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

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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
Page 1 and 2: 3 The market for impulse ice creamC
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Page 7 and 8: 3.28. Treats seeks to compete with
Page 9 and 10: Small-scale manufacturers3.39. Tabl
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Page 15 and 16: (o)Cups comprise paper or plastic c
Page 17 and 18: mobile ice cream vans which are ser
Page 19 and 20: 3.70. Less than one-fifth of respon
Page 21 and 22: TABLE 3.8 1993 RRPs of brands of im
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Page 27 and 28: £3 million marketing support for t
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3 The market for impulse ice cream [per] - Competition Commission

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