The economy.

That is the answer industry experts gave when asked what is most significantly impacting the frozen and refrigerated foods market today.

"The economy is the biggest factor, and it is affecting the categories in several ways," says Julie Henderson, VP of communications for the Harrisburg, Pa.-based National Frozen & Refrigerated Foods Association (NFRA). "More at-home meal preparation means food departments, including frozen and refrigerated, are driving store growth. A focus on value has increased the prevalence of store brands and an increase in shopping at dollar stores. Rising commodity prices are reflected in food price inflation, which has meant higher dollar sales for frozen and refrigerated. But unit sales are down, indicating that consumers are cutting spending or making trade-offs in these categories."

Data from Nielsen's State of the Industry 2011 report, sponsored by NFRA, illustrates just how inflationary pressures are changing the landscape of frozen and refrigerated food sales, which topped $100 billion last year.

"Unlike other departments experiencing rising prices, frozen foods is not seeing much benefit in terms of dollar sales growth (1 percent) and unit sales are negative (-2 percent) in the 52 weeks ending Nov. 26, 2011," reports Todd Hale, SVP of consumer and shopper insights at Schaumburg, Ill.-based Nielsen. "Other food departments where prices are rising are seeing positive impact on dollar sales, but some impact on unit sales, too. For example, fresh meat dollar sales are up 9 percent and units are flat; dairy department dollar sales are up 7 percent and units are -2 percent."

Creativity Sparks Growth
As challenging as the economic landscape may be, retailers are seizing the opportunity to grow the frozen and refrigerated segment in new and unique ways.

"The frozen and refrigerated departments are hotbeds of innovation in areas such as packaging, convenience, ethnic flavors and better-for-you products," the NFRA's Henderson says. "In some retailers, there is a trend toward reframing the categories to reflect lifestyle trends, whether it be grab-and-go solutions or healthy and/or organic options."

Outside-the-box merchandising, in fact, is gaining steam in supermarket aisles, experts say.

Nielsen's Hale, for example, sees more and more retailers creating multiple locations throughout the store where shoppers can find product, while Henderson finds cross-merchandising items an increasingly popular approach.

"Refrigerated and dairy categories have such high penetration in the number of items and dollars spent per shopping trip. Retailers can leverage cross-category promotions to increase the total shopping basket spend," Henderson says. "While frozen foods have a more moderate buying frequency, they see higher per-trip spending and can provide even greater opportunities for retailer promotions to build shopping baskets."

For large promotions like March Frozen Food Month and June Dairy Month, the trend is toward what Henderson calls "more total store promotions that provide opportunities for cross-merchandising.

"This plays to the eating-at-home trend by providing total meal solutions supported by menus, recipe cards and cookbooks," Henderson goes on to explain, adding that conventional grocery stores and supermarkets have the advantage over big-box retailers, thanks to the diversity of product assortment. "This enables them to do more collaborative marketing, creating total meal solutions using items from different departments."

Enhancing the look at shelf with better lighting and signage that makes a section unique and calls out to shoppers as they pass by is another innovative merchandising technique retailers are employing to boost sales, Hale adds.

"The frozen and refrigerated departments are hotbeds of innovation in areas such as packaging, convenience, ethnic flavors and better-foryou products."
—Julie Henderson, NFRA

Demographics Drive Demand
Frozen and refrigerated foods enjoy broad appeal across income groups, the Nielsen study shows. They are popular among small and large households, younger and older female heads of household, kid and no-kid households, and in urban, suburban and rural areas.

Most categories, however, are underdeveloped in multicultural households, even though non-whites and Hispanics account for 98 percent of the population growth in large metropolitan areas. "This is definitely an area with opportunity for growth," Henderson notes.

Hale stresses just how big that opportunity can be.

"At our annual Nielsen client conference, our CEO, Dave Calhoun, stated that companies need to devote 65 percent of their time against multicultural. If you look at the changes in the composition of our U.S. population base — particularly within our top 100 largest metro areas — it is easy to see why more focus needs to be placed on taking advantage of the growth majority from multicultural population segments," he says. "Those refrigerated and frozen categories that today have low development among growing populations must work hard to create demand for their categories or face a tough future."

Based on current demand and future demographic projections, frozen and refrigerated will grow at a rate just below all measured categories, with unprepared meat/poultry/seafood, ice, ice cream, refrigerated juices/drinks and eggs among the categories "well positioned for growth," the Nielsen study shows.

"Those refrigerated and frozen categories that today have low development among growing populations must work hard to create demand for their categories or face a tough future."
—Todd Hale, Nielsen

The economy will continue to shape the landscape, with shifts in buying and spending continuing. As the Nielsen study notes, "Most people prioritize food purchases, but the affluent population is where strong discretionary opportunities lie."

Therefore, while value is important, "good prices and promotions won't guarantee success," according to the Nielsen study, which shows making emotional connections with retail banners/brands and shoppers, as well as tapping into the power of convenience, health and wellness, as important steps.

Ultimately, though, how much of a reason manufacturers and retailers give consumers to buy through innovative product development, merchandising and marketing will determine how successful the frozen and refrigerated category will be.

As Nielsen's State of the Industry 2011 concludes: "Broad demographic appeal and strong buying behaviors make these categories excellent collaborative partners to drive retail sales. Future growth ... will be dictated by innovation efforts and how you connect with, and create demand across, diverse population segments."

Frozen Assets
As the frozen food and dairy manager at Save Mart #94 in Lathrop, Calif., George A. Aguirre — whose department won a Golden Penguin Award in the NFRA's 2011 March Frozen Food Month display contest — has a finger on the pulse of the category. Aguirre shares insights gleaned from managing a department that consists of three aisles with standup freezers on both sides, plus five freezer end caps, one of which features new weekly ads and is the first thing customers see when they enter the store.

Q: If you had to identify some trends impacting your department, what would they be?

A: One of the trends is that families are eating healthier and looking for ways to get this through frozen foods. They are also looking at ways to get this through the refrigerated side. Another trend is fast and convenient.

Q: What are some of your department's best-selling products?

A: Some of the best-selling categories over the past couple of years have been the dinners and entrees sections. The yogurt and milk sections are always growing; eating healthy and staying fit always seem to help those items. One decreasing category is frozen pies. With all the stores that have bakeries, it is faster and easier to pick up one that is already made. The frozen canned juice section seems to lack the sales it once had; I think Mom would rather pick up juice from the refrigerated section. The refrigerated section also has a couple of sections that have dropped off, like the biscuit and [gelatin dessert] sections.

Q: What are some of the biggest challenges you face in merchandising and marketing frozen and refrigerated foods?

A: March is National Frozen Month, June is National Dairy Month and July is National Ice Cream Month, so there is a lot of national exposure during those months; excitement is brought to these isles with streamers, balloons and big end cap displays. But the rest of the year, there seems to be a drop-off in advertising. Companies should carry over with their advertising through the whole year to bring fun and excitement to these aisles — maybe create a national spokesman or mascot. Another big challenge is getting help from companies to keep these sections looking nice. Frozen and refrigerated food is not being considered a department of its own. Most companies consider it a subdepartment to the grocery department, even though these sections bring in well over one-third of the store's business.

Q: Are you doing anything to market to Hispanics and other ethnic/multicultural demographic groups? Is that important in your market area?

A: Being Hispanic has helped me in the way I display items in the store I work at, because I know what they are looking for — Hispanics are always looking for value in what they are shopping for. Depending on what demographic area you are in, certain things will sell better than others. For example, certain areas will sell whole milk over low-fat milk, where in other areas, it is the opposite. Getting to know what ethnic groups shop at your store is very helpful. Once you know what the multicultural groups are, or even if you have an older clientele, you have to cater to them.