At Nestle’s $50 million research centre outside Cleveland, food technicians and packaging experts set out three years ago to remake its frozen food lineup and appeal more to busy, health-conscious adults in their 20s and 30s. Nestle may have gotten the menu right, but its timing was off. When young consumers came back to the frozen food aisle last year, the company’s supply chain wasn’t ready. The result: It lost market share to rivals. Jeff Hamilton, who heads Nestle’s US food business, said in an interview the company did not have the manufacturing capacity ready to meet extra demand for its Stouffer’s Fit Kitchen and Lean Cuisine meals. He described it as “sudden, significant and beyond our expectations.”
To catch up, Nestle recently increased capacity at several of its US factories, including making adjustments to its plants and adding a new line in its factory in Jonesboro, Arkansas, Hamilton said.
“That doesn’t mean we’re not close to the edge, but I think we’re one step ahead from where we were,” he said.
Investors have long pressed Nestle to improve the performance of its frozen food business, leading the company to bring consultants, focus groups and international chefs to its Ohio research facility to help overhaul its menu. Today, the lineup includes items such Coconut Chickpea Curry and Sweet Earth Veggie Lover’s pizza, advertised as organic or high in vitamin C.
Much of its effort revolved around a pitch to millennials, the young adult demographic that executives believed would purchase frozen meals if they were offered healthier, more modern choices at the right price point.
So when demand began rising a year ago, it should have offered Nestle a chance to quickly quiet critics. Instead, it marked a missed opportunity.
After several flat years, frozen food sales in the United States rose 1.4 per cent in the last year, according to Nielsen, the market research firm. Young adults helped drive the surge. In 2017, millennial homes spent 9 per cent more than average households per trip on frozen foods.
Yet since September, retailers have sold fewer Nestle frozen entrees than during the same period the prior year, hitting a low point in January when Nestle volumes were about 5 per cent down from last year, according to Bernstein analysts who reviewed data from Nielsen.
Competitors filled the gap. Frozen entree sales rose for both Conagra Brands Inc and Pinnacle Foods Inc, two key rivals, according to the data. Conagra’s volumes were up about 10 per cent in March, compared with a year ago.
Nestle’s retail sales have started to pick up, but are still well below last year’s levels, Bernstein said.
Frozen food is a relatively small part of Nestle’s sprawling portfolio, which also includes Nescafe instant coffee and Pure Life bottled water. It is one of the reasons some investors have called on it to sell the business, saying it would free the Swiss company to focus on more important or higher-growth businesses.
“Nestle will never be able to convince me that management attention on a business like frozen is the same as what they’re giving to high-growth businesses,” said one Nestle investor, who declined to be named.
Frozen meals and pizza accounted for 14 per cent of Nestle USA’s $27 billion sales in 2016, or around 4 per cent of the company’s global sales of about $89.35 billion. More recent figures were not available. — Reuters
By Richa Naidu and Melissa Fares