Iglo Sales Suffer as Private Label and Deep Discounters Gain
The Iglo Group may be down, but it’s not out – far from it. Europe’s leading branded frozen food marketer saw net sales fall overall by 2.8% in 2013, as its businesses in Italy and Belgium were especially hard hit. Net sales decreased by 2.8% to €1529.2 million (at constant currency exchange rates), while gross margin slipped 1.2 points to 33.4%, and rates) and EBITDA before exceptional items tumbled by 12.5% to €306.6 million.
From fish dishes, vegetables and fruits to pasta, chicken- and red meat meat-based ready meals, Iglo produces and markets a wide range of premium branded frozen food products in 11 countries and distributes across a number of other markets in Central and Eastern Europe. The group’s core brands are Iglo, Birds Eye and Findus (in Italy only). The UK, Italy, Germany and Austria are its largest markets, representing approximately 85% of turnover.
Addressing the disappointing 2013 performance in Iglo’s recently issued annual report, Chairman Erhard Schoewel said that the company had “fallen short of expectations” primarily due to robust competition from private label products, deep-discount retailing, and the reduction in spending power among many consumers in Europe due to today’s challenging economic environment.
“The most significant impact was on our business in Italy, where companies across the FMCG (fast-moving consumer goods) sector have experienced sales declines as consumers trade down, and private labels bring increased competitive pressure,” explained the chairman. “In Germany, top-line performance has remained stable, although the growth of the discounter channel in the market has resulted in pressure on trade spend and margin. In the UK, while having experienced a decline in sales, we have maintained a stable market position and driven gross margin expansion through cost saving realization, despite the increased competitive pressures.”
The final quarter of the year saw an improved performance in Italy as innovative products such as Fish Burger, Mini Sofficini, and Quattro Salti Risotto helped to deliver marginal sales growth. However, in mid-2013 a three-week strike occurred at the company’s Cisterna plant. This followed two years of restructuring which resulted in seen a workforce reduction of almost 200 persons in three successive phases. The last of these phases involved compulsory redundancies and prompted industrial action which reduced the efficiency of the factory operation.
On another front, Schoewel noted that, like many food companies, Iglo had to deal with the reputational impact of the horsemeat scandal that broke across most European food markets in January of 2013.
“Our response to this was pro-active, open and transparent, and was appreciated by retailers and consumers alike,” said the chairman. “In times such as these, a category leader such as Iglo has to ride out the difficult conditions as profitably as possible and use industry leadership to change the game.”
The annual report noted: “Market conditions in Belgium have been challenging for an extended period of time, and the impact of the horsemeat scandal on the meals market has been particularly significant. Management has therefore concluded that it would be prudent to impair these assets (the write down amounted to a €27.4 million). This in no way reflects a lack of support to our Belgium subsidiary and its brand value, but is a reflection of the impact of the current economic circumstances on the Belgian frozen food market.”
10% Frozen ‘Share of Plate’
Looking ahead, the company hopes to capitalize on a number of opportunities to get back on track as soon as possible. In mapping out the strategy, it first closely examined today’s market realities.
“Frozen food may enjoy 90% penetration in European households, but since frozen food itself only constitutes 10% of what Europeans eat, our ‘share of plate’ is far lower than it should be,” stated Schoewel. “Our ambition is to change this. Consumers need great tasting, nutritious food that is responsibly sourced, minimizes waste and enables better meal times. Frozen food is particularly well placed to deliver against these needs. Far from constraining our capacity for growth, our leadership in frozen should enable us to redefine the category as a whole. Doing so will create a huge opportunity for Iglo.”
The company’s chief executive officer, Elio Leoni Sceti, elaborated on the market and state of the industry as follows:
“The top-line figures tell you that frozen food enjoys 90% household penetration in Europe. It sounds great, but what does it really mean? This number indicates the number of households that bought one product in the last 12 months. But can we call these consumers ‘ours' simply for that one purchase? We don't think so. The 90% penetration paints a picture of a big fish constrained by a small pond. It makes our growth prospects appear restricted. But it's actually a very misleading view.
“The truth of the matter is that frozen food represents approximately 10% of the total in home food consumption in Europe. When we move from looking at our share of the frozen food market and look instead at our share of the plate, our share of all eating occasions, then the picture changes completely. If we look at our penetration over a 12-week period, to people who make regular purchases of our food, then we realize that this is nothing like as strong as we thought. Now we are looking at the potential of being a fish in a huge ocean – and our opportunity for growth is immense.”
The ceo continued by detailing how Iglo would set about executing its strategy to achieve greater market penetration.
“We know that consumers think around meal occasions rather than ingredients, and that they value taste, quality and enjoyment over convenience, which is a category prerequisite and not a distinctive brand value in frozen food,” he said. “We will develop our brand proposition to deliver against these areas. What matters is whether our food delivers taste and the meal experiences that consumers want, not the fact that it is frozen.”
He continued: “We will deliver innovation that grows the frozen food market and our share within it, expanding into new occasions and new categories while delivering improved margins by adding value for customers. We will build a high-performance culture with clear roles and responsibilities and rewards for outstanding performance. And we will act big in our execution: removing duplication, maximizing the benefit of market insight and best practice, and ensuring we are the best at everything we do.”
Tastes and habits are continuously evolving and Iglo is all too familiar with the current economic crisis that is increasing pressure on food budgets in Europe. The unemployment rate across the EU stands at 10.6%, ranging from 5.1% in Germany and 6.9% in the UK to 13% in Italy, 25.6% in Spain and 27.5% in Greece.
“Our category plays well in the era of austerity because we provide value and we minimize food waste due to the longer lifecycle of our products,” stated the ceo. “This provides us with a tremendous opportunity to invite people to reconsider frozen food and broaden the role that it plays in meal occasions. And it's an opportunity that is strongest in markets such as Italy, where macro-economic factors have had the greatest impact on our sales in the past year.”
He continued: “Canned grocery brands have never sold themselves on the basis that it's food in a can, and there's no reason for our products to be sold solely on the basis that they are frozen. Instead we are creating our communications around taste and the role our food plays in everyday life. We will start to present our proper, great tasting food best enjoyed at meal times in everything from our packaging through to our campaigns. We will stop talking about a functional product and start building our imagery around everything that is glorious about food – the color, warmth, appetite appeal and the enjoyment of the eating experience. And we will develop innovative new platforms that will put us at the centre of the eating experience: in the premium space, new occasions and more.”
From an operational perspective, the major changes will be developing Iglo’s supply chain to respond with the flexibility that's required for the areas it is moving into.
“We are already industry leading in this area so it's a question of evolution rather than revolution,” said Sceti. “The efforts that we have made in supply chain management as part of our quality assurance processes and Forever Food Together program mean that no company is better positioned to lead a redefinition of our category.”
The bigger changes will come in Iglo’s understanding of consumers and the channels that it uses to communicate with them. Previously its marketing department limited itself to talking to only around 25% of Europe's food providers by targeting mostly mothers.
“By focusing almost solely on TV we have ignored the digital space where more than 50% of consumers go for information and guidance before they make a meal decision,” said the ceo. “Both of these things are going to change. Our brands already over-index significantly within e-commerce, and that is without our developing any significant digital presence. There is huge potential for growth in this area.”
Relevant penetration is the number one factor linked to sustainable sales growth over time, and it is a hugely important driver of the double-digit growth goal that Iglo needs to reach its target.
“By relevant penetration, we don't mean the percentage of people buying one of our products every year; instead we mean the percentage of consumers buying two or more products every quarter,” explained Sceti. “That represents people making an active choice of frozen as part of their eating experience. When you measure penetration that way, we are actually at around 30% – and we have far greater potential for growth.
“We are looking to build partnerships with retailers, in order to maximize the opportunity for brand and category growth. The evolution of our brand will play a key role here. We are putting ourselves in a position to participate in all food usage occasions – and that gives us a powerful voice when it comes to helping retailers to increase their shoppers' spend and experience overall. Because we can add more value for retailers, we are in a great position to help grow the frozen category and our own brands within it.”
Meanwhile, on the executive personnel roster, Francesco Fattori took over as general manager of Hamburg-headquartered Iglo Germany on April 7. His resume includes a number of positions with Reckitt Benckiser, where he served as global marketing manager in the UK category organization; marketing director in Germany; general manager in Greece; and, most recently, senior vice president for Africa. He began his career with Kraft Jacobs Suchard.
Reporting directly to Managing Director Achim Eichenlaub, Fattori is tasked with implementing the Group's Food of Life campaign in Germany, a strategy designed to further drive innovation and growth. It includes a new media campaign, new products and the targeting of different consumer demographics. He will also focus on increasing household penetration and on strengthening trade relationships.
Elsewhere, Augusto Passarelli, marketing director of Findus Italy, said “Arrivederci” in March to take a media job with Sky Italy.