Unilever Bets On Magnum Brand To Take On Ice Cream Market Leader Nestle

by Trefis Team
+0.70%
Upside
44.17
Market
44.48
Trefis
UL
Unilever Group
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Unilever (NYSE:UL) is a well established player in the global ice cream market, with a strong brand portfolio which includes household names such as Walls, Cornetto, Ben & Jerry’s. In a bid to compete with market leader Nestle, the company is targeting a large scale expansion of Magnum, its premium ice cream brand.

The Magnum brand has been around for over two decades now, but its presence was mostly limited to Europe, where it is the top ice cream brand. It was re-launched in 2012 as a premium offering made with Belgian chocolate, and has now been made Unilever’s flagship ice cream brand.

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Exceptional Performance in International Markets

The company has leveraged its well established global operational and distribution infrastructure to support the expansion of the brand into a number of international markets. This will also reduce its dependence on struggling Western Europe, which is the brand’s biggest market.

Magnum was launched in Indonesia in 2010 and has enjoyed phenomenal success in the country. With a base price of 10,000 IDR (around $1), the ice cream was launched as a premium product, but has exceeded all expectations by becoming one of the best selling ice cream brands in the country. [1]

Unilever rolled out Magnum in the U.S. in 2011, with the aim of toppling market leader Nestle. The brand has performed incredibly well in this market as well with sales of $100 million in the first year. [2]

Magnum is now sold in over 50 countries worldwide and Unilever is spending a significant chunk of its marketing and advertising expenses on the product. Global brand sales are expected to top €1 billion ($1.3 billion) this year, well over 10% of the company’s total revenues from ice cream.

Upside to Ice Cream Market Share and Margins

Unilever currently has a global market share of 16% worldwide, and we project this to increase to around 17% by 2019. However, considering the unprecedented success of the Magnum range, market share could increase to a much higher level than our forecast suggests.

Magnum will also improve the mix of the company’s ice cream products due to its premium pricing. We currently forecast EBITDA margins for the ice cream division to reach 9.6% by the end of our forecast period. A better mix could lead to a substantial improvement in the division’s margins.

Overall, if by 2019, global market share in ice creams increases to 20% and EBITDA margins for the division expand to 13%, there would be 5% upside to our $37 price estimate for Unilever.

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Notes:
  1. Magnum ice cream and the Indonesian middle class, The Jakarta Post, December 2011 []
  2. Unilever Wants to Be America’s Ice Cream King, Businessweek, August 2012 []
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