The path back to value in prepared meals

By Christine Delivanis and Jack Rendle

- Last updated on GMT

Related tags Retailing Us

Manufacturers and retailers in the frozen ready meals category are pioneering the path back to value: Marakon
Manufacturers and retailers in the frozen ready meals category are pioneering the path back to value: Marakon
Category commoditisation destroys value, yet in many grocery categories, the dynamic seems entrenched and value chain participants are either perplexed or defeatist. But some manufacturers and retailers in the frozen ready meals category (FRM) are working to reverse this trend.

This offers the opportunity to draw broader lessons for consumer product categories facing similar challenges. 

UK consumers bought more than 320M frozen ready meals in the past year, primarily for value-for-money and convenience. However, FRM has been slipping ‘off-trend’, and developments in chilled meals (CRM) – such as modified-atmosphere packaging  – are eroding its price-point and shelf-life advantages. The result is that FRM has been consistently losing consumers and volumes.

These declines have led to aggressive trading behaviour by both manufacturers and retailers in order to hold listings and volumes. Average pack prices have fallen, reflecting category commoditisation.

With operating margins running at 2-4% and economic profitability effectively 0% or negative, the situation has created a ‘burning platform’ for value chain participants.

Although US FRM is a more material market at $9bn retail sales value (RSV) compared with $0.6bn in the UK, it has declined by 5% since 2008 and leading brands have lost 5% of share since 2011. However, US market leaders have visibly stepped into the category commoditisation challenge, in contrast to what we observed until recently in the UK.

Nestlé’s 2015 reboot of Lean Cuisine epitomises this US response: a $1bn-RSV FRM brand in 2012, its dated weight-loss positioning fell behind how consumers related to health, and sales fell about 20% last year.

Nestlé’s 2015 reboot of Lean Cuisine

The manufacturer recognised ‘diets are dead’ and reconfigured the range towards more natural, ‘balanced health’, based on four distinct ‘food moods’ uncovered in extensive consumer research. The product launch was supported by a high-profile advertising campaign, contemporary pack design and significant increases in store point-of-sale branding in collaboration with major retail partners.

By doing so, Nestlé has been able to improve the average price of its portfolio, with early feedback from Nestlé suggesting the reboot is working.

Building on lessons from the US, we believe the path back to value in UK FRM lies in three areas: optimise the core, innovate into cross-category trends and partnership to build the forward value-creation agenda.

Optimise the core means:

• Simplify by removing low performing, marginal stock keeping units (SKUs), along with cost and complexity, while unlocking space for new launches. The legacy SKU count across UK multiple retailers in FRM numbers multiple hundreds of SKUs, with complexity driven by very small changes to recipes and packaging that are not meaningful purchase drivers for consumers. 

• Refine: Build understanding of consumers’ willingness to pay for proposition features, tailor core ranges and leverage tiered pricing. The recently launched Sharwood’s Takeaway FRM range is a great example of refining a core range to improve a price point.

• Maximise: Make high-performing products work harder by maximising their distribution coverage across and within retailer accounts. Convenience formats are often untapped due to primary focus being put on large-format stores.

Targeting ‘natural health’

Innovate into cross-category trends refers to moving away from incremental new product development within existing ranges to and innovate on trends that cut across categories. Those include: propositions targeting ‘natural health’, where  brand appeal and convenience will have much greater potential to ‘move the needle’.

The impact of the Slimming World FRM range demonstrates this: the range has captured 7% of total market RSV despite launching in March 2015 and retailing only through Iceland.

To turn around a category in structural decline, retailers and manufacturers must work together to build the medium-term agenda for rebuilding the category’s value pool. That means moving beyond the zero-sum trading behaviour that pervades commoditised categories.

Central to this is understanding where strategies and economics align, and how to motivate the counterparty to see beyond the short-term. 

Three core ingredients

The path to value creation in UK FRM requires three core ingredients:

• Leadership commitment and mindset: “Lean into” the commodisation dynamic from the top and build organisational confidence that it is reversible. 

• Team and single objective: Provide the permission, impetus and incentives for teams to step back from short-term sales targets to build for the longer-term. Connect the dots between finance, manufacturing, and commercial functions so as to ensure long-term value creation (and not the shorter-term key performance indicators favoured by individual functions) is by definition the overriding objective.

• Enhanced strategy analytics: Build the capability to connect consumer, retailer and manufacturer economic and behavioural insight in a way that makes transparent where strategies and economic benefits align and therefore where joint plans can be built. 

The challenge FRM faces is not unique: UK, European and US grocery categories, from bread to cereal to packaged sauces to beer, face structural commoditisation and ‘off-trend’ penetration issues. At Marakon, we believe category commoditisation is reversible.

  • Christine Delivanis and Jack Rendle are consultants at management consultancy Marakon​. Delivanis is a partner and leads the European consumer goods practice, while Rendle is a consulting associate with Marakon in London.

Related topics Supply Chain Frozen

Related news

Follow us

Featured Jobs

View more


Food Manufacture Podcast

Listen to the Food Manufacture podcast