While some home cooks are feverishly chopping fresh vegetables, an increasing number of people are giving their knives a break and preparing a meal with frozen foods.
Volume growth for the frozen category has turned positive for the first time in five years, according to the latest RBC Capital Markets report, up 1% for the 12 weeks ending March 10. The biggest portion of the frozen category is meals and appetizers, making up 35% of the group and with sales growth of 3%, the highest in five years.
“While growth pockets have existed in frozen for years, its overall growth relative to other packaged food is accelerating as consumers begin to see freezing as a way to preserve food with fewer negatives,” wrote analysts led by David Palmer.
Analysts say frozen food has had a “stigma” attached to it for the past decade, with millennials seeking out “whole foods” for themselves and their families and staying away from foods perceived to be “engineered.”
“But now, we believe frozen-food companies are catching up to align their frozen offerings to the attributes consumers demand,” RBC wrote.
“Quick freeze” technology retains the nutrients and flavor for months, versus fresh food that has to travel and spoils fast.
“Consider than an estimated 80% of fresh food in the U.S. is wasted each year as consumers often overbuy fresh food or misalign their purchases and consumption, which causes unwanted spoiling,” said RBC. “These problems are largely alleviated with frozen vegetables and frozen meals.”
Frozen food is also a plus for families with concerns about money.
“Frozen foods allow for convenient dining for so many who are strapped with budgets and having to cook for their families, or even those who have to cook for themselves,” said Lizzy Freier, managing editor of menu analysis at Technomic, a data and analytics provider for the food industry.
Convenience is also a big motivator, Freier said.
RBC also thinks Netflix Inc. NFLX, +1.86% might have something to do with it. Meals consumed at home reached a nearly 30-year peak in 2017 at 78%, according to NPD Group data used in the RBC report.
“And the reasons behind this trend include increased home entertainment options (e.g. Netflix, more affordable flat-screen TVs), the aging population, the separate but related increase in percentage of consumers sitting out of the labor force and the rise of the home office,” the report said.
Among the companies that stand to benefit from the thawing frozen-food market is Conagra Brands Inc. CAG, +2.29% , which RBC rates outperform with a $44 price target. Conagra brands include Healthy Choice, with sales up 21% for the last 12 weeks; Banquet, which is up 12%; and Marie Calender’s, up 13%. All sell iconic frozen meals.
Pinnacle Foods Inc. PF, +1.82% , rated outperform with a $64 price target, has also seen its frozen products gain momentum “thanks to Birds Eye vegetable innovation,” analysts said.
And B&G Foods Inc. BGS, +1.06% , rated outperform with a $38 price target, has “just launched its third wave of Green Giant frozen veggie innovation (i.e. spiralized veggies), which is already contributing 1 percentage point of the company’s overall 2% topline growth in the U.S. measured channels,” the report said.
Conagra shares are down 8% for the past year, Pinnacle Foods is down 6.3% for the period and B&G is down 40% for the past 12 months. The S&P 500 index SPX, +1.16% is up 12.1% for the past year.