FROZEN FOOD IN THE U.S.

Transcription

1 FROZEN FOOD IN THE U.S. TRENDS & OPPORTUNITIES September 2018

2 AGENDA Executive Summary U.S. Market Characteristics European Market Characteristics U.S. Distribution Conclusions BUSINESS SWEDEN 16 AUGUST,

3 DISTRIBUTION CUSTOMERS MARKET SWEDISH MANUFACTURERS WILL ENCOUNTER A FRAGMENTED MARKET WITH LOW GROWTH 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 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 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 SOURCE: PHOTO PROVIDED BY MISSOURI PARTNERSHIP BUSINESS SWEDEN 16 AUGUST

4 AGENDA Executive Summary U.S. Market Characteristics European Market Characteristics U.S. Distribution Conclusions BUSINESS SWEDEN 16 AUGUST,

5 FROZEN FOOD PRODUCTION IS VALUED AT 42.4 BUSD SLOW GROWTH IS EXPECTED, BUT CERTAIN SEGMENTS WILL BE LEFT BEHIND TOTAL MARKET SIZE AND SEGMENTS (2017) Prepared Frozen Shellfish 6.4% Frozen Pizza 18.6% Frozen Fruit and Juice Concentrate 8.3% Prepared Frozen Fish 11.3% Other 2.6% Frozen Prepared Foods and Entrees 29.5% Frozen Vegetables 23.3% 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 DESPITE THE INDUSTRY S SIZE, FROZEN FISH AND SEAFOOD REPRESENT A SLIGHTLY SHRINKING PORTION OF THE TOTAL MARKET SOURCE: IBIS WORLD BUSINESS SWEDEN 16 AUGUST,

6 THE MARKET IS DEFINED BY A FEW MAJOR PLAYERS AND MANY SMALL-MEDIUM SIZED MANUFACTURERS MARKET SHARES OF COMPETITORS (ALL SEGMENTS) 42.4 BUSD 7.7% Others (Small/medium companies & large companies with few frozen offerings) 74.7% 6.6% 5.8% 5.2% OVERALL MARKET CONCENTRATION IS LOW 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 M&A ACTIVITY HAS BEEN INCREASING WITHIN THE FROZEN FOOD INDUSTRY IN RECENT YEARS SOURCE: IBIS WORLD, WASHINGTON POST BUSINESS SWEDEN 16 AUGUST,

7 THREE MAIN TYPES OF FROZEN FOOD MANUFACTURERS COMPETE ON THE U.S. MARKET Large Company, Large Portfolio 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, Small 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: Small-Medium Company Smaller companies feature more streamlined product portfolios within frozen foods, but smaller operations. These companies may operate off of strong regional networks. Examples include: COMPETITION IS TOUGH Many major frozen food brands are owned by wellknown 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 COMPANIES FALLING WITHIN THE THIRD CATEGORY MAY VARY WIDELY IN SIZE, BUT FOCUS MAINLY ON FROZEN OFFERINGS SOURCE: IBIS WORLD, BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 16 AUGUST,

8 FROZEN FOOD PLAYERS VARY WIDELY IN SIZE AND DIVERSITY OF PORTFOLIO MRS. T S (ATEECO, INC.) Company Facts Founded: 1952 Headquarters: Shenandoah, PA Revenue: 58 MUSD Markets Served: Major metropolitan areas CONAGRA BRANDS INC. Company Facts Founded: 1919 Headquarters: Chicago, IL Revenue: 7.8 BUSD (2.8 BUSD frozen) Markets Served: Global Key Products and Offerings 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. Sales Channels 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. Key Products and Offerings 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. Sales Channels 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. SWEDISH MANUFACTURERS CAN LEVERAGE DIVERSE PRODUCT PORTFOLIOS TO COMPETE WITH COMPANIES LIKE CONAGRA SOURCE MRS. T S, CONAGRA, IBIS WORLD BUSINESS SWEDEN 16 AUGUST,

9 Industry Actions Industry Challenge CHANGES IN DEMAND HAVE PUSHED THE INDUSTRY TO RESPOND WITH EDUCATION AND NEW 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 , 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 1 2 CONSUMER EDUCATION NEW PRODUCTS & REFORMULATIONS 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 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 DUE TO SHIFTING CONSUMER DEMAND, OPPORTUNITIES ARE GREATEST WITHIN HEALTH FOCUSED FROZEN FOOD PRODUCTS SOURCE: EUROMONITOR, ORBIS BUSINESS SWEDEN 16 AUGUST,

10 Industry Actions Industry Challenge INCREASED DEMAND FOR CONVENIENCE HAS CAUSED THE INDUSTRY TO FOCUS ON RESTAURANT APPEAL 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 3 4 CONVINIENCE & RESTAURANT APPEAL PRODUCTION INNOVATION 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 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. FROZEN FOOD COMPANIES SHOULD HIGHLIGHT THE CONVENIENCE AND QUALITY ASPECT OF THEIR PRODUCTS SOURCE: EUROMONITOR, ORBIS BUSINESS SWEDEN 16 AUGUST,

11 FROZEN READY MEALS VARY GREATLY IN PRICE AND NUTRITIONAL QUALITY $/kg U.S. PRICING FROZEN READY MEALS Price Range per Kilo 25,00 20,00 Cederlane Kashi PF Chang Premium meals $3,68 $23,68 Price Range per Pack 15,00 $1,24 $7,7 337 g 1,134 g 10,00 Highest Priced Ready Meals 5,00 0,00 Banquet Michelina s Brand 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) HIGHER NUTRITIONAL VALUE IN READY MEALS ALLOWS FOR SIGNIFICANTLY HIGHER PRICING SOURCE: EUROMONITOR, COMPANY WEBSITES BUSINESS SWEDEN 16 AUGUST,

12 FROZEN READY MEALS HAVE SEEN MODEST PRICING GROWTH OVER THE PAST FIVE YEARS FROZEN FOOD PRICES ARE SLOWLY INCREASING FOCUS ON R&D IS GENERATING HIGHER COSTS U.S. consumers are experiencing a rise in disposable income, which in turn has increased the demand for healthier options at higher retail prices 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 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 This boost has partly been due to increased pricing for healthier frozen food options 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 SLOW PRICE INCREASES COMBINED WITH RISING R&D COSTS ARE KEEPING PROFITS FOR FROZEN FOOD LOW SOURCE: EUROMONITOR, ORBIS BUSINESS SWEDEN 16 AUGUST,

13 AGENDA Executive Summary U.S. Market Characteristics European Market Characteristics U.S. Distribution Conclusions BUSINESS SWEDEN 16 AUGUST,

14 THE TEMPERATURE OF FROZEN FOOD IN THE U.S. IS ALLOWED TO REACH HIGHER LEVELS THAN SWEDEN Sweden USA -15 C -18 C -12 C -18 C According to the National Food Agency s guidelines, the temperature should always be at -18 C (0 F) or below Based on FDA guidelines, frozen food should be maintained at a reasonably steady temperature of 0 F (-18 C) or colder 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 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 FROZEN FOOD IN THE U.S. SHOULD BE DESIGNED TO HANDLE HIGHER TEMPERATURES SOURCE: NATIONAL FOOD AGENCY, AFFI, U.S. FOODS BUSINESS SWEDEN 16 AUGUST,

15 Partners Needed Supply Chain Partners Needed Supply Chain A COMPLETE SUPPLY CHAIN IN THE U.S. INVOLVES MORE PARTNERS AS COMPARED TO EUROPE U.S. Frozen Food Supply Chain Importing & Warehousing Sales & Marketing Distribution to retailer Wholesale Importer 3PL Sales Agency/Food Brokerage Distributor 3PL Europe s Frozen Food Supply Chain Warehousing Sales & Marketing Distribution to retailer 1 Distributor Function may be handled by another partner Function handled by described partner 2-3 PARTNERS ARE NEEDED WHEN SELLING TO U.S. RETAILERS, WHILE ONE PARTNER IS STANDARD IN EUROPE SOURCE: BUSINESS SWEDEN INTERVIEWS BUSINESS SWEDEN 16 AUGUST,

16 AGENDA Executive Summary U.S. Market Characteristics European Market Characteristics U.S. Distribution Conclusions BUSINESS SWEDEN 16 AUGUST,

17 Frozen Food Manufacturer Importer* Major Retailers THE FROZEN SUPPLY CHAIN DIFFERS DEPENDING THE MANUFACTURER S SIZE AND PRODUCT DEMAND THE FROZEN FOOD SUPPLY CHAIN CAN BE DIVIDED INTO THREE PARTS 1 Importing & Warehousing 3PL (Warehousing) 2 Sales & 3 Marketing Food Brokerage/ Sales Agency Distribution to retailer 3PL (Distribution) 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 Distributor (Warehousing) In-house Sales Reps Wholesale Distributor (Distribution) Wholesale distributors purchase the products from manufacturers and offer warehousing and transportation, while sales are passive and not productspecific Internal Supply Chain Wholesale distributors typically rely on the manufacturer to handle sales and marketing *Other partners along the supply chain can sometimes act as an importer Large frozen food companies may have internal distribution and sales NEW ENTRANTS TYPICALLY RELY ON SEVERAL PARTNERS ALONG THE SUPPLY CHAIN SOURCE: BUSINESS SWEDEN ANALYSIS AND INTERVIEWS BUSINESS SWEDEN 16 AUGUST,

18 SEVERAL DISTRIBUTION PARTNERS ARE NEEDED FOR A COMPLETE SUPPLY CHAIN IN THE U.S. Offering Importation Warehousing Distribution Marketing Sales IMPORTER Importing food to the U.S., submits prior notice and handles customs documentation x x LOGISTICS PROVIDER Offers food storage and distribution solutions. Some offer importing services. No sales or marketing x x WHOLESALE DISTRIBUTOR 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 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 x x FROZEN FOOD COMPANIES EXPORTING TO THE U.S. NEED 2-3 PARTNERS FOR A COMPLETE SUPPLY CHAIN SOURCE: BUSINESS SWEDEN ANALYSIS AND INTERVIEWS, COMPANY WEBSITES BUSINESS SWEDEN 16 AUGUST,

19 FOREIGN MANUFACTURERS NEW TO THE U.S. TYPICALLY USE AT LEAST TWO PARTNERS 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 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 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 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 MANUFACTURERS SHOULD FIND A BROKER FIRST, AS SOME BROKERS OR RETAILERS HAVE PREFERRED LOGISTICS PROVIDERS SOURCE: BUSINESS SWEDEN INTERVIEWS, NATIONAL FROZEN & REFRIGERATED FOODS ASSOCIATION, AFFI, OREGON STATE UNIVERSITY, FOOD INNOVATION CENTER BUSINESS SWEDEN 16 AUGUST,

20 FOOD BROKERS VARY WIDELY IN SIZE, GEOGRAPHY, AND PORTFOLIO 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 SMALL AND MEDIUM-SIZED BROKERS ARE THE BEST INITIAL FIT FOR NEW ENTRANTS TO THE U.S. MARKET SOURCE: BUSINESS SWEDEN INTERVIEWS, NATIONAL FROZEN & REFRIGERATED FOODS ASSOCIATION, AFFI, OREGON STATE UNIVERSITY, FOOD INNOVATION CENTER BUSINESS SWEDEN 16 AUGUST,

21 AGENDA Executive Summary U.S. Market Characteristics European Market Characteristics U.S. Distribution Conclusions BUSINESS SWEDEN 16 AUGUST,

22 SWEDISH MANUFACTURERS SHOULD CONSIDER LONG TERM OPTIONS IN THE U.S. FROZEN FOOD MARKET Develop attractive offer Sales and Distribution 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 Long Term Growth 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 SOURCE: BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 16 AUGUST

23 OPPORTUNITIES EXISTS WITHIN THE HEALTHY AND PREMIUM FROZEN FOOD SEGMENT Although the frozen food market has experienced stagnant growth, opportunities still exist for Swedish companies within the following segments: Healthy Food Options Premium Frozen Food M&A Vegan & Vegetarian Protein Restaurant Quality Ready Meals Acquisition by major U.S. company Clean Labels Less preservatives, non GMO Premium Ingredients Grains, superfood Healthy Snack Food Improved production for preserved flavor SOURCE: BUSINESS SWEDEN ANALYSIS BUSINESS SWEDEN 16 AUGUST,

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