Healthy indulgences

by Keith Nunes
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In the U.S. ice cream market, a segment dominated by two companies, Dreyer’s Grand Ice Cream Holdings Ltd., Oakland, Calif., and Unilever P.L.C., London, bringing new products to market quickly is essential. After several years of industry consolidation, product innovation is driving the market, particularly in the better-foryou segment.

Packaged Facts, a division of MarketResearch . com , projects the ice cream market will reach $21.6 billion in sales during 2005, a modest 3% increase over 2004. Per capita consumption of ice cream has been flat at best in recent years, and sales growth has been driven by consumers migrating to better quality, more expensive products.

The ice cream category encompasses a variety of sub-categories, including ice cream, frozen yogurt, frozen soy-based desserts, sherbet, sorbet, sorbet ices and frozen novelties. The majority of sales, however, are derived from the ice cream and frozen novelty segments, which in 2004 accounted for 59% and 36% of dollar sales, respectively, according to the Mintel International Group Ltd., Chicago. During the period from 1999 to 2004, the bulk of product innovation took place within these segments. More better-for-you ice cream and frozen novelty products were introduced, enabling the segments to grow while others, like frozen yogurt, saw sales decline.

In the past, consumers looking for healthier options would gravitate toward low-fat frozen yogurt, but now, with the introduction of low-carb and improved light ice creams, health-minded consumers have other options. In 2004, for example, Dreyer’s introduced a new ice cream made with a "slow churning" process that stretches fat molecules in a way that makes low-fat products taste like full-fat ice cream.

"Slow Churned Light ice cream continued its outstanding growth (in 2005)," said Doug Holt, chief financial officer for Dreyer’s during the company’s third-quarter earnings conference call this past November. "Net sales were up more than 75% for the third quarter over strong numbers last year."

Marcia Mogelonsky, a senior research analyst for Mintel, believes the "healthy" ice cream market is ripe for growth.

"When you look at the rising diabetes rates among children and adults, and the issue of obesity in this country, I think there is going to be a demand for better-for-you products," she said. "More people are being forced to find alternative foods with less sugar and fat. They want alternatives that taste good, and we are seeing companies, even in the ice cream market, coming out with those products."

Other brands focusing on reducing sugar in their products include Breyers (Unilever), a company that has added SugarSmart ice cream to its Smart line of products. The line now includes CarbSmart, CalSmart and HeartSmart items.

The take-home bulk ice cream market received a sales boost in 2004 from new product releases and a growing interest in better-for-you products, according to a November 2005 report by Euromonitor International, Chicago. Sales of bulk ice cream grew by more than 2% to $5.7 billion in 2004. In contrast to 2003, volume sales also grew in 2004 by nearly 1% but still lagged behind value sales gains.

The majority of these gains may be attributed to the release of Dreyer’s Slow Churned Light and Breyer’s CarbSmart ice creams, Euromonitor said.

The take-home bulk ice cream segment is not the only ice cream category to see a rise in healthy products. Hoping to appeal to parents’ concern of too much sugar in their childrens’ diets, a variety of novelty products also were introduced to the market that followed the no sugar trend. For example, CoolBrand’s International introduced low-fat Care Bears ice cream sandwiches; no-sugar added Crayola ice pops shaped like crayons; and Tropicana Kid Kreamers, frozen sherbet pops filled with lowfat ice cream.

The better-for-you ice cream market also is expected to have significant appeal for the baby boomer population. Mintel reported the aging U.S. population will have considerable impact on the packaged ice cream market from 2005 to 2010. During the next five years the number of consumers aged 45 to 74 will grow at a much quicker pace than younger groups.

The aging of the population should not negatively impact ice cream consumption, as households headed by consumers 55+ are just as likely to eat ice cream as younger households and with similar frequency. However, older households are considerably less likely to eat regular (full-fat) ice cream and more likely to eat lowfat ice cream than average. The shift likely will be due to increased concerns about heart health and weight management.

Market segment leaders
Unilever and Dreyer’s together accounted for nearly 43% of food, drugstore and mass-merchandiser, excluding Wal-Mart, (F.D.M.) ice cream sales in the U.S. in 2004. Both companies have grown their ice cream businesses primarily through mergers and acquisitions.

Unilever established itself as the category leader (22%) via a series of acquisitions that included Good Humor in 1961, Gold Bond in 1989, Klondike in 1992, Breyers in 1993 and Ben & Jerry’s in 2000.

The second largest player (with 21% of the market) is Dreyer’s, which was created in 2003 when Dreyer’s merged with Nestle Ice Cream Co. Dreyer’s brand portfolio includes Haagen-Dazs, Starbucks ice cream, Nestle frozen novelties, Dole Fruit n’ Juice Bars and Skinny Cow. Nestle S.A. owns about two thirds of Dreyer’s.

Only two other companies, Cool-Brands International and Blue Bell Creameries, Brenham, Texas, have significant market share, each accounting for 5% of F.D.M. sales. Wells’ Dairy, Inc., Le Mars, Iowa, also has achieved considerable growth. The remainder of the market is comprised of hundreds of small regional and local dairies and food processors.

Ms. Mogelonsky contended the reason the ice cream market is seeing so much innovation in new products and flavors is because there are not many other companies within the segment to consolidate.

"There aren’t many independents out there anymore," she said. "What drives the industry now is every company is trying to come out with something different in order to gain an advantage in the market."

According to Mintel, 670 new ice cream products were launched in 2004 as manufacturers were trying to capitalize on consumer demand for healthier products. Through June of this year, Mintel reported the industry had introduced 268 new products.

A report issued by Mintel in June 2005 said the high level of innovation in the ice cream category is expected to continue in the next few years, as American consumers seek variety in their ice cream diet, and as ice cream makers strive to keep consumers coming back to their brands in an increasingly competitive environment.

As the low-carb diet trend continues to lose steam, as it had already begun to do in 2004, Mintel expects to see manufacturers launching new products positioned more broadly as healthy lifestyle products rather than lowcarb products. For example, this year Ben & Jerry’s launched a line of Body & Soul ice cream flavors that feature 25% less fat, sugar and calories. Unlike its predecessor, Carb Karma, the Body & Soul line is positioned as part of a balanced approach to eating, rather than part of a specific diet.

Following the success of Dreyer’s Slow Churned Light, Mintel also expects to see more manufacturers following Dreyer’s lead and invest in technology that improves the taste and texture of light ice cream. Additionally, with new trans fat labeling regulations going into effect in 2006, consumers likely will become more aware and concerned about trans fat, and manufacturers will need to respond via product and packaging changes.

However, the surge in new product development does not mean the ice cream market is expanding. Growth in the U.S. ice cream market is coming from dollar sales rather than volume sales, according to Packaged Facts. The U.S. population is not eating more frozen desserts; rather the population is spending more on the frozen desserts it eats.

In 2004, for example, consumers spent a lot more on frozen desserts as a result of rising milk costs, milk fat and ingredient costs. In addition to facing cost increases in its core ingredient segments, frozen dessert manufacturers also faced price increases for vanilla and cocoa. Vanilla, for example, cost only about $150 per gallon in 2000. In 2004, processors were paying $400 per gallon. Fortunately, the cost of vanilla has come down since then.

Capitalizing on impulse buys
After strong sales gains in 2004, impulse ice creams are forecast to continue to help boost total ice cream sales in 2005, according to Euromonitor International. Consumers in the U.S. continue to choose impulse ice cream due to tradition, convenience and interest in new products.

It has been well documented U.S. consumers are looking for convenience in their new products that will allow them to consume their foods in less time. Impulse ice cream fits the requirements of convenient foods. Most can be eaten without a spoon, come in easily disposable packaging and are easy to grab and go.

The Euromonitor researchers also noted impulse ice cream adds the unique option of portion control. Instead of purchasing bulk ice cream and scooping out portions, consumers may choose the smaller portioned impulse products. This makes it easier to control calorie intake.

Mintel’s Ms. Mogelonsky sees portion control as a key future trend.

"A lot of consumers like to sit down in front of their televisions and eat their ice cream out of the carton," she said. "That’s the convenience aspect of the product. But more consumers are becoming conscious of what they are eating and don’t want to eat a half-pint or half-gallon in one sitting. They want products they can eat and not feel guilty about later."

A product she cited as being a good example of portion control is Dreyer’s Dibs, a product introduced this year. Dibs are bite-size snacks that require no scoop or spoon to eat.

"We’re creating the next trend in ice cream snacking," said Suzanne Saltzman, marketing manager for Dreyer’s Dibs snacks, during the launch of the product this past May. "We know today’s mom craves convenience, less-mess, and portability. Dibs couple the convenience of portable snacks with the delight only ice cream offers, appealing to both kids and adults."

Other trends emerging within the U.S. ice cream market, said Ms. Mogelonsky, include dairy-free options, more sophisticated flavor profiles and products that target the country’s growing Hispanic and Asian populations.

"The good news is when you look at the data, everyone likes ice cream," she said. "It is in 90% of the country’s households. The bad news is it is a mature, competitive market and requires a steady introduction of new products to keep consumers interested and coming back.

"We’ve talked about competition in the ice cream market, but have not touched on the dessert market in general, which is becoming more competitive as cake, pie, cookie and even fruit companies look for new opportunities. There are a lot of companies ice cream manufacturers have to compete against, and they need to keep innovating to maintain their position."

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