Recovery under Threat

The recovery of the coated foods market in the post-pandemic world has been threatened by the situation in Ukraine and the escalating cost of key ingredients, reports Jonathan Thomas.

Coated foods continue to represent a popular meal option for both in-home and out-of-home eating occasions. Although the market is still dominated by products based around proteins such as poultry and fish, it also encompasses other forms of coated foods – notable examples include potato croquettes, breaded vegetables (which often represent a popular form of appetiser in foodservice channels), breaded cheese bites and more specialist foods, such as falafel.

The trend towards vegetarianism and veganism has also led to the emergence of coated foods made with meat and fish substitutes. Across most of Europe, coated foods are sold via retail and foodservice channels. The retail market is dominated by a handful of large multinational suppliers and their brands, of which Nomad Foods (owner of brands such as Birds Eye and Iglo) is the largest.

Within the foodservice industry, sales of coated poultry products such as chicken nuggets and goujons are well-represented in channels such as quick service restaurants (QSRs), pubs and bars and represent a staple offering for KFC and its many imitators. In contrast, coated fish and seafood have a far more modest presence within the QSRs sector across much of Europe.

The exceptions to this rule are fish and chip shops, which are widely found within the UK and Ireland and are strongly associated with battered fish (usually cod or haddock). Some of Europe’s largest markets for coated foods include the UK, Germany and the Benelux and Scandinavian countries, due to the widespread popularity of convenience meal centres. Sizeable non-European markets for coated foods include the US, Canada and Australia, as well as Asian countries such as China and Japan which are associated with certain types of coatings. 

Coatings – Technologies & Trends

The global market for food coatings (of which batters and breadings represent a significant sector) is worth an estimated USD3bn at present and growing. Much of this growth is being driven by the desire of manufacturers of coated foods to offer new taste profiles and flavours, as well as improved textures.

In some instances, the popularity of ethnic cuisine has influenced coatings – for example, tastes from the Deep South in the US remain a perennial favourite, as evidenced by the proliferation of products promoted as ‘Southern Fried.’ Coatings derived from Indian, Chinese, Mexican and Japanese cooking have also come to market as the sector has developed. Coatings such as batters and breadings are typically used to improve the sensory appeal of foods by enhancing taste, appearance and texture. These types of coatings also help to retain the moisture of foods during the deep-frying process.

Additionally, both batters and breadings can protect meat and seafood during the freezing and frying processes, assisting in holding in moisture which results in a juicier finished product. Batters have traditionally been made by mixing flour and liquids (usually milk or eggs), with other ingredients sometimes used as leavening agents. Breadings are drier coatings, consisting of particles that stick to the surface of the fish or meat. In recent years, the sector has witnessed the development of coatings suitable for gluten-free foods.

These have been made using flours made from vegetables and pulses such as chickpeas and lentils. Tempura batter – which is typically made from ice water, flour and egg yolks and produces a crispier texture – has travelled west from its Japanese base and is now used for a range of coated foods in European markets. Another Japanese coating which is gaining in popularity is panko breadcrumbs, which offer a lighter, crispier, and flakier coating compared with more traditional breadcrumbs, since it absorbs less oil and grease.

Manufacturers of coated foods have also been experimenting with grains and seeds, which carry obvious health appeal. In the UK market, for example, the Birds Eye range from Nomad Foods includes fish fillets with a Seeded Crust coating, encompassing ingredients such as sunflower seeds, pumpkin seeds and linseeds. The same company supplies Filegro breaded Alaskan pollock in the German market – these are coated with breadings based on pretzels, multigrain and rye. 

Recent Political and Economic Disruptions

The recent pandemic caused a surge in the number of home-eating occasions, as many foodservice establishments were forced to close due to lockdown measures. Convenience foods such as battered and breaded products were one of the main beneficiaries in markets such as the UK, with frozen scampi one such example.

Leading manufacturers such as Nomad Foods also reported a growing demand for what it termed ‘fakeaways’, i.e. products similar to those experienced in foodservice establishments but which could be purchased from retail outlets. Coated foods such as chicken nuggets and battered fish fell into this category, with sales of chicken strips and goujons increasing by 15% within the last two years. In contrast, many foodservice operators were severely impacted by the pandemic, with sales of coated foods via these channels dramatically reduced.

Some companies were forced to adopt new business practices, such as experimenting with online ordering (e.g. via food delivery platforms like Deliveroo and UberEats). However, the industry has shown signs of recovery since the worst of the pandemic passed. In 2021, visits to the UK’s fish and chip shops recovered faster than any other foodservice channel, with visits reaching 65% of pre-pandemic levels.

Expenditure at fish and chip shops in 2021 amounted to 86% of pre-pandemic levels. A more recent disruption to the market has come from Russia’s invasion of Ukraine, a situation that remains ongoing at the time of writing. Costs for manufacturers and foodservice operators have soared since the crisis began, placing a strain on margins which had already been thin for many companies.

The conflict in Ukraine has resulted in shortages of some of the products used in the manufacture and preparation of many battered and breaded foods – examples include sunflower oil (a major Ukrainian export, the price of which has escalated by over 80% in recent months) and wheat, of which Russia had been the world’s leading exporter prior to 2022. Russia had also previously ranked as a leading exporter of much of the white fish typically used in coated products.

This increase in prices has had a serious effect on the UK’s 10,000 fish and chip shops, according to trade body the National Federation of Fish Friers (NFFF). The NFFF has expressed fears that the industry – which is currently worth around GBP1.2bn per annum – could lose up to a third of its operators, since many have little scope to raise prices to cover the increased cost of ingredients. The NFFF has called for governmental support to assist the sector, such as reducing business rates. 

Other Market Trends

Within the UK market, some of the more popular varieties of coated fish and seafood at present include frozen fish fingers, frozen battered fish, and frozen breaded fish, which were worth around GBP195m, GBP192m and GBP175m respectively in the year ending October 2021. Together, these three sectors accounted for over half (52%) of total frozen fish and seafood products sold via multiple retail channels.

Further down the list, sales of frozen fish cakes during this time amounted to GBP22.5m, with non-coated seafood accounting for the remainder of the market. In the year ending October 2021, sales of frozen battered fish increased by more than 7%, but much lower growth of under 1% was recorded by the frozen breaded fish sector. Sales of frozen fish fingers declined by almost 3%.

The composition of the market for chilled coated fish and seafood sold via multiple retail channels is markedly different. In 2021, the breaded fish sector was the market’s largest by value, worth over GBP123m, ahead of chilled fishcakes (worth almost GBP110m) and chilled battered fish (worth just over GBP49m). Although sales of chilled fish fingers were worth less than GBP11m, the sector experienced growth of more than 19% during the year ending October 2021. The presence of coated products is much more modest within the chilled category than is the case for frozen, accounting for just 12% of overall sales.

Manufacturers have continued to experiment with new forms of coatings for fish and seafood, incorporating ingredients such as seeds, spices and specialist varieties like tempura batter. Within the UK market, consumers have been turning in greater numbers towards scampi, which has become something of a favourite within the last couple of years.

In 2021, Youngs Seafood (which had been acquired by the Canadian company Sofina Foods from CapVest Partners earlier in the year) extended its Chip Shop range with new Scampi coated in its signature bubbly batter. The company’s existing range of scampi (which includes varieties such as Gastro Wholetail and Jumbo Wholetail, as well as Popcorn Scampi Bites) is now worth GBP37m at the retail level. Demand for coated foods such as chicken nuggets continue to benefit from the global shift away from red meat towards poultry.

Between 2021 and 2030, the poultry sector is expected to increase its share of global meat consumption from 39% to 41%, driven by its lower cost and perceived healthier nature compared with red meat. At present, per capita consumption of poultry is highest in countries such as Israel, the US, Australia, Malaysia, Brazil, Argentina, and Saudi Arabia. Much of the new product activity taking place within the market for coated poultry products has focused upon the development of new and innovative taste profiles, in some instances to replicate dishes usually found more closely on foodservice menus.

In the UK, Nomad Foods extended its Chicken Shop range – which encompasses products such as chicken strips, nuggets, and burgers – with new Salt & Pepper Goujons. First launched in 2018, sales of the Chicken Shop brand grew by 54% in the yar ending January 2022, reflecting its success while much of the UK foodservice industry was closed. Consumer health concerns are expected to remain a significant driver within the coated foods market over the coming years.

Many leading manufacturers of coated fish and seafood now actively promote the fact that their products are high in omega 3, which has been linked with lower blood pressure and improvements to brain and ocular health. Meanwhile, more products suitable for people following gluten-free diets have emerged in product sectors such as fish fingers. Another expanding sector at present is the market for coated vegan and vegetarian foods.

The number of consumers falling into these categories continues to grow, even though vegans still account for less than 1% of the global population. It is estimated that there are approximately 7.2 million British adults following a meat-free diet, while vegans and vegetarians appear set to account for around a quarter of the UK population by 2025.

Further afield, although less only 5% of the European population is classed as vegan or vegetarian, around 23% now count themselves as ‘flexitarian’, i.e. eating meat less frequently. This data suggests the market for coated meat-free foods will continue to grow within the next few years. One of the vegan market’s leading suppliers is Nomad Foods, via its Green Cuisine range.

This is present in European countries such as the UK, Belgium and the Netherlands, with consumer penetration in the UK market now amounting to almost 7%. The brand was relaunched in the UK during the summer of 2022, in a campaign valued at GBP4.4m, encouraging people to reassess their eating habits in the light of the prevailing sustainability and environmental concerns.

Some of the more recent additions to the Green Cuisine range have included Fishless Fingers (which achieved sales worth over GBP0.6m within their first year of launch) and Fishless Fillets. In the Dutch market, the Green Cuisine range includes products such as Vegetarian Spicy Sticks and Spinach Sticks. In March 2022, Sofina Foods entered the market via the launch of a new range of frozen plant-based fish alternatives from its Greenland Seafood subsidiary. The new range included coated foods such as fish-free fingers and cakes.