HUL’s scoop: In a hot market, all scream for ice cream

Several companies have lined up to scoop up a prime vertical of Hindustan Unilever (HUL) which comes with a large market share as it assesses the prospects of its ice-cream business. HUL sells ice-cream brands such as Kwality Wall’s, Cornetto and Magnum. The companies eyeing HUL’s business expect the consumer goods market leader would not just spin off the business but also eventually sell it, ET has reported.
RJ Corp that operates quick-service chains KFC and Pizza Hut, handles bottling for PepsiCo and sells the Cream Bell ice-cream, the MMG Group which runs McDonald’s in North and East India and is also a franchise bottler for Coca-Cola, as well as the local unit of Nestle SA are among the companies open to evaluating HUL’s ice-cream business, depending on the independent committee’s decision, as per an ET report based on information from people familiar with the matter.
The company said it was setting up an independent committee to evaluate “the way forward” for the ice-cream business.
Why HUL wants to scoop out its ice-cream business
HUL parent Unilever is the world’s biggest ice-cream maker with brands such as Ben & Jerry and Magnum. The Rs 7.9-billion business accounts for 16% of its revenue. In India, HUL’s ice-cream brands such as Kwality Wall’s, Cornetto and Magnum contribute about 3% to its annual sales of more than Rs 60,000 crore. HUL’s ice cream business comes under the Food & Refreshment segment, which represents 25 per cent of its revenue.
Unlike the home and personal care categories where HUL is a dominant leader, the company trails Amul in the Indian ice-cream market. HUL also competes with a number of local and global brands in the segment such as Mother Dairy, Vadilal, CreamBell, Naturals, Havmor and Baskin Robbins.
Unilever decided in March to spin off its ice-cream unit to focus on segments that have a similar operating model and supply chain. It announced a strategic intent to separate the ice-cream vertical globally. It said it intended to transform itself into a simpler, more focused and higher-performing company by separating the ice cream business.
The ice-cream business has an inherently different business model, including a cold-chain go-to-market operating model, seasonality, and a different innovation rhythm compared to the rest of Unilever’s business, an HUL spokesperson had said.
The ice-cream business differs from that of other products, involving a cold-chain, go-to-market operating model, seasonality, and an innovation rhythm of its own. HUL has built the business through acquisitions – Kwality in 1994 and Adityaa Milk in 2018.
Given the distinct operating model of its ice-cream business, the board decided that separating it will optimise future growth for both ice-cream and Unilever, the company had said in a release. After separating the ice-cream business and implementing its productivity programme, Unilever will have a “structurally higher” margin.
For expansion of the ice-cream category, HUL was trying to “de-seasonalise” by expanding consumption occasions through innovative campaigns and launching exclusive products, centred around Indian festivals.
Industry executives had told ET in April that it was unlikely an existing player in India will buy HUL’s ice-cream business and any sale could be to a multinational or to private equity firms. Also, the strategy will be entirely determined by what Unilever chooses to do with its ice-cream business.
Why India’s ice-cream market is hot
Above-normal temperatures with greater number of heat wave days, rising disposable incomes, innovative new-age brands, premiumisation, under-penetration in Tier II and III cities and the spread of quick commerce are the factors which are driving India’s ice-cream industry.
The Indian ice-cream market is estimated to cross $5 billion by FY25 owing to the expansion of domestic brands beyond the metros and the rising interest of international brands, a report by Wazir Advisors said last year. The market is currently valued at $3.4 billion. It is led by impulse ice cream carrying a value share of 50 per cent and western flavours such as vanilla and chocolate. Although price sensitivity remains high, there is significant scope for market growth by increasing either the consumption levels, penetration, or both, as per the report.
There is a severe under-penetration of high-quality ice cream brands in tier II and tier III cities in India. The ice cream market has had to adapt to the digital mode of selling due to reduced out-of-home consumption leading to a focus on in-home consumption and delivery to the doorstep.
Quick commerce is helping deliver instant gratification to consumers, with almost 10 per cent of users ordering indulgences such as ice cream and chocolates. Dedicated platforms for frozen food, such as Frogo, are also gaining prominence, offering an end-to-end cold chain for frozen food, including ice cream.
As per the report, conventional players in the ice cream market, such as Vadilal, Amul, HUL and Cream Bell are expanding their presence in the Q-commerce space and increasingly focusing on the hyperlocal business model to cater to the consumer’s needs.
Ice cream is also evolving into an experiential retail concept, such as Naturals NOW, a distinctive experiential ice cream centre in Juhu, Mumbai, which allows ice cream lovers to choose from an assortment of limited edition flavours and watch their orders being freshly made in front of their eyes. The top upcoming trends in the ice cream market will include cross-cuisine flavours, immunity boosters, plant-based or vegan ice creams and wellness ice creams such as probiotics, gluten-free, sugar-free, and low-fat, according to the report.
Recent years have seen the emergence of several new brands such as Go Zero, Noto, Get A Way, Frubon, Minus 30, to name a few. They are all aiming to carve out a niche in a market long dominated by legacy players like Amul, Mother Dairy, HUL and the Jaipuria group.
Recently, ice cream maker Go Zero has raised $1.5 million from existing investors DSG Consumer Partners, Saama Capital and V3 Investors to fuel its expansion plans, ET has reported. Another new-age ice cream brand Hocco has concluded a Rs 100 crore ($12 million) fundraise led by its promoter group Chona family and existing investor Sauce VC. The primary capital infusion valued the business at Rs 600 crore after the investment, ET reported. The eight-month-old brand expects to clock Rs 200 crore in revenue in the fiscal year ending March 2025. The Chona family sold its legacy brand Havmor in 2017 to South Korean conglomerate Lotte for Rs 1,020 crore. At the time, Havmor’s annual turnover was estimated to be around Rs 450 crore.
“The expansion in the ice cream market is a reflection of increasing disposable incomes going towards impulse and indulgence categories. Channels like quick commerce allow a connect to digitally savvy new age consumers who want instantaneous gratification for their sugar craving which was not possible five years ago,” Manu Chandra, founder and managing partner, Sauce VC, told ET in June. “Existing brands at this price point are very old and our consumer research revealed that Gen Alpha, Gen Z and even millennials today don’t relate to them,” he said.
Source: Indiatimes

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