With unemployment starting to show signs of falling in the wake of the financial crisis and more money in their pockets, Spanish shoppers celebrated with their biggest increase in spending on fast moving consumer goods (FMCG) for seven years in 2015.
By David Ing.
Overall growth reached 1.8% in value, while the contribution of the frozen sector performed better still with a 2.3% year on year rise to EUR3.8bn according to Joan Riera, food sector director at Kantar Worldpanel. Ahead of his presentation of the company’s report on the frozen sector for the Alimentaria food fair in Barcelona in late April, he spoke to Frozen Food Europe of two phenomena in particular having affected the Spanish market in 2015. One was a surge in basic fish and seafood sales, the other increased innovation in new products in general. On top of this, from the consumer point of view, there were signs of people eating more frozen foods as the economy improves and people increasingly find themselves more squeezed for time and seeking out the convenience factor. After a further fall in value for the sector in 2014, the 2015 figures provided a much needed boost, says Riera.
“It was the first time in recent years there was growth again,” with the surprise for him being that the most pronounced increase was in the non-prepared fish and seafood sector. “There is no clear explanation for this,” he commented. But while Spain has always been a big market for seafood in general, the healthy 5.3% increase in the frozen product was most likely a reaction to higher cost at the fishmonger’s.
“The fresh product has gone up a lot in price.”
Last year, Riera highlighted pre-prepared plates as likely to be the star performing segment in coming years, and while it had to settle for second place in 2015 he believes the momentum is still there. Overall there was a 3.4% increase, with “pizzas continuing to pull the sector along,” with a bigger still rise of 4.5%.This meant that unprepared fish and seafood accounted for 75% of the increase in 2015, while pre-prepared dishes represented 12% and vegetables –which were up 3.3% in sales value – a 7% share of the growth. On the down side, prepared fish and seafood fell by 3.5% in value, meat by 5.2%, and the highly volatile ice cream sector by 4.6%. The other faller was the sector covering two traditional Spanish tapa snacks, croquettes and empanadillas – a type of pasty – , which dropped in value by 3.1%. By consumer category, it was homes with children over 17 which accounted for the biggest share in the rise in consumption, of 26.7%. They were followed by adult households without children at 25.4% and then retired people at 21.9%. This sign of greater confidence among consumers has helped prompt higher levels of innovation among the companies who are starting to invest again in new products to fit in with “more people having more free time and their search for convenience foods.” The restructuring of Spanish giant Pescanova, which in marketing its own fish and seafood products was one of the main pioneers in getting Spain into frozen food, was contributing to this renewed push, as were traditional suppliers such as Findus. “If the innovation continues, the market will keep on growing for dishes that make life that much easier,” he said.
In a separate study by Kantar Worldpanel, the company has highlighted that own label store products are far from having a down market image in Spain. “We all thought that own labels are for people who do not have any money, but it is not that way,” said the company’s director of Consumer Insights, César Valencoso. A growth pattern that started as a cost cutting reaction to the financial crisis had seen them reach a third of the food market by value but 55.5% of all FMCG sales by units. There were only “very small variations” among socio-economic groups, with even high and medium-high income groups accounting for 53% on average. “It is wrong to say there is an own label buyer,” said Mr Valencoso. “The same consumer can buy own labels in five categories and in five others go for premium.”
The segment is expected to grow
Another research company that remains convinced in a bright future for the pre-prepared dish segment is Informa DBK. In between its surveys of the frozen food market as a whole, which come out every two years, the company has begun producing one on this specific sector. Not only are the products in it “maintaining the rise of previous years,” they are doing so “in a scenario of moderate sales growth and diversification of activity by companies from other sectors of the food industry,” says Informa DBK. The company estimates that deep frozen and refrigerated dishes were neck and neck in sales levels in 2014, although it is the latter that is in the ascendancy. Each segment accounted for around EUR 935m out of a total market worth EUR2.45bn, although deep frozen showed a rise of just 0.5% while the other grew by 3.3% over the previous year.
“Growth in consumption in the home, the recovery of spending in restaurants, the ever growing higher demand for this type of product and the launch of new varieties are some of the factors that explain the improvement in business,” says the company’s study.
However, while these increased sales led to a “slight improvement in the profits of the sector in 2014” the companies involved “continued to face intense competition and strong pressure on selling prices.” Through increased innovation the market was seeing the launch of “new products with improved dietary properties, based on ecological and artisanal processes, and with higher quality.” Some of these, “specifically destined for the hostelry sector will continue pushing growth in the market.”
Packaging helps
Another positive factor for pre-prepared foods has been the “innovation in (packaging) formats, aimed at achieving a greater adaptation to the needs of the consumer.” After an estimated 3% increase in value for this segment in 2015, Informa DBK predicts annual growth will average around 4% over the coming two years, taking the total value to beyond EUR 2.7 bn in 2017. And while the company expects the sales of refrigerated plates to continue to show the “greater dynamism, frozen and other dishes will also show improvement.” From the industrial outlook, the report points to a need for producers to improve their plants and expand internationally as part of their main strategies for future growth. But it adds: “Despite the improvement in demand, companies will still face a situation of intense rivalry and a noticeable pressure on prices in a scenario of growing influence of the own labels.”
The level of competition can be seen in the company’s breakdown of the fabric of a sector which shows some 400 companies involved in producing pre-prepared dishes, employing a total of 8,500 workers. That is an average of just 21 people for each company, meaning many of them operate on a very small scale, often within their own regions in Spain, as is common with the country’s industry in general. As a result, only nine of the 400 had a turnover of more than EUR50m in 2014, although the main ones are stretching their reach “ever more abroad” it says. The manufacturing breakdown also shows there is an “increasing concentration in supply”, with the five biggest companies accounting for 34.1% of the total market and the top ten 43.9%.
Evolution by category
Another food sector with a big frozen component analyzed recently by Informa DBK is bakeries, where frozen doughs have helped resuscitate a traditional bread market that has been in decline for many years. Sales in 2014 rose by 0.9% over the previous year to EUR 3.5bn, with frozen dough “continuing to be the most dynamic” – up 2.8% to EUR1.1bn and a 31% market share. The overall growth figures for FMCG last year were reported by Nielsen in a recent study. This showed a 1.7% rise in 2015, the biggest increase since the 4.6% registered in 2008 at the very start of the financial crisis. Food products as a whole showed a positive trend with the sole exception of meat which, although still the number one ‘fresh’ item in the shopping basket, fell fractionally, by 0.3% in value.
Fruit and vegetables led the growth, according to Gustavo Núñez, the consultancy’s director general for Spain and Portugal. Here again the message was one of “Confidence growing, thanks to the recovery in employment on one hand”, and on the other increased personal income as a result of low lending rates and cheap petrol. The consultants also reported a tendency for people to go shopping more often, with consumers “conceding themselves small whims”. But while FMCG sales via the web rose by 18%, “the Spanish consumer has still not captured the advantages of the Internet,” said Nuñez, lagging well behind countries such as France and the UK. Increased spending on eating out was another sign noted of a “solid economic recuperation.” But at the same time Nielsen warned of “shadows on the horizon, such as the fall in the population of Spain which is forecast to go down by a million people in the next 15 years.” The fall in fresh meat sales in 2015 was also highlighted at the meats and derivatives sector congress of AECOC, the Spanish association of producers and distributors. Flowing in the opposite direction to the tide of pre-prepared dishes, traditional convenience food favourites like hamburgers and sausages were the hardest hit with falls of 9.2% and 10.2% respectively in 2015.
