Unilever is the world's largest ice cream maker but the FMCG giant is not resting on its laurels. Kevin Havelock, president of refreshments, plans to grow Unilever's ice cream sales and margins ahead of the group average – while also gaining share of the global ice cream market. This will be achieved through a focus premiumisation, innovation and expanding out-of-home consumption across the world. Katy Askew reports.
"Now is a very exciting time in refreshment," Kevin Havelock, president of Unilever's global refreshment business tells a small group of journalists at the company's offices in London. "It is a large market across the world so there are plenty of additional opportunities. It is very exciting times for us as an ice cream company."
Go deeper with GlobalData
Havelock's enthusiasm seems genuine. He is bullish on the scope to grow Unilever's ice cream business globally while also expanding the unit's margins and boosting profitability.
Unilever already controls 27% of global ice cream sales and its stable of brands counts the likes of Magnum and Wall's – both billion euro franchises – as well as Ben & Jerry's and Carte d'Or. Refreshments, which also includes Unilever's tea business, generated EUR9.2bn (US$10.2bn) in sales last year, accounting for almost 20% of the group's total revenue. And, Havelock stresses, Unilever has a long track record of growing market share.
"We have increased our share in ice cream every year for the last 66 years. Each year has been an increase in share for us. The one region where we didn't have market leadership – where we did take market leadership last year – was in the US and North America."
The company is now 1.9 times the size of its nearest competitor, Nestle, Havelock says, citing a combination of Nielsen, Mintel and Canadean data.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataUnilever's largest ice cream markets are developed countries where Havelock says the category benefits from a strong "dairy heritage" meaning average per capita ice cream consumption is high. But the company is also seeing rapid growth in emerging markets.
"Two of the developing markets [have] broken into the top markets in the last couple of years. In terms of the Unilever total, developing markets are really very important for us. Brazil has become the second biggest [ice cream] market for us – the second biggest business for us – behind USA and ahead of Italy. Then Germany is fourth, Turkey fifth and the UK sixth."
Developing markets have been some of the key growth drivers propelling Unilever's ice cream business in recent years. The company has tripled its business in Indonesia since 2010 and doubled its sales in Thailand over the last four years, Havelock says. In "absolute terms" Brazil's double-digit growth places it as Unilever's fastest-growing market. The company launched Ben & Jerry's into the country nine months ago, initially opening branded scoop shops in Sao Paulo and Rio de Janeiro and now feeding Ben & Jerry's ice cream into Unilever's distribution system.
The company is also expanding in other emerging markets, such as India, where Unilever is taking a city-by-city approach to growth. Havelock says it suits Unilever because cities have a higher concentration of more affluent consumers – middle-class lifestyles being a pre-requisite for ice cream consumption. Cities are also more reliable in terms of their road and electricity infrastructure, Havelock stresses.
Unilever will only expand in markets where it is capable of delivering a quality end product – ice cream melting in vans on unreliable roads or due to power shortages would be a barrier for expansion. For this reason, the current potential in various African countries is limited.
"We largely will cover areas where we are confident we can get to the end product quality. Where there is confidence in the power supply etc. So, Africa is a small market for us. South Africa is quite strong. But the rest of Africa is very small for ice cream."
Unilever does have ambitions to grow in the region "over time" – but the group is much more focused on exploiting opportunities in Indonesia, China and India, Havelock explains.
While Unilever's growth in western markets has been "fairly slow" – up by 1% at the most – the company is working to exploit consumer insights to support market share expansion here also. Havelock observes there are five trends that are underpinning Unilever's innovation efforts: "superior sensations" "retail experience" "pure, real and authentic" "health and wellness" and "busy lives".
"The fastest trend I am seeing across all markets, is pure, real and authentic," Havelock reveals, which he adds, has contributed to Ben & Jerry's rising sales, with double-digit revenue growth largely from developed markets. This trend was also a motivating factor for the group's acquisition of US gelato brand Talenti last year.
Talenti enabled Unilever to move into the super premium ice cream segment. "The area that we felt was valuable, growing fast and would be a great addition for us was this super premium segment of artisanal ice creams… Talenti [is] a brand that grew exponentially through to 2014." It generated US$120m sales last year and has grown by over 50% since the acquisition was completed. Indeed, Unilever is plotting a new production facility in the US to keep up with demand, Havelock says.
Havelock does not rule out expanding Talenti into additional markets outside the US but, he stresses, the company is "interested in this [super premium] segment across the world, whether it would be tied to Talenti or not".
While Havelock is coy on whether further M&A to grow in this – or other segments – could be on the cards, he does stress the breadth of Unilever's ice cream portfolio. "We have the key areas of ice cream covered with our brands across the world. There are plenty of opportunities for us in launching and expanding the brands across the world."
Unilever is also working to expand Magnum, a brand seen as operating in the affordable premium segment. "We have doubled the [Magnum] brand over the last six years, it is now over a billion euros. We now have plans to double that," Havelock explains.
Magnum has been grown through geographic expansion – rolling it out to new countries including North America, China and India – and innovation. Magnum has been moved into smaller varieties – offering portion control that meets demand for healthier products while not sacrificing Magnum's indulgent appeal. This launch has proven highly successful, Havelock suggests.
Magnum sales expansion has been "relatively even" between volume and price – but unit price increases have been supported by premiumisation, he continues.
For Unilever, premiumisation not only feeds in to emergent consumer trends, it also provides the opportunity to grow margins across the ice cream business. While the refreshments unit generates around 20% of group sales it contributed around 13% of group profits last year, placing margins below the Unilever average. Havelock says Unilever now plans to grow ice cream sales and profits ahead of the group median. In its first-half results, released last week, Unilever revealed refreshment margins were up 60 basis points in the period.
"The profit on ice cream is dependent on the fact that you have frozen supply chains throughout the world. That makes a difference for us. Also the fact that you have a substantial business in the US which is a higher volume lower margin business because ice cream is a key value item for the retail trade in the US. Having said that our plans within ice cream are to both grow ahead of the rate of Unilever and improve margin ahead of the rate of Unilever."
While Unilever works to shift its sales mix toward premium products, the company also plans to expand sales via impulse out-of-home channels, which account for about 70% of the ice cream revenue stream. Ice cream sold through supermarkets – around 30% of sales – provide the group with additional volume but are sold at about half the price of an individual impulse ice cream, Havelock explains.
Additionally, Unilever intends to leverage its retail presence through its higher margin scoop shops. The company operates three key retail formats: Ben & Jerry's, Happiness and Magnum Pleasure stores. The company breaks even on the latter – which it views as a brand building exercise – but Havelock says Ben & Jerry's and Happiness stations are viable businesses in their own right.
"We have 1,200 retail stores across the world, including Ben & Jerry's, Happiness and T2 [in tea]. We are targeting 5000 by 2020," he reveals. These retail formats are "valuable business contributors" to both growth and profit and should contribute toward Unilever's ambition of strengthening both sales and margins.
