Frozen Foods Face Many Challenges

Higher everyday prices and lower promoted price points in the frozen food department have driven shoppers to find other options to feed their families, according to AMG STRATEGIC ADVISERS, unit of ACOSTA and reported in THE FOOD INSTITUTE REPORT. In particular, younger shoppers are seeking options they perceive as both a better value and a healthier option.

Higher everyday prices and lower promoted price points in the frozen food department have driven shoppers to find other options to feed their families, according to AMG STRATEGIC  ADVISERS, unit of ACOSTA and reported in THE FOOD IDSTITUTE REPORT. In particular, younger shoppers are seeking options they perceive as both a better value and a healthier option.

The recession was a key driver in the eat at home trend which has continued post-recession. Thus far, frozen food companies have not capitalized on this trend. To help frozen food manufacturers and retailers bring shoppers back to the frozen food department, it is important to: invest in department innovation; redefine value; and create a solid price and promotion strategy.

Over the 12 weeks ending Apr. 15, 2012, frozen food department unit sales declined by 7% versus a year ago and are down by almost 4% over the last 52 weeks. Total store unit sales are down, but frozen  food unit sales are down more than any other department. In 2011, frozen food unit sales dropped to 2008 levels.

Although most retailers have seen an increase in frozen food dollar sales, unfortunately, nearly all of these dollar sales increases can be attributed to inflation not to increased consumer demand. Shoppers are putting less frozen food into their shopping baskets while purchasing these products at a higher cost. Frozen foods are being challenged by competition, pricing, lack of innovation, and fewer younger shoppers.

Increased competition from substitute products has also impacted consumer demand for frozen products. For example, the frozen pizza category has been challenged by pizza delivery services. DOMINO’S and others have been discounting heavily. In a review of GOOGLE searches for pizza delivery, there is a steady increase in demand while frozen pizza unit sales have slipped.

Shoppers cite a variety of reasons for buying less frozen food, however, at the top of the list is unit price. On average, prices are up 7% across the department versus last year. Promotional activity in the department has also changed. With the increase in everyday price, promotional discounts in the frozen food department are not as deep as last year. For example, in frozen dinners 5-for-$10 promotions are now 4-for-$10 promotions. Consumers are noticing these value changes, and as a result their demand is falling off.

Another factor impacting frozen food unit sales is a lack of new item innovation. In reviewing new item entries into the frozen food categories, manufacturers introduced 22% fewer items in 2011 than in 2009. In some categories, manufacturers introduced up to 42% fewer items in the same time period.

One frozen category that showed an increase in introductions was frozen breakfast. It was the only frozen category showing a unit sales increase versus last year.

Demographics also help to explain recent category trends. Over half of shoppers buying frozen foods are over the age of 55. Shoppers under the age of 55 are leaving the department for other options. Compared with 2007, there are 37% fewer shoppers under the age of 35 purchasing frozen foods. Of shoppers ages 35 to 44, a key shopper demographic, 25% have left the department since 2007. Frozen food categories show significant variance in demographic appeal. For example, about 50% of frozen pizza is purchased by households under 44 while the same group is only responsible for 33% of ice cream sales.

Finding ways to entice younger shoppers into the department needs to be a priority for manufacturers and retailers.

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