Lean Cuisine sales drop as consumers shun freezer

LONDON – Nestlé'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 U.S. 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.

Nestlé has responded by offering discounts, creating new products and backing research that promotes frozen food as nutritious. Still, Lean Cuisine revenue declined 11 percent last year, to $987 million, 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 Nestlé, Lean Cuisine's struggles are contributing to a companywide 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." Nestlé says its frozen foods use quality ingredients and are little different from freshly made meals.

Lean Cuisine's competitors in the $2.5 billion low-calorie segment of the frozen meal market are similarly hurting. Sales of Healthy Choice by ConAgra Foods have declined 16 percent over the past year, and those of H.J. Heinz's Weight Watchers are down 13 percent.

With Lean Cuisine, Stouffer's dinners, Hot Pockets sandwiches as well as pizza and ice cream, Nestlé controls the biggest share of the freezer space in American supermarkets. Frozen food is Nestle's second-biggest business in the U.S., a region that accounts for a quarter of the $104 billion in sales booked last year by the Swiss company.

"We think it is the most exciting thing that has ever happened in the food business," Alan MacDonald, president of Stouffer's, said in 1982.

With sales booming, Nestlé 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, Va. "I know what I'm putting in the food. It's less processed and it tastes better."

Nestlé at first chalked up the decline to Lean Cuisine's price, usually around $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 percent average for all foods. The coupons hurt profit margins, which have contracted for the last two years in the Nestlé 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.

Nestle's frozen foods use "the same quality ingredients our consumers purchase when cooking from scratch," said Nestlé spokeswoman Roz O'Hearn.

Salt is the biggest concern among consumers, according to a survey by Bernstein Research. Early versions of Lean Cuisine averaged 1,000 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 Nestlé pledged to reduce sodium by a further 10 percent 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," 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.

Nestlé 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, Nestlé convinced Kroger to put freezer cases in the produce section of some of its supermarkets.

Not all frozen-food purveyors are struggling. Sales of Amy's Kitchen's organic vege­tarian meals like black bean veggie enchiladas rose 13 percent to $240 million in the year ended Feb. 25, according to Nielsen. Hillshire Brands, the meat business spun out of Sara Lee Corp., will take its Jimmy Dean brand beyond breakfast this year with smoked bacon mac and cheese. And Iglo Group Ltd., Europe's biggest frozen-food company, is helping retailers redesign freezer aisles to look like restaurants or fish markets.

If Nestlé can't turn around Lean Cuisine, it should consider selling the business, says Rob Dickerson, an analyst at Consumer Edge Research. Nestlé CEO Paul Bulcke has said the company will no longer tolerate poor performers, and has sold PowerBar energy snacks and most of its Jenny Craig diet centers.