Witness the lines of tourists snaking their way toward the famous Berthillon ice cream counter on the Ile Saint-Louis in Paris, and you know that in the dog days of summer, nothing beats the heat better than a refreshing scoop of ice cream. From rich, super-premium flavors such as Ben & Jerry's Chunky Monkey, to reduced-fat offerings from Dreyer's, to Berthillon's to-die-for pear sorbet, sellers have blanketed the market with confections to suit every taste and budget.
What many consumers may not realize, though, is just how big a business ice cream has become around the world. The days of mom-and-pop parlors and local brands are fading fast. Today, the $59 billion ice cream industry is dominated by two global giants: Switzerland's Nestlé (NESN.DE) and Anglo-Dutch conglomerate Unilever (UN). Together, they control more than one-third of the worldwide market—and half of ice cream sales in the U.S.—and they're looking to expand as they move into developing regions in Asia and Latin America.
It's a high-stakes battle in a growing and profitable business. Researcher Euromonitor figures that global ice cream sales are rising 2.5% annually and will hit $65 billion in 2010. Western Europe, the world's largest market, gobbled up $21.5 billion worth of frozen desserts last year, while North Americans devoured $16.3 billion worth. The most promising markets for growth are in emerging economies such as China and Brazil, where annual sales are soaring 8.5% and 8%, respectively.
Rich Pretax Margins
Neither Nestlé nor Unilever had nearly so much presence in ice cream two decades ago. But starting in the 1990s, both began aggressive acquisition campaigns. In 2001, Nestlé obtained the rights to sell Häagen-Dazs in the U.S. and Canada from General Mills (GIS), which owns the brand and sells it in the rest of the world. Nestlé also bought Dreyer's and Swiss maker Mövenpick. Unilever gobbled up Ben & Jerry's in 2000 for $326 million and also acquired Breyers Ice Cream. Today, Nestlé boasts a 17.5% share of the world market, while Unilever is close behind with 16%.
The rest of the market is highly fragmented: The No. 3 maker in the U.S., Wells' Dairy, has just 5% share. Other marques of note around the world are General Mills, Baskin-Robbins (a unit of Dunkin' Brands), and Japan's Lotte, which remains No. 1 at home. China's top maker, Inner Mongolian Yili Industrial Group, has 17% domestic market share and will be the sole dairy sponsor for the 2008 Beijing Summer Olympics.
The decision to target ice cream has paid off handsomely for both Nestlé and Unilever. The Swiss company got nearly 20% of its $42 billion in first-half 2007 revenues from its milk products and ice cream division. With pretax margins of 10.5%, the unit kicked in nearly $900 million in profits, up more than in any other part of the company. Unilever's ice cream and beverages division supplied just over 20% of its $26.7 billion in first-half revenues. Analyst Ian Kellett with brokerage Numis Securities (NUM.L) figures ice cream alone accounted for 10% of Unilever's $3 billion of first-half profits. (Mark Scott and Cassidy Flanagan - business week)
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