Playing it cool
It's hard to find an upside to the current economic gloom, but frozen food manufacturers can take comfort from the fact that consumers have a tendency to raid the freezer cabinet whenever they're feeling the pinch.
"The worse the economy, the more frozen food sales go up," says Brian Young, director general of the British Frozen Food Federation (BFFF). "In 2007 there was a media frenzy about the credit crunch and the market grew rapidly in the recession. Then in 2009 there was an expectation of a general election. People stopped worrying quite so much and that put the market in abeyance, but then the new government started putting up VAT and making cuts and that led to accelerating growth in frozen food."
Today, the total retail market for UK frozen food stands at £7.5bn, according to the BFFF. Growth has been ratcheting up again as reports of an encroaching Euro-led apocalypse hit the headlines and it could be the start of a new boom for frozen. Yet, within that overall picture, there are various sectors behaving in different ways, according to more specific drivers.
For example, the markets for different protein foods followed very different trajectories between 2006 and 2011, with fish emerging as a clear winner.
"Fish has been a fabulous success story, growing from £560M to over £750M," says Young. Consumption is also up, thanks to fish's strong health credentials and the fact that fish is increasingly cost-effective compared with meat and poultry. He also credits the two big players Birds Eye and Young's with driving the market: "It's very innovative, with both firms trying new formats, new species, products and packaging."
The picture for meat is more complex, however, with value growth from £490M to £570M disguising falling overall volumes. "We've seen quite significant value growth driven by high feed prices and import quotas for poultry from Thailand and Brazil. But there are negative vibes among some consumers about red meat in terms of health and sustainability, so renewed growth in the last two quarters has been mainly driven by chicken."
The picture in desserts is similarly divided, with ice cream performing in a class of its own. The ice cream market grew from £600M to £730M in five years, despite significant volume collapses along the way owing to poor weather over several summers. Young says the value growth is driven by people eating more luxury ice cream, which is less weather-dependent. "That underlying trend will continue," predicts Young. "Even in times of recession, people buy treats at the supermarket instead of going out."
Meanwhile, frozen desserts saw three years of strong growth from 2006 to 2009. This was driven largely by growth in frozen fruit, but both volume and value sales have since dropped off significantly. "The market has struggled because we lost some major players, such as Sara Lee," says Young. This led to a lack of innovation, compounded by retailer price wars and the drive for £1 cheesecakes.
In contrast, value and volume have grown in almost perfect step for frozen vegetables, which rose from under £340M to almost £430M. Messages about minimal wastage and the nutritional benefits of frozen vegetables are clearly getting through.
ASA spanner in the works
The Advertising Standards Authority (ASA) threw something of a spanner in the works earlier last year when it ruled Birds Eye out of order for boasting that its products offer '30% more vitamins than fresh vegetables'.
The complex ruling raised two main issues. First, the study cited to back the claim looked at vitamin C, rather than all vitamins. Second, the ad was potentially in conflict with European health claims legislation that only allows comparisons to be made within food categories and not between them, so the ASA ruled that comparing frozen and fresh was not permitted.
This issue of food categories raises far wider concerns for almost everyone looking to make comparative claims, according to Hilary Ross, a partner with food law specialist DWF.
"It's all very confusing at the moment," she says. "Initially the Food Standards Agency said you could compare, say, the calcium in orange juice with the calcium in milk, but now they seem to have changed their minds. You can't even compare dairy to dairy, it would have to be yogurt to yogurt or cheese to cheese. But often consumers see things in a different way as snacks for example so it might be perfectly reasonable for them to want to compare the fat in crisps versus nuts."
Meanwhile, frozen pizza and potato products both performed strongly between 2006 and 2010, with pizza reaching almost £400M and potato products hitting £570M.
Young puts the success in potato products down to the inventiveness of the two big brands McCain and Aunt Bessie's, while the frozen pizza sector looks fitter following some rationalisation. Dr Oetker bought Chicago Town and is now competing primarily with Goodfellas and own-label manufacturers from Germany and Italy.
A rebalancing of the status quo is also responsible for a revival in the fortunes of frozen ready meals, according to Young. "All the major retailers were selling ready meals for £1, or four for £3 on a more or less permanent promotion that's 75p per meal. In that time all the ready meals manufacturers were struggling, so there was little development or innovation. But then, six months ago, Headland was sold to Kerry and Kerry put the prices up. Ready meals are now selling at £1.30£1.35 each or three for £3, which is a price increase of 33%."
The retailers may not like it, but Young is optimistic that a more muscular supply side could provide the impetus for a new wave of innovation.
It's not just frozen manufacturers that are gearing up for growth, however: the whole supply chain is ramping up. For example, ACS&T Logistics is investing over £1M in temperature- controlled vehicles, IBL Cold Stores is expanding its capacity by 20% and Titan ArcticStore has snapped up 140 new portable cold stores to cater for the anticipated demand.
Chilled foods squeeze
While the recession may provide a welcome boost in the market for frozen, chilled food manufacturers are in an increasingly tight spot, as input costs continue to rise and retailers squeeze their suppliers.
"The situation is very serious indeed," says Kaarin Goodburn secretary general of the Chilled Food Association. "Own-label manufacturers don't have a contract as such with retailers, they simply agree to a set of terms and conditions. So they're producing food without a guaranteed customer. At the same time they're paying for shelf-space and there are more and more promotions as the retailers compete for the pounds in consumers' pockets. In the middle we've got a high-tech industry where everything's got to be spot on because we don't use preservatives."
Nevertheless, the UK market in chilled foods is worth £9.16bn and it's still growing at a healthy 4.2% overall. As in frozen, however, the headline figures mask some variation. While there are exceptions, growth generally depends on the relative maturity of various product categories, with recent arrivals showing stronger growth from a lower starting point. So, bagged salads are growing at 4.7% while mixed tray salads that typically include protein such as meat, poultry or seafood are growing at 24.3%, for instance. "Tray salads are a much smaller market and it's still in the maturation stage," says Goodburn.
What has been really notable about the chilled business has been the high level of mergers and acquisitions. Goodburn says it's an inevitable result of manufacturers trying to build critical mass in the punishing market conditions.
For example, Greencore and Northern Foods were on course to get together before poultry group 2 Sisters lured Northern Foods away. "Greencore and Northern Foods would have been interesting because they had very little overlap in their customer base," says Goodburn. "2 Sisters is a different story because they haven't been in this market before, so it's possibly about integrating the supply chain. Even so, chicken is in some ready meals, pizza topping and sandwiches, but it's not a core ingredient across the range."
Still determined to bulk up, Greencore opted to take over Uniq, acquiring a useful connection with Marks & Spencer (M&S) in the process. "Greencore is still looking to build critical mass. It hasn't done much business with M&S before but Uniq has so they're a good fit," says Goodburn.
That may not be the end of the story, however, with Greencore recently targeted for takeover by an unknown suitor. While that offer was withdrawn, a falling share price could make Greencore an increasingly attractive proposition, according to analysts (as reported by foodmanufacture.co.uk on December 7 2011).
Elsewhere, Hain Celestial snapped up Daniels, which has gradually been acquiring a significant portfolio, including International Cuisine (ready meals) Farmhouse Fayre (steamed puddings) and Covent Garden Soup. "Hain is a US company and pairing up with Daniels gives them a big portfolio in the UK," says Goodburn.
