FROZEN FOOD IN THE U.S. - business-sweden.se · healthier frozen food options The process of...

FROZEN FOOD IN THE U.S.

September 2018

TRENDS & OPPORTUNITIES

Executive Summary

U.S. Market Characteristics

European Market Characteristics

U.S. Distribution

Conclusions

BUSINESS SWEDEN 16 AUGUST, 2018 2

AGENDA

BUSINESS SWEDEN 16 AUGUST 2018 3

SWEDISH MANUFACTURERS WILL ENCOUNTER A FRAGMENTED MARKET WITH LOW GROWTH

CU

ST

OM

ER

S

Consumer preferences are changing. Younger urban millennials prefer

quick delivery and restaurant food and frozen food manufacturers are

reformulating to emulate this experience

The industry has had to invest heavily in marketing and education in order

to stem the tide of decreasing sales from consumer perceptions that

frozen food is more unhealthy than fresh food

DIS

TR

IBU

TIO

N

Larger incumbent manufacturers largely handle distribution in house, while

new entrants rely on at least two partners to distribute on the market

As wholesalers don’t typically engage in sales activities, a broker is often

needed in order to open sales opportunities with large retailers

Importers and logistics providers may play an important role, but are

a secondary priority in finding the right combination of distribution partners

MA

RK

ET

The market itself is dominated by smaller brands and smaller players,

although there has been increased M&A activity in recent years

Competition is tough as the market is facing slow growth and decreased

sales in key segments like frozen pizza and frozen vegetables

Frozen meals have seen modest pricing growth over the past ten years,

with only a handful of brands having premium pricing power

SOURCE: PHOTO PROVIDED BY MISSOURI PARTNERSHIP

Executive Summary



U.S. Distribution

Conclusions


AGENDA

SLOW GROWTH IS EXPECTED, BUT CERTAIN SEGMENTS WILL BE LEFT BEHIND

INDUSTRY TRENDS

The frozen food market has been stagnant for several

years, and has recently seen annual growth of about 1-

2%; this slow growth is expected to continue

Growth varies by segment; sales of frozen full meals

have been steady or decreasing in recent years,

whereas frozen vegetable sales have increased

As frozen food manufacturers experiment with more

healthful and flavorful options, consumption of frozen

products is expected to increase, but consumption of

seafood in general is expected to decrease slightly or

level off

The largest market segments are frozen prepared foods

and entrees and frozen vegetables, which were valued

at 12.5 BUSD and 9.9 BUSD, respectively, in 2017

Major market drivers for growth include disposable

income, health consciousness, price of inputs, and

demand for convenient food options

16 AUGUST, 2018BUSINESS SWEDEN 5

FROZEN FOOD PRODUCTION IS VALUED AT 42.4 BUSD

SOURCE: IBIS WORLD

TOTAL MARKET SIZE AND SEGMENTS (2017)

Other

2.6%

Frozen Fruit and

Juice Concentrate

8.3%

Frozen Pizza

18.6%

Frozen Prepared Foods

and Entrees

29.5%

Prepared Frozen

Shellfish

6.4%

Prepared Frozen Fish

11.3%

Frozen Vegetables

23.3%

DESPITE THE INDUSTRY’S SIZE, FROZEN FISH AND SEAFOOD REPRESENT A SLIGHTLY SHRINKING PORTION OF THE TOTAL MARKET

When looking at the frozen food industry as a whole,

concentration is low, with nearly 75% of market revenue

shared by either smaller and medium-sized companies

or large companies with small frozen portfolios

The other 25% is shared between four major food

companies with many frozen offerings

However, competition varies between segments

The ready-made meal segment has somewhat low

market concentration, while the frozen pizza segment

features higher concentration

Mergers and acquisitions are common within the

frozen food industry, with a significant amount of

market share going to a few major companies with

diversified portfolios and a wide variety of brands

M&A activity has increased in the past five years,

allowing large companies to expand frozen offerings


SOURCE: IBIS WORLD, WASHINGTON POST

M&A ACTIVITY HAS BEEN INCREASING WITHIN THE FROZEN FOOD INDUSTRY IN RECENT YEARS

THE MARKET IS DEFINED BY A FEW MAJOR PLAYERS AND MANY SMALL-MEDIUM SIZED MANUFACTURERS

Others (Small/medium companies & large

companies with few frozen offerings)

74.7%

42.4

BUSD

MARKET SHARES OF COMPETITORS

(ALL SEGMENTS)

5.2%

5.8%

6.6%

7.7%

OVERALL MARKET CONCENTRATION IS LOW

COMPETITION IS TOUGH

Many major frozen food brands are owned by well-

known corporations such as Nestle, KraftHeinz, and

Kellogg’s

Larger players with few frozen offerings have seen

success on the market through the acquisition of

additional frozen brands

It can be difficult for newer, international manufacturers

to establish themselves within the U.S. frozen food

industry

Newer players have seen success on the market by

establishing a strong regional brand through the

utilization of regional partners such as small specialty

food retailers

Newer players can also differentiate themselves by

focusing on health and quality, rather than trying to

compete on price


THREE MAIN TYPES OF FROZEN FOOD MANUFACTURERS COMPETE ON THE U.S. MARKET

SOURCE: IBIS WORLD, BUSINESS SWEDEN ANALYSIS

Large corporations have diversified portfolios with a wide variety

of brands covering a variety of frozen food segments. These

companies have wide distribution networks across the U.S.

Examples include:

Large Company, Large Portfolio

Some large corporations feature a small variety of frozen food

offerings, despite their size. These companies are still able to rely

on wide national distribution networks.

Examples include:

Large Company, Small Portfolio

Smaller companies feature more streamlined product portfolios

within frozen foods, but smaller operations. These companies

may operate off of strong regional networks.

Examples include:

Small-Medium Company

COMPANIES FALLING WITHIN THE THIRD CATEGORY MAY VARY WIDELY IN SIZE, BUT FOCUS MAINLY ON FROZEN OFFERINGS

1

2

3


FROZEN FOOD PLAYERS VARY WIDELY IN SIZE AND DIVERSITY OF PORTFOLIO

SWEDISH MANUFACTURERS CAN LEVERAGE DIVERSE PRODUCT PORTFOLIOS TO COMPETE WITH COMPANIES LIKE CONAGRA

SOURCE MRS. T’S, CONAGRA, IBIS WORLD

MRS. T’S (ATEECO, INC.)

Founded: 1952

Headquarters: Shenandoah, PA

Revenue: 58 MUSD

Markets Served: Major metropolitan areas

Company Facts

Mrs. T’s entire offering consists of frozen pierogies of different

flavors, styles, and portion sizes.

Mrs. T’s frozen products fall within the meal or snack category, and

the company highlights the versatility of the products within

recipes, in addition to their convenience.

Key Products and Offerings

Mrs. T’s frozen products are available at major grocery store

chains as well as specialty food stores.

Products are available in major metropolitan areas, especially in

the northeast.

Sales Channels

CONAGRA BRANDS INC.

Founded: 1919

Headquarters: Chicago, IL

Revenue: 7.8 BUSD (2.8 BUSD frozen)

Markets Served: Global

Company Facts

Conagra’s frozen food brands include Hebrew National hotdogs,

Marie Callender’s frozen ready meals, and P.F. Chang’s frozen

snacks.

Frozen offerings are diverse and include ready meals, frozen

meat products, vegetable products, and desserts.

Key Products and Offerings

Conagra offerings are available in major grocery store chains

including Whole Foods and Harris Teeter, club stores, and via

online retailers.

Products are widely available across the U.S. as well as abroad.

Sales Channels


SOURCE: EUROMONITOR, ORBIS

CHANGES IN DEMAND HAVE PUSHED THE INDUSTRY TO RESPOND WITH EDUCATION AND NEW PRODUCTS

DUE TO SHIFTING CONSUMER DEMAND, OPPORTUNITIES ARE GREATEST WITHIN HEALTH FOCUSED FROZEN FOOD PRODUCTS

HEALTHY EATING INDEX IS RISING IN THE U.S.

Total health expenditure among U.S. consumers increased at an annualized rate of 4.1% between the years 2012-2017,

generating an inverse effect on frozen food sales

Consumers are turning to fresh food due to the perceived idea that frozen food is less nutritious, with high sodium and

preservatives

The frozen pizza segment has been most affected by this shift, while healthier options such as frozen fruit, vegetables and

smaller snack sizes has seen an increased demand

CONSUMER EDUCATION

The frozen food industry has realized the need to educate

consumers on health benefits of frozen food to

maintain market share

Leading companies and industry associations have joined

forces to push marketing efforts

Companies are expected to continue focusing on marketing

efforts over the next five years

NEW PRODUCTS & REFORMULATIONS

Companies. are developing new healthier products

and/or reformulating current recipes to increase the level

of protein, use less sodium, preservatives, and trans fat,

and meet criteria to be organic and/or non GMO

Consumers are requesting healthy options beyond

simply sugar free and fat free

Ind

us

try A

cti

on

sIn

du

str

y C

ha

lle

ng

e

1 2



INCREASED DEMAND FOR CONVENIENCE HAS CAUSED THE INDUSTRY TO FOCUS ON RESTAURANT APPEAL

FROZEN FOOD COMPANIES SHOULD HIGHLIGHT THE CONVENIENCE AND QUALITY ASPECT OF THEIR PRODUCTS

TASTE & CONVENIENCE

Food delivery services are increasing in popularity amongst millennials, at the same time as rising disposable incomes will lead

to more frequent restaurant visits for the average U.S. consumer

This shift in consumer behavior negatively impacts the sale of frozen food

As consumers spend more time at work, they have less time to cook food at home

CONVINIENCE & RESTAURANT APPEAL

Increased restaurant visits and home delivers are

perceived as premium substitutes to frozen ready meals

To avoid a big revenue hit for frozen food companies,

frozen food companies have started developing ready

meals comparable to restaurant food to compete with

delivery services and restaurant visits

PRODUCTION INNOVATION

In order for frozen ready meals to compete with home

deliveries and restaurant meals, frozen food companies

have started improving their production process to allow

for higher quality in terms of increased flavor and less

preservatives used

Thus, opportunities for better freezing procedures that

maintains quality and flavor exist in the U.S.

Ind

us

try C

ha

lle

ng

eIn

du

str

y A

cti

on

s

3 4


FROZEN READY MEALS VARY GREATLY IN PRICE AND NUTRITIONAL QUALITY

SOURCE: EUROMONITOR, COMPANY WEBSITES

0,00

5,00

10,00

15,00

20,00

25,00

U.S. PRICING – FROZEN READY MEALS

Brand

$/kg

HIGHER NUTRITIONAL VALUE IN READY MEALS ALLOWS FOR SIGNIFICANTLY HIGHER PRICING

Price Range per Kilo

$3,68 $23,68

Price Range per Pack

$1,24 $7,7

337 g 1,134 g

Highest Priced Ready Meals

Cederlane: $23,68/kg

Canadian company; wholesome

ready meals

PF Chang's Home Menu: $23,21/kg

Asian cuisine ready meals

Kashi: $17,63/kg

Healthy ready meals (grains,

vegetables, super seeds, roasted

veggies)

Cederlane PF Chang

Kashi

BanquetMichelina’s

Premium

meals

FROZEN FOOD PRICES ARE SLOWLY INCREASING

U.S. consumers are experiencing a rise in disposable income,

which in turn has increased the demand for healthier options

at higher retail prices

However, many of these consumers with a higher willingness

to spend will turn to fresh produce as compared to frozen

products

Ready meals have seen an average unit price increase of 2%

between 2012-2017

This boost has partly been due to increased pricing for

healthier frozen food options

The process of developing new healthier options and/or

reformulating existing recipes to be healthier has led to

increased R&D costs within the frozen food industry

As a result, the average profit margin for frozen food

companies decreased to 5% in 2017

However, new healthier product lines allows for higher

pricing, which has somewhat offset the rising R&D costs

Frozen food companies are expected to continue their

product innovation to launch more healthy options over

the next five years leading up to 2022, resulting in maintained

higher R&D costs and slim profit margins


FROZEN READY MEALS HAVE SEEN MODEST PRICINGGROWTH OVER THE PAST FIVE YEARS


SLOW PRICE INCREASES COMBINED WITH RISING R&D COSTS ARE KEEPING PROFITS FOR FROZEN FOOD LOW

FOCUS ON R&D IS GENERATING HIGHER COSTS

Executive Summary



U.S. Distribution

Conclusions


AGENDA

According to the National Food Agency’s guidelines, the

temperature should always be at -18°C (0°F) or below

The temperature can rise to -15C (5°F) for short time

spans throughout transportation, local distribution and

defrosting

The responsibility of temperature deviations and actions to

take is decided in the contract between involved parties. If

not, guidelines set by the National Food Agency apply

Based on FDA guidelines, frozen food should be maintained at

a reasonably steady temperature of 0°F (-18°C) or colder

During receipt or storage, if frozen food product

temperatures rise to over +10°F (- 12°C) or warmer, the

owner should be notified to request what actions to take

It is the distributors’ responsibility to follow these guidelines.

However, inspections have historically been rare in the

U.S., and some distribution companies have deviated from

regulations to cut costs

Manufacturers should therefore carefully review their

distributors food safety handling by requesting procedures

for docking, temperature monitoring and logging, inspection of

temperatures at different points of the supply chain, and

removal of perishable goods


THE TEMPERATURE OF FROZEN FOOD IN THE U.S. IS ALLOWED TO REACH HIGHER LEVELS THAN SWEDEN

SOURCE: NATIONAL FOOD AGENCY, AFFI, U.S. FOODS

-15°C

-18°C

-12°C

-18°C

FROZEN FOOD IN THE U.S. SHOULD BE DESIGNED TO HANDLE HIGHER TEMPERATURES

Sweden USA


A COMPLETE SUPPLY CHAIN IN THE U.S. INVOLVES MORE PARTNERS AS COMPARED TO EUROPE

SOURCE: BUSINESS SWEDEN INTERVIEWS

U.S. Frozen Food Supply Chain

Europe’s Frozen Food Supply Chain

Distribution to retailerSales & MarketingImporting & Warehousing

Importer 3PL Sales Agency/Food Brokerage 3PLWholesale

Distributor

Distribution to retailerSales & MarketingWarehousing

Distributor

Pa

rtn

ers

Ne

ed

ed

Su

pp

ly

Ch

ain

Pa

rtn

ers

Ne

ed

ed

Su

pp

ly

Ch

ain

1 2 3 4

1

2-3 PARTNERS ARE NEEDED WHEN SELLING TO U.S. RETAILERS, WHILE ONE PARTNER IS STANDARD IN EUROPE

Function may be handled by another partner Function handled by described partner

Executive Summary



U.S. Distribution

Conclusions


AGENDA

THE FROZEN SUPPLY CHAIN DIFFERS DEPENDING THE MANUFACTURER’S SIZE AND PRODUCT DEMAND


SOURCE: BUSINESS SWEDEN ANALYSIS AND INTERVIEWS

NEW ENTRANTS TYPICALLY RELY ON SEVERAL PARTNERS ALONG THE SUPPLY CHAIN

The typical supply chain for new

entrants consists of at least two

partners: one for sales and marketing,

and one for warehousing and

distribution

Sales agencies/food brokerages will

actively sell products to retailers as they

work on a commission, but do not offer

warehousing and transportation

Wholesale distributors purchase the

products from manufacturers and offer

warehousing and transportation, while

sales are passive and not product-

specific

Wholesale distributors typically rely

on the manufacturer to handle sales

and marketing

Large frozen food companies may have

internal distribution and sales

Distribution

to retailer

Sales &

Marketing

2 3Importing &

Warehousing

1

THE FROZEN FOOD SUPPLY CHAIN CAN BE DIVIDED INTO THREE PARTS

*Other partners along the supply chain can sometimes act as an importer

3PL

(Warehousing)

Fro

ze

n F

oo

d M

an

ufa

ctu

rer

Ma

jor

Reta

ilers

Food

Brokerage/

Sales

Agency

Imp

ort

er*

3PL

(Distribution)

Wholesale

Distributor

(Warehousing)

Internal Supply Chain

Wholesale

Distributor

(Distribution)

In-house

Sales Reps


SEVERAL DISTRIBUTION PARTNERS ARE NEEDED FOR A COMPLETE SUPPLY CHAIN IN THE U.S.

SOURCE: BUSINESS SWEDEN ANALYSIS AND INTERVIEWS, COMPANY WEBSITES

FROZEN FOOD COMPANIES EXPORTING TO THE U.S. NEED 2-3 PARTNERS FOR A COMPLETE SUPPLY CHAIN

Offering

Importing food to the U.S., submits prior

notice and handles customs

documentation

WHOLESALE

DISTRIBUTOR

IMPORTER

Importation Warehousing Distribution Marketing Sales

Conduct sales towards retailers in specific

geographies for a commission. They often

have strong retailer networks. Tends to be a

more expensive option compared to

wholesale distributors. Common for new

entrants as a starting point

x x x

LOGISTICS

PROVIDER

Offers food storage and distribution

solutions. Some offer importing services.

No sales or marketing

xx

x x

SALES

AGENCY/FOOD

BROKERAGE

Purchase products directly from the

manufacturer, and sell it at a mark-up to

retailers. They often carry a large catalogue of

SKU’s, and sales efforts are passive and

limited. Often require proven sales and brand

presence for new products

x x

BROKERS ARE IMPORTANT INITIAL PARTNERS

While large and well-established frozen food

manufacturers may have many capabilities in house,

newer manufacturers will typically need at least two

types of partners

1) Food brokers, or sales agencies, assist with

general sales and marketing toward retailers. Brokers

have wide networks and strong relationships with

certain grocery and specialty food store chains, and

may focus on a particular region

2) Logistics providers focus mainly on cold food

storage and transportation solutions between the

manufacturer and retailer, and may handle importing

Manufacturers also have the option to sell stock to

wholesale distributors, however these partners do not

engage actively in sales/marketing and generally

require demonstrated sales before they will take on a

new line


FOREIGN MANUFACTURERS NEW TO THE U.S.TYPICALLY USE AT LEAST TWO PARTNERS

SOURCE: BUSINESS SWEDEN INTERVIEWS, NATIONAL FROZEN & REFRIGERATED FOODS ASSOCIATION,

AFFI, OREGON STATE UNIVERSITY, FOOD INNOVATION CENTER

MANUFACTURERS SHOULD FIND A BROKER FIRST, AS SOME BROKERS OR RETAILERS HAVE PREFERRED LOGISTICS PROVIDERS

“At a minimum, a foreign or smaller company

will typically need to use a broker and some sort

of logistics provider. The company would use a

third party cold storage facility or shipping

company for distribution, while the broker is kind

of separate from that – their expertise is really

just selling the product into the store.”

- Julie Henderson, VP Communications, National

Frozen & Refrigerated Foods Association

“

”“The way to really grow your product in the U.S.

and to get it into the right food chains is to

leverage the relationships of a food broker.

Regionally first, then nationally.”

-Camille, Associate, MPS Enterprises

“

”


FOOD BROKERS VARY WIDELY IN SIZE, GEOGRAPHY, AND PORTFOLIO

SOURCE: BUSINESS SWEDEN INTERVIEWS, NATIONAL FROZEN & REFRIGERATED FOODS ASSOCIATION,

AFFI, OREGON STATE UNIVERSITY, FOOD INNOVATION CENTER

SMALL AND MEDIUM-SIZED BROKERS ARE THE BEST INITIAL FIT FOR NEW ENTRANTS TO THE U.S. MARKET

LARGE BROKERS

Geography: Large brokers tend to work nationwide, and

some also have connections in Canada

Portfolio: Portfolios tend to be large and diverse,

including a variety of retail products rather than just food

Network: Major national retail chains, club stores, as well

as regional grocery store chains and specialty food stores

Examples: Acosta Sales & Marketing, Impact Group

MEDIUM BROKERS

Geography: Medium-sized brokers will work regionally,

focusing on one coast or a few adjacent regions

Portfolio: Focus on food products, but may include a

variety of offerings including dry foods or confectionary

Network: Regional grocery store chains, specialty food

stores

Examples: MPS Enterprises, Empire Food Marketing

SMALL BROKERS

Geography: Small brokers will work mainly in one region,

such as the Northeast or the Midwest, or a few states

Portfolio: Focus will generally be more narrow, although

there may be offerings other than frozen

Network: Specialty food stores, as well as a selection of

regional grocery stores within the broker’s area

Examples: Douglas Sales, The Performance Group

“There are a few big, well-known brokerages that

are nationwide. More often, however, brokerages

tend to work in specific regions. Many retail

chains are only on one coast or another, so

brokers may only work with retailers on one

coast.”

- Julie Henderson, VP Communications, National Frozen

& Refrigerated Foods Association

“

”

Executive Summary



U.S. Distribution

Conclusions


AGENDA

BUSINESS SWEDEN 16 AUGUST 2018 22

SWEDISH MANUFACTURERS SHOULD CONSIDER LONG TERM OPTIONS IN THE U.S. FROZEN FOOD MARKET

Design appropriate customer offering: As the market is experiencing slow growth with regards to traditional

segments like frozen vegetables and ready meals, manufacturers should prepare to enter the market with an

offering focused on key growth segments, such as healthier options and restaurant quality meals

Product development: Companies may need to invest in further R&D in order to meet the tastes of the U.S.

market. In a crowded market, the right product-market fit will be crucial

Develop branded partnerships: Similar to the Jamie Oliver products, Swedish manufacturers have an

opportunity to develop a marquee line of products using a celebrity endorser in the U.S.

Market position and pricing: Some Swedish frozen food manufacturers will be unable to compete with mass

market products on price. Instead, these companies should aim to price themselves as a premium option

Work with a broker: There are appropriately sized brokers that can help manufacturers gain access to target

retailers. Brokers may also provide input on the ideal product offering to design for the U.S. market

Drive sales: Having a small sales operation could be very beneficial in working directly with key stakeholders

and partners here in the market. A large market requires a more serious investment

Develop

attractive offer

Long Term

Growth

Sales and

Distribution

SOURCE: BUSINESS SWEDEN ANALYSIS

Build out a local operation: Setting up a local entity and scaling the operation so it more closely resembles

the operations of large incumbent players is key for manufacturers wanting to see larger growth and increased

market share. A tepid strategy is likely to fail over the long term

Consider acquisitions: The market is showing signs of consolidation as M&A activity is increasing.

Considering the large amount of financial investment new manufacturers must make, an acquisition may be a

smarter move in order to gain immediate market share

Although the frozen food market has experienced stagnant growth, opportunities still exist for Swedish companies

within the following segments:


OPPORTUNITIES EXISTS WITHIN THE HEALTHY AND PREMIUM FROZEN FOOD SEGMENT

SOURCE: BUSINESS SWEDEN ANALYSIS

Healthy Food Options

Vegan & Vegetarian Protein Restaurant Quality

Ready Meals

M&A

Acquisition by major U.S.

company

Clean Labels

Less preservatives, non GMO

Healthy Snack Food

Premium Frozen Food

Premium Ingredients

Grains, superfood

Improved production for

preserved flavor

Get in [email protected]

+1.415.835.3500

FROZEN FOOD IN THE U.S. - business-sweden.se · healthier frozen food options The process of...

Documents

Transcript of FROZEN FOOD IN THE U.S. - business-sweden.se · healthier frozen food options The process of...