The (+2 Trillion SEK) Global Frozen Food Industry – Innovation as key driver (Optifreeze update 1)

Posted: 9 March, 2015 in Optifreeze, Published Investment Calls
Tags: , , , ,

In this post, CESI will touch upon general global frozen food business metrics – innovation as the key driver, the dominant players and the outlook.

“Development of advanced freezing technologies have enabled efficient preservation of the nutritional value of fruits and vegetables for longer times, have reduced material losses and have resulted in longer product shelf life. All of these factors have helped boost popularity of frozen fruits and vegetables among consumers. Given, the dynamic and intensely competitive market environment, product innovation ranks as a key to success in the marketplace.” (Frozen Fruits and Vegetables – A Global Market Perspective  – PR Newswire)

Advancements in freezing technologies is fueling the growth for frozen fruits and vegetables, which allows the manufacturers to preserve the nutritional value of the vegetables and fruits for a longer time period and in some cases restore key nutrients once lost using prior freezing processes.” (by foodproductdesign)

Nestlé Invests $53M to Focus on Frozen, Chilled Foods: “Nestlé S.A. will invest $53 million to establish a new building that will expand the existing R&D facility in Solon. The new center will be designated as a global Product Technology Center (PTC), dedicated to frozen and chilled foods research, and will serve Nestlé’s businesses worldwide. Construction is expected to begin this summer with plans for the facility to be operational in late 2014. The glass-faced facility located on 18 acres will house offices and labs for approximately 100 scientific, professional and technical staff. The 144,000-square-foot building also will include a pilot plant where new recipes and the latest technologies will be tested and evaluated.”

Not surprisingly, the first announced Optifreeze partner Orkla and its broad pipeline (62.8 Billion NOK Market Cap) also strongly drives innovation:

“Innovation is Orkla’s primary tool for creating growth, and is therefore pivotal to the way Orkla is run.”

“In the coming years, Orkla’s focus on innovation will remain its first priority, and all employees will work continuously to ensure that local brands are consumers’ first choice by making them a better, simpler and healthier part of everyday life.”

Optifreeze is true innovation and the key issue,  a possible (or non possible) scale-up of the Optifreeze technology, now seems eliminated:

“New year means new opportunities. 2015 will be just as eventful as last year and it feels more stable as we make progress on several fronts. Let me mention four key strategic areas.

The Company’s method developers are working to broaden and deepen our knowledge of more and more products. Eda, Rei, and Kasia has tested a range of vegetables, fruits, berries and herbs for us to develop a product map, that is, to find out which products can easily be treated with our method and who works less. This work is coordinated with the next area.

Companies that sell fresh and frozen herbs have shown interest in the OptiFreeze technology.

Secondly, together with Orkla we have started preparations (panels and focus groups) for the planned market tests. The goal is to conduct these tests in the first half of 2015. Optifreeze will also conduct its own market analysis in order to define which products that have great acceptance in the global food market, not least in order to identify the products that have the potential to provide good revenues. The goal is to broaden and deepen the knowledge of the various markets and companies we will process. In the current situation, we have good indications of products that can provide the company with good revenues in the short and long term. It has also become evident in the various industries and sectors that OptiFreeze will find customers and partners. Examples of these are food industries that produce foods, companies providing fresh frozen products, refrigeration technology and bakery and also confectionery companies producing desserts and cakes.

Optifreeze has received and constantly receives requests from companies around the world with the desire for collaboration. We are likely to initiate collaborations with partners in 2015, but only on condition that it fits into the company’s strategy.

A third area is the up-scaling and industrialization of the technology. The first steps we took last fall. And I’ll admit that it was with a certain nervousness and high pulse, I viewed how the treated products were placed on a production line and subsequently transported into an industrial freezer and frozen to below minus 20 degrees. After a few seconds, the products came out the other end of the freezer. To our great delight, we found that the products survival rate was high and reached by a wide margin up to the demands of the food industry. Hence, we live up to our motto “we have a technology that enables the taste, shape and structure can be maintained throughout the freezing and thawing process.” This shows that we are on the right track. Our technology opens up entirely new niches, product groups and markets as we work strategically to broaden and deepen OptiFreeze.” source link (in Swedish)

Structure of the freezing industry
Freezing industry can be divided into two segments. One part consists of companies that specialize in individual freezing of vegetables, fruits and berries. This Business is often located near the major cropping areas. Several large such companies are located in Belgium and the Netherlands has specialized in vegetables and potatoes. These Businesses usually offer standard and customized product mixes. For example,  strawberries used in Sweden are often frozen in Egypt or Poland. In Sweden we have e.g. Magni Hill in Mörarp, cultivating and freezer your vegetables. Polarica in Haaparanta as sells frozen wild berries such as e.g. lingonberries. Polarica also owns a company in Poland as deep freezer your strawberries, raspberry and black currant. Nordic Food Group own several production of berries in Sweden, Bosnia and Latvia. The second part consists of brand manufacturers which offers a large selection of branded goods. These often belong to different international groups. Examples are Findus and Procordia (Orkla group), while Dafgård is a family owned business. These companies buy most of their frozen ingredients from specialist suppliers. Findus also freezes vegetables grown on contact straight basis. A third is the intermediary supplier, e.g. Food Impex in Helsingborg. They exports peas and wild berries and imports a wide variety of frozen vegetables, fruit and berries.

Global frozen food market is highly fragmented. The large multinational companies face intense competition from local companies in terms of their price offerings. Some of the leading companies (and potential futureOptifreeze partners) operating in the global frozen food market include

  • Amy’s Kitchen Inc.
  • Unilever Plc,
  • McCain Foods,
  • Maple Leaf Foods Inc.,
  • H.J. Heinz,
  • The Schwan Food Company,
  • ConAgra Foods, Inc.,
  • Nestle,
  • Tyson Foods Inc
  • Allens, Inc,
  • Ajinomoto Co. Inc.,
  • General Mills Inc,
  • Birds Eye Foods, Inc.,
  • Iceland Foods Ltd,

Europe is emerging as a leading market in frozen food and all aspects of correct hygiene in this business are critical:

Europe emerged as the leading regional frozen food market with over one third of the total revenue. Consumer’s reliance on high state of hygiene related to frozen food products had a positive impact on the regional market growth. Ref

The global refrigerated transport market is another indicator of the freezing industry’s great outlooks…

“The cold chain market in China is growing as it serves as a lucrative market for U.S.-based service providers for investment in cold chain infrastructure and also due to e-commerce and food safety regulations introduced by the Chinese government.

The global refrigerated transport market is growing at a considerable rate. In North America and Europe, refrigerated trucks, vans, and trailers are also witnessing a considerable growth in demand as they provide flexibility to deliver goods in multiple locations at flexible timings. Consumer demand fresh food through online shopping has also increased, which has triggered the increase in refrigerated transport by road. Reefer containers transported by sea are also contributing to the growth of refrigerated transport due to technological improvements which maintain the shelf-life of perishable foods.

Chilled, frozen, and deep-frozen are the temperature ranges through which products are stored and transported using a cold chain. The chilled products accounts for the largest share globally, as most fruits & vegetables are stored and transported through this chain. The frozen food market is also witnessing a substantial growth for the next five years

Globally, the meat & seafood market has the largest share, by application, followed by dairy & frozen desserts, and fruits & vegetables. The consumption of these perishable foods is increasing globally, thereby increasing the inter-trading of perishable foods among different countries.”

Frozen Potato. Letś also touch upon the general global outlook for one of Optifreeze’s potential applications – frozen potato. Today, CESI does not posses the competence or enough information from Optifreeze to estimate any relevance or potential impact within the frozen potato industry (the largest segment is logically french fries). However, it is interesting to highlight the trends within the business:

“Frozen Potato Highlights Exports of frozen potatoes from the world’s 3 leading suppliers,
at over 3.0 million metric tons, are up nearly 35 percent from 4 years earlier. U.S. exports are estimated at 1.0 million tons, up nearly 40 percent, on rising demand from Asian countries outside Japan. Tastes and preferences are changing in those markets, as a result of greater exposure to Western-style, fast-food restaurants. EU exports have skyrocketed 75 percent to an estimated 1.1 million tons. The bulk (nearly 4
0 percent) of that growth is driven by rising demand from the fast food sector in Saudi Arabia and other regional markets. However, the EU is also expanding globally to markets in South America and Asia.” (reference: page 2 here)

However, there are enormous theoretical opportunities within the dessert segment, primarily fresh frozen berry opportunities: “Frozen ready meals, including frozen pizza, desserts, snacks, entrees, etc., accounted for more than 30% of the total global market revenue in 2012 ($224.74 billion). Expected CAGR is 3.9% from 2013 to 2019. Frozen food made with natural and organic ingredients have shown huge market opportunity for manufacturers. (by foodproductdesign)

In addition, “alive deep freezed strawberries or spinage etc” are not available on the market today (that is fruits and veggies that can not survive freezing). With the Optifreeze technology (more info in original post) this might be possible in a near future…

optifreeze 2015-03-07 20:25:10

The frozen food growth driver “A Shift in consumer lifestyle towards ready to cook meals on account of lack of cooking time and hygiene is expected to remain a key driving factor for global frozen food market. Storage for longer duration is expected to increase shelf life of fruits and vegetables, which is also expected to have a positive influence on the market growth over the next six years. Availability of refrigeration media for commercial and industrial freezing is further expected to drive the global frozen food market.

The future of frozen food (Boardbia) The full report is very comprehensive, attached are a few conclusions:

 Re-inventing frozen food through innovative product and retail environments

  •  As more women enter the workforce and lifestyles change, global demand for frozen meals and ingredients will grow
  • This natural preservation allows food to be captured at its nutritional best. As awareness of the health benefits of specific nutrient rich food grows, consumers will look for easy ways to integrate these into their daily diets. Again, frozen food is uniquely placed to meet this growing need
  • The growing desire for convenience and the changing retail landscape will continue to have an impact on how, when and where people shop
  • Frozen food manufacturer, distributer and retailer, Picard, is leading the way in redefining frozen food and changing consumer attitudes about the category in France. Picard is one of a small number of premium frozen food brands in the world, and has few competitors even in Europe, where perceptions of frozen food have been improving. Innovative products and tailored marketing have helped the brand succeed with middle to high income consumers in a nation where good food is an essential part of the culture. The majority of Picard’s products have origins in French cuisine, though new lines are being added that tap into the growing desire for more ethnic and international foods.
  • In store tastings help bring its products to life for shoppers and introduce the smells of freshly cooked meals into the store. Every
    product in the shop has the name of the person who made it on the packaging.
    In the UK, frozen food manufacturer and retailer Cook is challenging the stereotypical image of frozen food by offering more premium, home made style family favourite
    foods. The boutique feel of its stores, with the use of warm colours, bunting, wood panelling and old
    fashioned signage reflects the authentic, rustic feel of its products.

Letś focus on the Optifreeze long term potential metrics. Of course, the latter is impossible, therefore CESI will present in total 3 separate approaches to extract roughly estimated potential trade values.

  • 1 The Strawberry approach
  • 2 The global and general food metrics approach
  • 3 Extrapolation of the “official Optifreeze 2017 target” approach

1 The Strawberry approach.  The straight forward and non complex approach. Until very recently, strawberries could not be frozen and thawed while keeping the cells alive. Therefore, the frozen strawberry / fresh strawberry market ratio should drastically increase within a very near future. This straight forward (and of course way to simple) Strawberry approach also excludes all other potential Optifreeze applications such as new product opportunities e.g. fresh frozen herbs, exotic fruits, deserts and cakes. Conclusion: If Optifreeze can secure 1 % of the 16.8 Billion SEK fresh strawberry market, this would correlate to a yearly trade value of 168 MSEK (based on the below attached European Fresh Produce association metrics). This first approach Strawberry approach was published in the original CESI Optifreeze blog post. Of course, the 1% estimation of market penetration over time is a wild prediction. The future number could be substantially lower or higher. However, the Optifreeze technology is patented, initially appreciated (Orkla) and unique.

2 The global and general food metrics approach. Optifreeze potential metrics calculated from global and general frozen food metrics assuming 0.1% market penetration within the relevant potential segments. Global Frozen food, a +2000 Billion SEK market and increasing. If we exclude frozen meat and fish/seafood from these numbers, frozen ready meals and frozen fruits and vegetables corresponds to a value of approximately + 1000 Billion SEK . Logically, within the big ready meals segment, Optifreeze might add and extract value of only a minor segment because a big piece herein correlates to pizza, nuggets etc. The combined total segments potato, vegetables, fruit and berries (roughly 15%) would translate to approximately 150 Billion SEK globally as a theoretical maximal number. Hence, a 0.1% market penetration (the wild speculative prediction) results in roughly a 150 MSEK trade value. Logically, CESI believes that all successful Optifreeze applications such as new product opportunities e.g. fresh frozen herbs, exotic fruits, desserts and cakes should be included in these numbers (a conservative approach?).

3 Extrapolation of the “official Optifreeze 2017 target” approach. In the memorandum p17 (Swedish language), Optifreeze states that the 2017 targets are 6 production lines (at one or a few customers). This should generate a turnaround of approximately 100 MSEK and a revenue of approximately 15-20 MSEK. These numbers could then provide guidelines for the continuation and growth of the business. If the 2015-2016 planned full scale production is successful, the turnaround and revenues growth might/should also have more of an exponential character, compared to a linear character (of obvious reasons).  Especially if /when new customers are announced. According to the memorandum, after setup of the full production, the partner(s) business network will enable the near future Optifreeze product pipeline to “reach a big share of the European market”. If the planned Orkla-Optifreeze launch is successful, how many production lines will this specific collaboration trigger in the second generation activity pipeline? 12? 24? If/when new customers are announced, how many production lines will that eventually trigger 6? 12? 24? Of course, CESI does not have a clue, but still speculates that the total number in 2019, 2020 might be high (50?).

Speculative conclusions might best be performed based on the extrapolation of the “official Optifreeze 2017 target” approach: If the critical 2015-2016 full scale production and launch outcome is successful, Optifreeze could likely and relatively quickly (due to the frozen food European and Global business structure) obtain a market cap in the “2 billion SEK region” (2018-2019, ~30 production lines, P/E ~25-30) . Time will tell.

Best regards, CESI

The author, Cutting Edge Science Invest, is currently an Optifreeze share holder. Cutting Edge Science Invest can not guarantee, or take into  accountability, the content of truth and accuracy of the information in this article/post.Thus, Cutting Edge Science Invest requires that a possible reader gather complimentary information if any type of investment in the company described above is considered. Cutting Edge Science Invest provides personally biased information and at best also “general information and opinions”. The article/post does not contain professional investment advice.

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