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MP15028

MAPS ICE CREAM 1998

Overview

Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

The ice cream market in the UK is estimated to be worth slightly in excess of £1bn (at retail selling prices) in 1997. Just under 60 percent of this market is represented by the take-home sector (ie where the product is purchased from a retail outlet for later consumption), with the remainder being accounted for by impulse purchases. However, since impulse-buying ice creams tend to be on higher-priced products, then the sector accounts for less than 20 percent of the market in volume terms.

Like any consumer product, there is something of an underlying relationship between economic activity and ice cream sales. However, since the purchase of ice cream involves only a small proportion of consumers’ expenditure, this relationship is relatively weak. The industry has been shaped by sociological as well as economic factors. One of the most important of these has been the steady increase in the number of economically-active women (ie those in paid employment). This has resulted in less time being spent on food preparation and a rise in demand for more convenience-type products. Lifestyle changes have also fed this demand, with the number of people eating ‘on the hoof’ rising significantly in the past decade. Ice cream, as a high-quality, easy to serve product, has benefited from these changes. The increasing incidence of freezer ownership amongst consumers has also underpinned market growth.

The market grew by 7.1 percent in 1997, recovering all of the ground lost during the poor summer of 1996. The industry’s poor performance in 1996, indeed, highlights one of the main problems it faces, ie the seasonal-dependency of the product. However, in 1995 record temperatures produced one of the best-ever years for the UK ice cream industry. The low temperatures and heavy rainfall experienced during 1996 reversed the growing sales trend recorded since the start of the 1990s. Manufacturers have responded to the problem of seasonality by introducing less seasonally-dependent products and using more intensive advertising and promotional campaigns. Moreover, Unilever, which owns Birds Eye Wall’s, the UK’s leading ice cream company, has succeeded in building a worldwide network of ice cream businesses to reduce its exposure to weather conditions in any given national market. The group is now the largest ice cream producer in the world.

One of the main reasons for the increase in value of the market in recent years has been the shift towards indulgence products. Both market sectors have benefited from this trend, which has been largely instigated by Häagen-Dazs (part of Diageo Plc) and high-profile US producer Ben & Jerry’s. Furthermore, the success of these two companies has prompted the major supermarket chains to launch own brand premium range ice cream products.

Another key stage of market development was the entry of the major confectionery companies such as Mars and Nestlé into the market at the end of the 1980s. While the market share of these companies remains small, there is no doubt that they have played a significant part in re-invigorating the industry as a whole.

In terms of industry structure, the market is highly polarised, with a plethora of small family-run businesses focusing on niche products and geographic locations at one end, and Birds Eye Wall’s at the other. Wall’s domination of the UK ice cream market extends to virtually every sector. For example, in the choc bars segment of the impulse sector, the company’s Magnum ice cream is comfortably the market leader, while in the fast-growing children’s market, the company produces six of the top ten most popular lines. Another reason for the company’s success is its strong record of new product development: Solero has gained a 43 percent share of the adult refreshment segment in just three years.

In terms of distribution, in common with many other food producers, the ice cream industry has become increasingly concerned at the rising levels of retail concentration. This is particularly the case in the take-home sector where the large supermarket chains have successfully introduced a wide range of own brand products. The market strength of the large retail groups has allowed them to dictate terms and conditions to suppliers, particularly in relationship to quality, price and delivery schedules. Several manufactures have responded to these changes by forming strategic alliances to provide the supermarket multiples with a selection of own brand ice cream.

On the other hand, distribution of ice creams in the impulse sector remains highly fragmented, with the majority of sales occurring through the CTN (confectioners, tobacconists and newsagents) network. In recent years, trade has increasingly been carried out through petrol stations that are able to compete with CTNs both in terms of price and convenience.

One of the most significant issues affecting the impulse sector has been that of freezer exclusivity. At present, freezers are supplied to retailers free of charge by manufacturers as part of their supply agreements. This has led to allegations that large manufacturers have been putting pressure on independent retailers by not allowing other brands to be stocked in their freezers. During 1994, the Monopolies and Mergers Commission (MMC) conducted an investigation into the trading activities of Birds Eye Wall’s, after complaints from both Mars and Lyons Maid (part of Nestlé).

Although the Commission could find no evidence of any wrongdoing on Wall’s part, a separate investigation made by the Office of Fair Trading found that Birds Eye Wall’s had misled the Commission in some of its evidence. It is not currently known whether the MMC will re-open its investigation. Moreover, a recent case brought by Mars to the European Commission found that Unilever had abused its dominant market position in Ireland. Any claim could be backdated for seven years and possibly result in compensation of up to £1bn. Unilever has announced plans to appeal against the ruling.

Original research commissioned by Market Assessment investigated the purchasing behaviour of a sample of UK consumers. In particular, it examined the formats in which consumers purchased their ice cream and their preferred flavours. The research found that, not surprisingly, ice cream purchases were highest amongst households with one or more children. As with most confectionery items, a significant proportion of expenditure is undertaken by adults on behalf of children. While indulgence products have made an impact on the market, the majority of respondents preferred more traditional flavours such as vanilla, although among higher social classes this was less likely to be the case.

As a significant proportion of ice cream sales are made on impulse, it is not surprising to find that advertising and promotion are important to the industry. In 1997 UK ice cream producers spent over £17m on advertising. The type of advertising varies between sectors. The impulse sector relies heavily on point-of-sale promotion primarily aimed at attracting the consumer’s attention at the check-out, whereas the take-home sector prefers to rely on television advertising. The success of indulgence products has seen ice cream advertising become much more sophisticated. Häagen-Dazs , for example, has been particularly successful in using sex appeal to sell its premium brand ice creams.

It is predicted that the UK ice cream market will increase by around 30 percent during the next five years, with growth being experienced in both sectors. Seasonality will become less of a factor in annual sales figures as more manufacturers introduce winter ranges of products. One challenge for the industry, however, is the fall in the proportion of young people in the overall population. Ice cream producers are introducing more adult-orientated types of products in response.

Text © 1998 MAPS

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