What will news of a COVID vaccine do to the frozen category revival?
Consumers flocking to the frozen aisles has been one of the more remarkable trends to have emerged from the pandemic. In the three months to September, for example, sales of frozen foods in the UK rose by 13.6%, or £221 million, according to Kantar. Will they stay there if a COVID vaccine returns the world to normal by spring?
Clive Black, an equity analyst at Shore Capital, believes the renaissance of the frozen category will continue. He told FoodNavigator the crisis will produce a permanent shift in many consumer behaviours, regardless of whether there’s a successful vaccine.
First off are the question marks surrounding the vaccine in the first place. Earlier this week, Pfizer/BioNTech announced a vaccine that is 90% effective in stopping the coronavirus. Albert Bourla, Pfizer’s chief executive, described the dramatic breakthrough in the race to find a vaccine as “a great day for science and humanity”.
Scientists in the UK, which has ordered 40 million doses, said the country should be heading back to normal by the spring. The EU has secured 200 million doses, which it will distribute. The Pfizer discovery has also boosted confidence that other vaccines produced by other scientists will be successful.
Question marks remain, however. Not everybody is going to get access to the vaccine on day one, for example, and the Pfizer vaccine has its own logistical challenges such as needing to be stored at minus 70 degree Celsius.
“There's quite a lot of water to travel under the bridge in terms of vaccination and in terms of the delivery of the vaccination to the wider population,” pointed out Black. “Putting conspiracy fears and lunatics to one side, it will take a considerable amount of time.”
Coronavirus is going to be with us ‘potentially well into 2021’, he said, which will prolong its affects on consumer behaviour.
“There is a significant cohort of people who won't go back to pubs, won't go back to cafes or dense locations where there are lots of people quickly or easily.”
He therefore anticipates the elevated sales enjoyed by grocers at the expense of the hospitality channels to remain until the end of next year. Meanwhile, the crisis will create a legacy of both more people working from home and increased awareness about hygiene.
This has big implications for food systems because central business district and travel hub food systems will continue to see depleted footfall. Supermarkets, meanwhile, will find that there will be fewer shopping trips and larger shopping baskets, augmented by more top-ups at local convenience stores.
“More people are going to be spending more time at home,” observed Black. “When they spend time at home, they engage in much more scratch cooking. If they're going to also eat out less, we're going to see demand for retail sales remaining quite robust. And what that means is folks will buy more staple goods, more package goods and more frozen goods because of shelf life.”
That’s bad news for prepared and chilled food, which is “probably going to remain quite subdued for quite a while”. But good news for the likes of Premier Foods, the maker of comfort classics such as Mr Kipling and Bisto Gravy, and Nomad Foods, Europe’s leading frozen foods company.
“Sales growth will fall off in 2021 because of the comparatives and the remarkable spike of 2020. But in aggregate we are seeing behavioural change, which pivots around working from home. And that's why ambient and frozen staples look like they have been reborn.”
The rebirth of cool
The British Frozen Food Federation is similarly confident the new converts to the category will stick around.
Richard Harrow, BFFF chief executive, said: “The performance of the frozen category throughout the pandemic has been very positive with both volume and value in growth and I expect this will continue as life begins to return to normal in the first half of 2021.
“2020 has given consumers the opportunity to reassess the frozen aisle and many like what they’ve found – great quality, long shelf-life, reduced food waste, value for money and a huge variety of food on offer. What’s more, as the environmental impact of food waste on our planet is becoming more prominent, consumers will see that the industry’s modern freezing methods allow products to be preserved for longer and this will have an increasing appeal.”
Innovation appears to be rife in the category too, further boosting its chances of retaining shoppers.
Take, for instance, Richmond Sausages, a part of Kerry Foods, which recently branched into the frozen sector for the first time with a Frozen Ready Meals range, including family mealtime favourites such as Sausage and Tomato pasta and Sausage Casserole. Richmond said the launch aimed to tap into changing consumer habits as a result of COVID, with 103m more at-home evening meal occasions per week, up 23% compared to last year, according to Kantar. It estimates the frozen category is now worth £6.7 bn and growing at over 6% a year.
“We know the frozen category is booming and as consumers’ lives get busier, convenience has become key,” said Victoria Southern, Category and Marketing Director at Kerry Foods. “Because of this we are confident our range will be a hit.”
Beroni is also launching the UK’s first fresh frozen pasta product which it says promises restaurant quality pasta for the freezer aisle.
Let it stay, let it stay... The cold never bothered me anyway
The aforementioned Nomad Foods remains bullish about its growth prospects despite the news of the vaccine potentially deflating its COVID-inspired sales lift.
The Birds Eye, Iglo and Green Cuisine owner has just acquired Findus Switzerland and is looking for 25-30% retention of new users in 2021 after enjoying a bumper third quarter in which it noted a 6.7% rise in revenue and 5.4% organic revenue growth.
The company has now laid out its 2025 financial targets which include over 2-3% year-on-year organic top line growth.
The equity analysts at Barclays are confident this can be achieved. In a note to investors they wrote: “Interestingly, household penetration surged during the height of the crisis but has remained above pre-pandemic levels even as restrictions have eased – which augurs well for retention. In fact, repeat rates in its three core markets of the UK, Italy, and Germany are all trending above 20%. This gives us more confidence in NOMD's forecast to deliver year-on-year growth in organic sales in 2021, even versus s a strong 2020 that benefitted from COVID-19-related demand.”
Stéfan Descheemaeker, Nomad Foods’ Chief Executive Officer, told investors: “We've been growing without COVID, with COVID and we're going to grow post-COVID.” He added the company’s growth plans were based on ‘a normal’ 2021.
He outlined more reasons for the frozen sector to be cheerful. “It's clear that frozen has been an outperforming category through the COVID pandemic,” he said.
"There has been a significant influx of new consumers entering our portfolio this year as a result of the pandemic. Pre-COVID, we were gaining around half a point of penetration. That figure spiked to four points during the peak period of the pandemic in Q2 when most of Europe was in lockdown. Encouragingly, even as restrictions have eased, penetration has continued to grow at above historic levels.
“Consumption of our products has increased and stayed elevated this year for a number of reasons. One: the entire family is at home, and our portfolio over-indexes to food at home and family favourites in particular. Two: we are seeing less frequent shopping trips with an emphasis on frozen, which is less perishable in nature. Three: the out of home eating occasion has shifted to in home. Finally, consumers see greater value in frozen food in times of economic uncertainty.”
Nomad's focus groups set up during the pandemic have also shown happy customers, he revealed. "The conclusion is clear: these new consumers have been happy and surprised with their experience, which bodes well for retention.”