The Scoop on Nestle/Dreyer's

Nestle announced last year that it would acquire Dreyer's Grand

Nestle announced last year that it would acquire Dreyer's Grand Ice Cream. That's Dreyer's, not to be confused with Breyers, a brand owned by Unilever. Dreyer's is the number one manufacturer of premium ice cream in the United States, under the brand names Edy's (in the East) and Dreyer's (in the West). It is also the number three manufacturer of super premium ice cream, after Haagen-Dazs (Nestle) and Ben & Jerry's (Unilever). But the acquisition has run into roadblocks, with the FTC, which is demanding some divestments before the deal can go through. (Yes, sometimes US antitrust laws have some bite.) As we write the final negotiations are going on.

The FTC fears that the $2.8-billion proposed takeover could harm consumers by reducing competition because together the companies make up 60% of the gourmet ice cream market in the US. In fact, the joint company will control over 25% of all ice cream sales, with Unilever making up nearly another 25%.

In other words, Nestle would get a majority portion of the lucrative super-premium ice cream market. Dreyer's brands in the super premium category are Dreamery, Godiva (sold by license), and Whole Fruit sorbet. Even more important, Dreyer's is the largest direct distributor of ice cream products, dominant in most big cities. Its refrigerator trucks deliver not only its own brands to supermarkets and convenience stores, but also those of its competitors, including Nestle and Unilever. The merger with Nestle would give Nestle a dominant vertical position as well as simple product dominance.

In March, Nestle and Dreyer's announces that they would sell some ice cream brands and distribution assets to Integrated Brands, a division of Canadian firm CoolBrands. The brands in question are Dreamery Godiva, and Whole fruit. It will also sell CoolBrands its distribution assets in cities in Maryland, Washington, Oregon, Florida, California, Pennsylvania, New Jersey and the District of Columbia. But the FTC is still not satisfied. It's reported that they want Dreyer's to sell off one moiré joint-venture brand, Starbucks ice cream, and also mire distribution assets.

For some analysts, Dreyer's delivery system is not much of a factor. Unilever has said it might tear up its distribution contract with Dreyer's if that puts its products under the power of its biggest distributor. And it's not hard to imagine that Nestle will build its own distribution channel in time.

Coolbrands has already a market presence, though a small one, in the ice cream industry. It sells the Eskimo Pie brand, along with a set of branded novelty Ice cream and yogurt flavors (see table). It also operates and/or franchises several ice cream and frozen Yogurt chains: I Can't Believe It's Yogurt, Yogen Fruz, I Can't Believe It's Yogurt, Bresler's, Swensen's, Golden Swirl, and Ice Cream Churn. Total revenue in 2002 was $242 million.

Even after surrendering some brands, Nestle will soon be in a dominant market position, one that will give it remarkable access to freezer shelves.

By the way, in one of the great ironies of globalbrands, Nestle is now agressively selling Haagen-Dazs in Europe. The ice cream was produced in Brooklyn, but the original manufacturers thought that a fancy Scandinavian name would help sales. So they made up the name, which actually has no meaning and is indeed whose spelling is impossible in any Scandanavian country. Then they affixed a map of the Nordic countries on the package. This pseudo-European brand has now been exported to Europe, with ice cream shops in Paris, Antwerp, Cannes, Brussels and other cities. I wonder what Scandinavian visitors make of it. No shops yet in Stockholm or Copenhagen yet.