The thawing of ice cream
How much trouble is the ice cream business in? After the announcement from Unilever in March of this year that they will spin off their famous portfolio of ice cream brands, what does this seemingly unexpected and bold strategic decision tell us?
Relative stagnation
This decision tells us that Unilever's board and shareholder governance is in good shape. The ice cream category is barely in year-on-year growth (ignoring recent inflation), and is underperforming versus its other portfolio interests in Personal Care, Beauty & Wellbeing and Homecare. Inflation has contributed to headline growth, but in real terms, it has nudged consumers away from brands and into own-label products.
Inadequate alignment
It’s well documented that they have struggled to integrate the Ben & Jerry’s brand. They acquired a brand with an incredibly ethical stance which exposed an ongoing values gap, and in an increasingly unstable world this has become a sustained and thorny topic for them. Terry Smith, managing director of Unilever’s 10th largest shareholder Fundsmith, said the restructuring was positive news and described Ben & Jerry’s as the “fly in the ointment” of the ice cream business. “Prior management seems to have managed to buy a company without actually getting control of it,” he said.
Ballooning risk profile
Unilever has read the room regarding the rapidly escalating sugar and carbon crisis affecting food businesses. They see the growing need to account for, and dramatically reduce, the amount of carbon and sugar on the ‘balance sheet’, and they have not just recognised the developing risks but they have taken action to mitigate it. I recently chatted to the CEO of another publicly listed food giant about this sale as he was excited that these brands had come on the market, ‘people in the Adriatic love ice cream!’. That may well be true, but this comment demonstrates that not all industry leaders grasp the broader context and the ballooning risk profile ice cream represents.
Corporates failing to innovate their assets
No doubt, internally there will have been many a conversation in the R&D circles about evolving to precision fermentation for dairy production. This would require a sizable investment, but when you have a business worth nearly €8 billion it's an investment worth consideration. However, in the case of ice cream, you also need to innovate the chocolate, and the energy intensity of production and storage, all that is a lot of detail for a giant to grapple with on an accelerating timeline.
When these points are synthesised, the decision to spin off your blockbuster brands looks more straightforward.
And finally, let's not forget that the sentiment of consumers is starting to shift too. Here is a link to the unforgettable TikTok of a young customer reacting to the latest pricing in 2024.
Summer 2024