Nestle is planning to sell its UK ice cream business to private label firm Richmond Foods. The Swiss giant feels that Unilever‘s dominance of the UK market is just too strong to be worth competing against. It will sell the business, and license its brands, probably to Richmond. But while it looks sensible for Nestle to cut its losses and focus on high margin operations, it’s far from clear that Richmond will do any better.

Company Profile:

Nestle S.A.

Although Nestle has built its UK impulse ice cream market share up to 16%, the business has continued to be a drain on its resources. The Swiss firm has now decided enough is enough, and is offloading its ice cream business as part of its global strategy of concentrating on higher margin businesses.

It is currently negotiating the sale with Richmond Foods, a UK ice cream producer whose strengths lie in the take-home own label ice cream market.

Nestle’s involvement in UK ice cream began in 1992, when it purchased the remains of Clarkes Foods, which included the Lyons-Maid brand, taking it out of receivership. Since then it has tried hard to develop the business, but has been unable to achieve enough critical mass to compete effectively with Unilever, which dominates the UK impulse market with a share of over 60%.

Nestle is not going to abandon its consumers in the UK, but set against its huge competitor it needs to reorganize its operations to make a profit. It will put the UK distribution of its brands up for license, with Richmond the likely licensee.

Richmond has a strong presence in private label take-home products, manufacturing 60% of own-label UK ice cream. It currently has a share of just over 4% in the impulse market. Unilever has a much higher number of freezer units in corner shops than its competitors, and Nestle has found this comparative disadvantage a key problem. Richmond currently has a small interest in the impulse market, and the company believes that adding the Nestle brands to its portfolio will give it the critical mass necessary to compete.

Yet why should Richmond succeed where Nestle has failed? This move goes against Richmond’s recent strategy of moving away from the impulse market and concentrating on take home products. Nestle has failed to deliver the expected profitability from these operations, and it is unclear how Richmond Foods will better that.

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To view related research reports, please follow the links below:-

The World Market for Dairy Products

The World Market for Ice Cream, Yoghurts and Chilled Desserts

The 2000-2005 World Outlook for Take-home/dessert Ice Cream