Eastern Europe is expected to be the third fastest growing region for frozen processed food worldwide in 2013 in terms of volume sales. This makes it a very promising region with stable future growth potential, offering M&A opportunities for manufacturers looking to enter new markets.
According to Euromonitor International research, frozen processed food in Eastern Europe has experienced positive growth since recording a 9% average unit price decline back in 2009, which was when most Eastern European countries were hit by the credit crunch. The initial drop in prices, mostly thanks to intensified product discounting, made frozen processed food more affordable to consumers. Affordability and convenience remain the most important factors for consumers when it comes to purchasing frozen processed food. In Western Europe and the US there is a more developed eating out culture than in Eastern Europe, where consumers are more inclined towards preparing food at home. Such behavior and lifestyle point towards strong demand for convenience and a willingness to spend.
Currently, the weak purchasing power of consumers in Eastern Europe in the face of austerity means that they continue to be reluctant to spend money in restaurants (the foodservice channel recorded a CAGR of -3.2% over 2007-2012, using fixed exchange rates). Moreover, consumers in Eastern Europe are strongly influenced by the tradition for home meal preparation, usually making meals from scratch from basic ingredients. A weaker tradition for dining out saw foodservice sales slump by 9% in 2009 as consumers continued to favor eating at home in order to save money. Ultimately, consumer demand for maximum convenience while also getting good value for money is what has driven frozen processed food sales since 2010.
The perception of frozen processed food in many Eastern European countries is somewhat negative as consumers tend to recall the low-quality products produced in the late 1990s, which were seen as having an inferior taste once re-heated. It has taken plenty of experimentation, new refrigeration technology and know-how to improve the quality of frozen processed goods. The only thing which has been neglected thus far is communicating this message to the end consumer. Stronger advertising and increased consumer awareness with regard to quality and value for money still need to be addressed.
While frozen processed food is not the most desired product type in the packaged food market due to its limited freshness and perceived inferior taste, it certainly is one of the fastest growing categories. Indeed, it is expected to be the fourth fastest growing category in 2013 with retail value sales growth of more than 10%, according to Euromonitor International estimates. Total frozen processed food volume sales in Eastern Europe are expected to reach two million tons in 2013, equating to around 6% of total packaged food sales in the region.
While emerging markets like Russia and Ukraine are anticipated above-average performances, thus driving growth, other more developed countries such as the Czech Republic are predicted a slight decline (3%). Strong competition from substitute goods like chilled processed and canned/preserved food has hampered the stronger growth of frozen processed food in 2013. Frozen processed foods are enjoying healthy growth thanks to meeting two essential consumer requirements – affordability and convenience.
Current competitive environment within frozen processed foods
Development within frozen processed food is being focused on products offering good value for money. Most frozen food product development is being influenced by urban consumers as in general rural parts of Eastern Europe are much more traditional, with rural householders having a preference for fresh and home-grown or unprocessed products of local origin. Packaging development is meanwhile focusing on appearance and convenience in order to meet consumer demand for goods which are easy to open and then store after opening and, most importantly of all, facilitate easy preparation.
The competitive environment in frozen processed food in Eastern Europe is fragmented. In 2013, the Russian-based manufacturer Kachestvennye Produkty ZAO leads sales with a value share of 6%. It currently has a strong position in frozen processed red meat, frozen soup and frozen ready meals. A wide brand and product portfolio enable the company to operate in multiple price segments, thus targeting different consumer groups. The company is also a leader in terms of innovation, for example launching in 2012 a halal-certified ready meal line under the Shamahanskie brand.
The brand’s production process complies with Islamic law, thus bringing this aspect of the region into its marketing. Other parts of Eastern Europe have also proved to be innovative; for example, in Hungary in 2013, the company Gergely Gasztronómi Kft has expanded its frozen processed food assortment with the addition of gluten-free dumplings. This is a good example of how frozen foods can serve a niche market (in this case food- intolerant consumers) and take advantage of the developing health and wellness trend in the region.
For the time being, Gergely Gasztronómi Kft has practically no competitors in this niche and so its products are likely to quickly expand into new markets. Viciunai Group ranks second in Eastern Europe with an overall value share of 3% in 2013. It holds a strong position in frozen processed fish/seafood (20%) and owns a number of production facilities in Lithuania and one in each Estonia, Russia and Spain. The company is expanding its product assortment to include more frozen bakery, frozen ready meals and frozen pizza.
Structure of frozen processed food in Eastern Europe
Frozen processed food in Eastern Europe is set to be worth EUR9,830 million in 2013. Frozen processed food tends to do well during periods of persistent macroeconomic uncertainty and job insecurity as it is both affordable and convenient to prepare and store. Having long-lasting ready-made food in the freezer is indeed a popular solution for consumers, with them simply having to put the food into a microwave or oven and wait for several minutes.
Breaking down frozen processed food sales by type reveals several interesting facts. Ready meals is by far the largest and most popular frozen processed food category, accounting for a 39% share of total volume sales. The category also offers added value by providing complete and easy-to-prepare dishes. Frozen processed vegetables is the second largest category, commanding a 16% volume share of total frozen processed food sales in 2013. Frozen vegetables is historically the most stable category, with these products being popular side dishes.
Vegetable mixes have proved the best sellers in 2013. Furthermore, due to being considered the healthiest products within frozen processed food, frozen vegetables are also partially benefiting from the expanding health and wellness trend in the region. Frozen bakery is set to record the strongest retail volume growth in 2013 of around 16%. Frozen bakery is growing from a relatively low base and is being driven by a strong performance in Russia (20% volume growth), where the quality of fresh bread is sometimes low due to under-fermented dough.
Russia is at the same time the largest and most important market for frozen bakery products in Eastern Europe. In more western parts of Eastern Europe, frozen bakery has not been doing so well as consumers prefer fresh bakery products. Other frozen processed foods like frozen pizza and frozen soup are growing but are being strongly hampered by chilled variants. Furthermore, only a relatively limited product portfolio is currently available, thus providing opportunities for future growth.
The future of frozen processed food
Retail volume sales of frozen processed food are expected to grow by 20% over the five-year period to 2018, to reach 2.4 million tons. Opportunities for manufacturers to expand existing product ranges will bring forth numerous innovations, improving not only the quality and diversity of products but also their packaging. The best-performing frozen processed food markets in Eastern Europe are expected to be Slovenia, Georgia and Russia, with all witnessing above-average growth. However, markets like Poland and Hungary are also expected to achieve double-digit growth over this period.
Increasing health awareness is making consumers more cautious, encouraging them to pay more attention to product labels and analyze exactly what is in the foods they are buying. Demand for convenience and value for money will continue to benefit frozen processed products. However, increasing consumer purchasing power, together with the growing health and wellness trend and demand for fresh food, will pose potential threats to further growth. Because of this, a few countries, such as the Czech Republic, Slovakia and Bulgaria, are predicted to see volume sales fall over the forecast period. Additionally, frozen processed food will need to challenge unprocessed frozen food as well as chilled processed and also to some extent canned/preserved food in order to maintain future growth.
Frozen meat substitutes in Eastern Europe is set to become the fastest growing category within frozen processed food over the forecast period, registering average annual value growth of 14%. Frozen meat substitutes were introduced to Eastern Europe only recently – in 2013 – which means that the category is growing from a very low base. Frozen soup can also be described as a rapidly growing niche as frozen soups are currently available only in a handful of Eastern European countries. Most of the category’s growth will be driven by Russia, along with expansion into new markets.
The most important products within frozen processed food, namely frozen ready meals and frozen processed vegetables, are expected to grow steadily by 2% annually over the forecast period. These categories are much more saturated, which is why forecast growth will be slightly below the frozen processed food average (volume CAGR of 3%). Frozen ready meals has already demonstrated a capability to grow despite challenging economic conditions. However, improving consumer budgets stemming from a European macroeconomic recovery will allow consumers to eat out more regularly over the forecast period.
Increased dining out and recovering home delivery/takeaway sales will also hamper growth. While this poses some threat to future growth, the recovery is not expected to be substantial enough to make a significant difference. Consumers will therefore continue to seek out convenient and added-value meal solutions, which will include frozen processed foods.
Market opportunities and general outlook
Innovation and an expanding product portfolio will positively impact future sales and stir further consumer interest. Good value for money as well as a high degree of convenience will remain essential elements to the success of frozen processed food. Better in-store advertising combined with ongoing product discounts has already proven to be a successful strategy. Improving consumer education and awareness about the benefits of frozen processed food will remain important to the category’s future performance. Further investment in product innovation will bring about more premium products of higher quality, while it will be interesting to see how manufacturers address the growing demand for healthier products.
Private label is expected to gain a more significant share of value sales over the forecast period, holding just 4% in 2013. Frozen processed food in Eastern Europe is not saturated, meaning there is room for further growth. In less developed Eastern European countries like Belarus, Ukraine, Georgia and even parts of Russia, frozen processed food has the potential to grow alongside the development of modern retailing channels (particularly supermarkets and hypermarkets), which have the space available for freezer cabinets. Traditional local products like Azerbaijani vareniki and pelmeni (both types of filled dumplings) or Georgian xinkali offer additional growth potential in markets where such products are well known. Frozen processed food manufacturers will focus on offering consumers good value for money, providing convenient, healthy and indulgent products at reasonable retail prices.