Frozen Food Sales' Decline Paves the Way for Fresh Food Innovation

With frozen food sales declining but fresh prepared foods growing, redirect your products from the freezer case toward the deli counter.

By Rene Ouimet, Melanie Schmidt and Dave Donnan; A.T. Kearney

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Retailers have been quick to respond to changing consumer preferences. Some retailers are aggressively increasing their space devoted to fresh -- up to 40 percent in some store designs. They have limited their range of frozen products and reduced space and promotional support.

Fresh prepared foods already represent 52.5 percent of deli sales. This store department is broadening its offerings beyond the classic prepared meal of rotisserie chicken. Deli entrees, sushi, refrigerated/fresh pizza and fresh side dishes all have been increasing by 8-15 percent over the past five years. Retailers are evolving to meet these new consumer preferences and seeking innovative solutions to expand their share of the fresh ready-to-eat market.

These emerging trends have the potential to change the entire retail landscape.

As the Internet-savvy generation grows, there may be opportunities for new food delivery models to reach and appeal to these consumers. While, a recent A.T. Kearney survey indicated 73 percent of respondents do not currently buy groceries online because they are satisfied with their usual shopping opportunities, the online grocery retailing business has seen success in several European countries and is being tested in parts of the U.S. These online models create opportunities to connect with new consumers and build product loyalty through multiple channels.

Leverage supply chain advances

Companies are naturally cautious about "fresh" food due to many issues surrounding "fresh meal replacement" alternatives in the early 1990s --  including supply chain, shelf life, pricing and distribution concerns. However, since that time there have been significant advancements in food technology giving "fresh" a longer shelf life, and supply chain advances are revolutionizing the speed and scale of food delivery.

This progress warrants giving the fresh prepared food market another look; however, this approach is not without risk. Fresh meals require different supply chains with a focus on short shelf life, product turnover and target pricing. For companies considering tackling "fresh," three options make strategic sense:

  • Go-Big – Invest in fresh manufacturing capabilities while developing a fresh foods supply chain. These capabilities can be achieved through a buy or build strategy via multiple regional acquisitions or developments. While this solution solves some of the challenges retailers face in today's currently fragmented supply network, it involves significant investment and assumes that the previous issues with "fresh" food have all been resolved.
  • Test the Waters – Selectively invest in fresh meal innovation. Partner with regional fresh meals manufacturers to pilot a branded program. This option allows companies to learn consumer and retailer dynamics with low investment. A successful test can be expanded or accelerated through acquisition, but this option contains competitive risks.
  • Frozen-Fresh Delivery – Tailor traditional frozen product supply chain and manufacturing to support fresh offerings. This strategy builds on existing frozen capabilities taking advantage of the fact that 50-60 percent of the manufacturing processes are virtually identical whether the end result is frozen or fresh. Invest in technology to increase shelf life 20-90 days and adapt distribution for cold vs. frozen chain. Technology today is far superior than that in the 1990s, and it has the potential to have as positive an impact that the microwave had on frozen foods.

Some leading examples

Some well-established food companies are responding to the changing dynamics in the prepared meals sector.

Weight Watchers Fresh Meals is a line of fresh (not frozen), portion-controlled, chilled prepared meals manufactured in partnership with Greencore USA, a manufacturer of fresh prepared foods that operates in the U.S. and England. This relationship allows Weight Watchers to leverage its brand recognition in the fresh market and to cater to emerging consumer needs using an already existing fresh foods supply chain. Weight Watchers Fresh Meals are distributed in many major grocery stores in the Northeast, Mid-Atlantic and Midwest, and are also connecting with consumers online at

Tyson's new fresh meals product line "Tyson Deli Market" uses the frozen-fresh delivery system to differentiate deli within prepared foods – delivering freshness, convenience and quality. This new product addresses the needs of the ad hoc and last-minute shopper by delivering "tonight's" dinner. Tyson worked around supply issues by delivering its meals frozen, to be thawed in-store and sold as fresh. (See sidebar story on Tyson)

Costco, one of the leading global food retailers, is constantly growing an already extensive fresh prepared meals department, while reducing its investment in frozen prepared meals. A significant portion of its home-style prepared meals are delivered frozen from the manufacturers in their takeout containers. Costco's employees in their "in-store kitchen" complete the meals by adding the final components, such as cheeses, sauces and vegetables.

This approach allows Costco to get the most complex portion of the prepared meal in a non-perishable format, while having the ability to customize the final value-add. For example, the lasagna layers are delivered frozen and preassembled -- this is the complex part of making this meal -- while the differentiating components, Costco's own sauce and cheese, are added in the in-store kitchen.

Nestlé's Lean Cuisine Salad Additions adapted the restaurant-style salad for the grocery store by pairing Nestle's frozen food accompaniments with store lettuce. The frozen product is thawed and heated quickly and served on fresh lettuce, creating a restaurant-style experience at home. These four items -- Asian-Style Chicken Salad, Bistro Chicken Salad, Cranberry & Chicken Salad and Southwest-Style Chicken Salad -- are all inspired by restaurant salads, yet priced at a significant savings to a restaurant meal.

The required pairing with produce encourages partnerships with retailers.

The future of fresh

As consumers continue to seek fresh and nutritional food, pressure will grow on food processors, restaurants and retailers to deliver the foods in convenient and economical ways. Partnerships may grow beyond product placement to innovative supply chain integration and joint ventures to deliver restaurant-quality food in retail stores.

Bold thinking drove Clarence Birdseye to launch the quick-frozen food industry. Innovative use of existing supply chains prompted Weight Watchers and Tyson to build a branded presence in fresh prepared meals. Costco has leveraged the best of both worlds to create ready-to-eat customized fresh meal solutions not available to its competitors. Creative pairing between frozen and fresh allowed Nestle to create an in-home restaurant meal.

Over the next decade, as consumers seek additional fresh and nutritious foods, retailers will seek partnerships with processed food manufacturers that deliver fresh and convenient meal solutions. While retailers are reacting to consumer demands, food processors have been slow to react and adapt, leaving an open window of opportunity.

At A.T. Kearney, we believe the trends of the "fresh age" are pivotal and will define the food industry for the coming decades. Bold, innovative and creative thinking will allow savvy food companies to step up to the table and meet the challenge of the "fresh age".

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