and for evening meal occasions.
Ashley Lind, the director of demand science for consumer insights and analytics at Conagra, which generates 90% of its US$11.2bn annual revenue in the US and the rest in Canada and Mexico, says consumers have invested in appliances such as air-fryers during the pandemic, just as they did with freezers.
Conagra has added air-fryer instructions to existing products and plans new SKUs as it seeks to build on $30m of retail sales aligned with the cooking technique. Meanwhile, the company has also catered to the single-serve meal category with brands such as Marie Callender’s and Healthy Choice, and has introduced eating bowls for the latter instead of compartmentalised trays.
Healthy Choice sales have increased 28% in two years, and while Conagra has seen some slowing, sales are still up 12% versus 12 months ago.
“We’re attracting new consumers and retaining them. One of the things that have really helped Conagra within this time period is everything that we did prior to the pandemic to renovate and modernise our full product portfolio, make it really relevant and contemporary for the consumer – tastes, needs, desires today versus what the frozen food category has historically looked like,” Lind explains.
“We’ve actually seen more of a pivot into these convenient, heat-and-eat, really quick lunches make a return and single-serve meals have done really well within that. But we’ve also seen our multi-serve meals portfolio perform extremely well.”
Nestlé describes the pandemic as the “largest sampling event in history, bringing younger consumers back to the frozen aisle”.
The world’s largest food manufacturer adds: “Many were surprised to discover a different frozen experience than they once knew as there are now a variety of modern offerings with bold, taste-forward and often restaurant-inspired recipes.”
That observation is borne out by Italian-inspired restaurant chain Zizzi, part of the Azzurri Group, which has launched its frozen pizzas with Sainsbury’s in the UK, providing an alternative to those who can’t afford to eat out. And a three-course “at-home” meal range is also planned with Tesco.
Nestlé adds: “We believe that the aspects that made frozen food appealing during the pandemic – great taste, convenient, comfort, great value – will continue to be valuable to consumers after the effects of the pandemic.
“We continue to see increased demand across our frozen portfolio, particularly prepared meals and snacking, especially in light of many consumers working from home. To keep consumers engaged in the at-home experience, and specifically within the frozen aisle, Nestlé will continue to innovate across its frozen portfolio to offer variety, flavour and convenience.”
Category differentiation
Ready meals are one of the largest categories within the frozen category, along with pizza and seafood. But potatoes, veg, fruit, bakery and desserts are also popular, along with ice cream, seen more of an indulgence in terms of consumer purchasing patterns. North America and western Europe are the standout markets.
Trends have differed by category, however, with global sales of meals and pizza slowing in 2021 following a spurt the previous year as the pandemic took hold, with more modest growth rates forecast by Just Food’s parent company GlobalData over the coming years.
Adversely, in North America and western Europe, sales growth in frozen veg, potatoes, fruit and bakery enjoyed an uptick in 2020 and accelerated into 2021. But, again, growth is now expected to tail off albeit with the inflationary effects still not evident.
Alexia Howard, a US-based senior food analyst at asset-management firm AllianceBernstein, says frozen ready meals could do quite well with less cash on hand, as opposed to the pandemic when consumers had more time for at-home cooking, while the inflationary environment could drive a benefit for private-label frozen veg.
“I think frozen divides into a few different categories that have somewhat different trends – frozen vegetables are quite different from the individual frozen dinners or meals,” Howard says.
“Frozen vegetables became quite popular during the pandemic because of cooking from scratch and a way of having less perishable vegetables. But they also have a lot of private-label penetration.
“The risk is that because of inflation generally, that if the lower-income consumer ends up more strapped for cash than they have been during the pandemic and less able to spend on branded products in the grocery store, then that'll be one of the first categories that sees private-label market share trends recover.”
Howard envisages the pandemic-driven “structural benefit” for frozen ready meals will stick to a certain degree, especially given the advances in innovation: “Even though there might be a bit of a softening as we go back to work - a couple of days a week or however it settles out - there will be a permanent benefit from that working from home increase.”
Conagra, which markets the Birds Eye brand across the Atlantic, has not experienced any encroachment from own label as the cost of living rises and has managed to push through inflation-linked price increases without a hit to volumes.
“As we've monitored behaviour and demand with the current levels of inflation, we have seen a lot of resilience as it relates to the elasticities of demand. As prices have risen, there has been little impact to volume so consumers at this point have continued to sustain those high levels of elevation,” Lind says.
“We've seen consumers continuing across all income spectrums to buy those mainstream and premium price tiers and continue to turn particularly to national brands rather than private label.”
ESG considerations
Despite the slowing growth in frozen as we come out of the pandemic, Cyrille Filott, a global strategist for consumer foods, packaging and logistics at Dutch investment bank Rabobank, doesn’t anticipate demand “will drop off a cliff in 2022” as the inflationary environment will be supportive. He’s hearing from market participants that there’s some “stickiness” in consumer behaviour.
Longer term, however, Filott says ESG may come into play as retailers put greater focus behind Scope 3 emissions strategies requiring more renewable energy sources given frozen foods take up banks of freezers in-store, while manufacturers need chilled warehouses for storage.
“There will always be opportunity for frozen products but, some reshaping might just need to happen. There's a lot of energy consumption of course, both in-store but also in the supply chain, and that could potentially be a negative,” he says.
Greater awareness around food wastage will, nevertheless, be a fillip for the category going forward, says Kirsty Henshaw, the founder and managing director of the UK frozen pizza and desserts business Kirsty’s.
“Food waste is a growing consumer concern from both a value and environmental perspective and frozen food is uniquely able to feature as a key solution,” Henshaw says, conceding that she is seeing “shopper habits returning to pre-pandemic patterns”.
But she provides an accompanying anecdote: “The current squeeze is undoubtedly going to benefit frozen. In consumer research we carried out last week, a mum spoke to us about taking chilled pizzas out of her trolley when she got to the freezer aisle and saw the lower prices.”
Black at Shore Capital agrees as the Ukraine-Russia crisis has raised concerns about disruptions to world food sources as the conflict exacerbates what was an already inflationary environment stemming from supply-demand dynamics as we surfaced from Covid-19.
“In terms of pre-Ukraine, ‘would I have expected frozen to ease back more than say fresh and chilled? Absolutely.’ If we're going to go back to perhaps more austere times as living standards shrink by more than we would have reasonably thought in January, then that will give that boost to frozen, in particular frozen and ambient over fresh and chilled.”
