Frozen Food Growth Spreads Eastward;
Sales Fall 5.3% in UK, Basics Decline
By JOHN J. PIERCE QFFI, Associate Editor

Industry falters in Britain and in such basic categories as potato products and ready meals. Chilled meals challenge frozen. Eastern Europe shows stronger growth, but consumption levels remain far below those for Western Europe.

Could the United Kingdom be the sick man of the frozen food industry? According to Food for Thought (FFT), Geneva, Switzerland, its consumption last year was off 5.3%, enough to reduce overall growth in 22 countries tracked by FFT to a mere 0.8%.

Total tonnage, excluding ice cream, was 12,056,600, compared with 11,950,300 in 2004. In euro terms, the market advanced 3.7% to EUR 68.646 billion counting ice cream, or 3.1% to EUR 52.715 billion without it. Only the UK showed a decline in euro value, although FFT reported a slight tonnage decrease for Germany, contrary to numbers issued by the Deutsches Tiefkühlinstitute (dti), based in Cologne.

In the long-running dispute as to which country has the highest per capita consumption. Ireland gets the nod based on FFT figures and 2005 population estimates, at 48.4 kilograms. Sweden is close behind at 47, followed by Norway at 46.8 and Denmark at 46, while the UK comes in at 43.2. Average was 25.3, with the rate remaining lowest in Eastern Europe.

In Western Europe, there are only two anomalies: Italy at 15.3 kg per capita and Portugal at 13.2. Restrictions on supermarkets have long been blamed for the situation in Italy; the picture isn’t as clear in Portugal, which is right next to Spain – a strong frozen food market for years. Greece, another Mediterranean country, also has a low consumption rate – 14.6 kg – and showed hardly any growth last year.

Because FFT doesn’t have any data on frozen poultry, however, the rankings might well be different if tonnage for that segment were known and factored in. Only Germany and Sweden, through their own frozen food institutes, make frozen poultry data available. Consumption was down again in Germany, continuing a long trend.

According to an analysis by the Foreign Agricultural Service (FAS) of the US Department of Agriculture, overall poultry consumption – fresh and frozen – amounted to 7.503 million tons last year in the European Union. Avian flu was just beginning to create a scare then, and the FAS sees enough of an impact this year to reduce consumption to 7.405 million tons.

Unilever’s sale of its frozen food brands was big news a couple of months ago. But there was a story behind the story: frozen food sales are really hurting in the UK, according to FFT. Tonnage volume was down 5.2% for potato products, 7.5% for bakery products and 10.6% for ready meals. Frozen fish and vegetables showed smaller declines – 1.4% and 2.3%.

Poor performance in the UK helped drag down category performance continent-wide, with tonnage off 1.9% for potato products and 0.3% for ready meals. But quite aside from the impact of the soft British market, the frozen food industry faces a serious challenge from producers of chilled ready meals.

Sales for chilled meals, which aren’t counted in FFT’s main table but appear in another table devoted to annual growth by product for Western Europe, have increased by 392 million current euros annually since 2000, and at an average real rate of 7.4% a year. Frozen ready meals were up by only 297 million euros a year during the same period, and real growth was almost zero. Frozen fruit and fish have the highest average real growth rates at 3.2% and 2.5%.

FFT has also tracked current euro and real average growth by country for 2000-2005 in both current euro and “real” terms. There’s a huge difference between them. In current euro terms, the front-runners are Germany, Spain and Italy at 548 million, 505 million and 378 million. But in real terms, they’re Norway at 5.4%, Sweden at 4.1% and Ireland at 3.6%. These statistics, like those for products, include the 15 pre-enlargement European Union members plus Norway and Switzerland.

FFT figures don’t match those of the only frozen food institutes still putting out their own reports, the dti in Germany and the Djupfrysnings Byran in Sweden. The dti put German tonnage excluding poultry at 2.776 million tons, compared to the FFT 2.593 million figure. The Swedish institute reckoned consumption without poultry but including bake-off at about 373,000 tons, versus about 424,000 for the FFT (Yet their figures for per capita consumption were about the same.).

Sweden produces a more complete report on its frozen food market than any other country, and its voluminous study for 2005 puts retail consumption at 222,446 tons and foodservice (its preferred term, as opposed to catering) at 160,756. Bake-off, mostly bakery products to be baked at stores and sold fresh, accounted for about 48,000.

Category breakdowns are slightly different for retail and catering. In retail, the largest category is ready meals (57,947 tons, up 3.7%), followed by poultry (38,802 tons, up 5.9%), vegetables (32,787, up 3.1%), potato products (31,510, down 0.8%), fish (21,770, up 7.2%), meat (14,791, up 4.1%), shellfish (10,019, down 5.9%), berries (4,242, up 33.6%) and vegetarian products (2,024, up 4.3%).

On the foodservice side, meat is by far the largest frozen category at 49,032 tons, up one percent. Next in order are potato products (35,960, down 0.2%), poultry (19,309, up 4.1%), vegetables (15,104, up 6.2%), ready dishes (as opposed to meals; 14,865, up 1.7%), fish (13,683, up 3.4%), shellfish (5,145, down 1.2%), bakery products (4,175, up 5.2%) and berries and fruit (1,691, up 4.4%). Unlike in retail, there is also a miscellaneous category (2,792, up 25.5%).

Germany has the largest frozen food market in Europe, and even counting poultry (which declined 7.2%), volume was up one percent last year, according to the dti. But the strongest growth, at 4.6%, was in fish and seafood at 274,600 tons. And while all segments of the category showed growth, the highest percentage gain at 12.5% was in that old standby, fish sticks.

Prepared foods registered only a 0.7% increase overall, and there was even a slight loss in partial as opposed to complete meals, while pan meals and soups showed only a slight gain. Pizza and snacks were up 1.5% each. In frozen vegetables, which increased only 0.5% overall, it was prepared vegetables that took a 2.7% hit, whereas plain vegetables scored a modest 1.1% increase.

In potato products, french fries did better than other products, while in the bakery products category finished items were up 6.6% whereas dough slipped 4.4%. It was as if consumers in Germany wanted things simpler. The only item in which they seemed adventurous was game, up 21% – not enough to offset a drop in the larger farm-raised meat category. One other anomalous increase was in the dairy and desserts category, up 9.3%.

Six former Communist countries in Eastern Europe still have a lot of catching up to do, and they aren’t catching up as quickly as one might expect. Overall tonnage growth for Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia was 568,700 tons for 2005, according to IRI, up 4.9% from 2004.

Hungary, with a per capita consumption of 13.7 kg, is the only one approaching West European levels, and it showed a stronger growth rate – 8.8% to 137,900 tons. In Poland, by contrast, the increase was only 2.4% to 277,300 tons, with per capita consumption just 7.3 kg. Yet in both countries, consumption is heavily weighted towards commodities like fruits and vegetables as opposed to ready meals or bakery products.

There’s plenty of other frozen food for thought in the FFT report. Before Unilever unloaded nearly all its frozen food brands, it had a 15.72% share of the West European market. That presumably included ice cream, which Unilever held on to, but the Anglo-Dutch giant’s share was way ahead of second-place Nestlé (7.29%), which also makes ice cream.

# All data refers to total final human consumption, including retail, catering/foodservice & artisanal/craft, thus excluding industrial comsumption and on-farm consumption. †Totals exclude ice cream; Source: Food for Thought (see http://www.fft.com).

In third place was CapVest Equity, which already owned Young’s Bluecrest and hoped to acquire Birds Eye and Iglo from Unilever. That isn’t going to happen now, but will CapVest hold on to what it has or give up the frozen food business and sell its interests to the Permira Equity Group that was the winning bidder for the Unilever brands, or perhaps another company?

Compared to Unilever and Nestlé, the top 20 frozen food companies as ranked by FFT are small fry. McCain comes in at 2.29%, FRoSTA at 1.91%, Pescanova at 1.79%, and Bonduelle at 1.49%. Even further down are familiar names like Ardovries, apetito, Oetker and the Icelandic Group. Could there be a wave of consolidations now that the European Union is even bigger than it used to be?

Not that big manufacturers will necessarily control the market, which in euro terms FFT reports is 25.7% private label. Besides private label and branded (70.3%), there are artisanal (2.4%) and unbranded (1.6%). While FFT doesn’t break out retail and catering figures by country, it puts overall retail sales at 45.5 billion euros (67.4%) versus 22 billion for catering, and private label at 22.8% of the former.
Ice cream did a lot better than other frozen foods, with volume up 4.2% to 3.506 billion liters.

Europeans screamed enough for ice cream to pay more for it, too, as euro volume was up 5.2% 15.594 billion.

In the UK ice cream performance was just the opposite of other frozen food – up 12.5% to 468 million liters, and at a greater premium than in Europe as a whole, with euro volume advancing 17.4% to 1.977 billion. Maybe that’s why Unilever didn’t sell off Wall’s Ice Cream.

In sheer percentage terms, the Czech Republic led European ice cream growth last year: 33.6% to 82 million liters and 44.4% to 304.6 million euros. Next came Norway, at 17.5% to 64.5 million liters and 26.7% to 223.3 million euros. Italy was the only major market to lose ground in both liters and value, but France had a liter gain and a euro decline.