Frozen food sales surge — how this company plans to dominate post-pandemic
Saffron Road CEO and Founder Adnan Durrani join Yahoo Finance to discuss how the company plans to innovate its products to attract more consumers and the ways Saffron Roads is combating inflationary pressures on its supply chain.
Video Transcript
BRIAN SOZZI: It's a big week for earnings in the food space. The [INAUDIBLE] brand being the headliner report. Investors will be listening in for how food companies are navigating inflation and what trends they're seeing with consumers becoming more mobile again. Let's get a look into the space with Saffron Road founder and CEO Adnan Durrani.
Adnan, good to see you this morning here. You have a pretty big or sizable frozen food business. What are you seeing in that business now that folks are-- we've finally been able to get out of our house and perhaps go out to dinner.
ADNAN DURANNI: Yeah, thanks a lot for having me on, Brian. There's been a mega shift during the past 16 months into frozen, where it was kind of a fledgling category before, and it's not really transient. It's really not just the hot trend. It's become a lifestyle choice after 15, 16 months. 30% of American households bought an additional freezer for their home.
We've seen, originally before COVID, it was 30% of folks were eating at home occasions. Now it jumped to 90%, and it's settling in around 55%. So that's going to stay. Psychiatrists often tell us that once a habit is picked up for three or four months, it becomes a regular choice, lifestyle choice. Well, this is 15 months ongoing.
We've seen a surge, of course. We benefited from the COVID bumpings. Saffron Road's been the leader in the better for you category in frozen entrees, but we didn't just get the bump. We actually had a long-term tailwind. We're continuing to have a very strong month to month after month for the past 15 months.
JULIE HYMAN: Adnan, It's Julie here. We've been talking about--
ADNAN DURANNI: Hi, Julie.
JULIE HYMAN: --in a number of different categories but in food, in particular, the pricing power that we have seen on the part of food makers. Are you seeing that in the freezer aisle as well, and how does it compare to other parts of the store?
ADNAN DURANNI: Yeah, we are seeing that by some of our competitors, it's something we're obviously taking under consideration as well because of the increased cost in the supply chain. But one interesting dynamic that happened and it's really a knock-on effect of what's happened during COVID, initially, during the surge, you saw pizzas, and lasagnas, and what I call the belly fillers surge as people wanted comfort food at home. But in the past eight, nine months, what's happened is, and I've talked about this on other stations a while-- about a year ago, was we felt there would be a shift into the better for you category.
That's what's happened. You're seeing 75% of consumers now opting to put health and body first and buy healthier entrees. For example, pizza is down 40% at Walmart. We're crushing it not only at Walmart but all the other retailers.
What we're seeing is-- and the IRI put out a report with Boston Consulting Group in November, which they also updated in March of this year, and to quote them, they say that a sustainable long-term trend post-COVID has increased [INAUDIBLE] by hyper-small CPGs that are better for you, that have ethnic products, or really offer variety to consumers. That's what we're seeing. We're actually seeing that brands like ours, we're a super premium brand, are succeeding, as IRI says, 2X, 200% versus the category, so that's been a very interesting phenomena that we couldn't have predicted a couple years ago.
BRIAN SOZZI: To see a leading-- your company, Adnan, how do you view inflation? We talk a lot about it here, inflation being transitory, but do you expect to be sitting in your chair by the end of the year and inflation is cooling down a bit?
ADNAN DURANNI: I've been in this business three decades. This is my fourth food company, and I've never seen this kind of inflationary pressure. Now whether it's transient or not, I wish I could predict that. It would certainly help our business a lot if we knew, but my gut instinct is that, incrementally, part of this is here to stay and would carry on for a couple of years. It's not just the supply chains. It's also the freight, it's also logistics, and it's also the demand for certain types of products that are increasing dramatically the passed year.
And also as you know in the CPI, often food prices of hotel rental-- the hotel rental formulas that are based on it are really out of sync, in my opinion, with what the real inflation is of people's pocketbooks, and we're seeing that in real time. Food's up 35% in the past six months, so costs are rising. And I don't think they're temporary. I think they're going to be lasting.
MYLES UDLAND: And, Adnan, just thinking and double clicking on the cost there, is it the inputs in terms of the food itself? Is it the packaging? Is it shipping costs? I mean-- or is it all of those things? And then how does that maybe rightsize itself going forward?
ADNAN DURANNI: Yes, Myles, very good point. It's all of the above at different stages. And I think that the food costs are going to continue to go up incrementally. I don't think you'll see the spike of 30% we saw this year.
That may settle in at 15% or 20%, but it will still continue for quite a while because, remember, when it comes to agricultural production, a lot of it's based on planting crops at the right time, harvesting them at the right time. Those are 18-month cycles, so this is not-- it's like the Titanic. It's not going to turn around in a three or six-month transit timeframe. You might see transient inflation take effect next year, but I don't think food costs are going to be transient.
BRIAN SOZZI: Pretty interesting story, a feature story this past weekend, Adnan, in "The Wall Street Journal" looking at what consumers want in terms of food and drinks post-pandemic, and they are looking for drinks or foods that help or might relieve stress. Are you going to design products into that mark, and what are some of the trends you see playing out over the next year?
ADNAN DURANNI: Yes, very good point, Brian. Yes, exactly. We see that. We are a leader in the better for you category, so, like I said, really to build up your immunity and your health, we're seeing-- we've always been in that framework. We're a clean label. Not only we're authentic in terms of the cuisines, the [INAUDIBLE] cuisines that inspire folks with, but also we never ever use antibiotics.
All of our products are-- have no artificial ingredients whatsoever. We're not using any protein isolates or processed pea proteins in any of our vegetarian products either, so consumers are getting smart about this. And I think the CPGs really need to pay attention. There's a reason that we're 2X the category or 15X the category at Kroger. It's because we're really being authentic in terms of a healthier product that's better for you as well, so I think as consumer's embrace that more and more, we're going to continue to innovate in those categories as we've been doing.
BRIAN SOZZI: Helpful insights. All right, we'll leave it there. Saffron Road founder and CEO, Adnan Durrani. Have a great rest of the--
