FROZEN ASSETS 2001

KELLY GATES

With the escalating proliferation of mass merchants like Wal-Mart Supercenters and Super K-Marts, and warehouse stores like Sam's Club, grocers are finding themselves in head-to-head competition for virtually every category they have to offer consumers, including frozen foods.

According to ACNielsen, Schaumburg, Ill., even among heavy shopper groups -- groups of consumers who frequent retail establishments -- there is a high degree of channel overlap. Fifty-six percent of heavy grocery shoppers also shopped at convenience stores or gas stations, 87% at drug stores, 95% at mass merchant stores and 50% at warehouse clubs.

Consequently, grocers who ignore cross-channel competition -- especially in categories like frozen foods, that until recently could be purchased only at supermarkets -- run the risk of losing sales to alternative retailers who promote everyday low prices. And, as consumers increasingly embrace supercenters as a preferred shopping destination, industry participants expect the level of competition between supermarkets and mass merchant stores to become even more intense in the future.

In response, grocers like Sterk's Super Foods, a supermarket chain based in Hammond, Ind., are fighting back by promoting convenience and variety, a combination that most alternative channels can't boast.

"In most cases, we still have a greater variety of items within the frozen entree category than alternative channels," said Kevin Copper, grocery buyer for Sterk's. "But, compared to the supercenters, which have such a large amount of square footage, we also have the advantage of having the wide variety of items packed into a smaller space, which makes it more convenient for shoppers to get in and get out if they're in a hurry."

Copper also said if grocers continue to aggressively promote a variety of frozen entrees along with convenience at competitive prices, even if the prices aren't always as low as competitors', consumers will be less likely to venture outside supermarkets for those food items.

Along with promoting variety and convenience, grocers are also consistently offering the latest items that enter the frozen entree category. "If we can continue offering a wider variety of frozen entrees, especially the most recent items to hit the market, we'll always have the edge over mass merchant supercenters in this category," Copper said.

Kevin Dukett, frozen foods and dairy manager for Highland Park Markets, a supermarket in Glastonbury, Conn., said one of the hottest new products in frozen entrees today is the bowl meal. "We're selling a lot of the frozen bowls like those from Main Street Bistro, Uncle Ben's and a few by Boston Market," Dukett said.

"We've given them a full space to themselves in the freezer case so they stand out more and we regularly advertise them in our circulars to draw more attention to the entire category."

Aside from frozen bowls, ACNielsen reports an increase in sales of natural frozen entrees within a number of retail channels. According to the research company, food stores, drug stores and mass merchandisers are all riding this healthful trend, significantly increasing their offering of natural products.

Combined, frozen entrees made from natural ingredients, energy bars, non-dairy beverages and veggie burgers are showing sales growth in excess of 25% a year. ACNielsen attributes this result to the vastly improved distribution of such items and increased consumer awareness.

To merchandise these items, ACNielsen reports that some retailers are creating store-within-a-store formats to cluster natural products, and others are integrating specific categories with like-kind mainstream categories.

ACNielsen also reports an increase in ethnic frozen entrees, including Mexican, Italian and Asian meals, to name a few. As it's often difficult to create from scratch the flavors of many ethnic foods, prepared foods such as frozen appetizers and entrees, along with spices, dried soup and rice mixes, are among the strongest-selling ethnic food products. Everything from sauces to sushi are being made available to consumers through grocery stores as well as mass merchant supercenters, some drug store chains and warehouse stores.

According to the research company's ACNielsen Strategic Planner, for the 52 weeks ended March 24, total national sales of frozen Italian entrees were up 11.9% over last year, while sales of frozen meat entrees rose 16.9%, frozen Mexican entrees grew 22.8%, frozen Asian entrees spiked 17.4%, frozen poultry entrees rose 17.8% and frozen seafood entrees increased 13.6%.

As for the future of the frozen entree category, industry participants expect nothing but growth. According to Dukett, "As consumers become more and more time-starved and convenience becomes an increasingly important issue, the frozen entree category as a whole will continue to expand." As a result, alternative channel stores like Wal-Mart Supercenters and Super K-Marts will inevitably expand their freezer cases as well, consistently pouring on the pressure when it comes to cross-channel competition. However, while promoting convenience, variety and the latest frozen entrees is keeping supermarkets in the game for now, some say that supercenters and other alternative channel retailers are quickly catching up, and more importantly, they're taking away market share in this category. So, instead of struggling to keep their heads above water, grocers will need to step out and develop new strategies for competing with other retailers.

Paris Gogos, vice president of product management for Efficient Market Services, a retail promotions, inventory and marketing strategy company based in Deerfield, Ill., said a crucial first step for grocers is to work on lowering prices so they can compete on all issues.

"Supercenters are really starting to take market share away from competitors in a number of categories and in the case of frozen entrees, this means grocers," said Gogos.

"The mass retail stores have always had the advantage of low pricing due to their sheer volume of purchases. Grocers have definitely come a long way in regard to logistics and other distribution issues, but to truly compete with the Wal-Marts of the world, grocers must find ways to create savings that are reflected in net costs so they can pass those savings along to their consumers."

Gogos also pointed out that the frozen foods category as a whole is a crucial area for grocers, as freezer space is generally limited and it's difficult and costly to alter the section in any way. Consequently, micromanaging this section of the store, including frozen entrees, is vital to maintaining profitability.

At the same time, Gogos said grocers should also focus on engaging in one-to-one marketing with their targeted consumers. When considering a single category like frozen entrees, most grocers already have valuable tools at their fingertips for capturing consumer data down to the individual shopper's purchasing habits, he said.

"Instead of just offering sales or promotions on frozen entrees to every consumer, grocers have the capability of targeting specific consumers who regularly purchase these items," said Gogos. "Capturing such specific consumer data is something that most of the alternative retailers haven't gotten into yet, so grocers have the upper hand for the time being. They should leverage this information to keep themselves one step ahead of competition that threatens to take away their market share in the frozen entrees category."

By gathering and analyzing this data, Gogos said retailers also position themselves to work closely with manufacturers to create additional efficiencies for both parties. Instead of stocking freezer cases with a mishmash of high- and low-selling frozen entree items, the trade partners can work together to determine which products are more popular with consumers. And, as these determinations are made, manufacturers can create more similar items and retailers can eliminate those that aren't turning the highest profits. "Sooner or later, the mass merchant chains with supercenters are going to catch up with grocers and the best way to be prepared is to keep pushing the envelope with whatever advantages they have," said Gogos.