Total refrigerated and frozen food sales are up by 2% this year, but supermarket gains trail those of other channels.
Although the recession officially ended in 2009, a painfully slow recovery has limited growth in the retail sector. But things are starting to improve.
Total sales across channels topped $767 billion during the 52 weeks ended Aug. 3, 2013, a 2.1% increase compared with the same period a year earlier (units expanded 1.0%), according to a state-of-the-industry report prepared for the National Frozen and Refrigerated Foods Association (NFRA) by Todd Hale, senior vp of consumer and shopper insights at Nielsen.
However, much of the growth came from value channels — club stores, dollar stores and mass merchants — which are adding stores at a much faster rate than supermarkets and other channels. Supermarket dollar sales expanded just 0.8% compared with 1.0% for drugstores, 2.3% for c-stores and 3.6% for the value channel.
VALUE CHANNEL SLOWING
“Growth (in the value channel) is slowing as inflationary pressures subside,” said Hale during a preview of the report at the NFRA’s annual meeting in San Diego Oct. 21. But rapid expansion, increased brand focus and broader price points in dollar stores in particular suggest value-oriented outlets will continue to challenge supermarkets, especially in the still underdeveloped frozen and refrigerated arena.
In fact, the gap between sales growth in value outlets and supermarkets was even more pronounced in the frozen and refrigerated segment (up 1.6% across channels to $126.2 billion): While dollar sales in the value channel jumped 4.7%, sales in supermarkets edged up just 0.1%. Thanks to growing demand for fresh foods in every outlet, supermarkets managed a 0.7% gain in the refrigerated department (+2.0% all channels combined). But in the frozen department (+0.9% all channels combined), supermarket sales fell 0.7%.
According to the report, a number of refrigerated and frozen foods rank among the fastest-growing categories in every outlet examined — though in most cases, sales are expanding faster outside the supermarket channel than in it. In supermarkets, the top-10 list includes dairy snacks/spreads/dips and yogurt; in drugstores, refrigerated juices/drinks and deli dressings/salads/ prepared foods; and in c-stores, yogurt and refrigerated juices/drinks.
A look at the top frozen and refrigerated categories across channels reveals more gainers than losers. Positive numbers were posted by dairy snacks/dips/spreads (+9%), frozen desserts/fruit/toppings (+8%), yogurt (+7%), frozen breakfast foods (+7%), deli dressings/salads/prepared foods (+6%), refrigerated juices/drinks (+5%), fresh eggs (+5%) frozen unprepared meat/seafood (+3%), ice cream (+2%), refrigerated dough (+2%), frozen baked goods (+1%), cheese (+1%) and frozen pizza/snacks (+1%, but driven by snacks, not pizza). Those in negative territory include frozen juices/drinks (-11%), refrigerated pudding/desserts (-10%), ice (-7%), frozen novelties (-2%), butter and margarine (-2%), cottage cheese/sour cream/toppings (-2%), milk (-1%), frozen prepared foods (-0%) and frozen vegetables (-0%).
While some of the dollar growth can be traced to inflationary pressures from rising commodity prices, retailer focus, product innovation, better-for-you offerings, snack-size portions, convenience — even more affordable, downsized packaging — are fueling dollar expansion in many categories.
RICH-POOR GAP WIDENS
Although price pressures have eased a bit recently, food prices are still elevated. Same with gas prices, health care costs, utility and energy bills, etc. Yet inflation-adjusted incomes have fallen for five straight years, reducing consumers’ ability to spend (and widening the gap between rich and poor). As a result, said Hale, “Consumers continue to make trade-offs or buy less,” which has led to reduced unit sales in a number of frozen and refrigerated categories. Overall, unit sales in frozen were down less than 1% while unit sales in refrigerated rose just 1%.
“Financial headwinds and ability to pay are both short- and long-term issues impacting consumer spending,” said Hale. As a result, “Manufacturers and retailers need to innovate and work harder than ever to differentiate and give consumers a reason to buy.”
Many refrigerated and frozen categories have high annual reaches (the percentage of households that purchase them at least once a year), annual spends and buying frequency, making them excellent candidates for weekly store features that bring more shoppers to the store. But Hale also suggested retailers include high-spend products in cross-category promotions that build shopping baskets. Those with the highest average dollars spent per purchase occasion include unprepared meat/poultry/ seafood, frozen prepared foods, pizza/snacks, cheese and deli dressings/salads/prepared foods.
Although there are some small differences, the report also highlighted refrigerated and frozen foods’ broad appeal across small and large households, low and high earners, young and old and households with and without children. However, it also underscored the two segments’ underdevelopment among multi-cultural groups.
Except for the refrigerated juices/drinks, unprepared meat/poultry/seafood and ice categories, “We see limited strong [refrigerated and frozen] buying from multi-cultural households,” said Hale. “As the Caucasian population becomes less important over time, are you doing all you can to create or drive demand from other population segments that will be growing in importance?”
The study also confirmed what most retailers already know: Female shoppers drive a larger share of refrigerated and frozen food purchases in every category, although males do account for more than their gender’s 32% average in the milk, refrigerated juices/drinks, ice cream and ice categories.
In addition, the study revealed that top-spending frozen and refrigerated food buyers (about one-fifth of total buyers) account for almost half of all sales in both departments. While he understands that new buyer acquisition is necessary, Hale asked, “How much attention are you paying to the wants and needs of your top-spending buyers? Do you understand what drives them to spend so much?”
ORGANIC BOUNCING BACK
Hale also spotlighted rising consumer interest in health and wellness and resumption in the growth of organic sales. Other fast-growing, better-for-you claims include low glycemic, GMO-free, hormone- or antibiotic-free, and gluten-free. However, other label claims are struggling (fortified, stevia, healthy oil, 100 calorie, etc.), underscoring the need to distinguish short-term fads from trends with real staying power.
He added, “The pace of change will continue to escalate. If you aren’t thinking about it all the time, you can be sure that someone else is!”
— Denise Leathers