Trends Watch: Frozen Foods

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Mukesh (Ricky) Jagota, Managing Partner, Jagota Capital.

What is your outlook for investing in frozen foods?

Within the food and beverage ecosystem, I view frozen food as a particularly strong category for investment over the next few years. The pantry loading caused by COVID-19 drove many Americans who had long abandoned the frozen food aisles to engage with the category again (or even for the first time). What they found is not the low-quality frozen meals and salted vegetables they remember, but a broad and dynamic assortment of better-for-you, convenient foods in all sorts of new forms and sizes. I anticipate this will provide immense opportunity as people shift their mindset from frozen as a shorthand for unhealthy to a shorthand for convenience.

What are the greatest opportunities you see and why?

Broadly speaking, we see three large emerging opportunities in frozen. First, next-generation better-for-you products that not only switch base ingredients to healthier options (like swapping rice for cauliflower rice) but also re-engineer the whole product to focus on natural, pronounceable ingredients that have a richer nutritional profile. Consumers are increasingly educated to and aware of what is in their packaged food and as a result are demanding more from manufacturers, which will continue to propel the evolution of natural and better-for-you products.

Second, continued expansion of new categories in frozen. That is to say, not simply modernizing the products on the shelf today but bringing new types of products to frozen. As the range of consumers continues to expand, their purchases in frozen, new opportunities will emerge to win dollars from other parts of the store and consumers’ diets.

Finally, expansion of pack sizes and forms. Currently, frozen food categories are very standardized when it comes to price-pack configurations. Moving forward, we expect the evolution seen in other parts of the store (such as more single-serve options) to impact frozen categories as well. This is driven by consumers looking to frozen to fulfill more and more of their needs as well as the expansion of frozen across channels such as e-commerce and dollar.

What are the greatest challenges you face and why?

From an investing perspective, we worry about the shelf limitations in frozen. Unlike other categories we focus on, such as snacking, there is no ability to seed frozen products in multiple parts of the store or drive trial and activation through stand-up displays. Freezer space is at a particular premium due to burdensome installation and maintenance costs. As a result, emerging brands must overcome strictly limited opportunities to get on shelf and expand. In frozen, each product and category must continually win their space every day.

Moreover, frozen food is dominated by a handful of large players. One result of this is that a few declining brands and categories will stick around longer than they otherwise should, and new brands are all running into an even narrower opening at the same time.

Further, while the continual introduction of new categories in frozen is an opportunity for companies and investors, it also means that brands must win their space not only against direct competitors but also against a dynamically changing set of all other frozen products. However, ultimately consumers are demanding the innovations provided by emerging brands, and over time we expect to see a much more diverse world within frozen.

What keeps you up at night?

For an independent sponsor like us, regardless of industry, capital raising is always top of mind, especially in the types of growth and control deals we do. We are fortunate to have a continual pipeline of healthy deals thanks to our network and our continued focus on understanding the trends, emerging players, and growth opportunities across food and beverage. But the dynamic priorities of family offices and institutions mean we must also constantly focus on maintaining a robust base of capital providers.

Within frozen food, we think there is a bright future ahead and, while there are always new challenges emerging, major threats to the category are limited. Overall, we think this is an amazing time to be food and beverage investors. There is opportunity emerging in every part of the store. For value-added investors like us who have experience across nearly all food and beverage categories and who partner with management teams to drive top- and bottom-line growth, there has never been more opportunity to make an impact. We aim to drive results for the management teams and employees as well as returns for investors, all while having a measurable impact on the health and wellness of consumers and environmental conservation. 

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.