Frozen desserts: heating up? With two market leaders consolidating, and a need for others to strengthen sales, the frozen desserts category may have some surprises in store

Prepared Foods, April, 2004 by Matthew Klein

Frozen desserts, a category that is home to pies, cakes, pastries, cheesecakes and frozen toppings, has a wide range of offerings to tempt a consumer's sweet tooth, but sales have been fairly flat in the past two years. Competition from across the supermarket--in-store bakeries and other ready to eat (RTE) options--is forcing the category to define itself clearly and give shoppers a real reason to peer through the glass in the frozen aisle. A new report from Mintel International Group (Chicago) provides details on the state of the market, and where it is headed.

Who's in Charge Here?

Until recently, leadership in the various segments of frozen desserts was a fairly mixed bag of giant food companies, like Kraft Foods (Northfield, Ill.); large mixed food and consumer products companies, like Sara Lee (St. Louis); and smaller concerns that did little beyond frozen desserts, such as Edwards Fine Foods. That has changed with the acquisition of Edwards in 2001 and Mrs. Smith's in 2003 by Schwan Food Company (Marshall, Minn.), the frozen food company that holds second place in the frozen pizza category, after Kraft. With these two buys, Schwan became the category leader for frozen desserts, and competitors are watching to see what comes next. As it stands, Kraft leads the largest segment, frozen toppings; Schwan leads the second largest, pie; Campbell Soup Company's (Camden, N.J.) Pepperidge Farm division holds the lead on the third, cakes and pastries; and Sara Lee dominates the fourth, cheesecakes. Private label products claim more than 10% of the category, and their share is rising.

Until recently, the biggest seller of frozen desserts was Kraft, thanks in large part to one family of products, its Cool Whip line of frozen toppings. Though Kraft has no brand rivals within the segment, it still has to respond to competition, specifically, ConAgra's (Omaha, Neb.) Reddi-wip. However, as an accompaniment to desserts of all types, Kraft does hot have the same rivalry within the category as the other players. One company that does, and has been making great efforts in redefining frozen desserts since the close of the 1990s, is Sara Lee.

Sara Lee is the number three seller of frozen desserts, thanks to sales of frozen pies, cakes--and the product many consumers most closely identify with its name-cheesecake. Since 2000, the company has been focusing on its core businesses--food, undergarments and polishes--and selling off unrelated businesses to fund purchases that fit in these categories.

A bit before this, Sara Lee began to work on ways to help its dessert products meet the needs of modern households, beginning with cheesecake. In 1999, Sara Lee rolled out Cheesecake Bites, a finger-food version of its well-known cheesecakes that can be doled out in smaller servings than a standard cheesecake and thus find use in smaller households or homes more partial to snacks than desserts. The same year, the company also introduced a cheesecake Singles product, with the same intention, and a New York Style cheesecake. The effect of these introductions and the advertising that supported them was impressive. From 1998 to 1999, the cheesecake segment increased by 67%.

However, in an indication of the transience of consumer tastes, sales for the cheesecake segment have declined most years since then. Even so, they are still an estimated 46% above their 1998 rates, in current dollars. Perhaps more importantly, several major product introductions in the same vein have occurred in the years since Sara Lee reenergized the cheesecake category, both from Sara Lee itself and from competitors in frozen desserts.

The Current Wave

Sara Lee has carried forward the "bites" concept by selling its Cake Bites, which debuted in 2000. However, Sara Lee is not alone in providing products for smaller households. Edwards offers Pie Slices, two servings of frozen pie, and the company that became a sister division in 2003, Mrs. Smith's, introduced Flip-Its. They are double-serving frozen upside-down cakes that can be heated in the microwave and are ready in under five minutes. Such developments could help reduce the seasonality of the segment, which is heavily skewed toward the holidays, and provide a more stable market.

Other innovations are helping drive the market. For example, Sara Lee is committed to selling its frozen fruit pies on the basis of quality, by including 100% fruit, not slurry, in its Signature Selections line of deep-dish pies. For years, Edwards has been offering pies that simulate the ones people can get in restaurants, such as Turtle Pie or Cookie Dough Sundae. In addition, Kraft rolled out its first flavored Cool Whips, strawberry in the spring of 2003 and vanilla for that year's holidays.

Perhaps the most interesting point of speculation is the effect of Schwan's purchase of Edwards and Mrs. Smith's on the category. As evidenced by its rivalry with Kraft for the fiercely competitive frozen pizza segment, Schwan has both ability and experience in frozen foods. Schwan's distribution network already has helped accelerate a planned distribution expansion by Edwards, and expanded market share, and the only significant brand growth in the category. A steady stream of new offerings is appearing from Edwards and Mrs. Smith's, and if Schwan can reproduce its success with frozen pizza, revitalization of frozen desserts could occur.