Category Focus: FROZEN PIZZA

While the economy continues its downward slide, frozen pizza sales remain up due in large measure to innovative, quality products that offer a viable option to take-out and delivery pizza.

Frozen pizza dollar sales were ahead 3.1% to $2.767 billion in supermarkets in the 52 weeks ended March 23, according to Information Resources, Inc., Chicago. Sales, at $697.9 million, slowed to a 1.2% pace in the 12 weeks ended March 23.

PREMIUM SETS PACE

The super premium and premium segments are experiencing the strongest growth, driven by innovative products and consumers’ increasing culinary sophistication and diversity of palates, says Scott Gamble, senior director, pizza category for Schwan’s Consumer Brands North America, Inc., Marshall, Minn.

Kraft Pizza Company, Glenview, Ill., tapped into the strong growth of the premium pizza segment with its launch of DiGiorno Ultimate in 2007. Kraft extended its Ultimate success in April with the rollout of DiGiorno Ultimate Focaccia Thick Crust pizza.

Jim Keane, Schwan’s senior director of snack and singe serve, says that consumers are also responding very positively to single-serve pizzas, which meet their lifestyle needs for snacks and mini-meals.

Tim Cofer, president of Kraft Pizza, points out that the number of one- and two-person households keeps growing. “Consumer demand for premium, single-serve pizza is strong, growing at more than 8%,  or about twice the rate of the category,” he says. In line with that growth, Kraft recently introduced DiGiorno For One and California Pizza Kitchen For One pizzas that take less than five minutes to prepare.

Most manufacturers believe that the frozen pizza category actually benefits from an economic downturn as consumers look for more value-priced, at-home solutions for meals and snacks. Schwan’s Gamble cites research showing that the weak housing market and high gas prices are taking a bite out of consumers’ wallets and have significantly decreased traffic to quick serve restaurants, with the take-out pizza segment being heavily impacted.

“Frozen pizza is a great meal value, especially during a time when consumers are holding back on spending,” says Steve Warnert, director of sales/marketing of Amy’s Kitchen, Santa Rosa, Calif. Amy’s sees growth across the category, but especially in the premium and natural/organic segments. “More and more varieties are appearing that strive to offer pizzeria quality. Gourmet toppings, pre-sliced, thin crust, brick-oven baked are just some of the new choices,” says Warnert.

NATURAL/ORGANIC UP 74%

Pete Brennan, brand manager of La Jolla, Calif.-based Kashi Company, points out that natural and organic frozen pizzas, albeit from a much smaller base, were up 74.3% in dollar sales for the calendar year through April 13 based on IRI data.

“There’s no doubt that consumers’ increasing understanding of the benefits of natural and organic foods and the need for convenient solutions is driving their search for wholesome alternatives in all food categories, including frozen foods, and frozen pizza is no exception,” says Brennan. He notes that retailers are merchandising the category with more natural and organic offerings in response to the consumer demand for convenient and minimally processed, natural food options. Frozen pizza items per store increased on average by 1.8 SKUs, with natural and organic offerings showing an average increase per store of 2.8 SKUs in the 26 weeks ended March 23.

Giacomo Fallucca, president and CEO of Palermo’s Pizza, Milwaukee, says the growth of ultra-thin crust products that offer lower fat and calorie contents is another significant trend. “This is particularly true,” he says, “among the Baby Boom generation, which is seeking pizzas that suit their adult palates and fit into their more nutrition-conscious lifestyles.”

“Thin-crust pizza is rapidly becoming a new consumer favorite,” says Kashi’s Brennan. It now enjoys about a 30% share of frozen pizza dollar sales, compared with approximately 36% for regular crust.

The success of non-traditional flavors such as garlic chicken alfredo, chicken fajita and margherita is the result of the frozen pizza industry being able to bring new, quality products to a sophisticated consumer, according to Dave Ramsey, vp, and Jim Cousin, general manager of Bernatello’s Pizza, Inc., Maple Lake, Minn.

“We would like to think that frozen pizza is recession-proof. When the economy is strong, mom and dad may go out to eat, but they buy frozen pizza for the kids and the babysitter. When times are tight, mom and dad are more likely to stay home and eat quality frozen pizzas as a family,” says Cousin.

VALUE SEGMENT BENEFITS

“The natural beneficiary of an economic slowdown is the value segment,” says Taylor West, associate marketing manager of Totino’s Pizza for Minneapolis-based General Mills. “We anticipate very strong growth in the coming months for Totino’s,” he says.

Commodity prices for pizza ingredients have increased dramatically in recent months, placing tremendous pressure on both manufacturers and retailers to sustain their profitability models, according to West. “It’s no surprise that pizza prices have been creeping upward on the shelf to compensate for these escalating costs. In a recent one-month period, average unit prices across the category rose 16 cents compared with a year earlier,” he says.

Palermo’s Fallucca notes that commodity prices are increasing  to unprecedented levels across the board. “This is having a significant impact on manufacturing costs as well as freight and other related costs. We have recently seen price increases implemented nearly universally within the category,” he says.

Although prices have risen, the impact on the shopper should be minimal due to the high level of competition in the category, according to Amy’s Warnert. “Pizza is still one of the fastest-growing categories in the frozen food department and one of the best values in the store,” he says.

Kashi’s Brennan points out that the overall frozen meals category has been growing at a double-digit rate for multiple years. “From 2005-2007, frozen meals had a compounded annual growth rate of 11.8%, while frozen pizza’s was 12.6%. We see this as a clear sign that consumer demand is strong and will continue to grow. Retailers are embracing this trend and offering more options,” he says.

One manufacturer says that all-time high commodity prices are impacting available trade spending. While larger companies such as General Mills, Kraft and Schwan’s have other segments to fall back on to subsidize pizza’s higher costs, smaller private label manufacturers are finding it more difficult to compete on promoted price.

QUALITY, VARIETY IMPROVE

Over the past decade the quality and variety of the products available in the frozen pizza category have increased dramatically, according to Palermo’s Fallucca. “However,” he says, “few retailers have adapted the pizza aisle to provide more space to these premium products. Conversely, many retailers continue to carry redundant facings that  provide no added value to their frozen pizza offering and fail to satisfy the desires of the rapidly maturing U.S. population.”

He believes that the pizza case should be arranged by shopping segment (value, regular, premium, gourmet), rather than by manufacturer, to ease the shoppers’ selection process and to help them better understand the quality of what they are choosing from.

Kraft’s Cofer says retailers are using more meal solutions (bundling complementary items) to communicate the value of eating at home versus eating out. “In addition,” he says, “we are seeing a trend toward merchandising frozen items outside of the frozen aisle (via portable freezers) to increase basket size and impulse purchases.”

Retailers continue to aggressively display frozen pizza and bundle with consumer mega events and meal deals, according to Schwan’s Gamble. “We are bundling Red Baron Singles and Coca-Cola in the third quarter to leverage the natural synergies of the brands and products,” he notes.

LEVERAGE PROMOS

“Retailers can also leverage consumer promotion events in-store with integrated marketing to tie in manufacturers, promotions, brands, etc. And manufacturers can look for opportunities to tie into retailer’s thematic promotional windows such as back-to-school,” says Gamble.

Based on a third-party audit, Schwan’s learned that as more space is given to frozen pizza, the frozen department velocity increases and is maximized when pizza is given 25% of the doors.

Kraft’s Cofer says that the best way for retailers to drive sales in the frozen pizza category is to expand space for innovative products that focus on key consumer trends, such as premium taste, the growth of one- and two-person households and consumers’ increasing desire for convenience without sacrificing quality.

Cofer believes there is a trend toward store-specific planograms that reflect local shopper needs. “However,” he says, “we are careful to recognize that no matter what the consumer trend, taste remains number one.”

Amy’s Warnert recommends that retailers promote variety, demo new items, and merchandise premium/natural pizzas within the center of the category to create exposure and trade-up opportunities. Cross-promotion with other meal components such as beverages, snacks, salad fixin’s can also pay off, he says.

sidebar: 6 STEPS TO BETTER FROZEN PIZZA SALES

1. Jump on the bandwagon for single-serve, thin-crust and organic/natural pizzas, all of which are growing faster than the category average.
2. Check your shelf for redundancies and dead wood. With all the new and exciting offerings now available, a planogram shakeup could be in order. Schwan’s research shows giving pizza more space helps the entire department.
3. Experiment with planograms to see which works best in your market: by shopping segment (value, regular, premium, gourmet) or by putting premium and natural/organic in the middle to provide them with more exposure and trade-up opportunities.
4. Create meal solutions with complementary items, to show the value of eating at home versus eating out. Portable freezers can help you do the job, building impulse sales.
5. Coordinate consumer promotion events with tie-ins with your vendors, such as at back-to-school time.
   
6. Demo new items, especially some of the adventurous new flavors and varieties, to build trial.