Shopping behavior has changed dramatically over the course of the last 3 years, but the need for convenience is still acting as an engine for the frozen food industry. The American Frozen Food Institute’s (AFFI) ‘Power of Frozen 2023’ takes a closer a look at the way consumers see convenience food in retail.
Inflation in frozen foods remained high in the first half of 2023 but began to slow at the start of the third quarter, along with improvements in the depth and breadth of discounts, the AFFI report shows. The rate of inflation ranged from 5.6% for frozen seafood to +21.5% for fruits and vegetables. Groceries now cost 25%-30% more than they did three years ago, and retail inflation is slowing as of the second quarter of 2023, whereas restaurant inflation is increasing.
The Bureau of Labor Statistics reported +3.0% year-on-year inflation for food-at-home (retail) in August 2023, vs +6.5% inflation for food-away-from-home (restaurants). Inflation varies per department, ranging from +4.4% for seafood to +19.6% for dairy. In the 52-week outlook, frozen food inflation is in line with other departments; price hikes in other departments began to slow in February 2023. Potatoes are fueling significant growth in frozen fruits and vegetables as well. And while consumer impressions of affordability have long been a strong suit for frozen food, temporary price reductions (TPRs), bundling, and emphasizing the relatively low cost per meal compared to restaurants can all help to support this image.
Inflation and other economic constraints are driving the broad shifts in how consumers spend their food budgets. This influences restaurant spending as well as how, where, and what consumers buy at the grocery store. Many eating events will be moved to the home in 2020. By 2023, some of those occasions and dollars have gone back to foodservice, but retail still holds a larger part of the market than in 2019. According to Circana, the retail proportion of overall food and beverage dollars is still around four percentage points more than it was before the pandemic. Delivering on today’s big themes in meal preparation, which include affordability, health and nutrition, and convenience, may help retailers maintain their above-average share of retail sales in 2024.
Different Trajectory for Categories
Over the past year, frozen food unit declines averaging -4.9%, with only the seafood category suffering a greater unit decrease, at -5.4%. At the same time, it’s worth noting that frozen food saw some of the fastest increases during the early pandemic years, according to AFFI’s ‘Power of Frozen 2023’. Fries and fruit are the top individual sellers in frozen fruit and vegetables, with mixed veggies rounding out the top three. High inflation generated significant increases in frozen potato sales, despite relatively low pound pressure.
Frozen fruits and vegetables are a fantastic example of the potential for expansion within each category: fruit sales, for example, are doing above normal. Every category may increase sales in three ways: getting more people to buy, buying more frequently, and spending a little more on each trip. The drop in trips that include frozen food items is causing most of the sales pressure. With flat home penetration and units, trip optimization is the most crucial strategy to increasing revenue, and this includes highlighting strategies that encourage the purchase of an additional item while in the frozen food section.
Some Barriers to Overcome
The frozen food category has relatively high overall household penetration. Trips, expenditure, and category-level participation, on the other hand, vary significantly. The Power of Frozen study has been studying “core consumers” – people who eat frozen meals every few days or daily. Increased frozen food involvement during COVID-19 produced an increase in core customers (from 35% in 2018 to 39% in 2020) in 2020-2021.
The decrease in trips and buyers’ desire to spend less resulted in a plateau in 2023, with 38% of frozen food shoppers, but the core consumer demographics and behaviors remained mostly constant. Their distinct routines could serve as a model for increasing sales in 2024 and beyond. A lack of freezer space can be a deterrent to purchasing, as core consumers are far more likely to have both a chest or standalone freezer and a freezer drawer or compartment within the refrigerator. 30% of all consumers have more than one freezer space, compared to 41% of core consumers.
Optimizing packaging to reduce the amount of space products take up is a chance to assist consumers in managing their freezer space. This has already led to adjustments in package options for pizza, beef, and seafood, while innovations in frozen food vending machines placed in heavy traffic places such as offices and apartment complexes are also assisting in inventive, roundabout ways to expand consumers’ freezing space, the AFFI study shows.
Customers also use freezer space for things that they freeze themselves. 16% of consumers freeze products every day or every few days, including leftovers, and 25% do so weekly. In addition to purchasing more frozen food from the supermarket, core consumers are considerably more likely to freeze goods themselves. Their higher-than-average use of frozen results in less waste owing to things that are too old or freezer-burned. Two of the most significant frozen food benefits are shelf life and minimizing food waste, whether for store-bought foods or meals produced at home, and stressing these benefits can help to increase customer appreciation for frozen food benefits among light and medium consumers.
While supermarkets remain the leading frozen food destination, mass/supercenters are gaining market share. This is partly due to demographics, with Boomers being the mainstay of traditional supermarkets and younger buyers preferring supercenters, clubs, and limited assortment stores. Increased availability of frozen goods in quick-trip forms, such as convenience and medicine stores, could prompt 76% to buy more frozen foods, according to AFFI’s ‘Power of Frozen 2023’.
To read the entire article, please access your complimentary e-copy of Frozen Food Europe November-December, 2023 issue here.