Why Food Entrepreneurs Are Winning Big

For those who came of age 1980s, frozen food meant a segmented meal of sliced processed meat, potato product, and even a small dessert square of questionable fruit gel. Often referred to as a "TV dinner," these meals were the staple of the two-parent working family's latchkey children, along with the infamous 'pot pie.' Now that these latchkey kids are now parents and busy working professionals themselves, the need for fast, easy weekday meals has stayed the same...but the solution has changed.

According to a 2012 report by AMG Strategic Advisors, 99 percent of American households contain frozen foods. However, frozen meal sales started to fall beginning in 2008 - and every year since, they have either decreased further or stayed flat. After six decades of steady growth, this data signifies a real shift in the mind of the modern American consumer.

The AMG report cites various reasons for the decline in sales, including: higher prices and smaller packaging, competition from pizza delivery, fewer young shoppers in the aisles, and the perception of the frozen food section as difficult to navigate. Consumers are also restricting their diets and eliminating frozen foods - which they perceive as unhealthy - and, for the same reason, cooking more at home using fresh ingredients.

Another reason cited in the study was a lack of innovation among frozen food products offered. Consumers simply don't see anything new coming from the large frozen food manufacturers other than breakfast items.

The frozen food giants have a plan to turn these declining sales and dismal trend around. Ad Age reported in 2013 that Big Food manufacturers including General Mills, H.J. Heinz, ConAgra, Kellogg Co., and Nestlé USA, along with retail heavyweight Wal-Mart, are sponsoring a campaign of up to $50 million to combat the image that frozen food is unhealthy and associated with high sugar, sodium, preservatives, and calories. The ad campaign, entitled "Frozen. How Fresh Stays Fresh," launched in May 2014 with television ads, digital and print advertising, a dedicated website and retail promotion activities under the industry's lobbying and trade association, the American Frozen Food Institute.

But away from the large manufacturers, another game-changing frozen food revolution was brewing. Small, family owned companies began entering the category with nothing more than a great idea - and some early support from key healthy-food mega retailers such as Whole Foods, Trader Joe's, and Costco.

In 2013, a small California husband-and-wife company called Veggie Mama received a bidding war to expand financial backing for their business, courtesy of ABC's "Shark Tank." After some early success with Sprouts and local Costco stores in their home area of Orange County, owners Theresa and Robert Fraijo walked away with $75,000 in exchange for a 20 percent stake in their company, which makes healthy frozen veggie treats.

Ethnic foods are also a growth category for small companies seeking a wider audience in the frozen food aisle. San Francisco-area based Ling Ling began when customers asked the proprietors of a popular Taiwanese restaurant to sell frozen versions of their meat and vegetable potstickers to enjoy at home. The family convinced Costco to test market their product, and the line eventually expanded to include egg rolls and spring rolls as well, made in small batches using fresh ingredients. After tremendous growth, the brand was acquired by Ajinomoto in 2014 and generated $67 million this year in North America alone. Today, it is considered America's number one potsticker brand.

Fortune reports in its June 2015 issue that major food manufacturers are losing ground as large retailers replace their stagnating traditional bestsellers with options from smaller companies. Spins, a data provider, also found that sales of natural products are growing in mainstream retailers across nearly every category, as over half of their conventional counterparts decline.

Customers are shopping for natural, healthy food in the frozen food aisle and "Big Food" is taking note. In June, industry website FoodDive.com reported that major manufacturers are adopting the adage of "buy, not build" and acquiring smaller companies with the credibility and reputation that appeals to millennial consumers (and of course, the built-in market share among this key group). In June 2015, Coca-Cola assumed a 16.7% stake in energy drink maker Monster Beverage Corp., following its 2014 minority stake purchased in coffee pod maker Keurig Green Mountain. Another example is Hormel Foods Inc.'s strategic acquisition of natural and organic meats producer Applegate Farms.

Cable influencer Food Network has capitalized on this trend by launching their program "Food Fortunes" to find the next generation of what they term 'culinary entrepreneurs.' This could be the reason that a recent IRI scan shows that total frozen food sales are up 0.6 percent in the past 52 weeks and 1.3 percent in the latest twelve weeks. As small business owners try to launch their dreams of frozen food innovation into the hearts and minds of modern consumers, you can bet that the CEOs of Big Food will be watching as well.