Nestle acknowledges challenges in frozen food category
by Monica Watrous
VEVEY, Switzerland – Frozen foods remains a “mixed picture” for Nestle S.A. in North America, where sales of Lean Cuisine and several frozen pizza brands have cooled off in recent quarters.
During an Oct. 17 call with analysts to discuss nine-month sales, the company addressed some of the challenges facing its biggest food category in North America.
“If you dig in a little bit deeper into frozen food, you’ll see that it’s a bit of a mixed picture,” said Chris Johnson, executive vice president and zone director for USA, Canada, Latin America and Caribbean regions.
While the Stouffer’s brand has been picking up steam, Johnson said the pizza business was “suffering” last year.
“This year, the category has flattened off, and we’re, in the case of DiGiorno, gaining share and overall basically holding,” he said.
Since unveiling a new look and recipe for its Hot Pockets brand this year, Nestle said its handheld snacks segment has gained volume.
But weighing down Nestle’s frozen foods business is Lean Cuisine, burned by consumer perception regarding the freshness of the products.
“There’s a perception in frozen which seems to be hurting this segment, which we’re addressing and addressing as fact on behalf of an industry, talking about the virtues of frozen food as a real ideal way to keep freshness in,” Johnson said.
He added that Nestle also has had issues with pricing and low rates of innovation for the product line in recent years.
“In the past, this segment has not had the rates of innovation that we’ve seen in years prior, and we’re coming back with that now with items like Salad Additions and Honestly Good, which have been recently launched.”
Lean Cuisine Salad Additions, which rolled out in January, are microwave-steamed pouches of grilled chicken, vegetables and dressing that are added to lettuce in order to make a salad. The Honestly Good line, launched in July, includes six frozen entrees made with all-natural ingredients and no preservatives. The products feature lean proteins, whole grains and vegetables, packaged with a separate pouch of flavored sauce.
North American sales for premium ice cream also have dipped, but the company reported strong growth in snacks and super-premium products for the nine-month period, due in part to new Haagen-Dazs Gelato Pints.
“We do have in North America very different categories, different dynamics,” Johnson said. “But because of that breadth of products and brands, even in the difficult economic times that we talked about earlier, we don’t have the tailwinds when it comes to the economy and to consumer sentiment, we can still do well.”
Nestle posted a 4% sales growth for the first nine months of 2013 and expects to deliver about 5% organic growth for the full year with improvement in margins and underlying earnings per share in constant currencies, as well as improvement in capital efficiency.
Earlier this month, the company disclosed its intention to shed underperforming brands from its portfolio. Without providing specifics, Nestle said there is “a firmness behind this focus” to divest in due time.
“So, on the time frame of divestitures – look, I’m not going to answer it concretely, but when we say we’re going to go about that, we are serious,” said Paul Bulcke, CEO. “But that doesn’t mean that we want to give the timeline the priority. It should be the right thing to do. It should be done in the right way, and that’s how we’re going to go about that.”
When asked directly whether Nestle would sell Jenny Craig and PowerBar businesses, both rumored to be on the block, Bulcke replied: “I will not answer that because as I said, we’re serious about things, and we have to give time to time without losing time, and you’re going to be time-informed.”