This report analyses the UK market for both fresh and frozen foods, focusing on commodity products, i.e. produce which is not prepared or processed. The total market was estimated at nearly £13 billion in 1995.

The two categories - fresh and frozen - are driven by the availability of produce, and consumer expenditure on food, which is around 10 percent of total consumer expenditure but decreasing proportionally as incomes rise. Long term rising living standards and increasingly busy lifestyles are two major factors which have altered consumer demand for food and led to considerable growth in the markets for prepared, processed and convenience foods at the expense of commodity produce. Lifestyle and demographic influences on the market include smaller households, which has reduced demand for large quantities of any single item of food and assisted a trend towards single portion and mixed bag produce; and more informal meals and snacks as fewer families eat together on a daily basis. In addition, the increase in the number of women in employment has raised household incomes, while reducing the time available for home cooking and increasing demand for foods which are quick and easy to prepare.

The distribution of food also has a major impact on the market, with the lifestyle changes mentioned driving the trend to one-stop shopping and fuelling the dominance of the major multiples. All of the major supermarket chains offer own label lines which tend to undercut branded goods on prices, and in commodity produce the majority of supply is unbrandedown label. Advertising and promotion on food brands therefore has relatively little impact on the sales of commodity items, although retailers advertising is important and the ability of a retail campaign to sell individual lines is well recognised and demonstrated by Sainsbury's recipe campaign.

The market supply structure demonstrates a split between branded products - of which there are few in this market - and a vast number of own label and unbranded producers. Major multiples often source commodity produce direct from the grower, either through direct deals, or occasionally through ownership of a facility. This keeps prices down and ensures that the retailer has full quality control.

Sales of commodity produce, particularly in the meat market, have suffered from the trend towards prepared and processed produce which command higher prices. The lack of branding and the lack of perceived added value in most commodity categories prevents producers raising prices unless demand outstrips a restricted supply - a recent example of this being in the potato market in 1995. In general terms, steep price rises in these circumstances tend to suppress demand and reduce market volume while market value rises. Commodity producers therefore seek to increase price and perceived qualityvalue by offering an element of preparation from trimmed chops and marinated meat, to mixed salads.

Health issues have impacted on food sales in two ways. Firstly the high profile food scares, most recently the BSE crisis, which decimated the beef market for a period of time. A potential food related health risk may have existed for many years, but media interest in the risk can suddenly lead to sales falling steeply as consumers stop purchasing the product while they consider the risks. After a period of risk assessment sales begin to pick up again, although it can take a considerable time before they approach the previous level. The second health issue is the trend towards healthy eating, and consumer interest in food products which offer a health benefit especially those which are high in fibre and with a low fat content. This demand, however, has had only a minimal impact on sales of commodity produce, which frequently offer these benefits because consumers have a greater need for convenience.

The market for fresh food, covered in this report, includes meat, fish and fruit and vegetables. Meat is the largest market in value terms, with beef remaining the biggest sector, worth £1.8 billion in 1995. The fruit and vegetable markets are approximately equal at around £3 billion. Fresh fish is the smallest sector at £695 million.

Sales of commodity meat products are declining as consumers trade up to prepared and convenience products, and turn away from the traditional meat and two veg family meal to European and Eastern cuisine's which tend to use less meat. However, within this market, there is a strong trend towards easy to cook meat product including chops and steaks, and semi-prepared products from mince to cubed and marinated meat for stir frying. Products such as Aberdeen Angus steak, or maize fed chicken can also command higher prices and meet consumer demand for quality. All of the major multiples retail a wide range of meat, and a number of larger stores have reintroduced the butchers counter, so that customers can request professional service and advice if required. As the multiples have taken trade away from traditional high street butchers, so in appearance at least retailing of meat has come full circle.

In the fish sector, increasing interest has also been demonstrated in premium products, from jumbo fish fingers in batter to imported wet fish and Scottish farmed salmon. As in meat, an increasing number of supermarkets have introduced wet fish counters in-store, and expect this to further strengthen their position against traditional fish mongers, which have been loosing trade for many years. Supply difficulties have altered the shape of the market for fish, and although cod and haddock still massively dominate the market in volume terms, an increase in imported and newer fish varieties retailed through specialist outlets and in-store counters are gradually raising consumer interest and demand. The major brake on market growth, in the fresh fish sector, appears to be the lack of any strong brand or category advertising. Many consumers are unaware of how to prepare and serve the newer fish varieties, and prices discourage trial. An educational campaign, or strong brand, could have a major impact on the market at this time.

The market for fresh vegetables has grown rapidly in the last three years, driven by price increases as well as consumers trading up to more expensive varieties and semi-prepared produce. Potatoes and fresh green vegetables continue to dominate in both volume and value terms, with sales of other produce dependent on availability and price. Sales of salads have been particularly strong during the long hot summers of 1994 and 1995, but many other home produced vegetables suffered from adverse growing conditions which decreased yields.

Fresh fruit is the largest growing market sector, with an increasing range available, including newer varieties of familiar fruits. As in the other markets, there is a trend towards convenience and added value, with prepared chilled fruit having a small but significant impact on the market, particularly for exotics. World-wide product and import allows for year round supply of seasonal fruits such as strawberries, but the greatest growth has come in exotic fruits from bananas to mangoes. Although consumers are trading up to better quality and value products, low prices drive volume markets, and the increase in sales of bananas is in part due to lower prices. Both fresh vegetables and fruit are essential categories to the major multiples, reinforcing consumer perceptions of store quality. There are very few branded items, although regional producers may emphasise the countryregion in the store displays as a differentiating feature.

The frozen foods sector follows a similar pattern to fresh foods, in that sales of commodity produce are suffering as consumers move towards prepared and convenience foods. In addition, frozen produce is perceived as offering lesser quality than freshchilled formats, so as incomes rise a greater proportion of food expenditure is on fresh rather than frozen produce. The down market image of all categories of frozen commodity produce is restricting growth, despite the strong performance of some of the major brands aided by advertising and promotion. However, frozen foods offer a unique level of convenience for busy consumers, particularly as home ownership of freezers and microwaves is at a high level. Strong promotion of the nutritional benefits of frozen food, and improved in-store display and packaging, could once again drive this market forward.

As part of this report, MAPS commissioned exclusive research from the National Opinion Poll (NOP) on consumer purchasing of fresh and frozen foods. This research investigates consumer claims to have increased purchasing in the relevant food categories over the last three years. All categories of fresh produce have shown an increase in purchasing, with lower income groups particularly likely to have increased the amount they buy. Purchasing of fresh produce among the highest income groups has not increased substantially, except in fresh fish, reflecting wider availability and choice. Purchasing patterns of frozen produce reflects the lower quality image, with lesser increases in purchasing, and a strong bias towards socio-economic group DE. Products such as frozen potato products, and frozen poultry, have a higher penetration of these groups.

Future prospects for the commodity fresh and frozen produce markets will depend on continuing growth in consumer expenditure, but the strong trend towards prepared and processed products is expected to be a major theme over the next five years. Producers and retailers are therefore likely to continue to seek new ways of differentiating and adding value to commodity products to command higher prices, or alternately to move into the value markets to increase volume. Opportunities for growth of specific categories may be offered by advertising and promotion to raise consumer awareness and sales in markets such as fresh fish, and frozen fruit, and by educational campaigns on such issues as food safety, health, and nutritional value of frozen produce.