Category Close-Up: Frozen Meals - Expert Analysis

Carol Ortenberg [00:07] Hi everyone, I'm Carol Ortenberg, the editor of Nosh, and welcome to Category Close Up Expert analysis. Today we're exploring the trends, consumer behaviors, investment activity, and changing merchandizing strategies in the frozen entree set. In the 1950s, the TV dinner entered the market, and the grocery store was never the same. With a quick trip to the store, families could have a complete meal with minimal effort. Now, although the frozen dinners in the past tended to lean more towards traditional fare such as roast chicken or beef, and today shoppers can enjoy everything from frozen chicken tikka masala to buffalo mac and cheese, the core of both product offerings was the same convenience. Still, nowadays, convenience alone isn't enough to guarantee consumer interest, retail placement, or even success as a business. To help us understand what tactics, trends, and efforts frozen entree brands must embrace, we're joined today by a great panel of experts. First we have Nick McCoy, managing director and co-founder of Whipstitch Capital. A specialized investment bank that provides mergers, acquisitions, and private placement advisory services to consumer product companies, Whipstitch has worked with frozen brands including cauliflower, Blake's, and American flatbread. Next we have John Polzer, the founder and owner of Healthy Goodness, which offers national frozen food fulfillment and hosts its own e-commerce site for frozen food brands. Prior to founding Healthy Goodness, John worked in marketing for PepsiCo's Frito-Lay division and then consulted for many food and beverage companies. And finally we have Xavier Unkovic, who until earlier this month was the CEO of Legacy frozen food brand Amy's, where he helped lead the charge alongside the company's original founders for 4 years. Before his time at Amy's, Xavier spent 15 years at Mars. So introductions in place. Let's start by discussing what consumers are looking for from a frozen entree. Nick, what do you think shoppers want when they head to this section of the store?

Speaker 2 [02:20] Uh, it's a really great question. And I think it's something that's changed a little bit with, uh, COVID just because people have, you know, people's kind of cooking and eating styles at home have changed a bit. Um, you know, if we look at the data of what's getting bought more right now, um, multicultural cuisine is overindexing, uh, things that aren't. So things that are kind of flavor-forward, more spicy. Um, particularly individual serve. You know, we're seeing more, uh, it's, it's probably over-indexing like 50 to 75% as far as the growth level. So I, I think that, I think, you know, the convenience factor obviously better for you. Um, and, and I think people are, are exploring some new things that way. People are, are trying more. If you look at, um, if you look at the amount that's sold on promotion now compared to a couple of years ago, uh, it, it is proportionally less, probably 15 or so% less.

Speaker 3 [03:11] I, I completely agree with Nick. What I, what I would say and reinforce, especially during COVID, um, you have the concept of comfort food. Uh, people want, uh, in food taste, yeah, we're back to the basics, uh, entrees needs to be tasty. And building on what Nick was saying, it has to be, to be a complete experience. It's a meal experience now. It's no longer a quick and fast food. It's a, it's a real meal experience. And in addition to it, I would, I would say that people are looking for food that will be also better for them. And, and clearly part of the uh the realization with COVID is better for the planet as well. So you have, it's a multifaceted approach that now people need to think about when it comes to servicing consumers in the frozen entree category.

Speaker 4 [04:11] I think you're right, Xavier. And just to build on one piece of that, I really think that the freezer aisle and the freezer, the frozen component overall is, has the opportunity at least to be the crossroads between both convenience and health, right? Because the freezer can serve as a preservative rather than lots of other things that live outside of the freezer world. And with COVID, there's certainly been a resurgence in some comfort food, but comfort food can be cleaner or even clean. But it has to have the taste as well, right? So those are the, the dynamics I think that um really consumers are responding to and looking for uh as we continue to evolve through the current time.

Carol Ortenberg [04:48] You guys are making my job easier. You're just like lining up all the questions we're going to go through today. To start, I'd love to hone in on this topic of convenience a little bit more. You know, how easy do these products need to be and how fast do they need to be able to get onto the table? Is this a microwave only category, or can you see success with a product that takes a little longer to heat up or has to go into the oven?

Speaker 3 [05:15] I like your question. I would say it's a microwave only. That would be my, my personal opinion, as most of the Amy's products, not microwaves only, but are used only and mainly through microwaves,

Speaker 4 [05:31] yeah. I think there's clearly a spectrum here that consumers are beginning to see more of, right? And so outside of necessarily just frozen, you see meal kits and, and preparation expected and even desired in some cases by consumers. And on the other end of the spectrum, they're looking for something to grab out of the freezer and run down to the carwash, right? So I think there is gonna continue to be a spectrum of expectations or needs that consumers have. And I think brands can play in, in multiple areas. What's interesting to me is I know from my own personal experience, I oftentimes see both conventional oven and microwave instructions on products, and I use both depending upon what need state I'm in at the moment, uh, but I think that flexibility, um, even though 1 may be a preferred option, right, uh, I think that flexibility will continue to be important for consumers, especially as we start to get out of the house more, right?

Speaker 2 [06:25] Yeah, I think, I think the easy, um, word is an important word there, um. When I, when I think about, you know, just even things in the office, if, you know, we've got a few, um, you know, cooking things here, toaster oven, whatever, one of the things that somebody gave us is a pizza pizzazz, which spins and cooks pizza in about 3 minutes. And that becomes the very popular thing. Probably, maybe it comes out a little bit better, but it's, you know, 8 minutes or so faster than the toaster oven and obviously, pizza in the microwave. Isn't the same. I also think it's really telling to your point on meal kits and things when, you know, over COVID, there was a lot of advertising and, you know, over on TV and, and on the web for a company called Tavala, which I'm sure you've heard of, and you see how easy they make their oven with their entrees. So everything syncs up and it's almost foolproof. So in some ways, I think convenience might be, might be almost analogous to ease of cooking in many ways and obviously, time is a factor too.

Carol Ortenberg [07:22] Nick, that's a great point. I'm actually a Tovala customer, and in addition to their own meal solutions that they provide, you also can scan the barcode of a lot of frozen items, and you know, the toaster sets itself on how to cook them and should it broil and bake and what it should do. So there are Certainly partnerships you can embrace to make that, you know, easy product even easier. John, I know you have a marketing background. It seems like a lot of what you're talking about is also positioning and how you're talking to the consumer, which is sometimes hard when you're a frozen product behind that freezer door.

Speaker 4 [08:01] Yeah, for sure. And I think that's one of the reasons that um frozen companies that have done really well have done a good job with their billboards, right? The front of the packaging as it's sitting there living behind that freezer door. And that messaging is always difficult, but um in a lot of cases, I think consumers have an expectation for categories they're familiar with, right? And there are nuances to how you might take it in a slightly different direction or give more options for preparation or use, right? And so I think There's probably a reasonable starting point for most brands where they don't have to start at the very beginning in terms of education, but there are opportunities to deliver some nuances or, or some, I know that there are some pros and brands that do a great job with recipe ideas where their product may be fantastic on its own, but then they also have reimagined different ways to utilize it in different day parts and different kinds of meals or expand upon other brands that can be combined with the cooking process. So I think to some degree, there's, there's some customization that goes on with a certain segment of the population, right? They, they get a frozen item or any item, and they're customizing it to some degree. And it might be as simple as putting red pepper flakes on a frozen pizza, right? But, but there is some of that that goes on. And I think there are spectrums in all these different areas. Um, so to the degree that you've got the ability to have, um, a brand voice, right? And all of the social media opportunities that are out there. I think that's a really fun area to, to go into because you've got now the opportunity to have a conversation with your customer rather than just deliver a product.

Carol Ortenberg [09:34] John, those are some great points for brands. Nick, I would love to get your insight into how this snacking trend that we see throughout the store has come into frozen and impacted the frozen entree set, because when we asked brands to apply for this category close up, we got a lot of products that are handheld and, you know, maybe previously would have said they were an appetizer, now saying, you know, oh well, we're a mini meal, we're an entree. So I'd love to get your thoughts on that.

Speaker 2 [10:03] That's, it's a great question. And I do think there is, there is kind of some convergence in usage occasion there. You know, I think people look at frozen as handheld or entree, and obviously there's pizza too. Um, I think when you're thinking about things that are handheld, that are eaten more as a meal and not necessarily snack, a lot of that is multicultural innovation. Think, you know, burritos, empanadas, things like that. And that, that may be, that may be the nexus there.

Speaker 3 [10:31] To build on Nick, I, I would say that the end help for me is more snacking behavior, and the entrees are more in lunch or dinner behavior. And those occasions or moments in the households are completely different. And so the behaviors response of the brands to consumers have to be completely different. Uh, and at least that's how we approached it at Amy's. Yeah.

Carol Ortenberg [11:00] When you thought about developing new products, um, you know, I know you have some similar flavor profiles that are in an entree, but then also in, um, a handheld, say, you know, uh, a Mexican inspired, um, meal versus a burrito. How did you kind of decide which way you should go when you were creating a product?

Speaker 3 [11:22] So I think we talked about the multicultural flavors that are coming up and that's definitely what we've been doing both on the entree side and the handheld side because we, we feel even though this is two different behaviors, snacking and dinner and meal, it's, it's a very similar trend when it comes to expectations of taste and consumer experience with food. So we were very similar in our approach. So we had um You know, Mexican, Indian, Greek, uh, Moroccan flavors in both our entree category, but also in our handheld category, and, and both of those two categories were very successful when it comes to multicultural flavors and experience.

Carol Ortenberg [12:10] Did you find that when you created a handheld item, it provided, or a meal when you already had a handheld item, incremental revenue, or was it a consumer choosing between one or the other and it was a little bit of cannibalization?

Speaker 3 [12:25] Always because you when you provide choice, you provide uh options and there's always kind of invitation, but it's better to capitalize your own products than being capitalized by somebody else, yeah.

Speaker 4 [12:38] Xavier, I've got a quick question for you, if I might. Um, When we talk about the distinction between meals, and we talk about the, the alternate components of flavor, right? Or flavor profile. I, I'd be curious to know your thoughts on form versus flavor as it, as it relates to your thoughts on meals versus snacks. Can you have the same flavor across snacks and meals, and really the form is going to drive the usage in your mind, or do you think those things cross over?

Speaker 3 [13:11] It's a great question. I, I, I think the form is going to drive the usage for sure. Uh, the flavor is an experience you want to have. And if it's through snacking or through meals, this is, this is the consumer to choose for sure. Yeah. But big, big fan of the form because the snacking business uh is, is definitely form related and convenience related and size related, and, um, and on the go related to some degree. Yeah, you grab your burrito and you go with it. Uh, you don't grab and go with your entree with it.

Speaker 2 [13:51] I have another question too if I could, Carol, for uh Xavier on that. Um, I know that your perspective is, is shaped a lot by Amy's, um, and Amy's in the kind of better for you freezer set has, you know, the biggest brand block or, you know, at least one of the largest brand blocks. It's, it's very significantly above, you know, a lot of the other very established companies that, you know, might even be 50 or 100 million in revenue. Does that bias your thought about cannibalization where, you know, we've run, we've run data and, you know, and spins and looked at what happens when people increase brand block without increasing ACV and you can see over time that, you know, it's kind of an initial dilution, but then, you know, velocity kind of ticks up over time. Probably as, you know, customers see it and the non-hero SKUs build. Um, which would suggest on developing brands that might only have 6 or 8 SKUs versus, you know, 25 or 30, um, you know, that they're actually getting more benefit out of the incremental than you might get when you have 30 and you already have, you know, 3 doors.

Speaker 3 [14:48] It's, it's a very good point. It's, uh, it's definitely something we're very conscious of and, and very, we've been looking carefully because there's always a temptation by the buyers to reduce the number of SKUs you're going to, you're going to provide, um, or you're going to, you're going to put on, on shelves. It appeared that for Amy's, the more products you have, the better sales you have overall on the category. And, and again, what's, what's quite unique with Amy is, as you, you know, compared to the other brands, we're the only organic or made with organic uh product category in the marketplace. And for that particular reason, not only we're in the category, but we're a lot somewhat different than anybody else in the category, and we're providing another option when it comes to better for you, better for the planet. We're vegetarian also. So you think about the trends around plant-based, the trends around organic, and therefore, you have, when you're a retailer, you have to have brands that respond to those needs. And, and clearly speaking, there's not too many. And, uh, and if I would be an independent brand, I will clearly look about how I would differentiate myself uh compared to all the other, the other brands. And Amy's have never looked at them, uh, how they approach uh a consumer this way. You, as you know, it's a founder-led business. So they created a food that they were using themselves. Yeah, but to some degree, they are purpose-driven, created a trend that is now amplified by those elements of COVID and the education of consumers, but organic and plant-based something very, very critical that when you provide choice associated to it, then you have a clear winning formula on shelves. And again, I apologize if I do the promotion of babies, but that's, that's what we've been experiencing. Yeah. And those, those feedback from consumers saying to us, wow, you guys are plant-based, you're organic, we can compare you to anybody else.

Carol Ortenberg [16:56] John, speaking about points of differentiation, it feels like the frozen aisle also sees a lot of products that can appeal to very specific special diets. You know, there was a lot of gluten-free activity in there. Now we're seeing vegan options. What have you observed?

Speaker 4 [17:15] Yeah, that's a really important point, I think, because, um, Xavier, just as you talk about choice for consumers, right, um, Online has really been a, a, a really good venue for a lot of people that have special dietary needs because they can't find in some cases, you know, the products that they need for their diets. And in, in other cases, they can't find the variety of those diets. So they end up eating the same thing over and over or trying to customize those things um just for some variety. Those trends are not going away anytime soon, I don't think. And in addition, I think one of the things that's happened with the boom of e-commerce over the last year or, or so, is it's really highlighted the fact that in traditional retail, the buyers are going to determine what the consumer's options are, right? Whereas online, it's really the only place a brand can offer everything they make to every consumer every day. And that is oftentimes a really interesting component to not only Uh, the development of the brand's products, but also identifying really where the true, um, opportunities are, because they may have some development opportunities where they can test in certain markets. They may have some opportunities where they can push on flavors and forms a little differently than they might have the opportunity to at retail. And uh I know that there's some, been some brands that have found uh some real gold mines and some things that were projects that buyers weren't ready for, but the online buyer was ready for. So it's a, it's an interesting area. Um, and there does need to be some editing at some point in terms of the presentation of things on websites and that kind of thing. But, uh, there's never been a better time, I think, to be, uh, a smaller or evolving brand and be competitive because you have the opportunity, as you suggested, to find your niche, find your differentiation, and then really play on that.

Carol Ortenberg [19:00] Thinking more about, um, you know, uh, finding your point of differentiation, Nick, are consumers really brand loyal in the frozen entree set, or is this a space where they want variety and they want to try, uh, you know, product X from one brand one day and then the next day want to grab lunch from a different brand?

Speaker 2 [19:21] It's, that's a really great question and um I, I would love to have unlimited access to panel data to look at the trends in switching versus, you know, repurchase rates, and I don't. And if I did, I would have a really, really confident answer for you. Um, it, it does feel like there's been a lot of new consumers that have come into that section just looking at the data. I mean, when you see Like appetite, if you look at the health and wellness, you know, appetizers and snacks and spins, it's up something like 60 or 70% from two years ago. It's really hard to compare to last year because of COVID. Um, you know, and if you look at the same thing in entrees, it's up like 30 or 40%. And, you know, there, there's, knowing the companies I know they're in a little bit of panel data, there definitely has been incremental. Um, but I, I, I honestly don't know what the trends are in, in switching exactly.

Speaker 4 [20:10] I think there's a, there's a component that we've seen over the past year or, or so. Where brand loyalty clearly is a thing, right? So that's, that's clearly something that exists. But I also think from a consumer standpoint, there's habits, right? And habits come into play in terms of what's my go to, what am I always going to get when I go shopping, those kinds of things come into play. And, and there's been so much disruption, right, in terms of Even being able to walk into a grocery store that it's really allowed brands, I think, to hit the reset button in terms of how they rethink positioning themselves to consumers through different channels.

Carol Ortenberg [20:47] Well, talking a little bit more about the past year, you know, how did COVID change how consumers were shopping the category? We heard a lot about pantry loading, but at the same time there's only so much space you have in your freezer. So Xavier, I'm wondering what you saw at Amy's during this time.

Speaker 3 [21:06] A massive surge. It was incredible, um, to be perfectly honest, I think, uh, consumer rediscovered the frozen category. It was prior to COVID, it was a flat to declining category. We were happily growing, uh, but it was a flat to declining category. Now, during COVID, it, it grow, it grew by double digits. It was crazy, to be perfectly honest. We went up by 40, 45% on entrees. Uh, which provided a significant, significant stress on our capacity, and we're still recovering. We're still struggling to recover from that surge because not only there was a surge, but this high single low double digit number growth is still there. So consumer not only discovered Frozen, they also now we can say they are staying with Frozen. For all the good reasons we've, we've talked about, uh, around how fresh frozen is, um, uh, because you don't have any, uh, anything else but, but, a cooking method that is very, very natural and pure, yeah, because you don't add preservatives. Uh, and, and I think the consumers kind of realized that frozen was the new fresh in today's world and providing choice and health and, and, and, um, healthy, healthy position. And, and as you said, um, John, um, um, specific products for specific needs has been just a relief, a big relief for people. And, and therefore, uh, the frozen aisle now is booming, is, is, uh, it's a, it's a clear winning formula for, uh, retail, and not only for retail, uh, also for e-commerce and digital uh consumer experience.

Speaker 2 [23:06] I think Xavier brings up some great points. I also think that during that kind of key pantry loading phase when, you know, supply chains were so strained, people were trying to get as much as they could in one visit to the grocery store because you just didn't know when you were going to be able to get back in and the line was not going to be an hour long out in the cold. So personally, you know, a lot of refrigerators, freezers don't freeze well in the cold garage, and so my refrigerator freezer made it into the house so that we had extra freezer space, and believe it or not, it's still there because now our habits have changed and we have more frozen all the time. Um, you know, what we saw in the data is that people bought a lot of things that were kind of calorie dense so that you could get a lot into a small space and also things that were more nutrient dense. So even still today, things like frozen fruits and vegetables are overindexing much more than they would be just if they're being used as cooking ingredients.

Carol Ortenberg [24:05] Drawing on that a little bit, you know, those of us in the industry have been hearing this message of frozen is the new fresh for years now. So what kind of held consumers back from going into that aisle and checking things out until the pandemic? Was it just a scarcity, or was there more to it?

Speaker 2 [24:25] It, it's a really good question, and I think there's probably more than one answer. I think one is that there was a point in time where you couldn't get Instacart or grocery delivery very easily, and there are people that went to the grocery store for the first time that were kind of forced to go. And, you know, a lot of those were younger, you know, 20-something people, and they discovered, you know, they went in and they, they were used to things that were frozen that they got delivered because they're easy to heat in a small apartment. And so they started visiting the aisle, and then I think other people went to that aisle because they were trying to shop for 7, 10 days, and you know, you just can't eat fresh for 7 to 10 days. And I think it really drew people to it and they just discovered and liked things that they just didn't notice before.

Carol Ortenberg [25:11] John, you have a unique perspective on this, uh, coming from the e-commerce side of things. So what, what did you see during COVID with Frozen?

Speaker 4 [25:20] Well, we certainly saw a lot of larger orders. But I think, moreover, we also saw more frequency. And I think that probably was driven by the fact that people started to understand this, in many cases, new to them channel, right? Of being able to order frozen online and have it delivered to their doorstep. Allowed them to, to not stand in lines, to not go to the grocery store, to be able to pick and choose what they wanted and have it come to them. I think what happened is e-commerce became more, uh, a bigger player in the multi-channel food delivery system, right? Uh, the carts, uh, DoorDash, going to the grocery store, all those things play a role, but e-commerce, I think, took a bigger share probably of that growth over the last year because of, again, I think people thinking differently about how to access food.

Speaker 3 [26:07] Yeah, and, and we have to admit that COVID has been probably the biggest promoter of the frozen aisle. What I mean by this is, as, as we do today, we've completely changed our ways of working. So we work from home. We used to work from the office, we used to eat at the office. Now we need to eat at home. And think about eating at home and, and how you've been working yourself at home. Uh, most of the time you work, uh, longer hours. Uh, it's probably more intense in a small space in your office. And then you need to have a quick and good, uh, satisfying lunch that is not going to take more than 10 to 5 minutes to cook and to eat, and frozen is a miracle for you, especially when it's healthy. It's good for you. It's low in calorie and, and, and it satisfies you. And um and those elements of difference in how we live has been massively impacting our category, or the frozen category, and promoting it more than ever. And when it happens that you discover a product that fits your needs and then tastes good, then you go back to it. And you stick at it, yeah. So it's sad to say, but it's, uh, you know, in every crisis, there are threats and opportunities, and I think this COVID crisis has been a significant opportunity for the frozen isle and it translates in numbers.

Speaker 2 [27:39] I think John's point also was, was a very good one about direct to consumer in frozen because historically, direct to consumer has not worked that well or just has not been that common in frozen, you know, particularly from, you know, or I should say e-commerce generally. Um. But I know a lot of companies that actually, you know, in April and May had their D2C frozen sales go up, you know, 10x, you know, going from, say, 100,000 or even less a month to suddenly a million a month, and if they had the supply chain to execute on it, which actually became more of the limiting factor in many cases, you know, it became very incrementally profitable business. So hopefully, hopefully for the future this also kind of makes that supply chain, whether it's through an e-commerce channel or direct to consumer, you know, more viable because it has been challenging in the past.

Speaker 4 [28:29] There have, uh, fortunately been a lot of Evolutions in frozen shipping, uh, directly to consumers, um, everywhere from packaging to, um, the kinds of things that, uh, we do from a technology perspective to manage all of the parts and pieces that are required to, to get something from A to B and to pull in all of that data and information so we can make informed decisions about what we're shipping and when we're shipping it and how we're shipping it and all those kinds of things. And, um, you know, so I think One of the things that's true is I've often met people in Frozen who said, I'm not participated in e-commerce because we just can't ship frozen food. And that's a really fun conversation to have because the fact of the matter is, it's happening all the time. And we have, you know, really taken, I think this last year to understand uh even more, how do we think about um optimizing, right? When we have supply chain issues, which we've had a lot of. In, in the last year. And it's true for all e-commerce, right? All e-commerce has had shortages and, and challenges in packaging, right? Because there's just so much more packaging required in the world for, for e-commerce. But we've, we've made big strides in terms of heading towards eco-packaging, right? Um, the dry ice supply chain has been challenging, which has created lots of learning opportunities for us as an organization from a fulfillment standpoint to be able to understand how do we operate in a world where we have Sudden starts and stops that are completely out of our control, but we're still expected to deliver those things to consumers within a reasonable time frame. So the last year has made us uh get better. It's given us the opportunity to get better. And, um, I think what's gonna happen moving forward is we're gonna take all the learnings from last year, all the new systems, all the new things that we've incorporated into our process. And it's gonna really open up the doors for uh more and more of this kind of e-commerce delivery for frozen food because We've been through what's got to be the worst of it, right? In terms of supply chain. And we know that Frozen is on the grill. And we know that there are more and more opportunities for consumers, um, wanting to be able to go to direct, to be able to have more options, more varieties for them. So, I think, you know, as, as we look at Frozen and we look at the evolution of Frozen and all the growth that's happened in the past year, Um, that's going to continue, that's gonna continue across multiple channels. And I think that's the real disruption that we're going to be left with at the end of the day.

Speaker 2 [30:56] John, the optimization point is a really good one. and I'd love your opinion on this too. One thing I see is that for a shelf stable company to do well on Amazon or direct to consumer, it really helps if their price point is above about $25. And in frozen, that number seems to be at least $50. And I would say that there's the secondary piece of that where if you've got a lower gross margin or more single ingredient item, the gross margin factor has to be 20. So if your gross margin is 20, then it's really 100. You'll think like, you know, frozen meats or something like that. Um, you know, would you say that that's, that that's true? And also, I think if it is, then part of this too is that consumers are also adapting to a higher price point in purchases and direct the consumer out of COVID because of this.

Speaker 4 [31:39] Yeah, I completely agree. And I think one of the dynamics that's true frozen e-commerce is that nobody's buying one of anything because the economics just don't work out, right? So what that requires, but also what consumers have accepted, is that it's going to be a little bit of a larger shopping cart, right? And if it's a more premium product with higher prices, maybe it's fewer items in that, but it's definitely not one of anything. And so I think that's a dynamic that has proven to be true, but it's also benefited those who are selling frozen online because now, while you do have a lot of costs associated with shipping frozen online, you also now have the opportunity to allocate those costs over more items within a specific order or a specific cooler. And then one of the things that we thought was fun was, you know, when we take a walk through our freezer, we've got a lot of really cool stuff in the freezer, right? It's really interesting to kind of walk through this sometimes and just look around. But we also thought what a unique opportunity we may have here to give consumers the opportunity to mix and match across categories into one cooler, because when they go to individual manufacturers, If a manufacturer has lots of categories and lots of options, they can mix and match across those options, right? But um we thought pretty unique opportunity for consumers to mix and match across categories into one cooler, perhaps give the brands that we're working with the opportunity to get a bit more awareness, perhaps some more trials and adds one something to their cart but they haven't seen it before, want to try it as opposed to having to commit to a bigger cooler. And I think that's probably the biggest uh hurdle for a new brand is if somebody hasn't tried it, are they gonna commit to a larger ring, right? Um, but there are all kinds of things that are evolving in this space that I think are gonna be, uh, really fun to, to continue to work through and, and also gonna be opportunities for those brands to focus on it and figure it out.

Carol Ortenberg [33:20] Nick, do you think when an investor or acquirer is looking at a frozen food brand, they're going to want to see that D2C side of the business built out, or is that something they're willing to say, hey, we can come in and we can help you with that?

Speaker 2 [33:34] I think the answer is both, because if it's not built out at all, I think there will always be some question of if the brand proves out that it can be sold B2C. So if there's enough traction there to show that it can be there and somebody has that in their playbook, then, then that's very attractive, yes. For everybody, I think any incremental, you know, channel that you can be in, be it food service, convenience, you know, natural, conventional, direct to consumer, any incremental channel grows the headroom of a brand and, and more channels and more headroom is a big positive for any investor.

Carol Ortenberg [34:07] Xavier, how did Amy's uh sort of think about channel strategy and how, you know, with this large portfolio you had, uh, you approached your channel strategy?

Speaker 3 [34:17] Yeah, it's, it's a great question because we're, you know, historically, Amy's has been a um direct to store uh brand, so selling to uh natural uh specialty stores, selling to groceries, selling to clubs, and Amy's never developed its e-commerce or direct consumer channel. For the reason that John was mentioning, it was a cost effectiveness. We couldn't make it work. We couldn't make the financials working, but we're very keen on, on direct to consumers and, and we've been partnering with the ones that are um Leading the e-commerce revolution, I should say, I believe in the concept of one-stop shop. I don't believe in the concept of one brand needs to make it all and can make it all. I think the frozen category is big enough and wide enough from the breakfast category to the handheld to the pizza that Um, and more, and that consumers are looking for more e-commerce, uh, experts than brands experts in e-commerce. That's my point of view. And and this is why we're delighted to be partnering with e-commerce experts. Now, that's, that's shipping products. I'm not saying that brands should not invest in digital experience with their consumers, which is completely different from my point of view, which is how brands need to tell their story to the consumer and how brands need to develop fans and, and, and relationship directly with consumer, which is critical in that particular world. Even more so. Um, and that's for me two different platforms, the shipping and selling, which is the transaction that used to be stored only that now is open to multiple channels, including food service, including, um, what I call the away from home opportunity, but the digital uh communication to your consumer. That could be uh uh very deep into the personal relationship and interdependencies needs to be happening as well. So there's, there's two aspects for me when we talk about e-commerce. There's the transaction and there's the consumer intimacy and the dialogue happening between the brand and between the consumer.

Carol Ortenberg [36:40] Nick, looking beyond, you know, e-commerce, can you tell us a little bit about what you've observed in channel differences between natural or conventional and convenience when it comes to the frozen set and how brands should maybe think about their channel strategy?

Speaker 2 [36:57] Sure. I, I think, you know, the, the overarching statement before of if you can be in more channels and developing your brand so that you can do that is, is better overall because it increases the headroom of the brand. You know, I think the natural section, it tends to lean more towards things that are more sustainable, um, you know, focused more, uh, that may have a little bit of a higher price point, but, you know, more organic, more kind of, you know, the. The the better for you. Um, you know, there's, there's definitely some of the multicultural aspects hitting there too. But I think mainstream retailers are, are the ones that actually have kind of the bigger size of the prize there just because the population shift is, you know, across the entire US and it's, it's so profound and it's happening very, very quickly right now. Um, convenience is, is really interesting because, you know, convenience is, is an incremental channel in many ways to conventional grocery and to natural. Um, you know, historically with beverage, if you go to the convenience store, you buy something, you drink it, it's done by the time you go home. If you're going there, it's probably for a purpose, and that purpose would be buying a frozen item because you don't feel like going to the grocery store. You know it's there. And if they don't have it, you're not going to necessarily go out of your way. You might get something else or order something else. I do think convenience is still a very nascent channel for better for you products and food generally. It's, uh, you know, if you look at kind of the sell-through inconvenience or the ACVs, the ACVs are very, very low outside of maybe ice cream and things like that. So definitely a larger opportunity long term and if you can do it, great.

Carol Ortenberg [38:34] Nick mentioned pricing. John, what have you observed when it comes to pricing of frozen entrees? You know, can you compete with the, you know, Hot Pockets and Lean Cuisines of the world being a really premium priced frozen item?

Speaker 4 [38:54] Well, I think the answer is probably that it depends, but I would also lean back to what Xavier said earlier. If you find your, your point of differentiation, right? Then that has value. And sometimes it's scarcity of distribution, sometimes it's an expansion of flavor and form options. Sometimes it's specialty uh diet uh restrictions. Whatever that case may be, whatever that formula is overall that puts you in a differentiated place, I think that's what delivers value, right? And the other thing that's true is that frozen is expensive. But it doesn't have to be that much more expensive than the traditional approach, right? And when you start to think about from a brand perspective, the costs of traditional distribution, the costs of going through distributors and the cost of slotting fees and the cost that it takes to promote at the, at the store level. Now you're talking about going direct to consumers, right? Maybe you think about some of those marketing budgets or some of those budgets for traditional distribution a little differently so that you can adjust pricing from that perspective. It's a bit of a different world, for sure, but those who are thinking about it differently are the ones that are winning.

Carol Ortenberg [40:01] Xavier, you know, you did have that point of difference at Amy's with organic, with plant-based. How did you approach pricing and think about, you know, where that sweet spot was for the brand? You know,

Speaker 3 [40:13] what I want to reflect with you today is about your point of difference and also the understanding of the buyers of your points of difference, and I think this is very important because if you're, you are relevant to a category. And, and people like Walmart will always tell you, I need people to grow the category and, and I think we need to think this way. If you get into the marketplace to grow the category, therefore, you're going to lead um the the dialogue with the buyer and the retailer. And it's a completely different ball game than when you don't have a point of difference, where yes, you're going to have to pay a lot of listing fees in order to penetrate the category, but when you, you grow the category, when you bring innovation to the category, when you bring something that is really special and unique. Then the buyer will never have the same discussion that he has with the people of Nestle or General Mills or Conagra and therefore it allows you to really promote better your products when it comes to a higher price point and lower trade incentives to the retail because keep in mind the retailer wants consumers and they want to keep their consumers. And therefore they're looking for products like AE's at a point where they know they're going to receive less trade than anybody else, but they will get more ACVs, more new consumers coming into the category. So I think it's, it's not everyone, everyone needs to be at the same level. the same um um uh set when it comes to barrier to entry on the category and price to pay to the retailers, etc. It's, it has to have to, to be related to how you compete, how you grow the category, and what you bring to the business. And, and not to be shy of standing up and, and, and arguing about your products and how, how you're going to help the retailer to, uh, to grow and develop because at the end of the day, this is what the retailer wants to do. He wants to grow its category. And if you can find the right products with the right level of margin, knowing that probably you're going to be providing less margins per unit than any of the biggest competitors you're going to have in the frozen aisle, that's OK. The retailer is going to be OK with that. So back to your question about how you define price point to Amy's, it's a very difficult recipe, obviously, but at the end of the day, um, Our philos our philosophy was to make accessible the good for you food. So we didn't want to be completely disconnected when it comes to our price when it comes to organic and vegetarian food. So we're, we're, we're in an average 10 to 15% higher than the average of the category of the frozen, which was completely acceptable by consumer and is acceptable by consumer today. Or less than a $10 meal, uh, between 5 and 7, which is, which is quite fantastic, I should say.

Carol Ortenberg [43:17] And it's interesting because you're not just competing against other products in the category. A lot of times when you're talking about a frozen entree, you're competing against, you know, how much would it cost for me to make time lunch at home, both in terms of the cost of ingredients as well as how valuable is my time. And now with the rise of DoorDash and Uber Eats, it's also how much can I get this if I just order it via takeout as well. Definitely. Well, I could keep talking about frozen entrees with you guys for another hour, uh, but unfortunately we're at the end of our time, uh, to wrap things up, you know, I know we've hit on a number of topics today, but I'd love to leave our audience with just one point, not the only point, but one point that you think, uh, brands in the category should be thinking about. Could be something you don't see enough brands considering or a point of opportunity. Um, Xavier, let's start with you. What do you think?

Speaker 3 [44:12] Two words, better for you, better for the planet. That's what I would be focusing on.

Carol Ortenberg [44:17] All right, that was to the point. Uh, Nick, how about you? What do you think?

Speaker 2 [44:22] I, I, I agree on, um, on both of those points. I think, uh, better for the planet. I would, I would extend even further into saying things that make, uh, impact and, and permanent impact is the best. So if your brand went away, is the impact that you made still there? Um, that's, you know, that's, that's really important. I do think that in the next decade, just looking at, you know, the population data and, and the, you know, the sell-through data, the trend toward more flavor-forward multicultural cuisine is, is a really large one. and, and I, I think that that's a really good area to hit too.

Carol Ortenberg [44:58] John, how about you to wrap things up?

Speaker 4 [45:00] I think really there's never been a better time for brands to have and take the opportunity to control the conversation with their consumers, and that takes uh a concerted effort across all channels, uh, but there's never been a better time to do that. So I think, I absolutely agree with everything that Xavier and Nick have said in terms of sustainability and, um, thoughtfulness about their approach to both their business and the world, but While you're doing that, to be able to control that conversation or at least influence that conversation through all the direct means available today that are available more so than ever, I think that's really an opportunity to not only build the brand, but to keep the conversation going.

Carol Ortenberg [45:41] Well, some great tips for frozen brands. Uh, thank you to the three of you for joining us today. And for those of you watching at home, thank you for tuning in. Uh, please watch tomorrow our product showcase where you'll hear from frozen brands, uh, themselves, and you can watch that and all previous category close-ups on Nosh.com.