The retail pizza sector in most of the west’s major markets is in relatively good shape considering the overall food market turbulence experienced in recent years. The large German and UK markets, although still dwarfed by the level of sales in the US and having struggled to grow sales in the recession, are expected to post solid gains in the next few years.
In Spain, meanwhile, the market is booming as the economic collapse has forced consumers to cut down on eating out. However, with Spanish consumers trading down in their pizza purchasing, private labels have been the main beneficiary now accounting for almost half the market in value sales. In France, a lack of innovation and a strong consumer preference for preparing meals from scratch (almost double that in Germany for example) have been inhibiting factors in the development of the retail pizza market. Furthermore, consumers are not making up for limited retail consumption by eating pizza at foodservice outlets, as they do in Italy for example. The share that frozen pizza holds of the European markets varies considerably – from 96% in Germany, to 51% in the UK, 48% in France and down to just 33% in Spain – but innovation in most of these markets has kept the category relevant in face of strong competition from chilled lines.
Aside from the interest in chilled lines, considerable threats to the frozen pizza sector are also in evidence though. When economic recovery gathers pace in the major European markets, consumers will once again be more inclined to eat pizza out of the home. Meanwhile, during the downturn there has been a considerable emphasis back on the benefits of scratch cooking with some consumers having become appreciative of the homemade pizza experience. This has actually created an opportunity for added value pizza ingredients as well as for pizza kits to assist consumers in making pizzas at home. An ageing population also does not spell good news for the industry: consumption of pizza declines markedly with age. Pizza companies must therefore find ways of engaging with older consumers whilst not alienating their mainstay youth demographic. Developing specific lines for older consumers that are positioned on a better quality and healthier platform is the obvious starting point.
Battle between Dr. Oetker and Nestlé heats up
Dr. Oetker has enjoyed growing dominance in the European marketplace in recent decades and has recently been developing its presence in emerging pizza markets such as China and Brazil. However, its European supremacy is being challenged by Nestlé, operating with the Wagner brand in Germany and neighboring countries, and the Buitoni brand in southern Europe.
Nestlé’s relationship with Wagner Tiefkühlprodukte GmbH began on 1 January 2005, when the Swiss giant bought a 49% share of what was then Germany’s number two pizza producer, some way behind the dominant Dr. Oetker. Nestlé increased its share in Wagner to a majority 74% in 2010. In that year Nestlé’s share of pizza sales in Germany surpassed that of Dr. Oetker in value terms (although in volume terms it trails with a 37%/32% split in Dr. Oetker’s favour). In November 2011, Nestlé announced it was to strengthen Wagner’s frozen pizza business further by extending its German factory in Otzenhausen with an investment of EUR 45 million. Production is set to increase from 70 million products to 350 million products annually once the new extension is fully operational in 2013. The investment follows Nestlé’s 2010 acquisition of Kraft’s frozen pizza business in North America, including key brands such as DiGiorno, Tombstone, California Pizza Kitchen and Jack’s. The acquisition gave Nestlé a market leading position, with Kraft’s 40% market share adding to its small 6% previous holding through the Stouffer’s brand.
The success of the Wagner brand is built on solid foundations. It has played a pioneering role in the development of the pizza offering in Germany and surrounding countries. Its Steinofen (stone oven) pizza concept, introduced over two decades ago, continues to resonate with consumers and has clearly inspired Dr. Oetker’s recent launch of its Tradizionale Steinofen range in Europe. Wagner’s Die Backfrische (fresh baked) range meanwhile focuses on the use of fresh ingredients, something consumers are also increasingly demanding. Whilst Dr. Oetker has focused on emphasizing the indulgent properties in its range (e.g. the pan-Europe Ristorante restaurant quality brand and topping loaded Chicago Town deep pan pizzas in the UK), Wagner has given more consideration to naturalness and health aspects in its pizzas. Whilst indulgence is clearly still a major driver in the pizza market, Wagner can perhaps be considered to be more forward looking in its approach in meeting the needs of an ever widening consumer base looking for lighter, fresher and more natural pizzas.
Natural and convenience claims dominate innovation
Indeed, natural claims are in relatively high usage (14% in 2011) in new retail frozen pizza launches in Europe, trialing only the convenience positioning which is so central to the offering. Convenience itself is no longer just about speed of cooking, but is also focused on an extra layer of assistance. So pizzas that come with their own baking tray or that provide portionability options, for example mini pizzas or individually wrapped slices, have featured. Making pizza a convenient snack has also been a focus, with formats such as the cone pizza having been rolled out. Another growth area has been pizzas suitable for consumers requiring a special diet, for example gluten-free and lactose-free pizzas. The gluten-free Genius brand in the UK, for example, has extended from its successful bread offering to frozen pizza. However, this segment of the market is only ever going to be a niche offering and most of the mainstream brands have avoided getting involved in it.
Health versus indulgence remains the key theme
How far producers can push health credentials in what is an intrinsically indulgent, treat focused food is the crux of much development in the pizza category. These two seemingly opposing forces are also stretching pizza in more extreme directions. The proposition for taking pizza in a healthier direction is based around the fact that many consumers, especially many female consumers, avoid eating frozen pizza because of its unhealthy image. Healthy pizza innovation is always going to be a difficult concept to be successful with initially, until consumer acceptance builds. However, one of the more likely areas of success is that of wholegrain or multigrain pizza crusts. Innovation along this theme does little to detract from the pleasure drivers in eating pizza provided the chewy texture and taste of the crust can be maintained. Indeed, interest in pizza with wholegrain crusts is relatively high among consumers. In the UK, more than four in ten consumers stated they would buy such a product, and the concept garnered the most interest of all health benefits suggested in a Mintel survey that could be applied to pizza. Furthermore, the appeal of such concepts to households containing children is evident as the importance of these attributes rises significantly when children are present. This reflects the interest parents have in ‘sneaking in’ good nutrition (e.g. through covertly adding vegetables or whole grains) to their children’s diet without having to radically change their eating habits. Clearly, indulgence will remain the key driver of the retail pizza market but producers must take responsibility to make efforts to reformulate along healthier lines, especially as the threat of legislation intensifies (some European Governments having introduced so called ‘fat taxes’ to curb the growth of obesity for example). Reducing salt and saturated fat, and employing stealth health tactics, for example using wholegrain crusts and the incorporation of more vegetable content, are the priority areas for development.
Future indicators point to growth in more authentic pizzas
Future growth in frozen pizza is likely to rest with increasing premiumisation of the category, especially important to tap into the opportunities presented by an ageing population. Interest in quality attributes in pizza rises with age. The rise in premium quality pizzas reflects both growing consumer familiarity with quality cues in pizza (e.g. stone or wood oven baked) and interest in trading up to such attributes, as well as the continued consumer desire for small luxuries at home when spending on eating out remains constrained. Thus, ranges that promote the traditional and authentic qualities of handmade pizza are proliferating in the frozen aisle as they have done at the restaurant and take-away level as well. In such an environment the opportunity to bring a greater degree of provenance into the category is also apparent. Provenance in pizza has traditionally been limited to the use of the Italian or American descriptors to distinguish between pizza crust types (Italian and New York/Californian thin crusts, and Chicago deep pan). However, there are signs that with increased interest in provenance of foods in general, this could have a knock on effect on pizza as consumers look for a greater degree of authenticity. The trend for origin specific varietals and ingredients is being seen across the food and drink sector and pizza’s strong use of cheese as an ingredient offers plenty of opportunity for promotion. The cheese industry has been among the most aggressive in Europe in pursuing designated protected origin status (PDOs/ PGIs). Such status provides a shortcut for authenticity and the associated connotations of quality and taste. Brands that can build provenance and authenticity into their offering are in a much better position to escape the price discounting focus that has plagued much of the frozen food sector and which continues to affect its reputation for quality, good tasting food.
East to fare slightly better than west
In Europe, the emerging markets of the East have been slow to embrace pizza. Demand for frozen pizza in countries such as Russia, Poland and the Ukraine remains low in spite of the on-going involvement of Nestlé and Dr. Oetker in developing the sector. Per capita expenditure levels on frozen pizzas in such countries reflects the limited stage of development. Consumers in the relatively small markets of the Czech Republic and Hungary spend just $1 apiece on frozen pizza each year, while the Poles lead with expenditure of just over $2, ahead of Russian expenditure of $1.5. Put in context, this compares with per capita expenditure on frozen pizza of $22 in Dr. Oetker’s home market of Germany or $15 in the US market where Nestlé is a major player.
However, on the positive side, demand for frozen foods in general continues to move higher in the largest East European markets of Russia, Poland and the Ukraine. Volume CAGR in Poland is forecast to reach nearly 10% over the next five years, with positive CAGR of 7% and over 4% forecast for the Ukraine and Russia respectively. It is also encouraging that the largest sector of the market in both Russia and the Ukraine is ready-prepared convenience foods and meals, albeit traditional food focussed. Overall, pizza is likely to outperform the wider frozen food market in these countries though, primarily as a result of its growing popularity amongst younger consumers either at home or at restaurants and takeaways. Whilst this represents better growth than in most of the established western European markets, on a global scale it ranks as a relatively modest opportunity. Future pizza market growth globally will be driven by the likes of China, India and Brazil all promising markets where multinationals players such as Dr. Oetker and Nestlé will be increasingly active.