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Retail discounting squeezes profits, but Danish innovation marches onward.

Frozen processors increasingly complain that price-sensitive buyers are forcing down quality standards by demanding lower grade products that can be sold cheaply.

What's new on the Danish food retailing scene? Well, one could point to the fact that supermarket operators are stocking more fresh produce at the expense of frozen fruit and vegetable sales. But that's "small potatoes" compared with the deep price cutting that grocers are demanding from suppliers.

"All too often these days, I'm sorry to say, quality is taking a back seat to price. Competition is so intense that margins have become razor thin," one frozen food packer advised. "Indeed, some processors are taking losses just to maintain their market share."

The discount wave that has washed over the Danish food retailing scene during the past decade started with ground swells from the German chain Aldi and then Netto. Traditional supermarkets once sold a choice of products within a tighter price range, and frequently ran special offers. Now chains and wholesalers have been forced to sell two categories of goods: regular and discount.

The English word discount connoted savings when it first came into the Danish vernacular. But today it has taken on a few negative connotations, as many shoppers associate products being sold under the discount banner as cheap and of poor quality.

"I eat the products I sell myself in order to test the quality," one Copenhagen grocer told Quick Frozen Foods International. "Take frozen peas for instance -- we had them the other night. The package claims the contents are 'fine,' but they're not. The peas were mealy, tasteless and larger than they should have been. I am positive they were imported. But look at the price difference between this 'discount' bag of peas and those offered at a regular price."

The gap was quite striking. It could be interpreted in two ways: either the low-priced bag was 42% cheaper or the regular standard was 72% more expensive.

"I can see from my sales that a lot of consumers are looking strictly at the price tag," the retailer concluded. "And it is rare that any complaints are heard -- people save money and they seem to be satisfied with that. I can show you examples in every section of the store where there are cut-rate products competing with traditional products. But we have to sell them to remain competitive."

With prices dropping in certain areas, producers must compensate in other areas. Value added products can add to profits, but supermarket operators have some complaints about what they describe as a "bombardment" of new products.

One grocer explained that ready meals and frozen entrees still suffer from a stigma of being inferior products. A boom that started in the 1980s propelled these items into a high-profile position. But part of the attraction was perhaps magnified by the glitzy decade of over consumption. The staying power of people zipping around in BMWs making deals on cellular phones and popping ready meals into the oven was short-lived. After the upscale image faded, the products remained, but were altered to suit family needs and budgets.

The Copenhagen grocer even said that some parents buy frozens with a bad conscience, feeling that they are cutting corners and feeding their children foods that are second-best. But kids love many of the offerings and sales remain solid. This is definitely a period of transition, according to Danish retailers, and it is most visible in advertising which places prices in the boldest of print. Sales ought to continue their satisfactory march, but the drums may be beating a different tattoo.

Thermal Abuse

One negative factor on the retail scene revealed recently by a consumer group panel was the inadequate care some stores give to their freezer sections. The study, which was conducted in a medium-sized town in Jutland, received publicity in the consumer magazine Taenk. It was reported that researchers found many products were half-thawed due to high maintenance temperatures. And some freezers were over-filled, exposing packs to higher-than-legal temperatures.

None of the frozen food cabinets in stores tested showed the -- 18 degree temperature maximum required by law. Thermometer readings ranged from a high of -- 2 to a low of -- 6 at survey sites. A similar study done in Copenhagen a year earlier turned up like results.

Meanwhile, producers have made efforts to alleviate pressure on freezer capacity, and retailers have increased space. But at the same time there is the influx of new products and solid demand for frozen foods.

Now the Good News

So there is, nonetheless, a fair amount of good news to report regarding positive trends on the frozen food front. For example Denmark's largest retailer, the cooperative group FDB, has had huge success with its frozen pour-and-heat line of ready meals launched in early 1991. The products come in plastic bags, so consumers can pour a portion, close the flexible container and put it back into the freezer for later use.

FDB has targeted younger consumers, who generally want fast foods and health-oriented fare. Most products have been designed to contain two portions. "Ethnic foods have gained a firm foothold in recent years," said Klaus Bentzen, assistant manager of FDB's frozen food division. "Traditional quick food dinners still sell well, but young 20- to 30-year-olds are well-traveled and have awakened taste buds. There's really no limit to what they will try."

Bentzen called attention to a movement that has put its stamp on the food market: "Most young people, after they've finished school, go abroad for a year or two. In the process they become more 'European' (in the EC sense of the word) than the previous generation."

The number of vegetarians, or semi-vegetarians, has skyrocketed in recent years. Traditional frozen vegetable products have held their comfortable market shares, with some advances. But the area of real growth has been in new, often exotic, mixes. FDB has had great success with its three-product line of vegetable mixes. The Chinese Mix, designed for stir frying, is a nominee for Golden Penguin honors. Bentzen said this item, along with the Vegetable Symphony and Aeroe Mix, were designed to put "a little festive color" in products to provide aesthetic appeal on the plate.

While works, and the whole stir-fry concept, have gained immense popularity, microwave oven sales have lagged behind in comparison with other countries. High excise taxes have depressed sales in Denmark. Nonetheless, an estimated 25% of Danish households have microwaves -- seven percentage points higher than year-earlier figures.

One area that clearly has shown a change in the form of new products is frozen seafood. Companies such as Royal Greenland have launched lines of seafood-based ready meals. Squid rings, jumbo shrimp and prepared fish fillets can be found in more store freezers, and consumers willingly try them. New species of fish have been introduced into retailers' freezers.

EEC quotas and a general shortage of fish in Danish waters could very well add to import tonnages in the future. Fish sales, which have always shown positive numbers, have been pushed ahead by health awareness in recent years. But another factor has helped -- price. As fresh fish has become much more expensive of late, a lot of consumers have refused to pay the price. Instead, they have turned to frozen products that cost considerably less.

The Dansk Supermarket Group (No. 2 retailer in the country), has Bilka, Fotex and Netto outlets. Most of the goods sold are acquired through central purchasing. Bilka and Fotex market a lot of private label frozen foods, but Netto has been the entry to the Danish grocery sector that has had the greatest influence on the industry in recent years. The chain of so-called "discount" supermarkets has caused competitors to scramble to retain their market shares. The discount concept manifests itself as simply a low-service (i.e. no frills -- merchandise is presented in cartons, often still palletized), low-priced outlet. It's not unusual for customers to realize savings of 25% in the frozen food section on products competitors usually offer for full price.

Netto freezers have grown in the past three years, mainly from the recent addition of meats to the selection. Most stores have just a handful of items from main FF categories. But other outlets, depending on location, offer a much broader range. In central Copenhagen one unit has scant representation in a coffin-style freezer, while a sister store in a smaller town that is a shopping center for outlying rural areas carries ready meals, more value added products and generally a broader selection.

FF sales account for approximately 15% of all Dansk Supermarket turnover, and the company sees a lot of room for expansion.

Wholesaler Dagrofa's customers take a larger percentage of frozen food products than was the average in 1991. "This indicates that our price levels and assortment are satisfactory," said Steen Gede, head of the company. Dagrofa delivers to small and medium-sized grocery stores, and to service station-convenience store outlets. Most business comes from larger, medium-sized stores, of which the Spar chain stands out as a major customer.

Gede sees the FF sector as an area with great growth potential. He commented: "We give them (customers) good products at a reasonable price so they can compete with larger companies."

Dagrofa has two private labels in the FF assortment -- Hverdag and Eldorado. "We had to look towards private labels, as the brands were too expensive and too slow," Gede explained. "We have a good balance between the two. Private labels generate volume and turnover, which in turn boosts sales of brands."

Unlike the Danish FF sector in general, Dagrofa realized steady growth in all areas of frozen products. There was no single product category that stood out. Products offering consumers the advantage of being quick and easy ought to realize increased sales in the future. However, Gede pointed out: "There are a large number of producers who are offering a great number of products, but consumers are slow to pick up on new ideas. It will take a few years before these products get a firm foothold in the market."

Seven percent of Dagrofa's total sales come from frozen products. Gede believes FF's share will increase on the strength of the balance between quality and price, whereby Dagrofa customers can pit their products against those of competitors, and win.

Tuna Fish, Pacific Cod, Sandwiches Make Scene

Some unusual species of fish (for Denmark) have been surfacing in Copenhagen supermarket freezer cases. Among them are tuna and Pacific cod from Alaska. They are packed in simple wrappers so consumers can view the fish.

Also making the scene are oven-ready sandwiches. Such has long been common frozen fare in the foodservice sector. But now retailers are featuring twin-packs of sandwiches.

Shulsted produces three different ready-to-heat varieties, while Danpo has hit the market with several chicken-filled pastries. The latter can be served as either a snack or entree.
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Title Annotation:includes related article
Author:Ferro, Charles
Publication:Quick Frozen Foods International
Date:Oct 1, 1992
Previous Article:Thoughts on Mother Nature, quality, Young's fresh approach, and own label.
Next Article:Denmark's hardy appetite for frozen food makes it no. 1 in consumption and output.

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