You are here: Home » Reuters » News
Business Standard

Focus: Nestle falls behind as millennials warm up to frozen meals

Reuters  |  Solon, OHIO 

By and Melissa Fares

Solon, (Reuters) - At Nestle's $50 million research center outside Cleveland, technicians and packaging experts set out three years ago to remake its lineup and appeal more to busy, health-conscious adults in their 20s and 30s.

may have gotten the menu right, but its timing was off. When young consumers came back to the aisle last year, the company's wasn't ready. The result: It lost market share to rivals.

Jeff Hamilton, who heads Nestle's U.S. food business, said in an interview the company did not have the ready to meet extra demand for its Stouffer's Fit Kitchen and meals. He described it as "sudden, significant and beyond our expectations."

To catch up, recently increased capacity at several of its U.S. 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 to improve the performance of its food business, leading the company to bring consultants, and international chefs to its 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, in the rose 1.4 percent in the last year, according to Nielsen, the market research firm. Young adults helped drive the surge. In 2017, millennial homes spent 9 percent more than average households per trip on frozen foods.

Yet since September, retailers have sold fewer entrees than during the same period the prior year, hitting a low point in January when Nestle volumes were about 5 percent down from last year, according to analysts who reviewed data from

Competitors filled the gap. Frozen entree sales rose for both and Pinnacle Foods Inc, two key rivals, according to the data. Conagra's volumes were up about 10 percent in March, compared with a year ago.

Nestle's have started to pick up, but are still well below last year's levels, 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 percent of Nestle USA's $27 billion sales in 2016, or around 4 percent of the company's global sales of about $89.35 billion. More recent figures were not available.

Instead of divesting the business, Nestle joined other in revamping its product line to win over a new generation of consumers. Frozen food aisles, once dominated by frozen pepperoni pizzas and meat lasagna, now feature meals with trendy ingredients such as cauliflower and quinoa.

The newer entrees cater to a wider variety of cultures and dietary requirements, including people who eat gluten-free, organic or want antibiotic-free meat. They also offer a relatively inexpensive meal choice for younger, cash-strapped shoppers.

"Something as simple as buying frozen food is really just symptomatic of the trends we're seeing at large," said Allie Aguilera, Policy and at Young Invincibles, a Washington D.C.-based group.

"When you're seeing $400 dollars come out of each paycheck to pay a student loan, that's certainly going to impact your ability to go grocery shopping in a way that people more traditionally used to."

Rachel McCarthy, a 26-year-old based in Austin, Texas, is among those sought-after turning to frozen meals. Over the past year, she has started buying more Nestle entrees, in part because of tight finances.

"They're inexpensive and require no prep," McCarthy wrote in a message. "I make $30,000 a year and have lots of student debt that I'm trying to pay off while also trying to afford to live in where rent prices are rising."

To ensure it can also cater to wealthier millennials, willing to pay more for higher-end ingredients, Nestle plans to roll out its frozen bowl brand Wildscape to 3,000 stores around the country in the coming weeks. The bowls have taken over a year to develop using millennial

Thomas Russo, whose firm Gardner Russo & Gardner has a stake worth more than $1 billion, said he was confident that the company would deliver on the frozen food business, despite the recent issues.

But, he added: "It's conceivable that they've taken their eye off the ball temporarily."

(Reporting by in Solon, and Melissa Fares in New York; Editing by and Paul Thomasch)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Fri, May 11 2018. 10:40 IST