Wednesday, April 22, 2015

$$$trategy?

Perusing through the Ben and Jerry’s case piqued my interest in the nature and current state of the premium ice cream industry. Almost two decades on from the setting of the case, it amazed me to see how two players dominated the industry so much – two players that had not even been majorly involved in the ice cream business. What has caused these global behemoths to take over an industry that had a number of organic brands? Was it precise strategy-making that helped these companies succeed or just deep corporate pockets that enabled their success?

Before moving on, a brief run-through of the industry and its major players is warranted. Currently, the Swiss multinational Nestlé owns the Dreyer’s (parent company for the Dreyer’s and Edy’s brands) and Häagen-Dazs ice cream brands. British-Dutch multinational Unilever owns the other major brands in the market - Ben and Jerry’s and Breyer’s. These two global giants have gained a majority market share in the US ice cream market through a strategy of acquisitions and mergers with existing operations.

With industry revenues of $20 billion, the ice cream market is an extremely lucrative one. However, changing consumer tastes, the need for a technologically advanced manufacturing setup and the necessity of having an impeccable distribution network makes successful operation in this industry quite challenging. Therefore, any company operating in this industry needs to have a very coherent strategy. Let us focus on Nestlé and its operations to demonstrate the importance of an intelligent strategy that is aligned with a company’s mission, values, and vision.

Nestlé’s strategy is succinctly summarized in the graphic below (available on their website). Nestlé have tried to combine the basic elements of strategy formulation - objective, scope, and advantage - into their implementation for the ice cream market. Examining the operational pillars (objectives) identified by Nestlé, we see a focus on universal product availability, operational efficiency and customer engagement. Nestlé’s strategy of acquisitions in the ice cream industry aligns with their company focus as acquiring major current brands feeds into the metrics of product availability, operational efficiency and customer engagement.

Nestlé views out-of-home consumption and premiumization as their primary growth drivers and this is also in tune with their strategy of investment in the superpremium ice cream industry. A company’s competitive advantage is a ‘means’ to successful strategy implementation. Nestlé successfully leveraged and aligned their competitive advantages of geographic distributive presence, strong product and brand image and superior talent to win in the ice cream market, eventually racking up 20% market share - 4 points clear of Unilever’s market share.

Therefore, Nestlé’s example indicates that a cogent strategy that clearly aligns company objective, scope of operations and internal advantages is essential for successful functioning in any market. Of course, strong purchasing power aids the process – as indicated by the $2.4bn paid by Nestlé to acquire Dreyer’s.

Sources
1.      http://www.today.com/food/we-all-scream-ice-cream-2D80556371
2.      http://insight.kellogg.northwestern.edu/article/super-premium_ice_cream/
3.      http://www.nestle.com/asset-library/publishingimages/aboutus/roadmap_large.jpg
4.      http://www.nestle.com/media/pressreleases/allpressreleases/leadershipusicecream-17jun02
5.      http://www.nytimes.com/2002/06/18/business/nestle-dreyer-s-merge-2.4-billion-deal-creating-top-us-ice-cream-seller.html

6.      http://www.theguardian.com/business/2002/jun/18/marketingandpr.unilever

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