Unilever vs Nestle Essay
The poor weather during much of the school holiday period has led to another disappointing season of sales for the main ice cream makers with the market in the first six months of the year down by 11 per cent on last year. And last week saw a major development when Nestle announced that it was giving up on the ice-cream business in Britain. The company is in advanced talks to sell its UK division, which makes brands like Orange Maid and Zoom as well as spin-off products from its chocolate ranges such as Kit-Kat ice cream and Smarties Pop-up.
The buyer is Richmond Foods, a company which specialises in the manufacture of own-label ranges for supermarkets. It may seem odd that Nestle, the world’s largest food company, can’t make a business in ice cream work here. In fact, the company has been losing money in UK ice cream ever since it entered the market nine years ago. But it is not the only one. Mars, the confectionery giant, has also been losing money in UK ice cream since its first foray into the sector in 1988. The reasons for the pain are three words displayed on freezer cabinets in newsagents
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Wall’s is the ice cream subsidiary of Unilever, the consumer products giant whose brands include Persil detergent and Dove soap. The company’s UK market share in ice cream is so much larger than anyone else’s that all its rivals are struggling. Graham Millar, group finance director at Nestle UK, made the point last week when the company ran up the white flag. He said: “We have tried for nine years to develop our ice-cream business but have not been able to make it big enough to compete in a difficult and competitive marketplace.
Combing with Richmond should create a large enough business to compete effectively. ” A look at the market share figures tells the story. Data compiled for the last Competition Commission investigation into the ice cream sector last year showed that as of May 1999 Wall’s held a 71 per cent share of the so-called “impulse” market for ice cream, that is product bought on impulse in newsagents and convenience stores rather than tubs and multi-packs in supermarkets. Mars was the second-largest player with 15 per cent followed by Nestle with 11 per cent. This summer has seen some changes.
It is the first summer season since the Competition Commission investigation which ruled that Wall’s should no longer be able to force retailers to whom it supplied free freezer cabinets to stock only Wall’s brands. Instead, Wall’s must now allow retailers to allocate 50 per cent of their freezer space to rival brands. This has had some impact. Wall’s says its share is now 63 per cent. Nestle’s share is now reported to be 16 per cent though some say its share has been sliding recently. Other winners include Cadbury, a relative newcomer to the market which has been enjoying some success with spin-offs from its chocolate brands.
Treatts, the branded division of Richmond Foods, also reports that its share has increased. However, a look in some newsagents freezers shows that many still stock mostly Wall’s brands such as Magnum, Solero and Cornetto. This is not because they are forced to, but because they sell. And this is despite high prices which include more than ? 1 for a Magnum. As one City analyst says: “A lot of it comes down to product development and marketing. Even after the abolition of freezer ties, Unilever has eight of the top 10 impulse brands in the country.
” City analysts say Unilever is the market leader in ice cream in most of the main European markets such as France, Germany and Italy. But the difference is that Nestle has managed to establish itself as a credible number two in these countries, something it has never achieved here. The economics of the ice cream business are such that distribution costs are a fundamental part of the overheads. These fixed costs mean a company with only small sales will struggle. In the UK, only Unilever has managed to achieve those economies of scale.
Unilever has such a dominant position that the UK ice cream market has been the subject of no fewer than four competition investigations in 1979, 1994, 1998 and 2000. But though changes have been made, Unilever’s dominance has remained unchallenged. This is not to say that new entrants cannot make a mark. McDonald’s has gained market share with its launch of soft, whipped ice cream a couple of years ago, with its huge chain of restaurants providing a ready-made distribution channel. Birds Eye Wall’s has since launched its own “whippy” style ice cream from machines in newsagents and corner shops.
Where is the market heading? One worry is the overall sales decline which is not just down to poor weather. Another factor in the 11 per cent fall in the impulse market on last year is the declining number of small convenience stores and independent newsagents. These are the lifeblood of the impulse sector and they are increasingly losing out to the big supermarket chains. As for the big players. With Nestle’s ice cream business in Britain now set to be combined with that of Richmond, which accounts for 70 per cent of supermarket own-label ice cream, it may be able to give Wall’s a better run for its money.
Richmond will manufacture the Nestle brands under licence whilst stripping out overlapping costs to improve margins. A further challenge might come from Mars. Privately owned and able to take the long-term view, it has a stable of brands that are capable of making a mark. For the time being, though, Wall’s is sitting pretty with a market share more powerful than virtually any consumer brand apart from Coca-Cola. Its biggest fear is probably another Competition Commission investigation. Future of Heart brand Unilever is the world’s biggest ice cream manufacturer, with an annual turnover of €5bn.
Unilever’s Heartbrand, which is represented by a big red heart logo, is behind many famous ice cream brands, including Magnum, Cornetto, Solero, Carte d’Or and Viennetta. Magnum is one of the world’s leading impulse ice cream brands, selling around 1 billion units a year. Heartbrand products are sold in more than 40 countries. The Heartbrand operates under different names in different markets (Wall’s in the UK and most parts of Asia, Algida in Italy, Langnese in Germany, Kibon in Brazil, and Ola in the Netherlands). Heart brand has a great future due to its following unique features: Unique tastes
Mention ice cream and most people think of the Heartbrand. The brand with the big red heart logo is behind many much-loved ice cream classics from indulgent treats like Magnum and Cornetto to the refreshing fruit tastes of Solero and family favourites like Viennetta. Variety Few foods are guaranteed to put a smile on people’s faces like ice cream. But while ice cream should always be fun, we’ve an ever-growing range of lower fat, lower sugar products. Heartbrand now provides lighter versions for those watching the calories and smaller sizes for smaller appetites, as well old favourites – there’s something for everyone.
Health-friendly brand Some ice creams are best as an occasional indulgence, but others can be a regular treat, and eaten sensibly, ice cream can be part of a healthy balanced diet. Heart brand is developing products that are lower in fat, sugar-free, lactose-free, as well as low-carb options and those with more nutritional ‘goodies’ like calcium and fruit. For example:
• Two scoops of Carte d’Or Light (a 100ml serving) have 79 calories and 2. 4g fat
• Solero Exotic is delicious ice cream coated in an exotic fruit sorbet. It contains no artificial colours or flavours and has 99 calories.
• In Europe all products are now clearly labelled with energy, fat, protein and carbohydrate values, and from next year they will also be labelled with, wherever possible, fibre, saturated fat, sodium and sugars values
• Instead of increasing the size of our products, we have made many of our favourite brands such as Cornetto and Magnum available in snack size to help with portion control
• Unilever invest around €50 million in ice-cream research and development each year, of which 40% is spent in the health and well-being sector Innovations Launched in 1989, Magnum was the first ice cream on a stick especially for adults.
Today, Magnum is one of the world’s leading impulse ice cream brands, selling around 1 billion units a year. Recent successes include Magnum Temptation, Magnum Intense, Magnum 7 Sins, and Magnum Moments. Heart brand also offers delicious choice for special dietary needs – including lactose-free options, soy ice cream and ice cream for diabetics. In the US, Unilever also launched new Light and No Sugar Added ice cream and novelty products, using our proprietary ‘cold extrusion technology’. This technology enables Unilever to ‘double churn’ its ice cream to deliver a higher quality, creamy textured ice cream that is lower in fat.
• Unilever is the world’s biggest ice cream manufacturer, with an annual turnover of €5 billion
• Heartbrand products are sold in more than 40 countries. The Heartbrand operates under different names in different markets (Wall’s in the UK and most parts of Asia, Algida in Italy, Langnese in Germany, Kibon in Brazil, and Ola in the Netherlands)
• As well as creating delicious premium ice creams, Ben & Jerry’s has a fantastic social mission: the Ben & Jerry’s Foundation makes charitable donations of over $1. 1 million dollars a year Why Heart brand Unilever has found a way to make heart brand ice cream healthier as well as really tasty.
It has all been possible thanks to a new ice cream ingredient discovered by Unilever’s ice cream scientists. Less fat, more fruit The new ingredient is called ‘ice structuring protein’ (ISP). This protein allows making ice cream and ice lollies which are lower in fat, sugar and calories and at the same time include more fruit. Unilever now make ice creams and ice lollies which better hold their shape and are less messy to eat. Combining ISP with stabiliser technology allows making products that additionally don’t melt so easily, this is great for small children and for hot countries.
Ice structuring Ice structuring proteins are widely found in nature in, for example, fish, carrots and grass. They allow fish to survive in freezing arctic waters. The protein works by changing the shape of the ice crystals. Unilever’s ice cream scientists took this idea from nature and have applied it to heart brand ice cream with great success. It only takes tiny amounts of ISP to have the desired effect. Baker’s yeast To ensure that the ISP is as pure as possible the yeast cells are removed through several stages of fine filtration at the end of the process.
This will allow heart brand ice cream to provide the healthiest and purest ingredients to its consumers. Safety & approvals ISP is a new ingredient so safety has been Unilever’s number one priority. The company’s safety specialists have conducted exhaustive tests to demonstrate the safety of ISP. The results of these tests have been reviewed by a panel of independent world experts including allergists, toxicologists and paediatricians. The safety of ISP has also been adopted by the US Foods and Drug Administration and endorsed by the European Food Safety Authority and Food Standards Australia New Zealand.
ISP technology was submitted to the EU regulatory body for clearance for use as a novel food in 2006. After nearly 3 years of consultation, approval was given for the use of ISP in all EU member states in April 2009. Unilever now plans to sell Europe’s first ISP containing heart brand ice creams in 2010. All products containing ISP will include ISP in the ingredient list and information will be made available via customer carelines and websites. Low fat products and novelty ‘popsicle’ products have been on sale, and enjoyed, in the USA, Mexico, China, Philippines and Australia for several years
Strategy to sell Heart brand Ice creams
Unilever sell their products in over 150 countries around the world. In many countries it only manufactures the products and also export products to countries where Unilever do not have manufacturing operations. The chosen manufacturing network is generally determined by an optimised regional sourcing strategy which takes account of requirements for innovation, quality, service, cost and flexibility. Unilever ice cream business is subject to significant seasonal fluctuations in sales. However, Unilever operates globally in many different markets and product categories.
No individual element of seasonality is likely to be material to the results of the Group as a whole. Heart brand is generally sold through their own sales force as well as through independent brokers, agents and distributors to chain, wholesale, co-operative and independent grocery accounts, food service distributors and institutions. Heart brand products are physically distributed through a network of distribution centres, satellite warehouses, company-operated and public storage facilities, depots and other facilities. Unilever has a wide and diverse set of competitors in this category.
Many competitors also operate on an international scale, while others have a narrower regional or local focus. Unilever aim to compete its heart brand: • by continually developing new and improved varieties and tastes that address relevant consumer needs and aspirations; • by rolling out innovations and its brand concepts around the world; and • by striving to lower the cost of our sourcing, manufacturing and distribution processes while ensuring the quality of its brand. http://www. businessweek. com/globalbiz/content/aug2007/gb20070824_230078. htm http://www. spiegel. de/international/business/0,1518,502167,00.
html future http://www. unilever. com/brands/foodbrands/Heartbrand. aspx strategy http://www. unilever. com/sustainability/strategy/? WT. LHNAV=Our_sustainability_strategy Why heart brand 2. http://www. unilever. com/innovation/? WT. GNAV=Innovation 3. http://www. unilever. co. uk 4. http://www. unilever. com/brands/foodbrands/Heartbrand. aspx 5. http://www. businessweek. com/globalbiz/content/aug2007/gb20070824_230078. htm 6. http://www. spiegel. de/international/business/0,1518,502167,00. html 7. http://www. unilever. com/sustainability/strategy/? WT. LHNAV=Our_sustainability_strategy 11. www. qmu. ac. uk