James Lambert, CEO of UK-based R&R Ice Cream, has suggested the company’s plan to buy local rival Fredericks Dairies will give retailers a “real alternative” to market leader Unilever.
R&R’s deal to buy Fredericks, announced yesterday (9 April), will bring together two companies that manufacture ice cream under licencing deals with companies including Nestle and Mondelez International.
The acquisition remains subject to approval of the UK’s Office of Fair Trading. However, speaking to just-food after the announcement, Lambert indicated the deal should be cleared – and he quickly moved to talk up the benefits of the deal for R&R.
“We will still be less than half the size in the impulse market than Unilever and we will still be eight percentage points smaller with our combined business market share wise in supermarkets,” he said. “It will benefit consumers as it gives the supermarkets a real alternative to Unilever. There is no question that Unilever is very, very dominant.”
R&R is already a major force in ice cream across a number of European markets. It is the largest supplier of retailer-branded ice creams in the region, with customers including Tesco and Asda in the UK, Aldi and Edeka in Germany and Casino and Carrefour in France.
However, Lambert sees R&R’s move to buy Fredericks as a way to compete head on with Unilever on branded products. Fredericks has deals to manufacture ice cream and ice lollies sold under brands including Mondelez’s Cadbury, Del Monte and Vimto. The deal will see brands grow to account for 40-45% of sales in the UK, Lambert noted.
“We can better compete in the branded market with Unilever with cones and sticks, take on Cornetto and Magnum and offer an alternative consumers will want and so we can grow the market,” Lambert said. “It also gives us a better offering with brands we have and Fredericks has in the impulse market. We can offer industry solution freezers to customers. Whereas before people would say: ‘Well I don’t want really want a freezer from you because I want some products from you and some from Fredericks’, we can now go as a real competitor to Unilever with Nestle and Cadbury combined.”
R&R’s operations in Europe include a multi-country licence deal with Mondelez International. Fredericks also has a partnership with the snacks giant and is launching cone and tub products under Oreo brand in the UK.
“We already have a relationship with Mondelez in ten countries in Europe and this further extends our relationship to develop the second force in ice cream in Europe behind Unilever,” Lambert said. “That is what we intend to use the Mondelez licence for.”
The deal, which Lambert described as “the perfect partnership”, is R&R’s second acquisition this year, with both deals coming in the UK. In January, R&R snapped up the frozen yoghurt brand Yoomoo for an undisclosed sum.
R&R itself has been at the centre of takeover speculation in recent months. Lambert and other senior executives own a stake in the business but private-equity firm Oaktree Capital, which holds 82% of the company, has been said to be in talks to sell its shares.
Lambert confirmed Oaktree, which formed R&R in 2006 when it acquired UK firm Richmond Foods and combined it with German peer Rocadin, was in exclusive negotiations to sell its stake. He declined to comment on the identity of the bidder but said a deal could be signed within a month.
Lambert, whose link to the business dates back to 1985 when Richmond Foods was formed, said he and the other managers plan to hold onto their shares and stay with the business. “It’s business as usual,” he said. “I’m intending over the next two years to build the business to a billion pound business in Europe.”
With a number of ice cream makers struggling to turn a profit in highly competitive European markets, Lambers said that R&R expects to be an active participant in a process of consolidation in the region. “It’s only us and Unilever making money in ice cream in Europe. Most other people are losing money,” he explained.
Lambert confirmed the company is “always” on the lookout for the next deal, adding further acquisitions will likely be announced later in the year.
While R&R is behind Unilever, it is becoming increasingly clear the business is one to watch as it works to rapidly expand its European ice cream operations.