Product and Service
Companies included in frozen &shelf-stable food sector in food industry primarily manufacture frozen food and shelf-stable groceries for retail consumers.
Demand for Product and Service
The consumers’ demand for frozen food and shelf-stable grocery has been growing weak in the past several years as indicated in data for sales volume. The reason behind it may come from changes in lifestyle and thus eating preference on the basis of demographic factors and the increasing costs/price. However, it seems the demand may be rebounding in 2018 with a slower rising in price.
Sector’s current, trend, causes behind trend, and future
Current and Trend
- The consumers’ demand for frozen food seems to be relatively stable but has been growing very weak in the past several years as indicated in data for sales volume.
- Natural demand for shelf-stable grocery has been decreasing as indicated from our companies’ data in the past several years excluding economy elastic impacts of price.
- As rise in price gets slow, we have seen rebounding sales volume in both frozen and shelf-stable products from major companies in this sector.
- While, at the current sales level, companies has been able to attain a positive growth in their profits, thanks to the fact that the lost profit due to decreased sales has been able to be offset by rising price and reduced commodity costs.
Causes behind the trend
- The decrease of demand for shelf-stable food or frozen food can be traced to the changes in consumers’ lifestyle, which has been increasingly focused on natural and healthy food. Those changes in lifestyle, helped by increasing disposable income, allow some of people to change their eating preference and shift away from traditional frozen and shelf-stable food to more natural and healthier but more costly food.
At the same time, the challenging economy situation and slow population growth also contribute to the slowing down demand for products in this sector.
- We did not see any possibility of a turnover in this slowing down trend in demand for frozen and shelf-stable foods in long run.
- Product innovation to adept for changes in consumers’ preference may be the key for companies in this sector to gain long term growth in profits. Otherwise, if the sales of companies go down too deep so that the resulted loss of profits cannot be offset by raising price or when the commodity’s costs go up again, companies in this sector will definitely encounter negative profits growth.
General Financial Performance of Companies In the Sector
Our company data indicate that this is a sector with a few of years’ declining growth in demand for its frozen and shelf-stable grocery products, which, excluding economy elastic impacts of price, were presented in declining trend of the sales volume numbers. The trend seems to have been quite consistent in both categories of products while demand for frozen food presented an earlier and larger rebounding as indicated by positive growth in volume in 2018.
As it always happens in other sector of food industry, when the demand slows down it is always more difficult for companies to pass on increased costs to the retail price since consumers may be very sensitive to raising price. It is what has been happening for traditional shelf-stable grocery. Sales volume significantly fell down when companies managed to raise price to keep their margin. Demand for frozen food seems to have stronger resistance to raising price. However, the volatile price of commodity in the past several actually has made more difficulties to maintain stability of their profitability.
Companies’ gross margins (sector average from 27% of 2014 up to 31% of 2016 and down back to 27% of 2018) seem to be quite volatile under impact of changes in selling price, commodity costs, and warehouse and distribution costs. At the same time, because, at the current margin level, the added profits resulted from improved margin are still able to offset the loss due to the resulted decrease in sales, we can see the increase in profits when the selling price goes up in 2015 and 2016 and decrease in profits when the average selling price deceased after entering fiscal 2017.
According our analysis, a typical ratio of enterprise price/adjusted EBI is 31with interest/EBI ratio of 40%.