Why Ice-Cream Gives Unilever Something To Cheer About

Americans and Europeans have traditionally differed markedly in their ice-cream eating habits and preferences. While large, packaged tubs of ice-cream have historically held sway over consumers in the U.S., Europeans tend to go for smaller scoops on sticks and cones  – a serving style called frozen novelties. But the situation seems to be changing – and fast. While frozen novelties accounted for only 19.6% of total ice-cream sales in the U.S. in 2006, the figure rose to nearly 21.2% by mid-2012. This shift in consumer preference spells good news for Unilever, whose range of frozen novelty ice-creams called Magnum seems to be quite popular in the U.S. these days.

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Unilever’s Magnum range of ice-creams were brought over from Europe around 2010. Despite apprehension surrounding consumer uptake of an unfamiliar serving style, Magnum performed remarkably well in the U.S. Unilever sold around 100 million Magnum bars in the very first year of its introduction. The product’s popularity outstripped even the company’s own expectations – Unilever was forced to bring in additional supplies from factories in Italy. ^[1]

The company’s biggest competitor in the frozen novelty segment in the U.S. is Nestle, which supplies similar servings through its ‘Skinny Cow’ brand. Magnum’s popularity has allowed Unilever to snatch market share in the segment. Skinny Cow’s market share has dipped by 0.5% over the previous year. This makes Unilever’s ice cream segment a notable exception to the company’s general slump in the food business in the United States.

Unilever’s food business has been under a lot of pressure lately. Stagnating demand and high price competition forced the company to part with its entire frozen meals portfolio in July this year. Unilever is also divesting non-core brands to focus more on the names that it has become most famous for over the years. In such a scenario, strong ice cream sales offer a glimmer of hope for the sort of organic, competitive growth in the U.S. for the company.

Apart from the U.S., Magnum has also been launched in emerging economies such as Pakistan, Indonesia and Malaysia in recent years. With an expanding middle-class and rising consumption levels, these geographies should also start adding to Unilever’s ice-cream segment in a big way in coming years.

Overall, we expect Unilever to successfully leverage its wide global footprint for growing its share in the world’s ice-cream market steadily over the coming years. Currently, ice-cream contributes around $8 billion annually to the company’s total revenues and around 7% to the total stock value. We expect the segment to bring in close to $10 billion annually within the next 6 years.

We currently have a Trefis price estimate of $39 for Unilever, which is in-line with the market price.

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1. “Unilever Wants to Be America’s Ice Cream King“, August 2012, Businessweek [↩]