A case of “natural” survival in the frozen food aisle

The last few years have not been kind to frozen foods. Overall sales have for the most part been flat or shrinking. Any increases have been minimal and short-lived. The recent damage to this once essential grocery segment can largely be traced to a growing consumer taste for fresh, natural, and organic foods.

Like most food trends, the strength of this trend may be overstated but it is real and it is growing as can be seen from the double-digit sales increases for organic foods reported by the USDA’s Economic Research Service. The ERS further notes that organic foods are now available in nearly 20,000 natural food stores and nearly 3 out of 4 conventional grocery stores and are estimated to now represent over 4% of total U.S. food sales.

Since frozen foods are identified by many consumers as vehicles for additives and preservatives, the decline in sales appears to be an unavoidable result. Nevertheless, some frozen food marketers have avoided the decline because of their identity as purveyors of all natural, organic, healthier “good for you” products, according to Packaged Facts in the report Frozen Foods in the U.S.: Hot Meals, Sides, and Snacks. One of these is Annie’s, which makes both frozen and non-frozen food products. Another is Gardien, a Canadian manufacturer that offers a wide selection of vegetable protein-based meat alternative products.

Both of these relatively small companies have recently been acquired by significantly larger players in the frozen food aisle: Annie’s by General Mills, adding it to such frozen brands as Green Giant, Totino’s, and Jeno’s; and Gardien by Pinnacle Foods, which owns the Swanson, Hungry Man, and Birds Eye labels.

This could be signaling the start of an ongoing acquisition boom with other big frozen food companies picking up smaller, up-and-coming companies that can flesh out their product lines in the “good-for-you” end of the market. Pinnacle CEO Bob Gamgort summed up the strategy behind these moves when he said, "We believe that plant-based protein is at the tipping point of becoming mainstream, making Gardein an exciting new growth platform for the Birds Eye business.”

Since General Mills and Pinnacle both have frozen food subsidiaries already, it’s worth noting that these acquisitions are also a signal that its easier to add a company already that has already figured out how to make successful “good-for-you” products and how to market them than having to start from scratch creating a natural or organic line from the ground up.

Which leads to the question, which company is next as an acquisition target and which as a possible acquirer? Three companies come to mind on the purchasing side: Heinz, Schwan’s, and ConAgra:

• Heinz does well in frozen foods with labels like TGI Friday, Weight Watchers Smart Ones, Ore-Ida, and Delimex. But it could easily make use of a “good-for-you” line in with these.
• Schwan’s is a serious player in frozen pizza with its Red Baron and Tony’s brands and also touches the gourmet segment with Wolfgang Puck among its several brands. It, too, could be interested in adding a brand with a strong “healthfulness” identity.
• ConAgra’s Healthy Choice is a diet-oriented brand, despite the name, and Neither Banquet or Marie Callender’s, though popular names, has the “good-for-you” connotation.

We think there are many small frozen food brands that could be attractive to these companies. One that might serve as an example is Willow Tree Poultry Farm, a company that specializes in frozen pot pies. Although very small, the company has established a solid foothold for its all natural, antibiotic free chicken and turkey pot pies in its home territory of New England and over the last two years has been expanding sales through major retail outlets further down the east coast.

The frozen pot pie category belongs mostly to ConAgra via its Marie Callender’s brand and Willow Tree would supplement that brand on the all natural side. For Heinz and Schwan’s it provides an entry into a new market and a chance to cut into the overall market shares of rivals ConAgra and also Nestlé, which has a small position in the frozen pot pie market.

We’re not saying this particular acquisition is going to happen. But it could and so, too, could many more not very different ones. 2015 may be a very busy year in the frozen food category.

This blog is based on research featured in Packaged Facts’ Frozen Foods in the U.S.: Hot Meals, Sides, and Snacks.  Add this report to your own intelligence library and receive a 5% discount during our promotional period effective through March 31, 2015. Use code PFFROZEN2015.