In January, Nestle SA, Vevey, Switzerland, assumed full control of Dreyer’s Grand Ice Cream Holdings, Inc., Oakland, Calif. The transaction followed the 2003 merger of Nestle’s U.S. ice cream business with Dreyer’s that resulted in Nestle owning 67% of the combined company. By acquiring all of Dreyer’s this year, Nestle became the largest ice cream manufacturer in the world.
Dreyer’s portfolio of brands in the U.S. includes Dreyer’s, Edy’s, Haagen-Dazs, Starbucks (ice cream) and Skinny Cow. Taking into account other acquisitions, it is estimated Nestle now controls 17.5% of the world ice cream market.
Throughout the western United States, the Dreyer’s brand is synonymous with ice cream. Elsewhere in the country, the Edy’s brand is top of mind. The company’s other brands, like Haagen-Dazs and Starbucks, are sold nationwide.
Last year, Dreyer’s also opened an expanded ice cream plant in Bakersfield, Calif. The facility has the capacity to manufacture 70 million gallons of ice cream and 100 million dozens of frozen snacks per year, according to the company.
At the time of the merger, Peter Brabeck-Letmathe, chairman and chief executive officer of Nestle, called the transaction the "culmination of a long-term standing strategy to achieve leadership in the world’s largest ice cream market."
The United States is the center of the global marketplace when it comes to ice cream. A report published in 2005 by Mintel International Group Ltd., Chicago, estimated the value of the U.S. ice cream market to be $6.8 billion and that it had grown an average of 3.4% per year over the period from 1999 to 2004. Sales growth was fueled by a high level of product introductions in the indulgent and better-for-you market segments.
Dreyer’s has enhanced its position in the U.S. market with the introduction of several successful new products, including the company’s Slow Churned Light line and Dibs.
Introduced in 2003, the Slow Churned line has been a success story for Dreyer’s. It was not the first "light" ice cream the company had introduced. The company first launched a better-for-you product in 1987, but Slow-Churned sales have grown because Dreyer’s was able to reduce the fat in the product without minimizing the taste.
The Slow Churned manufacturing process uses less butterfat, because the process kneads fat molecules at a colder temperature, stretching and distributing them throughout the product so it tastes like it has more butterfat than it really does.
In 2005, Dreyer’s introduced Dibs, bitesize pieces of ice cream with a chocolate coating. Dreyer’s marketed the product as the first "snackable ice cream" in an effort to take advantage of the burgeoning snack market.
"It (Dibs) is opening up a new eating opportunity for ice cream and a new category," said Ed Marra, head of strategic business units and marketing for Nestle, last year. "Being first, we are going to make the most of this opportunity. We expect this brand has a potential of at least $100 million."
While the current sales of Dibs is proprietary, Dreyer’s has been busy expanding the product line. In May, the company introduced five new flavors, including caramel, cookies ‘n cream, peanut butter, strawberry, and toffee almond.
A return to profitability
During the past four years, Dreyer’s has not been profitable. Despite the company’s position in the U.S. market, it has consistently underperformed financially, producing net losses for fiscal years 2001 through 2004 (see table), the last data set available. It remains to be seen if Nestle is able to turn the company toward profitability.
Roddy-Child Villers, Nestle’s head of investor relations, said for the first quarter of fiscal 2006 the company’s ice cream business achieved 3.5% organic growth, a continuing good performance in North America, with near double-digit organic growth that was offset by slow sales in Europe. He noted that the Dreyer’s Slow Churned brand would be rolled out in Europe this summer.
In November 2005, the last reporting period in which financial information about Dreyer’s was publicly available, the company did report net income of $859,000 for the third quarter of fiscal 2005. This compared with a loss of $10,479,000 for the third quarter of fiscal 2004. Net sales of the company brands for the quarter increased $64,789,000, or 16%, from the comparable quarter in 2004, to $475,201,000 after promotional costs.
According to the company, the increase was driven primarily by net sales increases for the company’s premium and superpremium products reflecting continued strong sales of premium Dreyer’s and Edy’s Slow Churned Light ice cream, strong introductory sales of super-premium Haagen-Dazs Light ice cream and continued strong growth of Dreyer’s and Edy’s classic premium ice cream.
It appears a return to profitability for the company will be determined by innovation. According to Mintel, the ice cream industry has been on a new product binge during the past two years. In 2004, 670 new ice cream products were launched as processors were trying to capitalize on consumer demand for healthier products. The high level of innovation continued into 2005, and is predicted to continue in the next few years.
If Mr. Brabeck-Letmathe fulfills his vision for Nestle, innovation should be a top priority for Dreyer’s.
"I see the Nestle of the future as a fleet of agile, fast-moving businesses, with leading brands in value-added categories," he said in the company’s 2005 management report. "The businesses will be fast-moving because they will be focused on their consumers, innovation and communication and they will be ‘a fleet’ because they will be linked regardless of where they are in the world, by shared consumer insights, research and development and smart leveraging of our scale."