Nestle's Lean Cuisine is being hit by concerns that the low-calorie frozen dinners it pioneered are unhealthy and too expensive, a lethal one-two punch for a product targeted at budget-conscious dieters.
Two-fifths of US adults say frozen dinners have little nutritional value, according to researcher Mintel. Lean Cuisine sales have dropped by more than a quarter in the past five years.
Nestle has responded by offering discounts, creating new products and backing research that promotes frozen food as nutritious. Still, Lean Cuisine revenue declined 11 per cent last year, to US$987 million ($1.2 billion), according to market researcher IRI.
"It's a health and wellness issue, not just an economic one," said Alexia Howard, an analyst at Sanford C Bernstein. "The category is not coming back no matter how heavily they promote it."
For Nestle, Lean Cuisine's struggles are contributing to a company-wide decline in sales growth - which hit a four-year low in 2013 - and threatening management's goal of becoming "the world leader in health and wellness". Nestle says its frozen foods use quality ingredients and are little different from freshly made meals.
Lean Cuisine's competitors in the US$2.5b low-calorie segment of the US frozen meal market are similarly hurting. Sales of Healthy Choice by ConAgra Foods have declined 16 per cent over the past year, and those of HJ Heinz's Weight Watchers are down 13 per cent.
With Lean Cuisine and other meals and snacks, as well as pizza and ice cream, Nestle controls the biggest share of the freezer space in North American supermarkets. Frozen food is Nestle's second-biggest business in the US, a region that accounts for a quarter of the US$104b in sales booked last year by the Swiss company.
Sixty years ago, Swanson introduced its frozen "TV dinners" and forever changed the family meal.
Frozen entrees grew steadily as more women entered the workforce, expanding beyond turkey and fried chicken to Italian and Asian cuisine. In 1973 Nestle bought Stouffer, then in 1981 it unveiled Lean Cuisine, a lower-calorie version of Stouffer's meals. Sales in the first year tripled projections, forcing Nestle to ration supplies to retailers.
"We think it is the most exciting thing that has ever happened in the food business," Alan MacDonald, president of Stouffer's, told The New York Times in 1982.
With sales booming, Nestle and its competitors raised prices. After the economy sputtered in 2008, cash-strapped consumers started cooking more from fresh ingredients and saving leftovers for lunch, cutting into sales of frozen meals.
"It's not hard to make stuff from scratch," said Catherine Smith, 38, a mother of two in Charlottesville, Virginia. "I know what I'm putting in the food. It's less processed and it tastes better."
Nestle at first chalked up the decline to Lean Cuisine's price, usually around US$3 a meal, and set about offering discounts. Half of Lean Cuisine's sales now come via some sort of deal, according to market watcher Nielsen, well above the 30 per cent average for all foods. The coupons hurt profit margins, which have contracted for the last two years in the Nestle business unit that includes frozen meals.
Although freezing is an effective way to preserve food, "there is a certain perception that it's somehow artificial", Chris Johnson, head of Nestle's Americas region, told investors last year.
Making things worse is the "long and scary" list of ingredients in frozen meals, which include preservatives like potassium sorbate, calcium propionate, sodium tripolyphosphate and sorbic acid, according to Eric Decker, head of the food science department at the University of Massachusetts Amherst.
Nestle's frozen foods use "the same quality ingredients our consumers purchase when cooking from scratch", said Nestle spokeswoman Roz O'Hearn.
Salt is the biggest concern among consumers, according to a survey by Bernstein Research. Early versions of Lean Cuisine averaged 1000 milligrams of sodium, or two-thirds of the recommended daily intake for more than half of American adults.
The 130 varieties of Lean Cuisine now average 600 milligrams, and in 2010 Nestle pledged to reduce sodium by a further 10 per cent by 2015 through what O'Hearn calls a "slow and steady approach".
That's not fast enough for some.
"My grandmother says your meals are good but I don't understand why they have soooo much sodium and they're supposed to be healthy," Shayna Harris wrote on Lean Cuisine's Facebook page.
Bernstein Research says mothers are more concerned about the healthiness of frozen meals than any food item other than soda and sweet snacks.
Nestle has responded with Lean Cuisine meals designed to be added to a salad for a quick dinner or lunch at the office. Dubbed Salad Additions, they include dressing and toppings like crispy noodles.
To capture shoppers' attention, Nestle convinced US retailer Kroger to put freezer cases in the produce section of some of its supermarkets. O'Hearn said the new products are "more closely associated with freshness" by consumers. She declined to provide sales data.
Not all frozen-food purveyors are struggling. Sales of Amy's Kitchen's organic, vegetarian meals like black bean veggie enchiladas rose 13 per cent to US$240m in the year ended February 25, according to Nielsen.
Hillshire Brands, a meat business spun out of Sara Lee, will take its Jimmy Dean brand beyond breakfast this year with smoked bacon mac & cheese. And Iglo Group, Europe's biggest frozen-food company, is helping retailers redesign freezer aisles to look like restaurants or fish markets.
"People want to be inspired to eat food, not a bag of ice," said Iglo chief executive Elio Leoni Sceti.
If Nestle can't turn around Lean Cuisine, it should consider selling the business, says Rob Dickerson, an analyst at Consumer Edge Research. Nestle CEO Paul Bulcke has said the company will no longer tolerate poor performers, and has sold PowerBar energy snacks and most of Jenny Craig diet centres.
"Frozen food isn't dead; it's just that consumers haven't been given what they want," Dickerson said.
"Nestle needs to decide whether it will reinvigorate their part of the frozen category. If it's not worth the investment, it's got to go."
- Washington Post/Bloomberg