In 2010, the Argentine processed food market had an estimated value of US$1.2 billion. The sector has exhibited steady growth in recent years, with the growth rate estimated at 10% from 2009 to 2010 and 9% from 2008 to 2009. While this steady growth trend indicates that the market outlook is relatively positive, market entrants still face significant market entrance barriers, primarily in terms of consumer education of processed food options and their advantages. The best sales prospects include specialty or gourmet frozen foods that are not otherwise available in Argentina and direct investment in the Argentine food distribution market.
The best strategy for entering the local market is to visit Argentina, interview potential partners and name a local distributor or representative/agent. Business relationships and creative financing terms are very important. The local distributor will typically ask for exclusive distribution rights. A local representative should have extensive networks throughout the country to be able to stock parts and provide after-sales services.
Within Argentina, yearly per capita consumption of frozen food (excluding ice cream) is 1 kilogram. This figure is considerably less than the 6 kilos consumed in Chile or the 30 kilos consumed in Europe, while 80% of the sector's turnover is created by supermarkets and the rest by fast food outlets and catering services. Hamburgers represent the leading product category, with a 37% market share, followed by prepared food (26%), vegetables (20%), and fish (10%).
Molinos, Unilever, Quickfood, Mc Cain, and Alimentos Modernos control the frozen food market with 78% of the sector’s sales. In the case of frozen vegetables, Molinos, Unilever, and Norte taken together control 82% of this segment. Molinos is a leader in the frozen meat, pasta and empanadas segment thanks to its Matarazzo and Granja del Sol brands. Unilever's Good Mark hamburger brand has resulted in the firm’s position as the market leader in this segment, followed by Quickfood. Mc Cain and Alimentos Modernos are the two largest competitors in the frozen french-fries segment, accounting for 85% of the market. Mc Cain's exclusivity agreement with Mc Donald's in Argentina greatly contributed to the firm’s US$37 million turnover in 2010.
Changing consumer-buying trends are the greatest drivers of increased consumption of frozen food products. Specifically, more women entering the labor market and the significant growth in single person homes contribute significantly to the growth of this sector.
The small volume of sales in this market has been attributed to logistical problems stemming from a lack of necessary infrastructure (warehouses, trucks, freezers at the point of sale and in private homes, etc.), insufficient consumer education about the wholesomeness of frozen foods, and strong competition from fresh food at prices perceived by the consumer to be more appealing.
Warehouses pose a particular problem in Argentina. A typical U.S. frozen food warehouse will serve 300 stores. No single chain of supermarkets in Argentina operates even one-half that number of stores. It should also be noted that the Animal Sanitary Agency of the Argentine government, SENASA, must approve all warehouses and trucks that transport foodstuffs within the country, and a certified veterinarian must approve all shipments.
Frozen food produced by local manufacturers is distributed through two channels: directly to the point of sale (supermarkets or hypermarkets) or via distributors to smaller grocery stores and supermarkets. Imports are generally channeled through distributors who then deliver them to the final market. Some exceptions to this method of distribution can be found. Wal-Mart, which opened the first of its current ten hypermarkets in Argentina in 1994, initially imported large quantities of frozen food through its supply network in the U.S. However, a lack of consumer acceptance, combined with the location of Wal- Mart stores far from upper-middle and higher income groups (those most likely to try new products) resulted in a virtual suspension of Wal-Mart’s frozen food imports. Additionally, many of the frozen foods imported by Wal-Mart were more attuned to consumer tastes in the U.S. than in Argentina, a country with less diverse tastes.
More generally, supermarkets account for at least 90 percent of frozen food sales. The most popular products are frozen hamburgers, french-fries, pizzas, vegetables, and fish. The frozen foods sections of the largest supermarkets are not extensive. A large Norte supermarket in an upper-middle class area of Buenos Aires devotes only 12 meters of aisle space (eye-level, shallow ½ meter high glass door freezers located just above deeper floor freezers), with very little variety and no imports. A large Coto store in the same neighborhood devotes 18 meters of similarly arranged aisle space, with imported frozen vegetables. The ice cream segment also represents a relatively small market, as annual per capita consumption of ice cream is less than four liters. The mass market producers have an annual turnover of about $630 million. The market leader is Nestle, which locally produces the Noel, Laponia, and Frigor brands. Second in the market is Unilever with its La Montevideana and Milka brands. Over 1,500 smaller firms also produce home-style ice cream, sold at small ice cream parlors throughout the country. This segment is known for higher quality ice cream than the industrial brands, but prices are high. The most prominent imported brand is Haagen-Dazs from the U.S. This company has been successful in Argentina through aggressive publicity campaigns and the placement of its products in outlets ranging from convenience stores and video rental stores to large supermarkets.
Supermarket officials and distributors agree that the frozen food market in Argentina is growing slowly or is stagnant, due to the effects of the local recession in 1999. Import market entrants face a variety of entrance barriers that stem from local industrial capabilities, consumer preferences, storage and distribution limitations, and a lack of consumer education regarding the benefits of frozen foods. Argentina’s temperate climate and strong agricultural industry provide a wide range of fresh produce that is readily available year-round. Frozen foods in Argentina are also generally much more expensive (two to three times) than comparable amounts of fresh food. Additionally, some locally produced frozen items (for example, hamburgers) are clearly inferior to their fresh counterparts. Thus, the only perceived advantage of frozen food is convenience.
An additional factor affecting frozen food sales stems from local customs: Argentine consumers generally make their food purchases more frequently than consumers in the U.S. Consequently, long-term food storage is generally not a concern for Argentine consumers.
Supermarket officials pointed out that many Argentine consumers still do not have reliable, sufficiently cold freezers in their refrigerators, thus resulting in gradual defrosting. Some households do not have freezers. Roughly 50 percent of households have refrigerators with built-in freezers, seven percent have stand-alone freezers, and two percent have both.
The small size of the local market means that supermarket chains do not reach sufficient sales volume to justify investments in warehouses for frozen food. Thus, they must purchase from distributors. The markup charged by the distributors is generally 50 percent or more, resulting in higher prices to the final consumer. Distributors claim that supermarkets add about another 50 percent mark up.
Logistics represent yet another problem for hypermarket firms like Wal-Mart and Carrefour that have only a few store locations scattered around the country. They must ship their frozen products over long distances using freezer trucks. The resulting costs force prices up, further discouraging purchases.
As a result of all of the factors described above, the final market is generally restricted to relatively affluent consumers who purchase these products solely for convenience, which represents a very small segment of the local market. According to some industry analysts, 20 percent of consumers are frequent purchasers of frozen food, and account for roughly 80 percent of total purchases.
An additional market segment could be represented by frozen specialty foods (particularly frozen dinners) of recipes for dishes not generally available in Argentina. However, Wal-Mart’s negative experience in this area is discouraging to most potential market entrants. Given the general perception of frozen foods and the innate conservatism of most Argentine consumers, this potential market would be affected to an even greater degree by logistical problems coupled with low market demand.
In addition to addressing the problems mentioned above, both distributors and supermarket executives report that consumer education is vital to further market penetration. An effort to educate consumers on the benefits of frozen foods would have to be conducted by individual producers or distributors. There is not an association of frozen foods producers in the country, and the industry association of food processors has not made this sector a priority. The only association of frozen foods producers is one that represents producers of frozen fish, which is primarily an export.