The development of the frozen food sector in Spain over the past two years has been overshadowed by the continuing restructuring of the group that has been a virtual tugboat in guiding the industry from its very beginning.
What started as a big surprise when it was revealed that Pescanova was in financial trouble at the beginning of 2013 turned into near shock when the massive fishing-based conglomerate sunk into bankruptcy proceedings by April of that year.
Two years later
Now, the group is waiting on a report from KPMG, the auditors who uncovered the irregularities in the first place, to see what parts are likely to remain from its subsequent restructuring. The new management has called an extraordinary meeting for late November where details of a viability plan drawn up by PwC are due to be discussed. It was an earlier KPMG report that revealed how Pescanova’s previous directors, led by the chairman and son of the founder, Manuel Fernández de Sousa, had created a series of accounting systems that disguised the size of the group’s mounting debts.
“They were not by chance, but the result of a conscious plan that has been carried out for various years by the board of Pescanova,” it said.
Those debts are estimated by the auditors to have reached EUR3.2bn by the end of 2012 – more than double the figure recognized by the group’s board only a few months before. Investment bank Lazard has been put in charge of negotiating the refinancing of the debts with chief creditors, led by Spain’s biggest banks. Pescanova’s interim president Juan Manuel Urgoiti López de Ocaña said befote leaving the post in May this year that the financial advisers were confident of the group staying afloat.
Most likely to be cut are the overseas subsidiaries, the biggest of which was Chilean company Pesca Chile, which were caught up in the network of hundreds of international offshoots that were allegedly used to cover up the accounting discrepancies.
It was in May this year, a year after plunging into bankruptcy, that the group finally managed to pull itself free of the court ruling. Since then, Jacobo González-Robatto, president of the monitoring commission overseeing the agreement with creditors has predicted that the Group will return to “complete normalization” by the second quarter of 2015.
Sales have “been sustained” and exports are improving slightly he said in early October, praising the “great effort” made by the banks to keep Pescanova not only operative but “with strength”. There was confidence in the production model of Pescanova, whose problems had been the result of the “hiding of debts” he added.
Given the size of Pescanova, whose fish products were in the vanguard of the development of the frozen foods sector in Spain, the government had “promised that under no concept would the Group be allowed to go into liquidation” according to Urgoiti, at a time when Spanish banks were looking to be in favour of allowing that to happen. Founded in 1960, and with more than 10,000 employees, the group helped kick-start the sector by sponsoring the first frozen food cabinets in the country’s supermarkets to push sales of its catches, long before moving into selling other varieties of frozen products.
A look at the industry
While it has not been given as a reason, Pescanova’s fall looks almost as if it might have been a mirror reflection of what has been happening in the frozen sector as a whole. The government’s own figures showed that the total spend on food as a whole rose for the first time in three years in 2013, albeit by just 0.16% to EUR101.25bn.
As has been happening since the economic crisis began, there was a continued trend towards eating at home, according to the Ministry of Agriculture and Food, which saw the sector grow by 2.4% to EUR69.2bn.
At the same time, what has traditionally been one of the biggest markets in Europe for eating out – a factor boosted by Spain’s position as Europe’s main holiday destination –continued a downward trend that saw it fall by a further 3.1% between 2012 and 2013.
Of the basic categories tracked by the ministry, meat consumption was down by 0.1% overall, with frozen falling by 1.7% and the processed sector growing by 0.9%
Fish and seafood products, on the other hand, a traditionally strong sector as demonstrated by Pescanova’s continuing importance in the market, rose by 0.3%. While frozen fish dropped by 1.7% and seafood by 0.6%, processed product over the two categories grew by 2%.
After a 38% increase in the value of the market in the decade up to 2011 to just over EUR 4.05 billion, the company accepted that the average 4.4% annual growth prior to the European economic crisis in 2007 had fallen back to 1.7%.
But with frozen products outperforming the overall food market in both volume and value terms, it had still managed to increase its share to over 6% of the annual shopping basket. Based on consumer response, the company predicted a slight recuperation for the market with an annual growth rate averaging around 2% in value up to 2015.
However, that forecast went awry in 2013 when a sector that had previously shown itself to be one of the most successful in standing up to the effects of the ongoing economic slump ended up succumbing to it. Average household consumption fell back from 52kg a year in 2012 to 51kg in 2013. The setback was felt in all sub-sectors, with sales by volume down by 4.4% in pre-prepared dishes, 3,7% with ice creams, 2% for fish and by 0.6% for vegetables.
Good news?
If there was a sign of good news for the future, it was based on a noticeable change in the profile of consumers. Young households, the ones that will presumably be dictating market trends in the coming years, had been at the bottom of the buyers’ table. But in 2013 they become the only major social group to show an increase, at a time when families with children, the previous success category, had shown the biggest fall in purchases. The report also showed a marked preference still among consumers towards branded frozen products, which accounted for 68% by spend, compared with 63% for packaged foods in general and even so, own label products continued to nibble away at the difference with a near 1% share gain over 2012.
Discount supermarkets remain the main outlet for buying frozen food, with a two percentage point growth to a 46.6% share of purchases, while specialist shops maintained their quota of 10.5%. All other outlets showed a dip in share.
The perception challenge
Consumption is particularly low for vegetables and market garden produce, where only 32% eat frozen products weekly, and just 8% for meat. Even with fish and seafood, 53% of people go for fresh product. One of the main challenges to get the sector back to growth is simply to encourage more people to buy frozen products, according to Kantar Worldpanel.
But to achieve this companies need to keep working on improving image and quality, given that only 49% of buyers think frozen is as good in quality as fresh food, a figure that’s actually slipped in recent years.
“It will be vital to take advantage of the opportunities the market offers to recuperate consumption. The frozen sector enjoys a high level of innovation. However, the success rate in this segment is somewhat below the average” said Pere Vives, the FMCG director at Kantar.
Frozen represented some 11% of new launches on the market in 2013, he said, yet only 36% were classified as successful against 53% for the food sector as a whole.
As for shopping habits, the price quality ratio remains the biggest draw for attracting consumers to a shop according to a separate report from Kantar on attitudes to outlets.
Some 74% of people surveyed said price was the prime reason, while at the same time they said they were making on average five trips less a year to do their shopping.
Meanwhile, the Ministry of Agriculture and Food’s figures show that the number of people ordering food over the Internet is starting to show significant growth, up from just 2.7% of households in 2004 to 10.4% last year.
The main springboard for promoting frozen foods in Spain – for which the Kantar report is produced – remains the Plataforma del Congelado (Frozen Food Platform), which has now been running for 12 years. Originally a month-long promotion, it now lasts for two months, stretching from nid February to mid April in 2014, during which time AECOC’s members focus on in-store support to boost their sales.
New method for freezing
A Spanish company claims to have begun commercializing a revolutionary method for preserving one of the country’s major exports, fruit and vegetables. It enables the produce to be frozen without losing flavour or vitamins or destroying the texture or cellular structure, according to José María Roger, president of Nice Fruit. He also says no chemicals are used in a process that the company has patented and he claims will preserve the product for up to three years. Based on original research carried out by the Universitat Politècnica de Catalunya, the system was first tested publicly at a wholesale market in Barcelona in 2012. But now Nice Fruit has set up a factory at nearby Castellbisbal with a capacity of 900 tonnes a month.
It also plans to open others in the Philippines, Colombia, México, Ecuador and Peru with local partners who are ready to finance the EUR18m cost of each one. Barcelona itself is within a few hours of fruits ranging from melons to strawberries and pears, allowing the produce to be picked at the optimum time, says Roger. “We are not so much revolutionising the product but agriculture, because we are stabilizing the prices and protecting the grower… guaranteeing him an agreed price all year round and asking him only to focus on quality,” says Roger. He said it would prove particularly useful for situations such as this year, with the Russian ban on buying European Union produce and many tonnes having to be destroyed to prevent a dramatic collapse in prices. It should be noted that Nice Fruit has won the award for the Best Product of the Year in the Foodservice category by the international Jury of the 2014 SIAL.