Nestle has announced two changes in the last week to try and boost sales of its frozen business in the US. Both moves play into rising consumer trends of healthier eating and convenience. But with Nestle's frozen business still reeling from the effects of a consumer shift towards fresh due to perceptions of it having greater goodness, are the moves enough to win consumers back? Hannah Abdulla explores.
In the last week, Nestle announced two step changes which affect its US frozen food portfolio, pointing to suggestions the Swiss food-maker is desperately seeking out damage control options for this pressured category.
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Frozen has been the laggard for Nestle for some time now. However, the chill is being felt right across the frozen category in the US. According to data from Euromonitor International, frozen processed food experienced slow growth in the years 2013-2014 of US$40.65bn to $41.99bn. In frozen pizza specifically, sales increased to $5.2bn versus $5.01bn for the same period a year earlier and in frozen ready meals, sales grew marginally to $8.33bn from $8.27bn.
It is undoubtedly a problematic situation for Nestle and the Stouffer's owner appears torn over how to react. Nestle is the largest player in US frozen, with sales of $394m, two-and-a-half times bigger than the nearest rival. It is unsurprising it is not in a hurry to ditch its frozen business and has appeared committed to trying to "fix" the problems it is facing in frozen.
One of the brands experiencing a tough time is its frozen diet brand, Lean Cuisine. At an investor day last June, Nestle said it was preparing to step-up investment in the brand. One could argue, where Lean Cuisine is concerned, the coolness is coming from it being a "diet" brand. Frozen diet meals, according to Nielsen data, have seen a fall in value of 7% to $2.1bn.
But Nestle's problems in frozen go well beyond just one brand. In its full year results, announced in February 2014, Nestle said while it had seen good performances in coffee creamers, super premium ice cream and PetCare in North America, growth was offset "by the continuing contraction of the frozen category". In frozen pizza it said "category dynamics" in addition to pricing "led to a disappointing slowdown".
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By GlobalDataThe company is, however, still working on solutions. This week Nestle made two announcements which will impact its frozen foods business.
The first of the two changes saw Nestle commit to removing artificial flavours and cutting salt from the pizzas and snacks it sells in the US. The level of salt will be reduced by 10% compared to the amount in the products in 2013. The move will impact over 250 frozen products.
It is not the first time Nestle has made such a move . Earlier in the year, it announced it was pulling artificial flavours and colours from chocolate products in the US in response to growing demand for clean label and more natural products. But this is the first such move in its frozen business and the commitment appears to be one way of trying to amend the way consumers perceive "frozen". In recent years, frozen has been viewed by many consumers as not having the same levels of goodness associated with fresh.
CEO Paul Bulcke, during the full year investor conference call, alluded to the fact Nestle would be working to change negative perceptions that had been built towards the frozen category.
"Frozen is not perceived fresh, although it has all the intrinsic freshness in there… [there is] fundamental work to be done, something we started already one-to-two years ago. It is linked with the quality and the freshness of the products, with the ingredients we put in there. It is also going for the intrinsic quality of the category, and that's why we have this campaign, Freshly Made, Simply Frozen," he said.
Jon Cox, analyst at Kepler Cheuvreux, says this latest move from Nestle in shouting about the health benefits through salt reduction is important for the Di Giorno owner. "Frozen is seen as long shelf life – meaning full of unhealthy things to enhance shelf life, which turns consumers off despite the convenience of the product. Nestle has to move in this direction, remove anything seen as bad and highlight the naturalness and goodness of the products in addition to the convenience."
In keeping with the push toward better-for-you the company today (5 June) announced the launch of a new range of "protein-packed" frozen meals under its Stouffer's brand. Fit-Kitchen targets Americans that "strive to eat healthier and be healthier" suggesting Nestle is really trying to shift perceptions of being an unhealthy frozen foods maker.
The second of its big moves in frozen this week focused on convenience. In a bid to grow its presence in the snacks category, Nestle launched bite-sized versions of its Hot Pockets products. The company is selling Hot Pockets Snack Bites and Hot Pockets Breakfast Bites to tap into the fragmentation of meal times.
Again, this is not a knee-jerk reaction from Nestle. At the full year results Bulcke noted that Nestle needed to move toward the "way people want to eat" which is "more healthy snacking throughout the day".
Christopher Brody, marketing manager for Hot Pockets added: "Today's millennials aren’t sitting down to a traditional three meals a day, so the lines have become blurry between meals and snacking."
Similarly the truth of the matter is not everyone has time to cook from scratch. Such a product offers a higher level of convenience, and with Nestle's latest commitment to cut salt, signifies the firm cares about consumer health.
"When it comes to some of its frozen offerings, namely frozen pizza, savoury snacks and ready meals, the convenience angle is a given but it has to show and persuade consumers that it is taking their concerns about overly processed foods seriously," says Cox.
Whether these moves to improve the health of its frozen portfolio are enough to drag the category out of the mud are only something time will tell. But its safe to assume for many of the brands within frozen, this really is last-chance saloon.
At the Consumer Analyst Group of Europe, the-then CFO of Nestle, Wan Ling Martello indicated the firm had limited patience for its US frozen business.
"We're very clear on which ones to fix quickly, if not to divest and which ones do we need to accelerate and in what brackets. We have a very clear roadmap internally," she said.
And while it has accelerated moves in fixing certain aspects of frozen, Cox believes internally, Nestle has issued a strict timeframe as to when such moves should start boosting numbers.
"I suspect that it has given local managers until the end of the year that it's relaunch is working – otherwise you may find parts of the business are sold off," he concludes.
