3 The market for impulse ice cream [per] - Competition Commission

3 The market for impulse ice creamContentsPageIntroduction................................................................................................................. 15The reference products.................................................................................................... 15Other ice cream products ................................................................................................. 16The production of ice cream ............................................................................................. 16Raw materials............................................................................................................ 16Process of manufacture................................................................................................. 16Features of the impulse ice cream market .............................................................................. 17The structure of the industry ............................................................................................. 18The MMC's 1979 report ............................................................................................... 18The entry by Mars ...................................................................................................... 19Other new entrants ...................................................................................................... 19Market shares .............................................................................................................. 20Small-scale manufacturers ................................................................................................ 22Demand ..................................................................................................................... 23Market size............................................................................................................... 23Seasonality of sales ..................................................................................................... 25Types of impulse ice cream .............................................................................................. 26The major branded products ............................................................................................. 28Retail distribution.......................................................................................................... 29Trade channels........................................................................................................... 29Retail outlets ............................................................................................................. 30Leisure outlets ........................................................................................................... 30The supply of manufacturers' freezer cabinets ........................................................................ 30The MMC's survey ..................................................................................................... 31Multiple retail chains ................................................................................................... 32Industry freezers ........................................................................................................ 32Retail and pricing policy.................................................................................................. 33Retail prices.............................................................................................................. 33Price movements ........................................................................................................ 35Trade terms................................................................................................................. 37Advertising and marketing ............................................................................................... 38Product innovation ...................................................................................................... 38Advertising............................................................................................................... 39Provision of freezers.................................................................................................... 40Problems facing market entrants......................................................................................... 40Access to outlets......................................................................................................... 41Development of brands................................................................................................. 41Product range............................................................................................................ 41Economies of scale and distribution .................................................................................. 4214

Introduction3.1. This chapter describes the market for impulse ice cream, that is to say ice cream bought for immediateconsumption. The feature of the market which distinguishes it from confectionery and other impulse products isthat it requires a specialized infrastructure. Ice cream must be kept at a low temperature at all stages ofproduction and distribution from factory to final consumer. This means that manufacturers must have access to aspecialized distribution network, including cold stores, depots and refrigerated delivery vehicles, and retailersmust have freezer cabinets to store, display and sell from. The industry must finance the substantial amount ofcapital necessary to support this infrastructure.The reference products3.2. The goods defined by the reference include water ices, ice lollies, frozen yoghurt and ice cream to whichcan be added fruit, fruit pulp, fruit puree, fruit juice, chocolate, nuts or any other substance. It does not includesoft ice cream mix. The definition relates to one way in which ice cream is consumed, namely after purchase forimmediate consumption. We refer to all these goods as being part of the impulse ice cream market. A secondway in which ice cream is consumed is in the home, for example as part of a meal. The relevant purchase istypically made in food stores and grocery outlets several days prior to the ice cream products being consumed,and from a very different range of retail outlets. One- or two-litre packs of ice cream are typically bought from asupermarket whereas CTNs and beach kiosks are major sources of custom for impulse ice cream.3.3. This distinction between the two sectors of the ice cream market-impulse and take-home-reflects notonly the timing of consumption but also the unit quantity bought. The purchase of impulse products relates toindividual portions or products for consumption at the time of purchase whereas the take-home market includesbulk products for storage in freezers requiring slicing or serving within the home as appropriate. However, thedistinction is not a rigid one for two reasons. First, bulk ice cream is bought not only by individuals but also byretailers for scooping to meet impulse demand as well as by caterers for use as a dessert. Secondly, an increasingrange of impulse products are now sold in multi-packs in retail grocery outlets. Thus choc bars are obtainable inmulti-packs for consumption at home to meet an `impulse' demand for a snack, a refreshment or a dessert. Thetime of consumption of one choc bar from the multi-pack is deferred from the time of purchase in contrast withthe situation when an individual choc bar is eaten immediately. But in both situations the decision to eat istypically taken on the spur of the moment. In practice some major manufacturers classify the sale of multi-packproducts as a separate part of the total ice cream market (see Figure 3.1, following paragraph 3.45).3.4. The impulse ice cream market includes the following product types:(a) Wrapped hand-held ice cream products including chocolate bars, ice cream cones, chocolate stickproducts, tubs and cups. Also for inclusion here are pure milk products and pure ice cream bars. Thesebranded items have been the subject of considerable product innovation in recent years. Water ices andice lollies are not, strictly speaking, `ice cream' but are generally regarded as such and thus are anotherpart of the hand-held section of the impulse market.(b) Bulk scoop ice cream. This is normally sold in containers for dispensing by the retail outlet. Scoop icecream is not a wrapped, self-service product. Some outlets for wrapped impulse ice cream also stockscoop ice cream but it is rare for both types of ice cream to be stored in the same freezer.(c) Certain other products. These include individual bricks and frozen yoghurt even though the latter, likewater ices and ice lollies, may not consist of ice cream strictly defined.15

Other ice cream products3.5. Soft mix ice cream is not part of our inquiry since our terms of reference exclude it and also direct ourattention to the question of freezer exclusivity. Soft mix ice cream is not stored in a freezer and can be consideredas a raw material which only becomes a finished product after processing through a retailer's equipment.However, soft mix, scoop ice cream and wrapped impulse are substitutes from the perspective of the consumer.A feature of soft mix and scoop ice cream is that both are supplied by a large number of small, regionally-basedfirms, often on an unbranded basis typically in locations with a heavy density of customer traffic such as beachesplanades through a personal service system. In this way these products differ from wrapped impulse productswhere self-service is typically the mode of purchase.3.6. There are a number of products just beyond the margin of what would usually be considered as icecream. These include ice pops which are sachets of juice sold at ambient temperature for home freezing. Sinceice pops are often also obtainable from a freezer cabinet alongside impulse ice cream they are similar to waterices. `Slush Puppy' refreshment would also be excluded from most definitions of ice cream. Individual frozendessert products such as frozen mousses and frozen cake products are sold alongside ice cream products in someimpulse outlets. Whilst some of these branded products actually include ice cream, such as arctic rolls, they aremore properly described as part of the frozen dessert market than a substitute for a hand-held ice cream boughtfor immediate refreshment. A wide range of chilled products including yoghurt desserts, mousses and drinksoffer an alternative to the consumer of ice cream when refreshment is sought on a hot day. These are not icecream products but, like soft drinks and snack foods such as crisps and sweet confectionery, are available, oftenin the same location, to the consumer buying on impulse.The production of ice creamRaw materials3.7. The basic raw materials from which ice cream is produced are milk, skimmed milk, fat and sugar.Skimmed milk is generally obtained either as a powder or liquid concentrate; the fat is milk fat or vegetable oil(eg coconut or hardened palm kernel oil). British ice cream historically has differed from that in most countriesin that it is mainly made up of non-dairy products containing vegetable fat. The reason for this can be traced backto the Second World War when the British Government curtailed the sale of butterfat milk to ice creammanufacturers, who turned to vegetable fat instead. In addition to fat, there is a mixture of sugars (sucrose andglucose syrup solids). Other materials such as permitted emulsifying and stabilizing agents may be present in thebasic mix. During the later stages in the process, chocolate, flavouring and colouring materials can be added, andalso nuts, fruit, fruit pulp, concentrate and puree etc.Process of manufacture 13.8. The production process for all ice cream consists of three principal stages. The ingredients are mixed,then they are frozen and formed, and finally packed and cartoned, before being placed in cold storage. Themixing process involves blending the basic materials together with water to produce a homogeneous mixture ofthe required flavour. After filtration to remove any foreign matter, the prepared mix is usually subjected topreheating and homogenization to ensure the dispersal of the fat particles in the mix. This treatment is followedby a final heat treatment as legally specified 2 to remove any possibility of microbiological contamination (amatter of crucial concern at all stages) and cooling. After processing and the addition of any further flavouring orcolouring materials the mix is passed through a freezer, where it is whipped and frozen. During this process air isinjected to give the required texture. The amount of air injected proportionate to the combined volume of solidsand water is known as overrun and can vary substantially according to the recipe, the machinery used and thetype of ice cream the manufacturer intends to produce.1For further details see Ice Cream by K A Hyde and J Rothwell, Churchill Livingstone (1973).2The Ice Cream (Heat Treatment) Regulations 1959 as amended in 1963.16

3.9. The manufacture of ice cream in the UK is governed by The Ice Cream Regulations 1967 (made underthe Food and Drugs Act 1955) which stipulate that ice cream must contain 5 per cent fat and 7.5 per cent milksolids, other than fat. Dairy ice cream must contain a minimum of 5 per cent milk fat and a minimum of 7.5 percent milk solids. The Milk Marketing Board also specifies that `ice cream made with dairy cream' must contain aminimum of 10 per cent dairy fat (56 grams per litre), of which half (28 grams) must be derived from doublecream.3.10. Premium ice cream is the term describing a more expensive ice cream made from real dairy cream andmilk. The products also tend to be made with natural ingredients, eg real chocolate or fresh fruit. The term `superpremium' is also used to denote the top end of the premium market. The products have a very high dairy fatcontent and a low air content as is typical of ice cream made in the USA. Premium ice cream has to containbetween 10 and 14 per cent dairy fat with an overrun of between 80 and 100 per cent. Super premium ice creamhas a dairy fat content above 14 per cent and overrun below 80 per cent.3.11. Once the required texture has been achieved the mixture is moulded or extruded into the relevant shapeinvolving both freezing and hardening stages. After manufacture ice cream is put into cold storage prior todistribution.3.12. The complexity of product formation differs substantially according to the product. For example, waterices (which do not require secondary freezing), scoop products and frozen yoghurts involve relativelystraightforward processes. However, the recent introduction of many sophisticated impulse products requiresintegrated flexible high-speed lines which permit a number of processes to be undertaken simultaneously andspeedily, and cost-effectively.Features of the impulse ice cream market3.13. Ice cream must be kept at a low temperature at all stages of production and in the distribution fromfactory to final consumer. To supply the national market, manufacturers need either their own distributivenetwork, including cold stores, depots and specialized refrigerated vehicles, or access to a distributor with suchfacilities. Thus ice cream reaches the point of sale either by a manufacturer supplying the retailer directly, orthrough specialized distributors it appoints, or through frozen food wholesalers. Paragraphs 3.56 to 3.59 describehow the major manufacturers differ in respect of their distribution systems.3.14. Similarly, at the retail level, the sale of impulse ice cream requires a freezer cabinet. Retailers aim tokeep this cabinet fully stocked to take advantage of sale opportunities which fluctuate with the weather. Thepractice of some manufacturers supplying freezer cabinets to retailers on terms which prevent the retailer fromusing the cabinet to stock ice cream supplied by another manufacturer is central to this inquiry.3.15. A further feature of the impulse ice cream trade is its highly seasonal nature. BEW told us that between1990 and 1992 over 60 per cent of total annual sales (measured by portion and excluding multi-packs) took placein the four months from May to August. This contrasted with sales of ice cream in the take-home sector of themarket which were no more than 40 per cent of total annual sales in these same months. Furthermore the rangebetween the peak and trough of impulse sales is much greater than for other ice cream products. The effect ofweather on sales gives rise to particular problems in planning production and distribution. Stocking in winter isnot a solution to the fluctuations in consumption because the quality of many impulse items is impaired by longtermstorage. It is therefore inevitable that any manufacturer seeking to meet peak demand will have a significantdegree of spare capacity at other times.3.16. A feature of the impulse sector of the ice cream market is the fact that it continues to be served mainlyby products branded with the names of the major manufacturers and, more recently, by individually brandedproducts. In other words, the development of distributors' own-label products has been much less marked in theimpulse sector than in other parts of the market. CTNs do not enjoy brand franchises comparable to the multiplegrocery chains. As a result the share of the impulse market accounted for by retailers' own brands is insignificantthough some of the supermarket chains offer multi-packs of their own brands of impulse ice cream and (seeTable 3.2) enjoy substantial sales. In the take-home market retailer's own label accounts for about 45 per cent ofsales by value.17

The structure of the industryThe MMC's 1979 report3.17. The MMC reported in 1979 that Wall's (which later became Birds Eye Wall's) and Lyons Maid togetheraccounted for over 60 per cent of the supply of all types of ice cream. No other supplier had a market share thatapproached that of either of these two companies. In 1976 Wall's had about 37 per cent of sales by value andLyons Maid about 27 per cent. The MMC found that competition between these two firms in the impulse sectorof the market was limited. Each supplier had established an extensive national chain of outlets bound byarrangements for exclusive dealing, long-term supply arrangements and trading terms. Wall's, however, hadabandoned its exclusive outlet arrangements, with effect from 1 January 1975, almost two years before theprevious MMC inquiry began. At the time of the 1979 report, therefore, only Lyons Maid outlets werecontractually obliged to sell exclusively the ice cream of that company. The MMC concluded that for suppliers tomake it a condition of supply to a retail outlet that the retailer did not sell goods of other suppliers (`outletexclusivity') operated against the public interest. The MMC viewed this distributive system as restrictingcompetition in the supply of ice cream to retailers, in particular the opportunities for small manufacturers toincrease their sales. The MMC recommended that both Wall's and Lyons Maid should supply retailers under awritten contract with a duration no longer than 12 months.3.18. Neither Wall's nor Lyons Maid apparently sought to compete on price in the impulse sector of themarket. Both companies offered a similar range of confectionery and dessert products, charged similar wholesaleprices and recommended similar retail prices for comparable products.3.19. The 1979 report did not give the market shares of Wall's and Lyons Maid in respect of impulse icecream. In the present inquiry BEW told us that on the basis of the number of refrigerated cabinets owned by bothcompanies it estimated that in 1976 there was then a virtual parity of market share. Wall's was thought to accountfor 46 per cent of sales by value and Lyons Maid 45 per cent. On this basis the 34 other companies referred to inthe 1979 report together accounted for less than 10 per cent of the sales of impulse ice cream.3.20. In May 1982 Wall's and Lyons Maid gave an undertaking to the Director General of Fair Tradingrelating to exclusive ties in the supply of ice cream. This undertaking, also made by 32 smaller manufacturers,was intended to have the effect of permitting retailers to stock more than one supplier's ice cream (see Appendix3.1). Wall's, Lyons Maid and 34 small suppliers further signed undertakings relating to the conditions uponwhich manufacturers could make available refrigerated cabinets on exclusive terms (`freezer exclusivity'). Wall'sand Lyons Maid also gave undertakings relating to contract and bonus terms. Lyons Maid signed furtherundertakings concerning the terms of supply to certain wholesalers of soft ice cream mix, and franchiseagreements with mobile van operators.3.21. By the time that these undertakings were signed Lyons Maid was losing market share in the impulsesector, primarily to Wall's which told us that by 1980 it accounted for over half of the sales of impulse ice cream(52 per cent) whilst Lyons Maid accounted for 39 per cent.3.22. During the 1980s Lyons Maid continued to lose ground and BEW established itself as the clear leader inthe impulse market. Having entered the decade with a share just over one-half of the market, by 1989 BEWaccounted for two-thirds of sales of wrapped impulse ice cream.3.23. There are a number of reasons for the relative decline of Lyons Maid. There was little new productdevelopment by the company, and none of the products launched by Lyons Maid during the decade managed toachieve a place in the industry's ten best-selling brands. Relative to BEW there was only modest investment inmanufacturing plant and much less was spent in advertising existing major brands. Furthermore the companyexperienced distribution difficulties following the sale of Alpine Refrigerated Deliveries (Holdings) Ltd, an inhousedistributor of the Lyons Maid range of ice cream. BEW claimed that, by contrast, it invested some £82million in new production facilities between 1983 and 1991, concentrated production on one site in Gloucester somaking efficiency savings, spent heavily on R&D and the development of new brands, radically reorganized itsdistribution through the introduction of the concessionaire system, and modernized its fleet of refrigeratedcabinets. These developments, combined with Lyons Maid's shortcomings, enabled BEW to persuade aconsiderable number of retail outlets to stock its products rather than those of Lyons Maid. Thus Lyons Maid lostground within many CTN outlets and found that its efforts to expand sales in cinemas and other leisure outletsdid not compensate for its declining presence in both grocery and convenience stores.18

The entry by Mars3.24. In 1989 there was a significant new entrant into the impulse ice cream market. Mars believed it couldapply its expertise as a manufacturer of impulse confectionery products by extending its successful confectionerybrands into ice cream products. Ice Cream Mars was widely regarded as a major innovation because it was madewith real chocolate and dairy ice cream, the first such product to be marketed on a large scale in the UK. It wonseveral awards within the food retailing industry as a pioneering product and created a new market in hand-heldpremium ice cream. Initially Mars launched the new product through the grocery sector and then tried topenetrate the impulse sector. It experienced difficulties as a result of the practice of freezer exclusivity butnonetheless found a good response from consumers. Within months Mars accounted for a large part of thechocolate bar segment of the impulse market. Following the successful launch of Ice Cream Mars a number ofother popular confectionery lines including Bounty, Snickers, Galaxy Dove and Opal Fruits have appeared asimpulse ice cream brands. Mars manufactures most of these products near Strasbourg.3.25. The entry by Mars into the impulse ice cream market in 1989 has had a number of consequences bothfor the character of that market and the character of competition within it. In itself the successful launch of thenew brands has had the effect of significantly expanding the relative importance of the chocolate bar segment ofthe impulse market. Secondly, Mars has had a major impact on competition due to its evident strength as a majorsupplier of branded confectionery products. BEW was now faced with a new entrant that had seen the possibilityof developing the market in a way not hitherto perceived by existing manufacturers. Mars was prepared to offerstrong marketing support for its innovative products and thus presented a formidable challenge to the marketleader and to Lyons Maid (which continued to lose market share). In response the longer-established supplierssought to accelerate new product development, some of which competed directly with the range of Mars icecream products in both kind and quality. BEW told us that it regarded the introduction of Ice Cream Mars as amarketing rather than product development. BEW said that it already sold a chocolate-enrobed ice cream bar,Bonanza, first launched in 1987, although this brand had not been made with real chocolate. BEW also arguedthat it had been consistently innovative in the period before 1989 and across a number of market segments. BEWhad, prior to the entry of Mars, introduced the refreshment product Calippo in 1987, in addition to Bonanza, thechildren's products Pzazz and Tangle Twister in 1988, and in 1989 Freaky Foot, a development andimprovement of Funny Foot.Other new entrants3.26. Several other firms have entered the impulse market. Following its take-over of Pillsbury in 1989,Grand Metropolitan PLC acquired a subsidiary company, Häagen-Dazs, a manufacturer in the USA of ice creamwhich in the UK would be described as super premium ice cream. In 1990 Häagen-Dazs opened an ice creamparlour in Leicester Square, London, and has since extended the number of its outlets to 16 including some minishops in the Warners multi-screen cinemas. At first Häagen-Dazs imported its products from the USA but since1992 it has supplied both the UK and other markets in Europe from a plant in Northern France. The companynow sells super premium fresh cream ice cream and frozen yoghurt flavours to retail chains and delicatessensmainly, though not exclusively, for the take-home market. Häagen-Dazs also supplies branded upright freezercabinets to retailers for exclusive sales of its products. Häagen-Dazs has a very small share of the impulse icecream market.3.27. In 1991 an existing supplier of impulse ice cream, Treats, became an independent company and thuscan be regarded as a new entity in the impulse market. Treats, which had been purchased by Unilever in 1969,had operated in effect as a separate business from Wall's even though it produced some of the Wall's range ofproducts. BEW announced the closure of the Treats factory in Leeds in 1990 but the management team boughtthe business. The buy-out was completed in January 1991 following which the newly-independent companyinvested in a new factory. This now produces a wide range of products for several of the major retail chains forthe take-home market, both bulk ice cream and multi-packs, as well as the Treats own range of ice stickconfectionery. Treats specializes in manufacturing lollipops of which it is thought to be the largest supplier inEurope. To augment its own range of ice stick confectionery, Treats buys in its requirements of chocolate barsand ice cream cones from other specialist suppliers.19

3.28. Treats seeks to compete with its former parent company and attract new business by offering highermargins to retail outlets than those obtainable from many manufacturers. The retail prices of the Treats range ofice cream products are also lower than those of BEW for comparable products. Treats has a stronger distributionin the North of England than in the South. Apart from BEW and Lyons Maid, Treats is currently the largestindependent manufacturer of impulse ice cream in the UK.3.29. Another new entrant with US connections was Mr Henry Clarke who came to the UK after selling hisKlondike ice cream business in the USA. In February 1991 Mr Clarke, through a stake in an investmentcompany, Yelverton Investments, acquired three ice cream manufacturers from Hillsdown at a cost of £10.3million. Fiesta Ice Cream Company Ltd, based at Stourbridge, produced ice lollies and bulk own-label ice creamfor the take-home market. Lewis Bros Ltd, based in Stoke-on-Trent, was a manufacturer of chocolate bars. Thethird manufacturer acquired was Mor-Isis Ice Cream Ltd which operated as Hortons, a Telford-based producer ofspeciality and premium ice cream.3.30. Clarke Foods, as Yelverton Investments was renamed, became a substantial supplier in the UK icecream market following its purchase of the Lyons Maid ice cream business from Allied-Lyons in February 1992.This added two ice cream factories-in Greenford and Liverpool-to its existing three plants. In just one year ofentry Mr Clarke had become the second largest ice cream manufacturer in the UK. However, as rapid as ClarkeFoods' arrival into the market had been, so was its exit. Within a year the company went into receivership.3.31. In retrospect the demise of Clarke Foods seems to be explained by a combination of factors, all ofwhich contributed to a major financing problem arising from the company's ambitious plans. The new owner ofLyons Maid had little time in February 1992 to make plans for the coming summer season. It was reported at thetime that problems in commissioning new plant prevented Clarke Foods from achieving more than one-quarterof its planned output. As a result retailers began to turn elsewhere for their supplies. In addition to these problemsMr Clarke aimed not only to launch the Clarke chocolate bar, the equivalent of its successful US product theKlondike, but also a Clarke range of super premium ice cream supported by a major advertising campaign. Anexceptionally wet August meant that Clarke Foods, like the rest of the industry, experienced poor sales. In theface of acute liquidity problems the company's bankers opted for receivership in October 1992. Within onemonth of the Receiver urgently seeking a buyer for the failed business, Nestlé, the world's largest foodmanufacturing company, completed the acquisition of the two factories at Stourbridge and Telford and most ofthe other assets of Clarke Foods including use of the Lyons Maid brand (but none of the Clarke companies).3.32. Nestlé had the benefit of acquiring the modern production equipment installed by Clarke Foods, andcould thus provide the backing for a renewed competitive challenge to BEW and attempt to stem the loss of retailoutlets stocking the Lyons Maid range. Whilst Clarke Foods had made considerable investment in the ice creambusinesses it had acquired, the company did not trade long enough for there to be any reversal in the decline ofLyons Maid. As a result of Clarke going into receivership this decline was exacerbated with many accountsbeing lost, in particular to BEW.Market shares3.33. Nielsen Audit data is the source of data used by all three leading companies to provide a basis forestimating market shares. It is based on a sample of CTNs, independent grocers and petrol station forecourtsduring the summer season. In addition to the Nielsen Retail Audit, BEW uses a Consumer Monitor whichconsists of daily interviews asking respondents what impulse ice cream they have purchased in the previous twodays. On the basis of these two external sources of data and its own sales BEW produces an estimate of the sizeof the impulse market and market shares.3.34. Mars told us that in addition to the Nielsen data it uses information collected for the ConfectioneryMarket Audit by the National Market Research Agency (NMRA). The NMRA audit is wider than that of Nielsencovering off-licences, cinemas theatres and beach kiosks. Mars claims that outlets in what it calls the leisuresector account for about 40 per cent of sales of impulse ice cream. Mars has no data on scoop and soft mix saleshaving no products in that part of the market.20

3.35. Table 3.1, based on Nielsen data, shows how, following the entry by Mars, the market share of BEW inthe wrapped impulse market measured by value fell between 1989 and 1990. In 1991 BEW's market share fellagain before a strong recovery in 1992 which is partly explained by the difficulties encountered by Lyons Maidduring its brief ownership by Clarke Foods. Table 3.1 also shows how Lyons Maid saw its market share shrinkfrom nearly one-quarter to one-tenth within the four years after 1988.TABLE 3.1 Market shares in the wrapped impulse marketper cent by value1988 1989 1990 1991 1992 1993*BEW 67 68 62 59 67 67Lyons Maid 23 23 21 18 10 11Mars 0 † 11 12 11 14Others 10 8 6 11 12 8Total 100 100 100 100 100 100Source: BEW based on Nielsen Audit data.*Estimate.†Less than 1 per cent.3.36. Mars told us that in 1991 and 1992 the NMRA audit indicated a higher market share than the numbersshown in Table 3.1. It claims a market share of 15 per cent in 1991 and 16 per cent in 1992. It told us that itsshare of the chocolate bar market was 20 per cent (see paragraph 3.54).3.37. Market share data on scoop ice cream are not available because sales of this type of product generallyare not branded. BEW estimates its market share of scoop and soft mix ice cream as a combined market to havebeen about 12 per cent in 1992.3.38. For multi-packs, retailers' own brands accounted for over 40 per cent of sales measured by value in1992, while BEW accounted for one-quarter. Table 3.2 shows how the rapid growth of Mars in the two years1989 and 1990 has subsequently been sharply reversed as other manufacturers and retail multiple chains havedeveloped alternatives to Mars' new brands.TABLE 3.2 Market shares in multi-packsper cent by value1988 1989 1990 1991 1992 1993*BEW 25 29 28 26 25 25Lyons Maid 2 5 3 3 2 4Mars Nil 13 21 16 13 11Other brands 28 14 10 16 16 15Retail own brands 45 39 38 39 44 45Total 100 100 100 100 100 100Source: BEW based on Nielsen Audit data.*Estimate.21

Small-scale manufacturers3.39. Table 3.1 indicates that between them the three largest suppliers account for about 88 per cent of salesof wrapped impulse products. A large number of small manufacturers together supply the remainder. Some ofthese suppliers are of quite recent origin as in the case of Häagen-Dazs but others have been in existence formany years.3.40. Many members of the Ice Cream Alliance (ICA) trace their origins back to immigrants from Italy. Forexample, Louis Granelli arrived in Manchester from Northern Italy in 1889 to begin making Italian ice cream.His firm gained a reputation for a quality product. The family business, now called Granelli McDermott Ltd,never sought national distribution. Antonio Frederici was another immigrant from Italy who started an ice creambusiness near St Helens on his arrival in the UK in 1896. His grandsons have now expanded the company,Fredericks Dairies Limited (Fredericks), to be the largest producer of ice cream chocolate bars in the UK.Gaetano Mansi left Italy in 1900 and the third generation of his family continue to make Italian ice cream for arelatively local market. This firm, Marine Ices, is based in north-west London.3.41. There are currently 367 members of the ICA who manufacture ice cream, many of whom have beenmaking ice cream for many years operating on a craft basis using little sophisticated equipment. The ICAestimates that there are around 1,000 manufacturers in the UK manufacturing from basic raw ingredients, if oneincludes the very smallest sized supplier. 13.42. Given that milk and skimmed milk are basic raw materials to manufacture ice cream it is not surprisingto find that dairy farmers have been a prominent source of new entry into the industry. Loseley began making icecream in 1977 using the cream and milk of the Jersey cows on the Loseley House estate. The company wasalready making cream, yoghurt and cheese. Its successful expansion into ice cream manufacture culminated inthe Loseley Estate selling Loseley to Booker PLC in 1987. The new owners renovated a frozen food plant inAlton, Hampshire, in order to maintain high-quality production to satisfy the requirements of the leadingsupermarket chains, health food stores and independent grocery outlets. For the impulse market Loseley suppliesice cream and yoghurt desserts in 100ml tubs and produces a larger size, 500ml, for the take-home market. Thecompany produces own label but this is a less important part of turnover than the branded Jersey ice cream line.Loseley achieved national distribution of its range of impulse and take-home products in 1992.3.43. Like Loseley, other family-run farm businesses which entered the industry in more recent years, such asLangage Farm Dairy Products located near Plymouth, and Childhay Manor of Crewkerne, produce a restrictedrange of ice cream. Such firms generally make tubs, not chocolate- coated bars, filled cones or ice lollies. Farmbasedmanufacturers tend to concentrate on premium ice cream that consumers associate with a locally-basedfarmhouse supplier.3.44. In 1984 milk quotas were introduced in order to reduce production of milk. As a result some farmersdecided to make ice cream and frozen yoghurt as a means of using milk in excess of their allocated quota. Bypurchasing a pasteurizing plant, a batch freezer and cold store dairy farmers were able to enter the premium icecream market. Such entrants have not found manufacture of ice cream difficult but told us that they haveencountered problems in securing an adequate number of retail outlets when competing with national supplierslike Wall's. Examples of such recent entrants to the impulse market are Purbeck Ice Cream, based in Wareham,Mackies Aberdeen Dairy Company Limited which started in 1986 near Aberdeen and the Castle Dairy in WestSussex.1A search of the 71 Yellow Pages directories for Great Britain supports the view that there are many manufacturers of ice cream that do notbelong to the ICA.22

DemandMarket size3.45. The market for impulse ice cream can be measured by value and volume with the latter either in litons(thousand litres) or portions (units sold). By value the size of the UK market for wrapped impulse ice cream wasestimated by BEW in 1992 to be £233 million at retail prices including VAT. Sales of scoop ice cream were putat £42 million and soft mix ice cream at £56 million although the latter is not part of the reference market.Wrapped and scoop sales together were £275 million. If soft mix is included the combined retail sales of £331million of impulse ice cream form about 42 per cent of the total ice cream market by value. Figure 3.1 shows thaton a volume basis the impulse share of the total ice cream market, including take-home and multi-packs, is muchlower. Measured by litons wrapped impulse, scoop and soft mix together accounted for 15 per cent of the icecream market.3.46. Demand for impulse ice cream is much influenced by the weather, with the result that there are markedfluctuations in sales from year to year (and also within a year-see paragraphs 3.49 and 3.50). It is therefore noteasy to determine longer-term trends in demand given the importance of a relatively warm or cool summerseason.3.47. In nominal terms, the retail value of the impulse ice cream market increased by nearly 40 per centbetween 1988 and 1992, both years when the summer season was relatively poor. But in real terms, that is to sayafter allowing for inflation, the increase in the market came to only 7.5 per cent (see Table 3.3) with sales at firstrising quite rapidly but then falling back. In volume terms the market declined by 3 per cent over the period as awhole. The share of the market in volume terms accounted for by wrapped impulse products rose from 62 percent in 1988 to 68 per cent in 1992.TABLE 3.3 The impulse ice cream marketRetail sales at constant 1992 prices, £ million*1988 1989 1990 1991 1992 1993†Wrapped impulse 196 250 260 254 233 248Scoop 60 69 60 50 42 103Soft mix 53 58 55 56 56 }Total 308 377 375 360 331 351Volume, litons ('000)Wrapped impulse 38.7 51.0 49.8 44.4 41.3 41.4Scoop 12.5 14.3 12.8 10.0 8.2 19.5Soft mix 11.1 12.7 11.8 10.5 10.9 }Total 62.3 78.0 74.4 64.9 60.4 60.9Source: MMC based on data supplied by BEW.*Adjusted by the retail price index (RPI).†Estimate.3.48. Table 3.4 shows that the impulse market grew very rapidly in 1989, in both value and volume terms,with growth particularly marked in wrapped products. There was a good summer in both 1989-the year that Marsentered the impulse market on a national basis-and in 1990 but in the next two years the mean maximum airtemperature was markedly lower and gave the industry two poor seasons though the recession in the UKeconomy may have been a contributory factor. Table 3.5 shows that the total ice cream market, including takehomeand multi-pack, also contracted in 1991 and was flat in 1992.23

TABLE 3.4 Annual rates of change in the impulse market% change on previous year1989 1990 1991 1992 1993†Retail sales at constant1992 prices, £m*Wrapped impulse +27.9 +4.0 -2.4 -8.3 +6.4Scoop +15.0 -11.9 -17.6 -15.6 +5.1Soft mix +8.7 -4.9 +2.0 +0.0 }Total +22.1 -0.3 -4.2 -8.0 +6.0Volume, litonsWrapped impulse +31.7 -2.3 -10.8 -6.9 +0.2Scoop +14.4 -10.4 -21.8 -18.0 +2.0Soft mix +14.4 -7.0 -11.0 +3.8 }Total +25.2 -4.6 -12.7 -6.9 +0.8Source: MMC based on data supplied by BEW.*Adjusted by the RPI.†Estimate.TABLE 3.5 Total UK ice cream marketRetail sales at constant 1992 prices*Year Value in £m % change on previous year1988 704 -1989 820 +16.61990 838 +2.11991 795 -5.11992 785 -1.31993† 831 +5.8Volume inYear litons ('000) % change on previous year1988 380 -1989 432 +13.61990 428 -0.91991 396 -7.41992 402 +1.51993† 428 +6.4Source: MMC based on data supplied by BEW.*Adjusted by the RPI.†Estimate.Seasonality of sales3.49. There is a strong relationship between the time of year and weather conditions and sales of impulse icecream. When there is a poor summer and temperatures below average, sales are depressed. The impact of theweather is much greater in the impulse market than in the take-home market. One national manufacturer told usthat in the impulse market the level of sales in the peak month is between eight and ten times that in the month ofpoorest sales. This contrasted with a peak at about half this level in the case of take-home sales. A secondnational manufacturer gave us monthly data (see Figure 3.2) which confirms that the range between the peak andtrough of impulse sales is much greater than those for other ice cream products.3.50. Short-term variations in the pattern of summer weather can lead to wide and unpredictable fluctuationsin sales from week to week and day to day. Sales of impulse ice cream in one week may be double or half thelevel of sales in the next and this variation may be even greater for individual products, and in particular water25

ices. These short-term variations are illustrated by the impact of very warm weather conditions in the last weekof May 1992 that coincided with the Spring Bank Holiday weekend. In just a four-day working week BEW soldover 9 per cent of annual sales of impulse ice cream (measured by portions). This level of sales was about 40 percent of all such sales for May 1992. The hot weather at that time was, however, untimely for Clarke Foods sinceit was unable to meet demand due to problems in commissioning new plant. The inability of stockists of LyonsMaid to obtain supplies at this time led to a large number turning to other suppliers for the remainder of thesummer season.3.51. The highly seasonal nature of the impulse ice cream trade continues despite efforts by manufacturers topromote off-season sales and to offer new products that can be eaten as a snack rather than just as refreshmentson a hot day.Types of impulse ice cream3.52. Impulse ice cream products may be classified into nine categories:(a) chocolate bars;(b) filled cones;(c) adult refreshment;(d) adult stick products;(e) children's novelty products;(f)cups;(g) card tubes;(h) single briquettes; and(i)frozen hand-held yoghurt.These categories are briefly described below:(j)Chocolate bars consist of chocolate-coated ice cream. Following the launch of Ice Cream Mars thissegment has seen rapid growth; it is now characterized by dairy ice cream blocks covered in realchocolate. Main items within this segment are Ice Cream Mars, Snickers, Bounty and Twix (all fromMars), Kick and Cadbury's Dairy Milk (BEW) and Classico, Crunch and Milky Bar (Nestlé).(k) Filled cones consist of individually wrapped wafer cones filled with ice cream plus various toppings.Mars is not represented in this segment and the Wall's Cornetto competes mainly with Lyons King Cone.(l)Adult refreshment includes adult-orientated fruit-flavoured water ices attached to a stick which areindividually wrapped. BEW's main lines in this part of the impulse market are Strawberry Split andOrange Fruitie. Lyons Maid has also named its major brands with reference to the relevant fruit flavouregRaspberry Mivvi and Orange Maid. Mars has two varieties of Opal Fruits.(m) Adult stick products comprise high-quality products such as dairy ice cream bars coated in real chocolatepresented on a stick. Magnum was launched by BEW in 1990, one year after Mars introduced the GalaxyDove Bar in the USA. Other examples of adult stick products are Feast and Nestlé Milk Chocolate.(n) Children's novelty products consist of a number of low-priced stick and water ice/lolly products, many ofwhich are frequently reshaped and slightly renamed, eg in 1993 BEW introduced Jurassic Park andHooded Skull, two water ice moulded products.26

(o)Cups comprise paper or plastic cups containing an individual portion of ice cream intended to be eaten with aspoon. Cups are produced by Loseley, Treats, Thayer's and Schöller in association with Mövenpick (seeparagraph 7.19), as well as BEW and Lyons; Mars is not represented in this segment.(p) BEW (Calippo), Lyons Maid (Big Squeeze) and Treats (Strika) make frozen water-based fruit drinkscontained in cardboard tubes (briefly referred to as card tubes).(q) Single briquettes are small blocks of uncoated ice cream intended to be eaten once unwrapped andsandwiched between wafers, eg BEW's Blue Ribbon.(r)Frozen hand-held yoghurts include products for individual serving such as the Ski Yoghurt Barintroduced by Eden Vale in 1991 and manufactured by Fredericks.3.53. We asked the main suppliers whether there was any market research showing the extent to whichconsumers appeared to regard an item in any of these nine product categories as being an acceptable substitutefor an item in another category. BEW told us that it was not aware of any such research; nor had Mars any suchinformation. A Gallup survey carried out on Mars' behalf in July 1992 concerned with brands rather than withproduct types showed that where consumers were unable to get their preferred brand of impulse ice cream in aparticular outlet, 65 per cent said that they would buy another brand whilst 14 per cent would look for itelsewhere. 8 per cent of consumers said that they would buy another product and 13 per cent that they would notbuy anything at all.The major branded products3.54. Table 3.6 sets out the individual products of the three leading suppliers within the categories identifiedabove. The BEW and Nestlé ranges of products are the most extensive whilst Mars has no brands in six of thenine product categories in Table 3.6. On the basis of Nielsen data Mars in 1993 has a market share of about 30per cent of the chocolate bar segment of the market. Mars said that because the Nielsen definition of chocolatebars excludes stick items, such as BEW's largest selling product Magnum, and also because Nielsen does notcover leisure outlets, its own estimate of this share was 20 per cent.28

TABLE 3.6 The brands of the major manufacturersProduct category Wall's Lyons Maid MarsChocolate barsCDMSkyKickChunky Choc (2 variants)Classico (3 variants)MilkybarCrunchBounty (2 variants)Mars Bar (2 variants)SnickersTwixMilky WayConesCornetto (3 variants)MagnificoKing Cone (4 variants)Mega King Cone (2 variants)Adult stick productsMagnum (3 variants)Feast (3 variants)Nestlé (2)Mint CrispToffee CrumbleGalaxy DoveAdult refreshmentOrange FruitieStrawberry SplitBoomyMivvi (3 variants)Orange MaidOpal Fruits(2 variants)Children's noveltyproductsMax (3 variants)Mini Milk (2 variants)Mini Juice (2 variants)Sparkles (2 variants)Tangle TwisterScribblerHooded SkullFreaky FootJurassic ParkMr Men Milk (2 variants)Mr Men Fruit (2 variants)FabZoomLipsmackerTornadoMickeyNobbly BobblyKing BananaCupsCream of Cornish TubBlue Ribbon Vanilla TubVanilla CupCreme de Creme (3 variants)Card tubesCalippo (2 variants)Single briquettesBlue RibbonFrozen hand-heldyoghurtsSource: MMC based on the company product lists.Retail distributionTrade channels3.55. The three leading manufacturers of impulse ice cream differ in the way in which they distribute theirproducts.3.56. At the time of the previous MMC inquiry, BEW distributed direct to retailers through a network ofdepots each of which was responsible for taking retailer orders and effecting delivery. In the early 1980s BEWdecided to consolidate retail distribution of all frozen foods in the BEW group through a single in-housedistribution network. However, BEW found that a common distribution system could not meet the retailer'srequirements for relatively small drop but frequent delivery of impulse ice cream, especially in the light of theimpact of changing weather conditions on orders. BEW decided to set up a number of concessionaires whowithin allotted territorial areas were given an incentive to maximize the sale of Wall's products. Theconcessionaires were appointed with the aim of making deliveries to existing retailers within 24 hours of ordersbeing accepted and to expand the customer base.3.57. For `nominated' accounts (generally those with the largest turnover) BEW itself invoices the customer,concessionaires receiving a handling charge. For `allocated' accounts, where the concessionaire invoices thecustomer and bears any credit risk involved, the margin is higher. In addition, concessionaires can earn bonusesrelated to pre-set sales targets. In 1992 concessionaires distributed 63 per cent by volume of BEW impulseproducts. Within the M25 BEW distributes its products direct (from a centre in Barking) and this accounts foranother 11 per cent. The other main distribution channels are national wholesalers, cash-and-carry outlets and29

mobile ice cream vans which are serviced through franchisees. BEW told us that the relative merits of directdistribution and operating through concessionaires were kept continually under review.3.58. Nestlé does not currently have its own storage and distribution facilities and relies on the system of`radial distributors' it inherited from Clarke Foods.3.59. Mars told us that at the time of its entry it faced the absence of an established national independentwholesale delivery network for impulse ice cream. It had therefore been forced to devise such distributionarrangements as it could in order to get its products into the impulse market. Its current reliance on frozen foodwholesalers for which the distribution of ice cream products is a minor part of their business is not one it regardsas satisfactory. Mars said that it faced particular difficulties in finding viable distribution to those outlets wherethe trade was especially seasonal (eg leisure outlets) and to cinemas and theatres. Brake Bros is a prominentdistributor of the Mars range. Mars reached an agreement with Lyons Maid in 1990 whereby a limited range ofMars' products are distributed into outlets where there is a Lyons Maid freezer cabinet. This agreement wasrenewed in April 1993 and can be terminated by either party on six months' notice expiring on 31 March of anyyear. At the time of reporting, the earliest termination date was 31 March 1995.Retail outlets3.60. The most important retail outlets for impulse ice cream continue to be CTNs. BEW told us that in 1992about 36,000 of these shops accounted for about 28 per cent of its sales of wrapped impulse products. Smallindependent grocery outlets and convenience stores together were responsible for about 16 per cent of such sales.Petrol forecourts and motorway stations, of which there are approximately 15,000, were estimated to account forabout 6 per cent of wrapped impulse sales. BEW said that there are about 7,000 seasonal and leisure outlets.Seasonal outlets include beach kiosks, fairgrounds, theme parks, caravan sites and historic houses allcharacterized by being open for part of the year. There are a wide variety of indoor outlets, eg cinemas, theatreand bingo clubs, where sales of ice cream are less influenced by the weather.Leisure outlets3.61. Places of entertainment, sporting and other outlets vary in their arrangements to stock impulse ice cream(see paragraphs 8.45 to 8.62). In some instances there are annual contracts placed with one supplier followingcompetitive tenders but sometimes more than one manufacturer's range is available for sale, eg at Alton Towersand Thorpe Park. In outlets such as cinemas and theatres there is keen competition between manufacturers to bethe favoured source of supply, as there is indeed in other major outlets such as motorway service stations.The supply of manufacturers' freezer cabinets3.62. The MMC concluded in 1979 that outlet exclusivity operated against the public interest. In May 1982BEW, Lyons Maid and a number of smaller manufacturers gave an undertaking not to impose outlet exclusivityon retailers. These suppliers further signed undertakings relating to the conditions upon which manufacturerscould make available refrigerated cabinets on exclusive terms-freezer exclusivity (see Appendix 3.1). Central tothis current inquiry is the question whether, despite the ending of outlet exclusivity, it is difficult for newcompanies to enter the impulse market because of freezer exclusivity. If a retailer with a cabinet supplied by onemanufacturer has no room for a second freezer (whether owned by the outlet or provided by another supplier)then it has been put to us that, in practice, outlet exclusivity still persists because freezer exclusivity produces thesame effects.3.63. We asked the three leading manufacturers as well as smaller suppliers for information about the numberof freezer cabinets which they each supplied to retail outlets. Table 3.7 shows the number of freezers in generaltrade outlets, which includes all outlets other than retail grocers where take-home sales are much more significantthan sales of impulse ice cream.30

TABLE 3.7 Number of freezer cabinets installed in general retail outlets in mid-1992 and mid-19931992 1993BEW 57,500 60,300*Nestlé 17,000 22,660†Mars 21,150‡ 26,150‡Other manufacturers - 6,000§Source: Company estimates (rounded).*Of these, 48,100 used for display and 12,200 used for back-up/storage.†Of these, about 4500 used for back-up/storage.‡In 1992 6,850 were FOL, 13,900 purchased by retailers and 400 leased. In 1993 a further 5,000 were made available FOL.§BEW estimate.3.64. BEW estimated that there are about 90,000 general trade outlets selling wrapped impulse ice cream. Itthought that about 21,000 outlets provided their own cabinet to stock the BEW range whilst 42,000 outlets soldBEW ice cream from a company-provided cabinet. Thus BEW ice cream was stocked in 63,000 outlets. BEWfurther estimated that about 32,000 outlets (one-third of all outlets) currently had one or more BEW freezerswhere the retailer did not have a cabinet from a second manufacturer. BEW thought that a similar proportion ofall retail outlets-one-third-were ones where retailers provided their own refrigeration.3.65. The numbers of supplier-owned cabinets are not an unambiguous indicator of the degree of accessavailable to each of the named suppliers in general trade outlets. Subject to shop space and demand fromcustomers to justify it, a retailer with one cabinet can add a cabinet owned by a second manufacturer or buy hisown cabinet. A third possibility is for an outlet to make space for a second cabinet by taking a smaller cabinet, ifone exists, from the incumbent manufacturer. However, access may be restricted since retailers may regardswitching of any kind as unattractive if it means losses in relation to access to established brands. (See furtherparagraph 3.111.) In addition to these possibilities it is pertinent to mention the current arrangement betweenMars and Lyons Maid. The agreement does not give Mars full access to Lyons Maid freezers, because only halfof the ten Mars product lines are stocked by the 14 wholesale firms that distribute the Lyons Maid range of icecream.The MMC's survey3.66. The MMC arranged a survey of independent retailers to be carried out on their behalf by ResearchInternational (RI) (see Appendix 3.2). The RI survey was conducted over the telephone and covered 1,504outlets, half of which were CTNs and the remainder comprised petrol station forecourts and conveniencestores/grocers.3.67. About three-quarters of the proprietors or managers of the retail outlets in our sample said that they hadone front-of-store cabinet, with most of the remainder having no more than two (Appendix 3.2, Table 3). Abouttwo-thirds of retailers had a front-of-store cabinet which was owned by a manufacturer and just over half onlyhad such a cabinet. 36 per cent of retailers had no freezers owned by any manufacturer.3.68. Just under one-half of all retailers in our survey said that they had a BEW-owned cabinet (Appendix3.2, Table 3). Of outlets with a supplier-owned freezer only, 71 per cent had a BEW freezer.3.69. Our survey asked retailers who had only one freezer (which they believed to be for the exclusive use ofthe manufacturer which owned it) whether they would be prepared to install a second cabinet in the front of theirstore. The majority of these 538 outlets (36 per cent of the total sample) claimed that they would not install asecond cabinet (Appendix 3.2, Table 4). The main reason given was a perceived lack of space although otherfactors included cost and the limited sale of ice cream. Amongst those retailers who considered a lack of space asthe reason for not installing a second cabinet, about three-quarters were not willing to replace their existingfreezer with two smaller ones. The research suggested that these retailers perceived the available space forfreezer cabinets to be severely limited.31

3.70. Less than one-fifth of respondents (taking into account those who said they were willing to considerinstalling two smaller cabinets instead of the present larger one) had an exclusive cabinet and no other, and alsosaid that lack of space was the reason for not getting a second cabinet.3.71. Just under one-half of all retailers in the MMC sample (47 per cent) had a front-of-store cabinet whichthey had purchased or leased themselves. Around one-third of these cabinets were the first installed in thoseoutlets, and a similar proportion were an addition to, or a replacement for, a supplier-owned cabinet. The mainfactors prompting retailers to buy their own freezers were `wanting to respond to customer demand' and`ensuring the availability of all nationally known brands'. Convenience stores and grocers were more likely tohave their own freezer than either petrol station forecourts or CTNs.3.72. Few respondents to the RI telephone survey (about 3 per cent) said that, if current arrangementschanged, they would expect to stop selling impulse ice cream. This was on the assumption that the cost of icecream would be lower. The survey also suggested that few retailers would extend the range of impulse ice creambeyond that currently available were freezer exclusivity to end. Just under one-half of 1,504 outlets said that theystocked some of the Mars range of impulse ice cream.3.73. BEW doubted whether some of the questions in the MMC survey provided an objective answer on theissue of whether retailers lacked space to install an additional cabinet. It also considered the sample of retailers tobe overweighted to CTNs. BEW commissioned a retailer survey from Market Research Solutions Limited(MRSL) based on a sample of 437 outlets that provide data for Nielsen retail audits. This sample contained 44per cent of independent CTNs, 35 per cent independent grocers and the remainder petrol station forecourts. TheMRSL survey was based on interviews with owners and managers of these outlets.3.74. BEW said that by conducting face-to-face interviews it was able to verify on-the-spot statements as toavailable space in retail outlets for additional freezers and show photographs of a selection of small freezers toretailers. The results from the MRSL survey (see paragraph 4.59) were regarded by BEW as confirming its viewthat many of those retailers who currently have one freezer do have sufficient space for another.3.75. Nestlé provided us with the results of market research conducted on its behalf by Aspen FieldMarketing-see paragraphs 6.21 to 6.24. While the sample of outlets was much more extensive than the MMCsurvey, no questions were put to retailers concerning their attitude to freezer exclusivity. Where the results couldbe compared there was broad agreement between the two surveys. However, Nestlé regarded the MMC sampleas being weighted towards CTNs and under-representing petrol station forecourts and therefore likely to bebiased against exclusivity.Multiple retail chains3.76. Impulse ice cream is not stocked by all the leading multiple retail chains. Its sale requires a freezercabinet to be located near a customer check-out, but customers making a weekly shopping trip are not ofteninclined to buy one of the reference products when they are purchasing many grocery products. Sainsbury,Tesco, Waitrose and Kwik Save have no freezer cabinets supplied by an ice cream manufacturer for the sale ofimpulse ice cream in their supermarkets although Tesco does have cabinets from Mars in its petrol stationforecourts. Those few retail multiple chains that do sell impulse ice cream vary in the number of manufacturers'brands stocked. Asda, Gateway and Safeway all have BEW cabinets whilst Gateway also has some provided byNestlé and Mars and Safeway cabinets from Häagen-Dazs.Industry freezers3.77. Most of the CTN chains from which we heard have cabinets supplied by both BEW and Mars (seeparagraphs 8.20 to 8.34). Some of these chains have conducted experiments with unbranded `industry freezers',where space is allocated for the best-selling brands of both BEW and Mars. Chains such as the Martin RetailGroup PLC (Martin) and E M Merrett & Co Limited (Merrett) have been interested to establish whether there isany increase in sales from a single freezer with a joint logo as compared with sales from two freezers. Theseretailers have been concerned about the space taken up by two or more exclusive freezers and the running costsinvolved compared with one cabinet.32

3.78. Martin told us that during an eight-week trial ending in October 1992 it had experienced a 15 per centincrease in sales in 30 of its outlets where there was an `industry' cabinet, as compared with sales from twoseparate freezers (a large one from BEW and a smaller one from Mars). We were later told that this figure hadnot been confirmed by experience over a longer period in 1993 and in a wider range of outlets. Martin estimatedthat the increase in sales was between zero and 2 per cent. However, the move to non-exclusive freezers was stillregarded as worthwhile because of better utilization of space and savings in running costs (see also paragraph8.25).3.79. Merrett told us that 1993 had been a poor year for ice cream sales and that in 34 of its outlets sales were12 per cent below those in 1992. In the three outlets where there was an industry freezer rather than both a BEWand Mars freezer sales were lower in 1993 compared with the previous year by between 4 and 15 per cent.Merrett said that it had allocated 60 per cent of the three industry cabinets to BEW (including all but fourproducts from the BEW range) and 40 per cent to Mars. The company said that it preferred a single freezerbecause this gave a more professional service to customers as well as being cheaper to run, manage and maintainthan was the case with two cabinets (see also paragraph 8.30).Retail and pricing policyRetail prices3.80. The leading manufacturers of impulse ice cream determine recommended retail prices (RRPs) each yearwell before the start of the summer season. These prices do not change during the year save in exceptionalcircumstances such as the increase in VAT rates in the 1991 Budget.3.81. We were told that RRPs are generally observed in independent CTNs but this is not the case in leisurecentres, petrol forecourts, motorway service stations and some convenience stores, where actual retail prices canbe significantly higher than those recommended. BEW told us that one of the larger CTN chains does not adhereto RRPs in selling impulse ice cream in its outlets but adds 2p to the RRP on all lines stocked. It is not usual forretailers to charge prices below RRP.3.82. In recent years manufacturers have shown a preference for `rounded number' prices, ie multiples of 5pand 10p. However, in the children's segment of the market there is a belief that custom is particularly pricesensitiveand some prices are set below rounded numbers.3.83. Table 3.8 shows the recommended retail prices of 50 branded lines in seven categories of the impulsemarket. Within the chocolate bar category the average price of BEW brands (55p) exceeds that of Nestlé/LyonsMaid brands (46p). The average price of the five Mars brands, 57p, is the highest of these three suppliers. In thecase of cones, BEW and Nestlé/Lyons Maid each sell two brands at the same price. In the adult stick categoryMagnum is priced at a small premium to both the Mars Galaxy Dove and the Nestlé Chocolate brands. There isno price differential between Feast and Nestlé Mint Crisp and Toffee Crumble. All six brands within the adultrefreshment category have recommended retail prices of 55p or 60p. There is a wide range of prices in thecategory of children's novelty products.33

TABLE 3.8 1993 RRPs of brands of impulse ice creamVariants (V) RRPChocolate barsWall's Cadbury's Dairy Milk 1 0.65Wall's Sky 1 0.55Wall's Kick 1 0.65Wall's Chunky Choc Ice 2 0.45Nestlé/Lyons Maid Classico 3 0.45Nestlé/Lyons Maid Milkybar 1 0.40Nestlé/Lyons Maid Dairy Crunch 1 0.55Mars Mars Bar 2 0.60Mars Snickers 1 0.60Mars Twix 1 0.60Mars Bounty 2 0.60Mars Milky Way 1 0.40Average price of chocolate bars 0.53ConesWall's Cornetto 3 0.65Wall's Magnifico 1 0.90Nestlé/Lyons Maid King Cone 3 0.65Nestlé/Lyons Maid Mega King Cone 2 0.90Average price of cones 0.73Adult stick productsWall's Magnum 3 0.85Mars Galaxy Dove 1 0.80Nestlé/Lyons Maid Milk Chocolate 1 0.80Nestlé/Lyons Maid White Chocolate 1 0.80Wall's Feast 3 0.50Nestlé/Lyons Maid Mint Crisp 1 0.50Nestlé/Lyons Maid Toffee Crumble 1 0.50Average price of adult stick products 0.68££Variants (V) RRPAdult refreshmentWall's Orange Fruitie 1 0.50Wall's Strawberry Split 1 0.55Wall's Boomy 1 0.55Nestlé/Lyons Maid Mivvi 3 0.60Nestlé/Lyons Maid Orange Maid 1 0.55Mars Opal Fruit 2 0.60Average price of adult refreshment 0.57Children's novelty productsWall's Max 3 0.33Wall's Mini Milk 2 0.20Wall's Mini Juice 2 0.18Wall's Sparkles 2 0.22Wall's Tangle Twister 1 0.42Wall's Scribbler 1 0.18Wall's The Hooded Skull 1 0.25Wall's Freaky Foot 1 0.37Nestlé/Lyons Maid Mr Men Milk 2 0.20Nestlé/Lyons Maid Mr Men Fruit 2 0.20Nestlé/Lyons Maid Fab 1 0.35Nestlé/Lyons Maid Zoom 1 0.30Nestlé/Lyons Maid Mickey 1 0.35Nestlé/Lyons Maid Nobbly Bobbly 1 0.40Nestlé/Lyons Maid King Banana 1 0.40Nestlé/Lyons Maid Lip Smacker 1 0.45Nestlé/Lyons Maid Tornado 1 0.45Average price of children's novelty products 0.29CupsWall's Cream Of Cornish Tub 1 0.50Wall's Blue Ribbon Vanilla Tub 1 0.42Nestlé/Lyons Maid Vanilla Cup 1 0.50Nestlé/Lyons Maid Creme de Creme 3 0.80Average price of cups 0.47Card tubesWall's Calippo 2 0.50Note: The averages are based on the formula:Total price of all products in that category (including different variants)Total number of products (including variants)The categories single briquettes and frozen hand-held yoghurts were not included in the price comparison due to a lack ofproducts.Average price differences for the different ice cream categoriesNestlé/Category Wall's Lyons Maid Mars Mean averageChocolate bars 0.55 0.46 0.57 0.53Cones 0.71 0.75 * 0.73Adult stick products 0.68 0.65 * 0.68Adult refreshments 0.53 0.59 0.60 0.57Children's novelty products 0.26 0.32 * 0.29Source: MMC based on company price lists.*Denotes that a comparison is inappropriate.34

Price movements3.84. We have considered price movements over time for particular products in the main categories of theimpulse market. It is apparent that the launch of Ice Cream Mars in 1989 gave rise to a significant change in thecharacter of the impulse ice cream market. In itself this product created a new sector of the market in hand-heldice cream bars. Ice Cream Mars priced at 60p in 1989 was a markedly more expensive product than most otherimpulse ice creams. This higher price was in part a reflection of a change in quality using real dairy cream andchocolate. Other manufacturers have responded since 1989 with similar improvements in the quality ofingredients in ice cream manufacture and felt able to reflect this in higher retail prices. In Mars' view othermanufacturers have increased retail prices for some products before (or without) making significantimprovements in the quality of their products.3.85. Table 3.9 shows how retail prices of ten BEW brands have changed since 1982 in nominal terms. Theprice increases in 1991 in part reflect the increase in VAT from 15 per cent to 17.5 per cent. Most food items inthe UK are relieved from VAT but ice cream is one exception, a distinction within the food industry first made in1962 when a 7.5 per cent rate of purchase tax applied to ice cream as well as confectionery and soft drinks. BEWtold us that in the case of Magnifico the price change in 1991 reflected the change to using dairy cream and thatthere had been a similar change of ingredient in respect of Cornetto in 1992. BEW said that the price increase in1991 of Calippo reflected a 20 per cent volume increase in this brand and that Feast was manufactured in a 15per cent larger size in 1992.3.86. The prices of Mars ice cream brands have fallen in real terms since Mars entered the market in 1989.For example, the RRP of Ice Cream Mars is 60p-the same as it was in 1989. Table 3.9 shows that if the actualRRPs of seven BEW brands existing in 1982 are adjusted for inflation, as measured by the overall RPI, therewere no general increases in real prices until 1988, but since then prices have risen in real terms, as have theprices of three products introduced since 1982. BEW, however, pointed out that Magnum, its fastest-sellingproduct, and the principal competitor of Ice Cream Mars, has not increased in price in real terms since its launch.3.87. Table 3.10 compares the RRPs of 15 BEW brands with the recommended selling prices (RSPs) ofmulti-packs for the same brands. It shows the difference between the recommended price of each brand whenpurchased as an individual item and the price paid per item in a take-home multi-pack. We were told that the rateof price increase on BEW multi-packs since 1990 has been markedly lower than that for the same items whenpurchased individually. Mars claimed that in the ambient chocolate confectionery market there had been virtuallyno change in the real prices of several leading brands in the period since 1985. Mars argued that this was becausethere was strong inter-brand competition between closely-sited products like Kit Kat and Twix. Mars claimedthat in the case of impulse ice cream this inter-brand competition was weaker because of freezer exclusivity.BEW said that there were a number of reasons to explain the lower rate of price increase of multi-packs ascompared with individual items. First, the RRP trend of multi-packs was distorted by the exceptional temporaryprice reductions on packs of Magnum in order to bring their retail selling price below £2 in the first few years ofsales. Secondly, the rate of increase in distribution costs for multi-packs had been significantly less than forimpulse products. Thirdly, the mechanization of packaging had resulted in lower costs. Fourthly, it is a reflectionof the considerable buying pressure of supermarkets, both direct and indirect via their own-label products.35

TABLE 3.9 Recommended retail selling prices for ten BEW brands, 1982 to 1992 (adjusted for changes in the RPI over the same period)£1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993Chocolate barsWall's Chunky Choc Ice RRP 0.25 0.25 - - - 0.30 0.30 0.35 0.37 0.40 0.43 0.45Adjusted by RPI (1982 = 100) 100 95 - - - 95 91 98 95 95 100 107Wall's Winner/Bonanza RRP - - - - - 0.35 0.35 0.40 0.45 0.50 0.55 -Adjusted by RPI (1987 = 100) - - - - - 100 94 100 102 108 114 -ConesWall's Cornetto RRP 0.32 0.32 0.35 0.35 0.37 0.40 0.42 0.45 0.50 0.55 0.60* 0.65Adjusted by RPI (1982 = 100) 100 91 98 93 94 98 98 98 100 104 109 120Wall's Magnifico RRP - - - - - 0.60 0.65 0.65 0.75 0.85* 0.85 0.90Adjusted by RPI (1987 = 100) - - - - - 100 102 95 100 107 104 111Adult stick productsWall's Feast RRP 0.25 0.20 0.22 0.27 0.30 0.30 0.33 0.35 0.40 0.45 0.47* 0.50Adjusted by RPI (1982 = 100) 100 76 79 93 100 95 100 98 102 109 109 119Adult refreshmentWall's Orange Fruitie RRP 0.24 0.25 0.25 0.27 0.30 0.30 0.33 0.35 0.40 0.45 0.47 0.50*Adjusted by RPI (1982 = 100) 100 100 95 97 105 100 105 102 107 115 115 124Children's novelty productsWall's Mini Milk RRP 0.12 0.10 0.12 0.12 0.14 0.15 0.15 0.15 0.16 0.18 0.20 0.20Adjusted by RPI (1982 = 100) 100 80 95 90 100 100 95 90 90 95 100 100Wall's Sparkles RRP 0.10 0.08 0.10 0.10 0.11 0.12 0.13 0.15 0.17 0.18 0.20 0.22Adjusted by RPI (1982 = 100) 100 76 94 88 94 94 100 106 112 112 118 129Wall's Funny Feet RRP 0.17 0.17 0.18 0.18 0.18 0.20 0.20 0.25 0.30 0.35 0.37 0.37Adjusted by RPI (1982 = 100) 100 96 96 90 90 93 90 103 114 124 128 128Card tubesWall's Calippo RRP - - - 0.35 0.30 0.30 0.33 0.35 0.37 0.45 0.47* 0.50Adjusted by RPI (1985 = 100) - - - 100 82 80 84 84 82 80 92 100Source: MMC.*BEW said that these price changes in part reflected an improvement in the quality of ingredients or a larger size of the products.Note: For each product the first row shows actual recommended prices. The second row shows the RRP adjusted by change in RPI and expressed as an index with thebase year in each case equal to 100.36

TABLE 3.10 Recommended prices of multi-packs compared with those of individual items in 1993RSP Units per RSP RRP Differentialmulti-packs multi-pack per unit single (%)Wall's multi-packs (a) (b) (c) (d) ((d)-(c))÷(c)×100Cornetto 1.95 4 0.49 0.65 32.65Kick 1.99 4 0.50 0.65 30.00Sky 1.99 4 0.50 0.55 10.00Magnum 2.19 3 0.73 0.85 16.44Cadbury's Dairy Milk 1.99 4 0.50 0.65 30.00Chunky Choc Ice 1.65 5 0.33 0.45 36.36Feast 1.79 5 0.36 0.50 38.89Calippo 1.69 4 0.42 0.50 19.05Boomy 1.79 4 0.45 0.55 22.22Mini Milk 1.85 12 0.15 0.20 33.33Mini Juice 1.85 12 0.15 0.18 20.00Source: MMC.Differential (%) 26.27Note: RSP = recommended selling prices of multi-packs; RRP = recommended retail price of a single item.Trade terms3.88. BEW and other manufacturers negotiate on price with their major customers. Table 3.11 shows thebasic discount structure for different types of distributors expressed as an index with reference to RRPs.TABLE 3.11 Trade terms for different types of outletMultiple Symbol Small independent outletConcessionaire Wholesaler CTN grocer Using company- Usingsupplied freezer own freezerBEWRRP ex VAT [Trade price list (TPL)Discount off TPL:Maximum %Figures omitted. See note on page iv.Minimum %Net price to customer ]Multiple Symbol Small independent outletWholesaler CTN grocer Using company- Usingsupplied freezer own freezerNestléRRP ex VAT [Trade price list (TPL)Discount off TPL:Maximum %Minimum %Figures omitted. See note on page iv.Net price to customerranges from ]MarsRRP ex VAT [Trade price list (TPL)Discount off TPL:Maximum %Minimum %Figures omitted. See note on page iv.Net price to customer ]Source: MMC based on company data.*These figures relate to a level of sales on which the highest stepped bonus rate is payable.37

3.89. Table 3.11 indicates that in the case of both BEW and Nestlé small independent outlets obtain a higherlevel of bonus if they have their own cabinet rather than use a manufacturer-supplied cabinet. The bonusdifferential is not a constant but depends on the level of turnover and is paid in arrears. In the case of BEW,Table 3.12 shows the bonus payable on a sliding scale with reference to the size of annual sales of BEWproducts.TABLE 3.12 Bonuses to small independent outlets and ownership of freezer cabinetsSize of BEW Ownpurchase from BEW freezer freezer Differential0-799 Nil Nil -800-1,069 Nil 6 6.01,070-1,579 2.5 6 4.51,580-1,959 3 7 4.01,960-2,389 3.5 7 3.52,390-2,919 4 8 4.02,920-3,469 5 8 3.03,470-4,059 6 9 3.04,060-4,609 7 9 2.04,610+ 8 10 2.0Source: BEW.3.90. A typical small retailer, usually a CTN, who stocks BEW's impulse ice cream obtains the discountsshown in Table 3.12. These terms apply to about 35 per cent of cabinets. There are three categories of customersand customer buying groups on special terms. First, there are multiple chains that receive volume-related bonusesand one or more allowances for merchandising and promotion. Secondly, there are outlets that operate on aseasonal basis or with high sales in theme parks, theatres and cinemas. Some independent retailers with whichspecial terms have been negotiated comprise a third category.3.91. Nestlé's bonus structure is similar to BEW's, but, as noted in paragraph 2.42, the method of calculationdiffers. Mars recognizes no distinction within independent outlets as to whether it has supplied a cabinet or not.Mars stated that it wished to encourage keen competition between the distributors of its products.3.92. Many independent CTNs and other retailers belong to buying groups which negotiate on behalf ofmembers. Bridewell UK has obtained an extra discount from BEW. A new company, Bridewell IcepowerLimited, was formed in October 1993 to promote ice cream sales through the outlets of members. This newbuying group also obtains a discount on sales made through supplier-owned cabinets. However, as yet no buyinggroup is involved in purchasing bulk quantities of freezer cabinets on behalf of its members.Advertising and marketingProduct innovation3.93. The ice cream market in general, and the impulse sector in particular, is characterized by a high degreeof consumer brand awareness maintained, as in many other consumer goods industries, by expenditure on alltypes of advertising, marketing and special promotions. This expenditure is mainly incurred in support of thenew products and range extensions which have been become an even more marked feature following Mars' entryin 1989.3.94. During the period 1985 to 1988 BEW introduced 22 new products of which 14 were aimed at children.Lyons Maid launched 19 new lines including 12 for children. Since 1989 BEW and Lyons Maid have maintainedtheir rate of new product introductions. However, the entry by Mars and other producers into the market hasresulted in an increase in the total of new product launches. This significant increase in the rate of new productintroductions is shown in Table 3.13. The table indicates that over half of all new product launches have beenchocolate bar products aimed at the adult category of the market following the launch of Mars ice cream38

products in this category and competing products from other manufacturers. These additions to the range ofimpulse ice cream products have come not just from BEW but Lyons Maid, Mars and other suppliers.TABLE 3.13 New impulse ice cream product launchesLyonsBEW Maid1985 to 1988Chocolate bars 4 3Cones 2 1Adult stick - 1Adult refreshment 2 2Children's novelty products 14 12Total 22 19LyonsBEW Maid Mars Other Total1989 to 1992Chocolate bars 5 5 5 6 21Cones 2 - - 2 4Adult stick 4 3 1 1 9Adult refreshment 1 5 2 3 11Children's novelty products 14 6 - 5 25Totals 26 19 8 17 70Source: Mars.3.95. Mars told us that its Galaxy Dove had attracted a new, older customer to eat ice cream on a stickwhereas previously adults had tended not to buy ice cream for themselves but only for their children. Its successhad prompted other suppliers (eg BEW with Magnum) to launch similar high- quality products aimed at the adultmarket such that ice cream was no longer perceived as essentially for children but a snack that could be eaten byadults at any time of day.3.96. In the children's ice cream sector manufacturers continually search for novelty. They frequentlyintroduce new lines and variants of existing products which are of different appearance but of similar taste. Acurrent example of a variant of an existing product in this market is Jurassic Park introduced in 1993 in place ofanother moulded water ice lollipop, Dinosaur.Advertising3.97. Manufacturers told us that they have increased advertising expenditure to make consumers aware of thegreater choice of impulse products. There is now relatively more emphasis on individual brands, eg Cornetto,rather than the name of the manufacturer of the brand.3.98. Brand promotion in this market effectively started when BEW reintroduced the Cornetto in 1976 havingtried twice previously to launch this brand in the UK. Aided by an exceptionally warm summer the stronglypromotedCornetto quickly became one of the industry's top-selling lines. Since 1977 BEW has supported thisone brand with cumulative expenditure on television advertising of over £15 million.3.99. Impulse ice cream is now one of the most heavily advertised food products in the UK. This is areflection of the entry by Mars in 1989 and the response by BEW to introduce new brands and extend existingproduct ranges. The main element of advertising expenditure-almost 90 per cent of total media expenditure onice cream-is devoted to commercial television channels. MEAL data indicates total advertising expenditure onimpulse ice cream in 1992 of about £18 million. This suggests an advertising:sales ratio of about 7 per cent. Sucha figure is a relatively high one when compared with confectionery, snack foods and carbonated soft drinkswhich are alternatives for the consumers' impulse expenditure, although in these cases there are no data thatseparate advertising expenditure as between impulse and take-home sales.3.100. In 1989 BEW incurred total marketing expenditure of £6.4 million. In the following year this had risento £8.8 million and to £9.7 million in 1991. In 1992 total expenditure was £11.7 million which included39

£3 million marketing support for the new brand Magnum and a similar sum for the Kick ice cream snack. ClarkeFoods, which acquired the Lyons Maid brand in early 1992, spent £6 million supporting the Clarke superpremium ice cream. Mars spent about £7 million in 1992 in launching Opal Fruits and supporting the rest of itsrange. Häagen-Dazs incurred expenditure of about £1 million in 1992 promoting its premium ice cream as a`sensual indulgent experience' in press and poster advertising.3.101. Mars told us that its advertising expenditure reflected its commitment to extending its majorconfectionery brands to the impulse ice cream market at a time when it faced difficulties in distributing theseproducts.3.102. In addition to advertising campaigns, impulse ice cream manufacturers engage in other promotionalactivity such as offering consumers extra product at no additional cost and providing free samples. Mars told usthat the cost of adding 10 per cent to the size of three of its brands in 1993 was £0.6 million. Small manufacturersof impulse ice cream spend little or nothing on advertising, though they may undertake other promotionalactivity. For example, Loseley offers free samples at sporting and country shows.Provision of freezers3.103. Apart from expenditure on advertising and consumer promotion manufacturers provide brandedfreezer equipment to retail outlets. The supply of cabinets to be used exclusively for the sale of themanufacturers' products is a key area of competition between impulse ice cream manufacturers.3.104. BEW incurred expenditure in purchasing cabinets of £1.4 million in 1988 rising to £3.1 million in thefollowing year. In each year between 1990 and 1992 the cost of purchasing freezers provided to retail outlets wasabout £3 million. BEW told us that in 1992 there were some 34,000 movements of freezer cabinets includingnew installations, removals and changes of cabinets. The cost to BEW in 1992 for administration, maintenanceand refurbishment of cabinets amounted to £3.1 million, of which approximately £2.8 million was for the generaltrade. Mars told us that it had incurred a capital cost of £1.7 million in 1992 in providing FOL cabinets.3.105. Mars said that it had encountered no particular technical problems in purchasing small-sized cabinets,most of which it had bought from Derby, a company in Denmark. However, Mars pointed out that the small 0.2metre cabinets which it found suitable to site in retail outlets alongside those of BEW were disproportionatelyexpensive. The 0.9 metre cabinet, which accounts for about 10 per cent of all Mars freezers, costs only 27 percent more than the 0.2 metre cabinet but has 3½ times greater capacity.Problems facing market entrants3.106. The difficulties facing potential entrants into this market are, first, access to retail outlets, secondly thedevelopment of brands and a wide product range, and thirdly, economies of scale and problems of distribution.Before considering these problems it is helpful to review the evidence on new entry offered to the MMC in theirprevious inquiry.3.107. The 1979 report stated that a large number of small-scale producers were of the opinion that it wasrelatively easy to enter the market at a modest level but extremely difficult to expand. The main reason for thisbelief was that the widespread provision of refrigerated cabinets then installed by the major firms on an exclusiveoutlet basis effectively barred access by small suppliers to CTNs and other small shops and sites. However, theneed to gain access to existing cabinets is less true today as recent new entrants such as Mars and Häagen-Dazshave shown. Nonetheless, one of the smaller manufacturers argued in the previous inquiry that independentmanufacturers were hampered in their attempts to break into such outlets in the late 1970s by the advantages thetwo major suppliers derived from their advertising and marketing expenditure, their wide range of products andscale economies in both production and marketing. Given these difficulties the MMC said in 1979 that `it wouldbe well-nigh impossible for a new ice cream producer to enter the industry on a national basis' or for existingproducers `to make any significant strides in terms of brand share'. 11See Ice Cream and Water Ices, paragraph 311.40

3.108. This view presumably reflected an assumption that any would-be new entrant would produce the sameimpulse ice cream as existing firms. What Mars did in 1989 was to develop a new segment to the market. In thecurrent inquiry Mars told us that despite its successful launch of confectionery-based ice cream products in 1989,freezer exclusivity did not allow its innovation to achieve a level of market penetration that enabled it to competeeffectively against BEW and Lyons Maid. However, BEW told us that by 1993, according to Nielsen data, Mars,notwithstanding its narrow product range, was present in 58 per cent of CTNs, independent grocers and garages(73 per cent if weighted according to turnover). At a regional level it has been difficult to assess the level ofpenetration as Nielsen data do not give regional market shares.3.109. We now consider various aspects of market entry in the light of the above comments.Access to outlets3.110. In nearly all food markets a new brand has to fight for shelf space with a large number of existingbrands, some of them strongly entrenched in the consumer's mind. In the case of impulse ice cream the uniquerequirement of a freezer cabinet increases the difficulty for the entrant. The entrant has various options. He cangain access to an existing cabinet by persuading the retailer, if the freezer is his, to give the space to try the newproducts or by persuading the manufacturer, if the cabinet is his, to distribute the additional product or range. Hecan replace an existing manufacturer's cabinet. He can supply an additional cabinet. He can persuade the retailerto buy a cabinet thus eliminating any problems of exclusivity. An alternative form of entry via the supply ofown-label products is possible in the retail grocery trade. Own label is, however, a very minor part of the impulseice cream market.3.111. If a new entrant is to sell ice cream through an outlet that already has a cabinet supplied `free', but onan exclusive basis, then it faces the need to persuade the retailer to displace the cabinet of the establishedmanufacturer. The retailer may regard switching to a new supplier as being unattractive if it means he losesaccess to established brands. In this case the retailer may consider the option of purchasing his own nonexclusivecabinet. The alternative course of action is for the retailer to take an additional cabinet from the newentrant. This option is only possible where the outlet has space for a second cabinet and even then is only likely ifthe perceived return on the space allocated to a second cabinet exceeds that obtainable from using the spacecurrently devoted to stocking another product. In this case, however, the retailer has the option of taking twosmaller manufacturers' cabinets in place of his existing one.3.112. As far as an entrant is concerned provision of a cabinet to a retailer, whether to displace one owned byan established manufacturer or to stock the new product range in a second cabinet, involves expenditure. Thisexpense required of a small entrant will be significant if such a firm aims to become a major supplier even withina small geographical area let alone the whole national market. However, this is an expense which has to be borneby anyone supplying the market. Further, the costs of cabinet provision may be less than the marketing costsrequired to develop national brands as has been shown above in the case of Mars in 1992.Development of brands3.113. For any potential entrant into any retail food grocery market a successful brand launch requires that thenew brand should be popular with consumers, wholesalers and retailers. Persuading wholesalers and retailers tostock a new brand is helped either if the supplier can build on an existing brand as Mars and Nestlé are able todo, or if such a launch is accompanied by a major advertising campaign, particulary if the entrant is seekingnational distribution.Product range3.114. In the case of the impulse ice cream market an entrant who does not offer retailers a full product rangemay find market penetration difficult. Retail outlets need to meet a varied pattern of consumer demand, as41

indicated in paragraph 3.52. Even if an entrant has strongly supported national brands in some parts of thismarket it may find itself hampered by an inability to offer retailers a full product range. This difficulty may bepartly eased by buying products from other manufacturers to fill out the range. Treats, the main manufacturer ofice lollies, extends its product range by buying in both cones and chocolate bars from two specialists in theseparts of the market. Many of Treats' distributors are themselves small producers of ice cream who do notmanufacture ice lollies but buy in these items from Treats.Economies of scale and distribution3.115. In their 1979 report the MMC observed that the manufacture of bulk ice cream `yields few economiesof scale to the large manufacturers that are not equally available to others'. 1 This view concerned production ofall ice cream rather than the manufacture of wrapped impulse products. High-volume manufacture of a full rangeof impulse items requires high capital expenditure on sophisticated mixing and packaging equipment. Using suchplant, falling unit production costs more than outweigh an increase in distribution costs that arise in serving themass market from one point of production. There is a marked tendency to concentrate production in a singleplant, sometimes supplying outlets in a number of European markets.3.116. The distribution of impulse ice cream to retail outlets involves high costs because of the need fortemperature-controlled storage and transport of products which are of relatively low unit value. Averagedistribution costs as a percentage of turnover are considerably higher for impulse ice cream than for other snackfoods such as sweet confectionery. Impulse ice cream needs to be delivered in small refrigerated vans to outletswhich require frequent and relatively small drops of products. Density of sales and large drop sizes within agiven area is the key to achieving significant economies of scale in delivery to retail outlets both in the form ofreduced costs and improved service at times of peak demand in hot weather.3.117. In 1979 the MMC reported that unless frozen food wholesalers took over more responsibility fordistributing impulse ice cream `it would be impractical for a company lacking the volume of Wall's or [LyonsMaid] to challenge either as a national supplier'. 2 Mars told us in the current inquiry that it was disadvantaged innot owning storage and distribution facilities to meet the needs of the UK market (see paragraph 3.59). Mars saidthat freezer exclusivity deterred the emergence of independent distribution. BEW told us, however, that very fewcost synergies existed as between the distribution of impulse ice cream and other frozen foods, largely becausethey were not delivered to the same outlets. Consequently such a distribution system would be less efficientoverall than a dedicated delivery service.1Paragraph 38.2Paragraph 399.42