There are differing views over how the frozen food sector is likely to develop in Spain in the short term, as the industry awaits the results for 2012 to be announced.
One thing analysts do agree on, however, is that the value of individual products has been forced down as consumers switch increasingly to own label products in the ongoing economic recession. The effect of Spain’s ongoing sovereign debt crisis has already seen unemployment pass the 25% mark, including more than half the total in the case of young people of working age. Whether that in turn will be enough to contract the value of the frozen food market as a whole depends on who you speak to.
Results so far
Kantar Worldpanel, which researches the market for the main producer companies grouped in the national producers and distributors’ association, AECOC, acknowledges that there has been a fractional reduction in sales. Its most recent annual running totals, for the year through to September 2012, cover only domestic household consumption, and still point to an overall upward trend over the next few years. On the other hand market analysts, DBK, which brought out their most recent report in November 2012, and cover a wider spectrum of the market, suggest that the rise recorded in 2011 was a blip. They believe that market value has already turned the corner in 2012 and is heading downwards. Kantar, however, continues to talk up the market, stressing the overall 38% increase in the value of home-consumed frozen food in the decade up to 2011, up from EUR 2.92 billion to just over EUR 4.05 billion. But they accept that from an average 4.4% annual growth in the years prior to the start of the economic crisis in 2007, that rate has since dipped to 1.7%. Even so, they point to frozen food managing to outstrip food sales as a whole in both volume and value terms, increasing its share to 6.1% of the annual shopping basket. Part of the growth, says Kantar, is due to a continually improving image, with the number of people accepting frozen foods to be “as good as fresh” rising from 49% to 53% between 2002 and 2011. The company’s overview of the market for household sales up to and including September 2012 shows a 1% rise in volume but a 0.4% fall in value to fractionally over EUR 4 billion.
Performances by channel and category
The biggest gainers during that rolling year were ice creams, up 7% to almost EUR 457.9 million, followed by a segment that covers two favorite Spanish hot home snacks, croquettes and mini pasties (empanadillas). These two products, both popular tapa snacks when people were spending much more time and money in bars, together grew by 6.9% to EUR 77.44 million, while pre-prepared dishes, including pizzas, went up by 5.3% to EUR 484.6 million. Biggest losers over the year to September were meats and vegetables, which both fell by 3.7% to EUR 352.4 million and EUR 314.4 million respectively. Also down was what from the outset of the sector has always been the most important segment in Spain: fish and seafood. It dropped by 2.9% for simple product packs to EUR 1.96 billion and by 1.5% to EUR 185.07 million for prepared dishes. Of the total spend on frozen foods for the home, just under 12% of it was bought through hypermarkets; 47.2% through supermarkets; and 13.6% through super discount stores. Only 23.3% was purchased from specialist outlets, a retail sector that continued to lose ground. These figures represent another big rise for supermarkets, which had already increased their share from 39.8% to 44.7% over the calendar years of 2009 and 2010, and hard discount outlets which had a 12.8% stake in 2010, while hypermarkets slipped only slightly from their previous 12.2% share. Kantar’s forecast is that the overall value of the frozen sector will keep on growing by an average 2% a year through to 2015. While no separate figures are given for own label products in these predictions, their analysts are forecasting a continual upward trend while the economic crisis continues, and one that will be led by the two single biggest retailers in the sector.
National chain Mercadona remains the dominant player with over 37%, followed by hard discount Dia. And with these two chains together already accounting for around half of the market, their continued expansion programs are likely to dictate how the frozen food sector performs as a whole. It is the combination of the swaying power of these chains on consumer purchasing, combined with wide fluctuations in the prices of fresh produce in recent years, that are making it increasingly difficult to predict how the market will behave, says Kantar. “In the current (economic) circumstances it looks like the pattern will continue, and that any changing of it will be difficult. Last year, for instance, the price of green vegetables went down a lot, so people opted for fresh. Trends over the next few years will depend very much on the size of harvests,” they add, and at what stage consumers will be persuaded to opt for “more stable” frozen prices. Despite the number of people looking to make savings in their shopping baskets, it is actually the innovative products, especially pre-prepared dishes like soups, that are still making the biggest impression in the frozen sector, says Kantar. Even retailer own brands are getting in on the act, not so much with totally new products but with different ingredients that are used for variations on dishes. However, Kantar believes the pre-prepared sector will remain the main strength for the leading brand names, while the retailers and their own labels will have a greater say in more straightforward product areas such as vegetables and ices.
Effects of the recession
While the industry prepares for the New Year, DBK’s latest report agrees with Kantar that there was growth of over 3% in 2011, but it doesn’t share the latter’s optimism for the near future. The continuing weakness in demand in the home market as consumers seek out cheaper food lines, especially own labels, will “continue to intensify the competition in the sector” says DBK. Their one piece of good news for the country’s own frozen food production is that the domestic crisis is prompting Spanish companies to export more, and in doing so helping to reduce the previous large deficit between exports and imports. For 2012 DBK expects final sales figures in the Spanish market will end up around 2% lower, at just over EUR 5 billion, with a further “moderate fall” expected in 2013 of around 1%. That follows a brief revival in 2011 when sales grew by 3.1% to EUR 5.13 billion, after what it calculated as falls of 2.6% and 1.7% in the opening years of the economic crisis, 2009 and 2010. Looking forward, the company forecasts that only pre-prepared dishes can be expected to maintain a sign of “the moderate growth” they have seen in recent years with an average rise over the 2012-13 period of around 2%, resulting in sales of around EUR 925 million in 2013 .
Estimates for the future
The fish and seafood sector, while remaining the backbone of the sector, is likely to have seen a drop of around 2% in value in 2012 to around EUR 3.2 billion in sales, with a further 1.5% fall predicted for 2013. The value of vegetable products is forecast to drop by 2.0% in 2013, meat by 4.8% and potato products by 3.2%. It is a trend that is being accentuated by the “high market share of food retailer own labels. With some products, such as frozen vegetables, it has already reached around three quarters of sales through this channel.” All the main segments of the domestic market managed to showed growth in 2011, according to DBK, with the exception of vegetables which fell by 1%. Frozen meat and pre-prepared dishes segments were the two that “showed the greatest dynamism” – the former up 6.9% to EUR 230 million, and the latter by 4.7% to EUR 885 million. Fish and seafood, and frozen potato products, both saw increases of around 3% , to reach EUR 3.3 billion and EUR 162 million respectively. The DBK survey also looks at the structure of the frozen food industry in Spain, calculating that there were about 340 producers in 2011, employing around 16,500 workers.
Despite the arrival on the scene of some new companies, various mergers and the closure of some smaller operations meant that the overall figures had remained basically unchanged in recent years. The bulk of the producers are located in the north western region of Galicia, which provides the main harbors for the country’s fishing fleet. It accounts for 27% of the frozen food companies, followed by Catalonia in the northeast which is home to 16% and Andalucía in the south to 14%. Market segments Like much of Spanish industry in general, the frozen sector stands out for having a large number of small and medium size companies working alongside a comparative handful of larger ones. According to DBK, nearly half of the companies working in the sector employ less than 50 workers, while only 20 have more than 200. Of these, the five biggest companies in terms of domestic sales account for 27.3% of the market, and the 10 biggest just under 40%. Despite the boost in sales growth in 2011, the increased competition and increases in the costs of energy and logistics have kept the sector’s profitability levels at roughly the same level as previous years. But now it says the “weakness in sales in general and the strong rivalry (between companies) that characterizes the sector will provoke a deterioration in profitability in the short term.” The company’s one piece of good news for the Spanish frozen food industry as a whole is that “the lethargy of internal demand is permitting an increasing internationalization of Spanish companies” as they seek out new markets. A marked swing in 2011 saw the difference between imports and exports slashed from a deficit of EUR 441 million to just EUR 78 million. Exports finished that year up 23.6% to EUR 2.47 billion, while imports showed only a 4.5% rise at EUR 2.55 billion.
Promotion and initiatives With leading frozen companies such as Angulas Aguinaga, Dr. Oetker, Findus, Frudesa, Nestlé, Pescanova and Salica among its members, AECOC’s part in promoting the industry has traditionally been focused on promotional support at point of sale. Its main goal for the sector this year is to continue the development of direct on-line contact with the consumer with a new service which it aims to launch in 2014, offering everything from latest news on products to advice on recipes. Other objectives will include looking at ways to improve the efficiency of their current promotional programmes, through improved communication, organization and support. As usual, the main thrust of their programme will be the Plataforma del Congelado which started off 10 years ago as the Mes del Congelado. This gets under way in mid-February and involves producers, retailers and other partners in connecting up with the end-user. One new inter-sector project introduced last year was to create a set of specific recommendations for logistics in the sector, known as the RAL. These are due to be expanded in the first quarter of 2013 with the support of courses being held in Madrid and Barcelona to “keep improving and controlling the cold chain for frozen products.” Frozen foods were also promoted at the Alimentaria food fair in Barcelona last March, where the association highlighted the continuing expansion in the convenience food sector in a report prepared by consultants Antonio Agustín and Sofía Delclaux. The study pointed to the changes in socio-demographics in Spain “needing food solutions for consuming at any time and place.” This resulted in “multiple opportunities” for both producers and restaurateurs in what is still regarded as “a new trend in consumption” in Spain.