The ice cream sector in Europe is dominated by Unilever, the consumer goods giant behind brands like Wall’s, Magnum, Carte d’Or and Ben & Jerry’s. However, UK-based R&R Ice Cream is building a business to be the other major player in the market. In this month’s just-food interview, Dean Best spoke to R&R chief executive James Lambert about the company’s ambitions.
It seems the most opportune time to speak to James Lambert, the chief executive of UK-based R&R Ice Cream. The middle of December is hardly synonymous with ice cream. Lambert, who has been with the ice cream maker since its inception in 1985, agrees “it’s not quite like the summer” – between April and October, the business makes two-thirds of its sales – but says it is still a busy period for the company.
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“It is a quieter time for ice cream, although we sell quite a lot of ice cream at this time of year. Christmas is still quite a busy time. We tend to sell super-premium products in the UK and in the rest of Europe we do a lot of Christmas logs, yuletide logs, those sort of things.”
2010 will close on something of a high for R&R. Lambert says he expects sales to climb 15% this year to “approaching EUR500m (US$668.8m)”. This year, R&R has acquired French ice-cream business Rolland a deal that created the second-largest ice-cream manufacturer by supermarket sales in Germany and France, as well as the UK. The fact that Lambert quotes R&R’s turnover in euros is an indication of a business that now generates more of its sales – two-thirds – on the continent than in the UK, where the business was founded a quarter of a century ago.
R&R’s origins date back to 1985 when Yorkshire businessman Jonathan Ropner bought local ice-cream firm Cardosi and formed Richmond Foods. Richmond grew initially grew acquisition and took its current name in 2006 when private-equity firm Oaktree Capital Management bought the business, combined it with German ice-cream firm Rocadin and formed R&R Ice Cream.
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In the UK, where in volume terms, Lambert says, R&R is as “equally big” as Unilever, the company produces a range of own-label ice-cream products for retailers and makes ice creams under licence for confectioners like Nestle and Thorntons. R&R also has branded offerings – it acquired the upmarket Kelly’s ice cream brand in 2008 – but over half its sales in the UK are own label.
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By GlobalDataThis year’s acquisition of Rolland means four-fifths of R&R’s business in Europe is in own label. Lambert says he would “obviously love” to build a branded business – “it gives you two reasons to trade with retailers rather than one and you can make the products all in the same factory so it makes the factories even more efficient” – but the Rolland deal marked an important stage in R&R’s ambition to grow on mainland Europe, where the ice-cream sector is consolidating. Unilever’s strength, Lambert explains, is driving the consolidation in European ice cream and R&R is looking to be an active player in that process.
“There are two things happening in the bigger markets in Europe. Own-label is growing, but much more slowly than it was, and Unilever is getting stronger. It’s forcing consolidation in the market,” Lambert says. “Unilever only has seven factories in Europe and they have all the big brands. Their cost base is the lowest and they own all the big brands. There are another 40-odd factories competing for about 40% of the market.”
R&R has made public its intentions to make further acquisitions. Since the Rolland deal, it has appointed ex-KPMG executive Bob Bigley to a new position at R&R of director of corporate development to work on its “acquisitions programme”. R&R has also issued a bond to raise finance for further deals, which Lambert says was “six times” over-subscribed.
“Part of that is for further acquisitions and we will make further acquisitions in 2011,” Lambert says. He is, however, coy about specific targets, instead pointing to the “main markets” of Europe, including France, the Benelux, Germany and Italy. “We wouldn’t rule out any acquisitions anywhere [but] when you are consolidating the market, you want to start with the best players in the biggest markets because that’s where the best gains are.”
The combination of volatile commodity costs and weak consumer confidence is putting on food manufacturers and Lambert concurs that these are trends driving consolidation in Europe’s ice-cream sector. However, he cites another significant factor – consolidation among Europe’s food retailers.
“Most countries have got four major retailers now and some of those retailers are buying across markets, particularly Aldi and Lidl. That is also changing the pricing structure across all the markets of Europe, which will drive consolidation because unless you are the lowest cost you’ll be uncompetitive to the lowest cost manufacturers and the ones with the most innovation,” Lambert explains.
The R&R boss sees his business and Unilever as the two key actors in the consolidation of European ice cream. “I think Unilever is the one. I think Nestle has stopped investing in ice-cream businesses in Europe because they haven’t done very well with them,” Lambert says. “The market both from a customer and consumer and competitor point of view, the only people who’ve got a business model who can sustain what’s going on in the market is Unilever and R&R.
“You either have to be the biggest branded player or the biggest volume player in the take-home market. We can never be the biggest branded player but we can through acquisition and consolidation become equally big as volume as Unilever, as we are in the UK.”
Expect R&R to take more scoops out of Europe’s ice-cream market in the years ahead.
