The continuing growth in consumer demand
for ready meals is attracting further investment in new capacity from food processors
anxious to gain a foothold or to consolidate existing positions in this lucrative and
buoyant market.

The seemingly insatiable demand for
convenience foods, coupled with consumer willingness to try more exotic dishes is fuelling
the growth in chilled ready meals and placing an onus on manufacturers to produce a
constant stream of new recipes.

Sales of chilled ready meals grew by 23%
last year to reach £700 million and there is no sign of abatement. Chilled ready meals
are purchased by two-thirds of households at least once a week, and consumers are not only
prepared to try new types of dishes but to pay extra for premium products. According to a
recent market survey by Corporate Intelligence on Retailing, rapid growth will be
sustained over the next few years with the market value reaching £1.06 billion in 2001
(see Table One).

Table One: UK Chilled Ready Meals Market by
Value, 1993-2001

Source: Corporate Intelligence on

Major Capital Investment

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By GlobalData

These promising market conditions are
encouraging food processors to invest in new capacity to keep pace with rising demand. New
processing technology is helping manufacturers to produce meals more cost effectively but
with the necessary flexibility to develop new recipe dishes to satisfy changing consumer

To meet escalating demand, Geest introduced
a new ready meals plant, located at Sutton Bridge, earlier this year to supplement its
original site at Spalding, having already established two other new ready meals ventures,
at Tilbrook and Biggleswade at a combined cost of £14.6 million, during 1998. Indeed,
Geest increased its sales of chilled ready meals by 111% last year to nearly double its
market share, albeit from a low base (see “Fresh Prepared Foods Give Geest New Recipe
for Success” in Food & Drink Business, May/June 1999 issue). Geest is also
currently investing £5 million at its Vaco subsidiary in Belgium as it capitalises on the
growth of chilled ready meals in continental Europe.

RF Brooks (part of Tomkins) will shortly be
operating out of a new £41.5 million food factory close to its existing facility in South
Wales. Poultry processor Sun Valley also recently completed a new factory at
Wolverhampton, part of which is dedicated to recipe dish production for Marks &

S&A Foods, which is credited with
supplying almost a fifth of the chilled Indian ready meals sold by UK retailers and is
also involved in the food service market, is also expanding its production base.
Manufacturing both chilled and frozen ready meals, chiefly based on Indian, Chinese,
Malaysian and Thai recipes, the Derby-based company is investing £15 million over a three
year period in upgrading and expanding its existing facilities while also building a third
factory. The new factory will increase capacity to over 1.5 million meals a week. In
addition to meeting growing demand, the investment programme is designed to further
enhance product quality, flexibility and cost effectiveness.

Kerry.gif” width=”125″ height=”147″ align=”left”
border=”0″ hspace=”10″ vspace=”10″>Kerry Foods (part of Kerry Group) has also invested
£15 million, during last year, in state-of-the-art chilled recipe dish production and
development facilities at sites in Durham and Burton on Trent. In response to market
trends, Kerry has been busy introducing a wide range of products in the Oriental, Indian
and Tex Mex sectors.

Market Trends

Ethnic and continental dishes now account
for nearly two-thirds of chilled ready meals sales and consumers are steadily trading up
as products of higher quality and based on more authentic recipes are developed. Italian,
Indian and Oriental meals are outperforming the traditional sector in value terms, as they
generally command a higher premium. Indeed, Indian recipe dishes, thanks to constant
innovation by manufacturers, have now overtaken Italian as the largest sector within the
chilled ready meals market. New international cuisine such as Tex Mex, Thai, Japanese,
Malaysian and Moroccan are also increasing in popularity.

Retailer Own Label is Dominant

Although manufacturers’ branded
products have been making some inroads in recent times, the UK chilled ready meals market
is dominated by retailer own label products. Marks & Spencer, which pioneered chilled
ready meals in its stores, is still the top player with about 40% of sales last year, but
the other retailers have been quick to realise the potential of this dynamic market
sector. According to Corporate Intelligence on Retailing, retail margins on chilled ready
meals range from upwards of 35%.

Leading Suppliers

Chilled ready meals manufacturers can be
divided into those operating dedicated factories for Marks & Spencer and those
supplying other retailers. Suppliers to Marks & Spencer include Northern Foods
(including Cavaghan & Gray), RF Brooks (part of Tomkins), Sun Valley Foods,
Rahbek-Food (Albert Fisher) and Marshall Food Group (recently acquired by Grampian Food
Group). Headed by Hazlewood Foods, the group of manufacturers supplying to other retailers
also includes Geest, privately owned Oscar Mayer, Noon Foods (now owned by WT Foods) and
S&A Foods.

Some processors such as McVities Prepared
Foods Division (United Biscuits), S&A Foods, RF Brookes and Cavaghan & Gray are
involved in both chilled and frozen ready meal production. Indeed, McVities Prepared Foods
Division was behind one of the major branded developments in the chilled ready meals
market last year when it extended its Linda McCartney meat-free range of products from the
frozen into the chilled cabinet, following a £4 million extension to its plant at
Fakenham in Norfolk.

Investment in Frozen Ready Meals

While the chilled ready meals sector is exhibiting far
more dynamic growth than the frozen ready meals market, which remains sluggish, investment
in new capacity is ongoing in this sector. Rye Valley, which was acquired by Irish dairy
group Golden Vale for Ir£20 million (£17 million) last year as part of its strategy of
developing its added value consumer foods activities, is investing Ir£22 million in
expanding its plant. Specialising in the production of own label frozen ready meals, Rye
Valley is a major supplier to the UK multiples from its base in County Monaghan and has
also opened up new markets in France and Sweden. The investment will double the capacity
of the factory, making it one of the major prepared food factories in Europe.



Northern Foods is the UK’s largest
producer of chilled ready meals (see Table Two) and extended its market share last year to
25% following the £79 million acquisition of Cavaghan & Gray. As a supplier to Marks
& Spencer, Cavaghan & Gray is a good fit for Northern Foods and complements its
existing Recipe Dish Company business. To improve efficiencies and service levels,
Northern Foods has reconfigured The Recipe Dish Company operations under a £10 million
programme involving the closure of a factory at Nottingham and the development of more
focused operations at two purpose built facilities at Grantham and Sheffield. Grantham
(Fenland Foods) concentrates on Italian pasta dishes, while Sheffield (Pennine Foods)
specialises in Chinese and Indian meals. Although the disruption resulting from the
transfer of products between sites and the installation of new equipment, has adversely
impacted on profitability, The Recipe Dish Company is now better placed for the future.

Table Two: Manufacturers’ Shares (by
value) for Chilled Ready Meals, 1997

aug_table2.gif (5071 bytes)
Source: Corporate Intelligence on
* Includes Cavaghan & Gray

The other major acquisition last year
involving chilled ready meals was WT Foods’ £50 million purchase of Noon.
Specialising in Indian cuisine, Noon has strengthened WT Foods’ standing in the
rapidly expanding ethnic foods sector. The high purchase price reflects the sophistication
of the Noon operation and the huge growth potential in ethnic foods.

The UK’s second largest chilled ready
meals producer, Hazlewood Foods has also expanded through acquisition with the£7.4
million purchase of R&B Group in August 1997. Hazlewood had the capacity to produce 3
million chilled and frozen ready meals a week, and the acquisition of R&B added extra
capacity to help meet increased demand.

Another major deal relevant to chilled
ready meals was the recent acquisition of Terranova (formerly the chilled foods division
of Hillsdown Holdings) by Unigate. In addition to a broad range of snacks and meal
components products, Terranova is also involved in fish-based ready meals (through its
Pinneys of Scotland subsidiary), poultry ready meals (Buxted Foods) as well as vegetarian

Further Consolidation

Despite some consolidation in recent years,
the chilled ready meals industry is still highly fragmented, with only two players –
Northern Foods and Hazlewood Foods – controlling market shares of over 10%. However, the
next few years is likely to witness an increasing number of acquisitions, predicts
Corporate Intelligence on Retailing, as companies such as Northern Foods, Geest and
Hazlewood Foods, which have been divesting less profitable businesses in order to focus on
the lucrative chilled foods market, takeover smaller privately owned chilled ready meals
producers, which start to wilt under the mounting pressure of the high levels of
investment required in innovation and technology.