Falling prices in a number of European markets have dampened sales growth in chilled and fresh food. With consumer confidence on the rise in countries like the UK, there could be further pressure on sales, with shoppers looking to eat out more, while Range reviews by retailers are also putting the squeeze on some segments. IRI's Sarah Pittock weighs up the outlook for the sectors.
The UK last month become the latest European market to officially announce deflation. It was perhaps unsurprising, given we have been seeing falling food prices amid the ongoing price war between the major supermarkets for some months.
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Nonetheless, the announcement brought into focus in another European market the challenge of operating in a market of declining prices.
Other countries, including Germany, also succumbed earlier this year and, although official reports last month suggested the Eurozone had exited four months of deflation, problems remain and recovery is slow.
For the food industry, and in particular the chilled and fresh category, the situation is not ideal. The health of chilled and fresh tends to very closely follow the health of the economy as a whole.
According to IRI’s most recent report on the chilled and fresh sectors across seven European markets – France, Germany, Greece, Italy, the Netherlands, Spain and the UK – total sales ended 2014 in slight growth (0.3%). However, deflationary pressures, driven by the continued growth of private label and discounters, continue to decrease value in many categories.
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By GlobalDataThere has been some volume pick-up that has helped minimise the pressure on value but volumes have not increased sufficiently to lead to significant growth. Volume is also often struggling in some chilled and fresh categories due to shallower deals impacting promotional uplifts.
Charcuterie is the second-largest category in terms of value sales, worth EUR21.1bn in sales across the seven markets. However, it has seen the most actual value decline in the last year (0.9%), particularly in Germany, driven by the hard discounter channel impacting private-label and branded products. A reduction in promotions has also had a negative impact on the category, driving the decline particularly in the reduced fat and sausage segments.
If we look back, we can see chilled has actually been something of an indicator of trends to come. Right at the beginning of the recession, chilled was one of the very first categories to benefit from the downturn. With less cash to spend, people stopped eating out, and as soon as they did this chilled and fresh food benefited – we started buying more ready meals for dinner and more pre-packed sandwiches for lunch.
So as consumer confidence rises once again and people start eating out more, it will be interesting to watch what the impact is likely to be. There’s a real danger that as people go out more to eat, they will buy less in chilled and fresh.
The industry needs to make it clear why people should be flocking to the chilled aisle once again. The challenge is there is a limited amount of expandability in the chilled and fresh market, so in the face of deflationary pressures, the main growth route available for manufacturers is to drive premiumisation through innovation, convenience and added value formats.
However, with new product development, there has not been an awful lot of innovation in chilled since the start of the recession, apart from in some categories like yoghurts and dairy drinks, where increased demand for naturalness and beneficial ingredients have played a key role.
As the economy improves, people also want convenience – they don’t want to spend time cooking but they do want good quality food. So pre-prepared packs, where you have a sauce, ingredients, chopped vegetables, chicken or fish, is an opportunity for manufacturers but it’s the sort of thing that we’re seeing retailers cut back on in their ranges.
When the horsegate scandal happened in 2013, with people questioning the quality of frozen food, it was a prime opportunity for chilled to shout out about its credentials – provenance, fresh produce, local farmers and so on – but it just didn’t happen.
So, despite a slowing down of growth in the chilled and fresh market and lack of innovation in recent years, manufacturers and retailers should look to capitalise on the growth potential. By tapping into the health of the economy, focusing on new product development and innovation and working more closely with retailers to optimise their ranges and capitalise on demand for convenience, the outlook for sales growth in chilled and fresh could look brighter.
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