Unilever’s announcement to sell its Italian Findus frozen food unit to Iglo Bird’s Eye Frozen Foods, owned by private equity firm Permira, for EUR805 million signals the completion of the company’s exit from the European frozen food market, leaving it with a relatively small presence in frozen processed food only in the US, with approximate retail value sales of US$325 million.
In recent years most leading packaged food companies have centred their growth strategies on the cornerstone of operational streamlining and establishing strong growth platforms in core categories in which they can benefit from synergies and large economies of scale. As a result, in some packaged food segments there has been intense divestment and acquisition activity in the last two quarters.
The Findus deal follows a number of other small and large-scale divestments/acquisitions which together are impacting frozen processed food, changing the global competitive landscape, and significantly altering it in certain national and regional markets.
In the current climate the category rightly deserves the attention of manufacturers which have the ability to build relevant scale. The recent economic turmoil has had a differing impact on various packaged food categories.
Globally, in 2009 frozen processed food performed well above the overall packaged food industry with 4.5% year-on-year growth (US$ 2009 fixed exchange rates) and over the 2009-2014 period is expected to achieve a 2.3% CAGR, equating to an additional US$11.7 billion in absolute retail value terms.
Growth is being driven by various factors, for example the expanding presence of domestic and commercial freezer units in emerging markets, while in developed regions there is a growing perception that freezing food helps it to retain its nutritional value. Manufacturers recently expanding their scale in frozen processed food via high value acquisitions include Nestlé SA and Iglo Bird’s Eye Frozen Foods, while Kraft Foods and Unilever have sought to exit the category.
Iglo Bird’s Eye Frozen Foods consolidates its leading position in Western European frozen processed food
Iglo Bird’s Eye has been the leading player in Western Europe since Unilever’s 2006 divestment of its European frozen processed food business, with the exception of its Italian operations. With the most recent acquisition of Findus, the original Unilever business unit has been reunited and Iglo Bird’s Eye will increase its Western European market value share from 8.8% to 11.9%, consolidating its leading position ahead of second largest player Oetker-Gruppe (3.9%).
Although Iglo Bird’s Eye’s Western European leadership in frozen processed food is not challenged, its largest markets, the UK, which accounts for over 45% of the company’s frozen food retail value sales, and now Italy, thanks to the Findus integration, are both forecast to grow only moderately over 2009-2014, posting CAGRs of around 1%.
However, growth in Western Europe will mainly be fuelled by Germany (3% CAGR) and France (2.9% CAGR), with these two markets combined set to account for over 60% of absolute value expansion of US$2.6 billion over the period. Iglo Bird’s Eye currently ranks third in Germany and eighth in France and should look to further strengthen its position in these two more attractive markets with its enlarged scale of operations in order to benefit from their dynamic growth and absolute market gains.
Growth opportunities in North American frozen food
In January 2010, Nestlé also expanded its scale of operations in the North American frozen food market with the US$3.7 billion purchase of Kraft Foods’ North American frozen pizza business.
The investment fully serves the company’s overall growth objective of establishing strong growth platforms in categories in which it can benefit from operational synergies and large economies of scale, although this somehow goes against the group’s highly publicised aim to rebrand itself as the world’s leading health and wellness and nutrition company.
With the purchase of the frozen pizza business Nestlé’s has targeted a market with real scale; the US frozen pizza market is the world’s largest, estimated to be worth US$4.5 billion in 2009, and accounting for around a 43% share of global frozen pizza sales in absolute value terms. Over the 2009-2014 period, it is also expected to outperform the global category as a whole (2.4% CAGR) with a CAGR of 3.2%.
Growth in frozen pizza is expected to be driven by its universal appeal to most US consumers, and the fact that larger pizzas can serve many people, providing an easy solution for family meals. Nestlé, the world’s number one frozen processed food player, has the scale to fully benefit from the expected growth of the category, but it will have to manage its enlarged portfolio and align it with driving trends, such as the still reigning health and wellness trend, in even the most remotely associated food and beverage segments.
Still highly fragmented frozen processed food market
Despite the two latest acquisitions targeting the assets of players which rank among the top 10 (in the global frozen processed food market Kraft ranked fifth and Unilever 10th before the divestment of their assets), the market remains highly fragmented and has room for further consolidation.
Currently the top two global players are Nestlé and Iglo Bird’s Eye, with projected 2010 market value shares of 7.9% and 4.2%, respectively. However, both companies’ frozen food operations are heavily reliant on developed markets, with Nestlé generating some 80% of its category retail sales in North America and Iglo Birds Eye’s almost its entire sales in Western Europe. Emerging regions are set to see the strongest category growth.
Asia-Pacific is expected to post a 4% CAGR over 2009-2014, accounting for 26% of global market expansion in absolute retail value terms due to the growing presence of domestic and commercial freezer units, resulting from rising purchasing power and the expansion of modern retail formats, while Latin America is expected to post the strongest CAGR of 5.3%, although from a currently smaller base, driven by manufacturer product innovation and growing demand for convenience.
However, in terms of building on existing global infrastructure, Nestlé will be in a more advantageous position to expand its frozen processed food operations to emerging regions and fully benefit from their dynamic growth.