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The market for wrapped ice cream products intended for immediate

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					5         The market for wrapped ice cream
          products intended for immediate
          consumption




Contents
                                                                                                                Page

Introduction ...........................................................................................................74
Ice cream products ...................................................................................................75
   The reference products ...........................................................................................75
   The various types of reference product ........................................................................75
   Other ice cream products ........................................................................................77
   Impulse ice cream .................................................................................................77
   Seasonality of sales ...............................................................................................78
Size and structure of the market ...................................................................................81
   Market size .........................................................................................................81
     The reference products ........................................................................................81
     Impulse ice cream products...................................................................................82
     All ice cream products ........................................................................................82
   Trends in ice cream average unit values.......................................................................83
   Market shares ......................................................................................................83
   Smaller manufacturers............................................................................................85
Supply of manufacturers’ freezer cabinets .......................................................................86
Retail distribution ....................................................................................................87
   Trade channels.....................................................................................................87
   Trade terms ........................................................................................................89
   Retail outlets .......................................................................................................89
   MMC’s surveys of retailers .....................................................................................89
Retail prices and pricing policy ....................................................................................92
   Retail prices ........................................................................................................92
   Price movements ..................................................................................................94
Entry and barriers to entry .........................................................................................97
   New entrants .......................................................................................................97
   Access to outlets...................................................................................................98
   Development of brands...........................................................................................99
   Product range .................................................................................................... 100
   Economies of scale in ice cream production and distribution ............................................ 100
Advertising and marketing........................................................................................ 101
   Product innovation .............................................................................................. 101
   Advertising ....................................................................................................... 101



Introduction
   5.1. This chapter describes the market for wrapped ice cream products intended for immediate con-
sumption (we refer to these as the reference products) during the reference period; where relevant, it also


                                                            74
sets out the main developments in the market since the MMC’s 1994 report. For a brief description of ice
cream production see Appendix 5.1.


Ice cream products

The reference products
    5.2. As well as various formed ice cream products such as chocolate-coated ice cream bars and ice
cream bars on a stick, the reference products include water ices and ice lollies (see paragraph 2.2 and
Appendix 1.1). A characteristic feature of the reference products is that all are individually wrapped by
their manufacturers and sold by retailers for consumption immediately after purchase. Scoop ice cream
and soft ice cream mix are not reference products (see paragraph 5.8).

    5.3. It is important to note that, in contrast with confectionery, snack and most other food and drink
products intended for immediate consumption, the reference products must be kept at temperatures well
below freezing (storage temperatures must be consistently in the range –18°C to –20°C) at all stages
from their production in the factory to their purchase by the final consumer. A manufacturer must there-
fore distribute its reference products to retailers selling them by:

   (a) using entirely its own staff, stores and vehicles; or

   (b) appointing or contracting ice cream distributors specifically selected for this purpose; or

   (c) supplying through national, regional and local wholesalers with the necessary facilities for
       storing, handling and transporting frozen products.

    5.4. At the retail level, each retailer wishing to sell the reference products must have one or more
freezer cabinets; these need to be located in the shop’s selling area where consumers have ready self-
service access to them. Retailers typically include CTNs, leisure and entertainment centres, garage fore-
court shops, convenience stores, beach kiosks and mobile ice cream vans.


The various types of reference product
   5.5. There are a number of different types of reference product as outlined below. Chocolate bars
and adult stick products between them account for almost 40 per cent of sales (by value) of the reference
products, children’s novelty products for about 25 per cent, adult refreshment products for almost 20 per
cent and filled cones for about 10 per cent; other products account for the remaining 7 per cent:

   (a) Chocolate bars. These include both the traditional choc ice bars and the more recently developed
       confectionery-based wrapped ice cream bars which do not incorporate a stick by which they are
       held while eating. Most are now analogues of branded confectionery products (such as Mars, Kit
       Kat and Rolo), are made of dairy ice cream and may have a real chocolate coating.

   (b) Adult stick products. Also known as adult indulgence products, these include premium products
       (mostly using dairy ice cream and coatings of real chocolate), as well as lower-priced products
       (which do not usually have real chocolate coatings).

   (c) Children’s novelty products. These are various lower-priced stick and water ice lolly products,
       which range from simple lollies to licensed character products and extruded ice cream products
       in novel shapes and colours.

   (d) Adult refreshment products. These are adult-orientated, fruit-flavoured ices and fruit-ice-covered
       ice creams attached to a stick.

   (e) Filled cones. Individually wrapped wafer cones filled with ice cream and finished with various
       toppings.

   (f) Cups. Paper or plastic cups containing an individual portion of ice cream intended to be eaten
       with a spoon.



                                                    75
      (g) Card tubes or other containers (not requiring a spoon). These are water ice products, usually
          fruit flavoured, wrapped in a cardboard tube or other container, which are eaten as frozen drinks.

      (h) Single briquettes. That is, small blocks of uncoated ice cream intended to be eaten when
          unwrapped and sandwiched between wafers bought separately.

    5.6. The reference products currently sold by the four leading manufacturers, in each of the cat-
egories identified above, are listed in Table 5.1. BEW’s and Nestlé’s ranges of products are the most
extensive; Mars has no product types in three of the eight product categories. For information on the top-
selling brands of reference products see paragraph 5.83.
TABLE 5.1 The reference products sold by the four leading manufacturers, by product category, 1997 season

 Product
 category                  BEW                      Nestlé                    Mars                     Treats

Chocolate            Chunky Choc Ice           Kit Kat                   Mars (2 varieties)        Choc Ice
 bars                Crunchie                  Aero (2 varieties)        Snickers
                     Caramel                   Rolo                      Twix
                                                                         Topic
                                                                         Milky Way

Adult stick          Magnum (4 varieties)      Mega (4 varieties)        Galaxy                    Festival (2 varieties)
 products            Feast (2 varieties)       Mint Crisp                Mars                      Mountain
                                               Toffee Crumble            Bounty (2 varieties)       (2 varieties)

Children’s           Kick Off                  Mr Men Dairy Milk         Spangles                  Snocreme
 products            Lost World                Mr Men Real Fruit         Milky Way (2 varieties)   Juicy Lucy
                     Mini Milk (2 varieties)   Fab                       Skittles                   (4 varieties)
                     Sparkle (2 varieties)     Zoom                      Kermit the Frog           Humpty Dumpty
                     Taz                       Koola                                               Traffic Light
                     Tricky Licky              Nobbly Bobbly                                       Space Commander
                     Twister                   Nerds                                               Superstar
                     Mister Long               Rowntree’s Fruit Pastil                             Postman Pat
                     Cool Bits                 Lolly (2 varieties)                                 Zzapp
                                               Toppit (2 varieties)                                The Twirl
                                               Hunchback Lolly                                     5 Ice

Adult                Orange Frutie             Mirage                    Opal Fruits               Refresher
 refreshment         Solero (3 varieties)      Mivvi Deluxe                                         (2 varieties)
                     Strawberry Split           (2 varieties)                                      Strawberry Split
                                               Mivvi Strawberry                                    Fruit Maximum
                                               Orange Maid

Filled cones         Cornetto (3 varieties)    Extreme (3 varieties)                               Sorrento (3 varieties)
                     Magnum Cone               King Cone (2 varieties)

Cups                 Carte d’Or (150 ml)       Vanilla Cup                                         Screwball
                      (3 varieties)            Explorers Mini Cups                                  (2 varieties)
                     Cream of Cornish Tub       (120 ml) (4 varieties)                             Knickerbocker Glory
                                               Crème de Crème                                       (2 varieties)
                                                 (3 varieties)

Card tubes           Calippo (2 varieties)                               Skittles Fun Up           Strika (3 varieties)
 and other           Calippo Krrunshed                                                             Ribena Ice
 containers

Single               Blue Ribbon Vanilla Bar
  briquettes

 Source: MMC.



    5.7. During the last MMC inquiry, the main suppliers were asked whether there was any market
research showing the extent to which consumers appeared to regard products in any of these categories as
acceptable substitute products in any of the other categories. BEW said then that it was not aware of any
such research;1 during the present inquiry, BEW told us that this was still the case.




 1
     See the 1994 report, paragraph 3.53.


                                                             76
Other ice cream products
    5.8. The reference products do not include scoop ice cream and soft ice cream mix. Scoop ice cream
is not a wrapped ice cream product. It is normally sold in containers (usually round or rectangular tubs)
for serving or reselling in individual portions: this may be done by the retailer at the time of purchase,
by caterers when serving ice cream as a dessert, or by the consumer at home. Some retailers sell both
wrapped ice cream products and scoop ice cream (for example, for cornets), but they do not usually store
both types of ice cream in the same freezer. Soft ice cream mix is not stored in a freezer; it is more like a
raw material that only becomes a finished product, namely soft ice cream (sometimes referred to as soft-
serve ice cream), when it has been served through retail equipment at the point of sale to the consumer.

    5.9. A feature shared by both soft ice cream mix and scoop ice cream is that it may also be supplied
by a large number of small, regionally-based firms. With the exception of products supplied by the lead-
ing manufacturers (such as BEW, Nestlé and Häagen-Dazs), much of it is unbranded. The final product
is typically served to consumers at seaside resorts, in leisure centres and from mobile vans. In contrast to
the self-service nature of wrapped ice cream products, both scoop and soft ice cream have to be served
on request to the consumer.

    5.10. Ice cream is also bought for storage and consumption in the home, for example as the dessert
part of a meal or as a snack or refreshment item. Ice cream products bought for this purpose, often
referred to as ‘take-home’ ice cream, include wrapped ice cream products sold in multipack format;
typically, they are bought in advance of eating from supermarkets, freezer centres, food stores and other
grocery outlets.



Impulse ice cream
    5.11. Because they are usually bought on the spur of the moment for immediate consumption, all the
reference products, together with scoop (excluding take-home products) and soft ice cream, are often
referred to as ‘impulse’ ice cream products. The distinction between consumers’ behaviour in making
impulse and take-home purchases reflects the relationship between the timing of the purchase and con-
sumption of the product, the unit quantity bought on each occasion and the seasonality of sales. In the
case of take-home products, there is also competition from retailers’ own brands. However, the distinc-
tion is not a rigid one: for example, scoop ice cream is bought not only by individuals for home con-
sumption, but also by retailers for scooping to meet impulse demand and by caterers for use in desserts.
An increasing range of wrapped ice cream products is now sold in multipacks in supermarkets and
freezer centres.

    5.12. A significant feature of the reference products is that most brands have been developed and
marketed only in the last eight years or so. Mars, in the late 1980s, applied its expertise as a manufac-
turer of impulse confectionery products to develop analogous ice cream products. Its ice cream version
of its well-known Mars chocolate bar was made with real chocolate and dairy ice cream, and it was the
first confectionery analogue product to be marketed on a large scale in the UK. Mars followed its launch
of Mars ice cream with several other lines including Twix, Bounty, Snickers, Galaxy Dove and Opal
Fruits.

    5.13. The entry by Mars into the UK market in 1989 had the effect at that time of increasing the
relative importance of the chocolate bar segment of the impulse market; existing manufacturers were
faced with a new entrant that had seen the possibility of developing the market with new styles of
product. The success of Mars as a new entrant prompted the development by its competitors of new
products of their own, some of which competed directly with the range of Mars’s ice cream products in
both kind and quality.

    5.14. Another characteristic feature of the reference products is that almost all are sold under brand
names developed by the leading manufacturers. This is in marked contrast with take-home ice cream
products, where the development of retailers’ own-label products has been much more marked (as is the
case with many products sold by multiple grocery retailers). While the share of sales of the reference
products accounted for by own brands is insignificant (exceptionally, Marks & Spencer Plc sells own-
label impulse ice cream products to its lunch-time customers alongside its sandwiches and snacks), they


                                                     77
account for over 40 per cent of sales (by value) of wrapped take-home ice cream products (see para-
graph 5.33).

    5.15. We were told that, given the importance of manufacturers’ brands and the impulse nature of
the products, the continuing development of new products, together with the appropriate marketing
expertise, was crucial to maintaining competitiveness. One means is the development of new flavour
varieties to maintain or revive consumers’ interest in a brand or to encourage them to try new brands.
Another means is to develop ice cream equivalents to existing confectionery brands. This includes
equivalents not only to chocolate confectionery, but also to biscuits, cakes and soft drinks (for example,
Treats’ Ribena Ice launched in 1997 under licence from SmithKline Beecham). A third means is to
develop a completely new design, shape or combination. Examples include Mars’s Opal Fruits (a
moulded fruit ice shell over frozen yoghurt, now sorbet) and BEW’s Solero (which has a soft, fruit-
flavour outer coating over ice cream on a stick).



Seasonality of sales
    5.16. Ice cream sales are very dependent on the weather. This means that not only do good or bad
summers, in terms of temperature and sunshine, have a marked impact on sales from year to year, but
also that within any one year there is a strong seasonal pattern, with high sales levels in the summer and
low sales levels in the winter. BEW told us, for example, that in the years 1995 to 1997, about 55 per
cent of its total annual sales of the reference products (measured by volume) were in the three months
June to August and 78 per cent were in the five months April to August. The equivalent figures for its
sales of multipacks in 1997 were 41 per cent for the three months and 63 per cent for the five months.
For other take-home ice cream products in 1997, they were about 32 per cent for the three months and
about 52 per cent for the five months.

    5.17. The seasonal impact of the weather on ice cream sales is thus much greater in the impulse
market than in the take-home market. During 1997, for example, sales (in volume terms) in the peak
month (July) of BEW’s wrapped ice cream products were about 19 times those in the lowest month
(November) and 15 times those of the next lowest month (December) (see Figure 5.1). In contrast, sales
in the peak month (also July) of BEW’s take-home ice cream products were only twice those in each of
the lowest two months (January and February). Sales in the peak month (again July) of BEW’s multipack
ice cream products were four times those in lowest month (December) and three times those of the next
lowest month (January).

    5.18. The weather is also a major factor in bringing about often wide and unpredictable fluctuations
in sales of the reference products from week to week and day to day. Sales in one week may be double
or half the level of sales in the next (see Figure 5.2); this variation may be even greater for individual
products, particularly water ices. By way of example, as the 1994 report noted, the very warm weather
conditions in the last week of May 1992, which coincided with the Spring Bank Holiday weekend, saw
BEW selling over 9 per cent of its annual sales of impulse ice cream (measured by portions) in one
week.1

    5.19.The immediate effect of weather on the level of sales gives rise to particular problems in
planning production, and in ensuring the distribution and replenishment of stocks of the reference
products (which have to be stocked in retail outlets’ limited freezer cabinet space). Building up stocks by
manufacturers and distributors in the low season is not an ideal solution because of the resulting storage
costs. Retailers generally do not have the necessary storage space anyway. Manufacturers and
distributors inevitably, therefore, have a significant degree of spare capacity during the low season.
Manufacturers offer incentives to distributors, retailers and consumers to increase off-season sales. They
also try to develop new products specifically to stimulate off-season sales.




 1
     See the 1994 report, paragraph 3.50.


                                                    78
                                                                                      FIGURE 5.1


                                 BEW: index of seasonal fluctuations in sales volume by ice cream category, 1997
        260

        240

        220
                                                                                                                                                        Wrapped impulse ice cream
        200                                                                                                                                             Scoop ice cream
                                                                                                                                                        Multipacks
        180
                                                                                                                                                        Other take-home ice cream
        160

        140
Index




        120

        100

         80

         60

         40

         20

           0
                   Jan            Feb            Mar            Apr           May            Jun            Jul           Aug            Sep            Oct           Nov            Dec

          Source: BEW.

           Note: The dotted line at the 100 level on the vertical axis shows the mean monthly sales volume for each of the four categories of product. The lines show for each product the extent
        to which its monthly sales in 1997 were different from the average for that year.


                                                                                              79 79
                                                                            FIGURE 5.2


                                      BEW’s weekly sales of wrapped impulse and scoop ice cream, 1995 and 1997

                  2,600

                  2,400

                  2,200                                                                                                                              1995
                                                                                                                                                     1997
                  2,000

                  1,800

                  1,600
Volume (litons)




                  1,400

                  1,200

                  1,000

                   800

                   600

                   400

                   200

                     0
                          1   3   5   7   9   11   13   15   17   19   21     23    25    27  29   31   33   35   37   39   41   43   45   47   49    51
                                                                                         Week
        Source: BEW.



                                                                                   80
Size and structure of the market

Market size
The reference products
    5.20. Sales of wrapped ice cream products can be measured by value and by volume, with volume
being measured in litres (in the industry 1,000 litres is often referred to as a liton) or in portions (ie
number of units sold). However, there are no accurate industry-wide data on market size and each of the
leading manufacturers relies on retail sales data collected by one or other market research companies.
During this inquiry, we obtained sales data from each of the four leading manufacturers, but not from
any of the many smaller ones.

     5.21. In 1997 the total of UK sales of the reference products is estimated by BEW1 to have been
£324 million at RSPs, including VAT (see Table 5.2). This is about 12 per cent greater in real terms than
in 1993, and about 45 per cent greater than it was about ten years ago (see also paragraph 5.22). In
volume terms, the total sales of wrapped ice cream products is estimated to have amounted to 45 million
litres in 1997. This is about 7 per cent greater than in 1993, and about 15 per cent greater than it was
about ten years ago. During the last ten years, volumes have fluctuated around an annual average for the
period of about 46 million litres. Sales were markedly above this ten-year average in 1989, 1990 and
1995 and markedly below the average during the years 1988 and 1993.

TABLE 5.2 Sales of ice cream products in the UK, 1988 to 1997

Ice cream products      1988      1989      1990       1991       1992       1993      1994       1995       1996      1997

                                                                 Estimated value (RSPs) at constant 1997 prices (£ million*)
Wrapped                  223       284       296        289         267       289       354        390        328        324
Scoop                     68        78        68         57          48        34        32         38         33         33
Soft                      60        66        63         64          64        80        76         88         77         77
 Subtotal: impulse       351       428       427        410         379       403       462        516        438        434
Other                    450       505       526        494         514       515       531        586        588        589
 Total: all ice cream    801       933       953        904         893       918       993      1,102      1,026      1,023

                                                                              Annual percentage change in estimated value
Wrapped                  N/A       +27         +4        –2          –8        +8       +23        +10        –16         –1
Scoop                    N/A       +15        –13       –16          –6       –29        –5        +16        –13         +1
Soft                     N/A       +10         –5        +2          +0       +25        –5        +16        –13         +1
 Subtotal: impulse       N/A       +22         –0        –4          –8        +6       +15        +12        –15         –1
Other                    N/A       +12         +4        –6          +4        +0        +3        +10         +0         +0
 Total: all ice cream    N/A       +16         +2        –5          –1        +3        +8        +11         –7         –0

                                                                                            Estimated volume (million litres)
Wrapped                   42        54         53        47          44        42        48         53         45         45
Scoop                    N/A         8          8         6           6         6         6          7          6          6
Soft                     N/A        19         17        13          13        14        13         16         14         14
 Subtotal: impulse       N/A        81         78        66          63        62        67         75         64         65
Other                    318       354        353       331         342       346       366        400        397        395
 Total: all ice cream    N/A       435        431       397         405       408       433        475        461        460

                                                                            Annual percentage change in estimated volume
Wrapped                  N/A       +29         –2       –10          –7        –3       +13        +11        –16         +1
Scoop                    N/A       N/A         –8       –24          +4        +2        –3        +18        –12         +2
Soft                     N/A       N/A         –6       –25          +4        +3        –5        +19        –12         +4
 Subtotal: impulse       N/A       N/A         –4       –15          –4        –2        +8        +13        –15         +1
Other                    N/A       N/A         –0        –6          +3        +1        +6         +9         –1         –1
 Total: all ice cream    N/A       N/A         –1        –8          +2        +1        +6        +10         –3         –0

 Source: MMC, based on data from BEW.


 *Adjusted by the RPI.
 Note: All numbers shown in the table were rounded after calculation.




  1
    BEW’s main sources of market size and market share data are Neilsen Retail Audit and the AGB Superpanel (which consists
of daily interviews asking respondents what impulse ice cream they have purchased in the previous two days).


                                                            81
    5.22. Demand for the reference products is influenced by the weather and, as the annual percentage
change data in Table 5.2 show, there are marked fluctuations in sales from year to year. For example, in
the period 1992 to 1997 annual sales of the reference products ranged, in real terms, from £267 million
in 1992 to £390 million in 1995 (a peak year with very good summer weather). As these weather-related
fluctuations make it more difficult to identify longer-term trends, BEW uses statistical techniques to ‘de-
weatherize’ annual sales data. The resulting data suggest that there was little if any growth in the volume
of impulse ice cream sales during the period 1988 to 1997 (see Table 5.3).

TABLE 5.3 Sales of impulse ice cream products in the UK: effects of the weather, 1988 to 1997

Impulse ice cream
   products          1988       1989       1990       1991       1992       1993      1994       1995       1996       1997

                                                                                    Estimated actual volume (million litres)
Wrapped                42         54         53         47         44         42         48         53         45         45
Scoop                 N/A          8          7          6          6          6          6          7          6          6
Soft                  N/A         19         17         13         13         14         13         16         14         14
 Total: impulse       N/A         81         78         66         63         62         67         75         64         65

                                                         Weather index (100 = 30-year average rainfall and temperature)
Weather index          99        121        124        105        103         95        102        117        104       105

                            Estimated volume after adjusting for variations in the weather from year to year (million litres)
Wrapped                42         45         43         45         43         45         47         45         43         43
Scoop                 N/A          7          6          5          6          6          6          6          6          6
Soft                  N/A         15         14         12         13         15         13         13         13         14
 Total: impulse       N/A         67         63         63         61         65         65         64         62         62

  Source: MMC, based on data from BEW.




Impulse ice cream products
    5.23. Sales of scoop ice cream in 1997 are estimated to have been about £33 million (about 8 per
cent of sales of impulse ice cream products) and soft ice cream about £77 million (about 18 per cent) (see
Table 5.2). Sales of scoop ice cream have fallen by about half in value terms since 1990, whereas sales
of soft ice cream have risen over the same period.

    5.24. Sales of all impulse ice cream products are estimated to have been about £434 million in 1997
(see Table 5.2). Whilst this total is about 8 per cent higher in real terms compared with 1993, it is only
slightly higher than in 1989 and 1990 (which were years with good weather for ice cream sales). The
reference products accounted for about 75 per cent of sales (by value) of all impulse ice cream products
in 1997 compared with about 72 per cent in 1993 and about 63 per cent ten years ago. In volume terms,
sales of impulse ice cream products in 1997 are estimated to have been about 65 million litres. The refer-
ence products accounted for almost 70 per cent of sales (by volume) of all impulse ice cream products
both in 1997 and in 1993 compared with about 63 per cent ten years ago.


All ice cream products
    5.25. Total ice cream sales, including take-home ice cream and multipack wrapped ice cream
products, are estimated by BEW to have been just over £1,000 million in 1997 (see Table 5.2). This total
is about 11 per cent greater in real terms than it was at the time of the 1994 report, and about 28 per cent
greater than ten years ago. The total volume of all ice cream sales in 1997 was 460 million litres; this is
about 13 per cent greater than in 1993 and about 21 per cent greater than it was ten years ago. As can
seen in Table 5.2, sales of all ice cream products have tended to follow the same year-to-year changes
experienced by impulse ice cream products, though the fluctuations tend to be smaller in size.

    5.26. Impulse ice cream products now account for about 42 per cent of the total ice cream market by
value, with the reference products alone accounting for about 32 per cent. Measured in volume terms,
impulse ice cream products account for 14 per cent of total ice cream sales; the reference products alone
account for about 10 per cent.



                                                           82
Trends in ice cream average unit values
     5.27. As the data in Table 5.4 show, trends in the real average unit values of different ice cream
products diverged over the period 1990 to 1997. During the period 1990 to 1994, the average unit value
of all impulse ice cream products rose by 26 per cent (from £5.51 to £6.93), before falling by almost
4 per cent to £6.66 in 1997. The rise in the unit values of the reference products was even more marked:
during the period 1990 to 1994 their average unit value rose by 32 per cent (from £5.61 to £7.39), before
falling by 2.6 per cent to £7.20 in 1997 (see also paragraph 5.66). In contrast, the average unit values of
all other ice cream products remained in the range £1.45 to £1.50 during the whole period 1990 to 1997.
BEW told us that this difference was partly explained by differences between the markets in which these
products were sold, by the much greater significance of retailers’ own brands in the grocery sector and
by price competition between the multiple retailers in the grocery sector.

TABLE 5.4 Sales of ice cream products in the UK: average unit values, 1988 to 1997

                                                                                           Average unit value (£* per litre)

Ice cream products      1988     1989      1990      1991      1992      1993      1994         1995       1996       1997

Wrapped                 5.33     5.25      5.61      6.14       6.10      6.83      7.39         7.36       7.34       7.20
Scoop                   N/A      9.75      9.19     10.18       8.28      5.76      5.61         5.67       5.59       5.50
Soft                    N/A      3.57      3.64      4.96       4.78      5.80      5.80         5.64       5.62       5.42
 Subtotal: impulse      N/A      5.31      5.51      6.25       6.02      6.50      6.93         6.85       6.81       6.66
Other                   1.42     1.43      1.49      1.49       1.50      1.49      1.45         1.47       1.48       1.49
 Total: all ice cream   N/A      2.14      2.21      2.28       2.20      2.25      2.29         2.32       2.23       2.22

 Source: MMC, calculated from the data used to compile Table 5.2.


  *Adjusted by the RPI.
  Note: Changes in average unit values over a period of time are affected by changes in the relative mix of higher- and
lower-value products each year as well as by changes in product prices.



    5.28. Another striking feature of the data in Table 5.4 is the considerable difference between the unit
value of impulse and other ice cream products. The average unit value of all impulse ice cream products
in 1997 was about four and a half times that of take-home ice cream products. The average unit value of
wrapped ice cream products was almost five times that of take-home ice cream and about 30 per cent
greater than other impulse products.



Market shares
   5.29. The four leading manufacturers of impulse ice cream sold in the UK are BEW, Nestlé, Mars
and Treats. The data used by BEW show that in each of the years 1988 to 1997 it had by far the largest
share (in the range 59 to 69 per cent) of sales of the reference products (see Table 5.5): none of the other
manufacturers had individual shares during this period of greater than 23 per cent (this was Lyons
Maid’s, now Nestlé’s, share in the late 1980s), and none of the other manufacturers has had individual
shares of greater than 16 per cent since 1991. After BEW, the next largest suppliers in 1997 were Nestlé,
Mars and Treats, each with around 10 per cent or less.




                                                          83
TABLE 5.5 Supply of the reference products in the UK: estimated market shares, 1988 to 1997

                    1988     1989    1990      1991     1992        1993             1994     1995      1996       1997

                                                                                              per cent by value (RSPs)
BEW                  67       68        62      59          62          63            63       63         65         69
Nestlé               23       23        21      18          12           8            10       11         11         10
Mars                  0        *        11      12          12          13            16       15         11          9
Treats                                                                                          4          5          4
                     10        8         6      11          14          16            11
Others                                                                                          7          9          8
 Total              100      100      100      100         100          100          100      100        100        100

                                                                                              per cent by volume (litres)
BEW                 N/A       67        64      61          60          62            64       65         64         68
Nestlé              N/A       21        21      18          12           8            10       10         10          9
Mars                N/A        *         5       6           7          10            11       12         10          7
Treats                                                                                          6          7          6
                    N/A       12         9      15          21          20            15
Others                                                                                          7          9          9
 Total              100      100      100      100         100          100          100      100        100        100

 Source: MMC, based on data from BEW.


 *Less than 1 per cent.

    5.30. BEW’s share (by value) fell from 68 per cent in 1989 to about 59 per cent in 1991, but then
recovered a little to 63 per cent by 1993. Its share then stayed at about this level until rising again in
1996 and 1997. The decline in BEW’s market share in 1990 and 1991 was partly the result of the entry
by Mars in 1989 and its rapid gain in market share. Its subsequent recovery in 1992 was partly
attributable to the difficulties encountered by the then Lyons Maid (now owned by Nestlé) during its brief
ownership by Clarke Foods (Lyons Maid’s market share fell from about 23 per cent to less than 10 per
cent during the period 1989 to 1993) (see paragraph 5.76).

    5.31. From their sales data for recent years provided to us by Nestlé, Mars and Treats, it appears
that the market share data shown in Table 5.5 may slightly overestimate BEW’s market share and that of
‘others’. Conversely, the data may underestimate the shares held each by Nestlé and Mars by as much as
three percentage points. It is, however, clear from the sales data provided to us by the leading three
companies for the years 1994 to 1997 that over this period BEW’s share in value terms rose by about
6 per cent (compared with the 9.5 per cent rise implied by the data in Table 5.5), Mars’s share went
down by about 18.5 per cent (compared with the 44 per cent fall implied by the data in Table 5.5) and
Nestlé’s share fell by about 10 per cent (compared with the relatively unchanged share shown in
Table 5.5).

   5.32. BEW estimates its share of sales (by value) of scoop and soft ice cream together to have been
about 11 per cent in 1997 (compared with 12 per cent in 1992). BEW’s share of sales of all impulse ice
cream sales in the UK in 1997 was about 54 per cent (see Table 5.6).

TABLE 5.6 Supply of all impulse ice cream products in the UK: estimated market shares, 1988 to 1997

                                                                          per cent by value (RSPs)

            1988      1989   1990    1991    1992     1993       1994         1995     1996    1997

BEW           48       49      46     47      47       49         51           50        51      54
Others        52       51      54     53      53       51         49           50        49      46
 Total       100      100     100    100     100      100        100          100       100     100

  Source: MMC, based on data from BEW.



    5.33. As already noted, wrapped ice cream products are sold in both the impulse and take-home
markets (in multipack format). Total sales of all wrapped ice cream products amounted to about
£576 million (at RSPs) in 1997, with sales of the reference products accounting for about 56 per cent of
the total. There are, however, noticeable differences in market shares in the two markets. Thus, BEW
accounts for almost 70 per cent of sales of the reference products, but for only about 28 per cent of sales
of multipack products (see Table 5.7). One reason for this is that retailers’ own brands account for over



                                                      84
40 per cent of sales of multipack ice cream products, whereas they have negligible sales of reference
products. But even if the effect of retailers’ own brands is ignored, BEW’s share of wrapped take-home
ice cream sales is less than 50 per cent, while the shares of Nestlé and Mars together amount to 38 per
cent (ie double their aggregate shares of sales of the reference products). BEW told us that these differ-
ences were accounted for in part by the fact that a large number of its impulse ice cream products were
not sold in multipack format.

TABLE 5.7 Supply of all wrapped ice cream products in the UK: estimated market shares, 1993, 1995 and 1997

                                                                                           per cent by value (RSPs)

                                     1993                            1995                         1997
                                     Take-     Weighted              Take-   Weighted             Take-   Weighted
                         Impulse     home      average     Impulse   home    average    Impulse   home    average

Including retailers’
  own brands
BEW                         63        25              49      63      29       50          69       28        51
Mars                        13        11              12      15       8       12           9       13        11
Nestlé                       8         4               6      11       9       10          10        9        10
Treats                                                         4       *        3           4        *         2
                            16        15              16
Other brands                                                   7      14       10           8        8         8
Retailers’ own
  brands                     *        45           17         *       40       15          *       42         18
  Total                    100       100          100       100      100      100        100      100        100

Excluding retailers’
 own brands
BEW                         63        46              59     63       48       59         69       48         62
Mars                        13        20              15     15       14       15          9       22         13
Nestlé                       8         7               7     11       15       12         10       16         12
Treats                                                        4        *        3          4        *          3
                            16        27              19
Other brands                                                  7       23       11          8       14         10
 Total                     100       100          100       100      100      100        100      100        100

  Source: MMC, based on data from BEW.


  *Less than 1 per cent.



Smaller manufacturers
    5.34. As Table 5.4 shows, the four largest manufacturers of the reference products sold in the UK
between them account for about 92 per cent of sales (by value). A number of smaller manufacturers
supply the remainder; some of these are recent entrants to the market, others have been in existence for
many years. Whilst most smaller manufacturers serve only their local area, a few sell their products
throughout the UK.

    5.35. Many of the smaller ice cream manufacturers trace their origins back to late nineteenth century
immigrants from Italy.1 Examples quoted in the 1994 report included Granelli McDermott Ltd,
Fredericks Dairies Ltd and Marine Ices Ltd. Also, with milk and skimmed milk being basic raw
materials, a number of dairy farmers have entered the industry.2 Examples included Mackies Ltd (based
near Aberdeen), Langage Farm Dairy Products (located near Plymouth), Childhay Manor (of
Crewkerne), Purbeck Ice Cream (based in Wareham) and Castle Dairy (in West Sussex). Some of the
other smaller manufacturers have their origins in overseas markets, where they had already developed
strong brands. Examples included Häagen-Dazs (UK) Ltd (Häagen-Dazs), Ben & Jerry’s Homemade Ice
Cream Ltd and Dayville’s Ltd.

     5.36. The smaller manufacturers generally produce a restricted range of ice cream products (tubs,
filled cones and ice lollies), and mostly compete in the scoop and take-home premium ice cream sectors.
Farm-based manufacturers tend to concentrate on premium ice cream that consumers associate with a
locally-based farmhouse supplier.


  1
      See the 1994 report, paragraph 3.40.
  2
      See the 1994 report, paragraphs 3.42 to 3.44.


                                                             85
Supply of manufacturers’ freezer cabinets
    5.37. The 1979 report concluded that outlet exclusivity operated against the public interest (see para-
graph 3.3). In May 1982 BEW, Glacier and a number of smaller manufacturers gave an undertaking not
to impose outlet exclusivity on retailers and to abide by certain conditions regarding making refrigerated
cabinets available to retailers for the exclusive stocking of manufacturers’ products; this is referred to as
freezer exclusivity. The central issue in the MMC’s 1994 inquiry was whether, despite certain undertak-
ings designed to limit outlet exclusivity (see paragraph 2.56 and Appendix 5.2), it was difficult for new
companies to enter the impulse market because of freezer exclusivity. If a retailer with a cabinet supplied
by one manufacturer had no room for a second freezer (whether one owned by the outlet or one provided
by another manufacturer) then, it was argued, outlet exclusivity still persisted in practice because freezer
exclusivity had the same exclusionary effect. Freezer exclusivity (as distinct from outlet exclusivity) was
found not to be against the public interest in the last inquiry (see paragraph 3.5 of this report).

    5.38. BEW estimates that there are about 90,000 traditional outlets selling the reference products. Of
these, around 50 per cent would be using a BEW freezer cabinet, and a fair proportion would have at
least one non-BEW freezer cabinet that they owned or had been supplied by another manufacturer. As
the data in Table 5.8 show, the three leading manufacturers between them have over 140,000 freezer
cabinets in general trade outlets (ie all outlets other than grocers, since in the latter take-home sales are
much more significant than sales of impulse ice cream). BEW accounts for about 58 per cent of these,
Mars for 24 per cent and Nestlé for about 18 per cent.

TABLE 5.8 Number of freezer cabinets provided to retailers, 1992 (year-end data) and 1997 (year-end data)

                              1993                                                   1997
                   For display*              Back-up                    For display                     Back-up
            Exclusive         Non-           storage            Exclusive        Non-exclusive          storage
                           exclusive
               No              No              No             No        %         No        %          No       %

BEW†         57,500               0          11,500        69,500       59            0      0       12,500     89
Mars‡           N/A          26,150             N/A        25,000       21        8,500     88            0      0
Nestlé       18,100§            N/A           4,500        23,399       20        1,150     12        1,559     11
 Total          N/A             N/A             N/A       117,899      100        9,650    100       14,059    100

 Source: MMC, based on data from the companies.


   *For the display of the reference products in the selling area of the shop.
   †Excludes foodservice cabinets, but includes cabinets in stock but not placed in a retailer’s outlet. Some of the
‘display’ cabinets may be used for storage rather than display.
   ‡Mars was not able to provide data for 1993, referring us instead to the data given in the Table 3.7 of the 1994 report
(which do not distinguish between the difference types of freezer cabinet); Mars said that it now considered those
freezer cabinets to be non-exclusive.
  §Nestlé said that the split between exclusive and non-exclusive freezer cabinets in 1993 was not now known, though
it considered that they were predominantly exclusive then.
   Note: The data in this table relate only to freezer cabinets supplied by BEW, Nestlé and Mars; they exclude freezer
cabinets supplied by other manufacturers and freezer cabinets owned or leased by retailers themselves.


    5.39. As consumers making a weekly shopping trip do not usually buy the reference products when
making their grocery purchases, unlike multipacks, few are stocked in the main grocery sections of the
leading multiple retail chains, though some do stock them in their petrol stations and restaurants. Of the
major grocery retailers, Sainsbury’s Supermarkets Limited (Sainsbury’s), Tesco PLC (Tesco), Safeway
Stores plc (Safeway) and Waitrose Limited (Waitrose) told us that they had no freezer cabinets supplied
by an ice cream manufacturer for the sale of the reference products in their supermarkets. (Tesco, how-
ever, does have Mars’s freezer cabinets in its petrol station forecourts and Sainsbury’s has BEW’s and
Nestlé’s freezers in its petrol stations and has carried out a trial using BEW’s freezer cabinets in 22 of its
supermarkets.) Those retail multiple chains that do sell the reference products vary in the number of
manufacturers’ brands they stock: Somerfield has BEW’s freezer cabinets, as does Asda in some of its
stores.

  5.40. Few of the multiple CTN chains we heard from restricted themselves to cabinets supplied by
BEW. They supplemented freezer cabinets supplied by BEW with freezer cabinets supplied by other
manufacturers or owned by themselves. Some had installed ‘industry freezers’ (which are not branded



                                                           86
with the logo of any particular manufacturer), where space is allocated by themselves to the best-selling
products across a range of leading manufacturers.


Retail distribution

Trade channels
   5.41. As already noted (see paragraph 5.3), manufacturers of the reference products may distribute
them to retailers by using:

   (a) their own resources;

   (b) distributors or wholesalers that specialize in ice cream products; or

   (c) wholesalers that deal in frozen food products generally but also have the necessary facilities to
       deal with ice cream.

BEW relies primarily on option (b) (it uses option (a) within the M25 area—see paragraph 3.25), and the
other three rely primarily on option (c). We summarize in Appendix 5.3 the results of a postal survey we
undertook of those distributors of the reference products of which we were aware.


BEW
    5.42. The evolution of BEW’s distribution arrangements for its wrapped ice cream products is
outlined in paragraphs 3.17 to 3.21. In 1997, dedicated distributors distributed 59 per cent of BEW’s
reference products (see Table 5.9), and its sales within the area bounded by the M25 together with its
direct delivery sales amounted to a further 14 per cent. National, regional and local wholesalers, cash-
and-carry outlets and mobile ice cream vans (which are supplied through BEW’s franchisees) handled the
remaining 27 per cent of BEW’s sales.
TABLE 5.9 BEW’s sales of reference products: breakdown by distribution channel, 1992 and 1997

                                    per cent (by value*)

      Distribution channel            1992       1997

Dedicated distributors                 59         59
BEW’s Barking depot†                   14         14
Wholesalers and cash-and-carry         14         13
Mobile vans                            13         14
 Total                                100        100

 Source: MMC, based on data from BEW.


 *GSV. Excludes food service sector and export sales.
 †Includes direct delivery sales (see note * to Table 4.5).



Nestlé
    5.43. As at the time of the 1994 report, Nestlé continues to rely on the system of storage, trunk and
‘radial delivery’ contractors it inherited from Clarke Foods. Nestlé’s radial delivery contractors store and
deliver its ice cream products in specific regions (there are currently two bulk storage and nine radial
depots); between them, they account for about 57 per cent of Nestlé’s sales of the reference products (see
Table 5.10). Nestlé undertakes its order-taking and marketing itself; its radial delivery contractors are
restricted to storage and delivery. Nestlé also has two ‘concessionaires’ (T & K Davies for North Wales
and Direct Wholesale Foods for certain London postal districts); between them, they account for about
14 per cent of sales. For what are termed by Nestlé its ‘supply-only’ customers (mostly the larger
customers such as national accounts), the concessionaires receive and deliver orders, but the invoicing is
done by Nestlé which then reimburses the concessionaire on the basis of cost of the product plus a pay-
ment for service. The concessionaire’s other customers, which Nestlé calls ‘purchase customers’, are the
concessionaire’s own; the concessionaire invoices them (at prices determined by it) for products it has


                                                              87
bought from Nestlé. Apart from supply-only accounts, Nestlé does not compete for sales in a con-
cessionaire’s territory. Concessionaires are not restricted to handling Nestlé’s products exclusively.
Nestlé’s sales in Northern Ireland are handled by an agent there (Ulster Maid).
TABLE 5.10 Nestlé’s sales of reference products: breakdown by distribution channel, 1992 and 1997

                             per cent (by value)

Distribution channel           1992       1997

RDCs                            81         57
Wholesalers                      3         16
Concessionaires                  -         14
Cash-and-carry                   1          2
Mobile vans                     15         11
 Total                         100        100

  Source: MMC, based on data from Nestlé.




Mars
    5.44. Mars told the MMC during the 1994 inquiry that when it entered the UK market in late 1989
there was no established national independent wholesale delivery network for impulse ice cream, and so
it had been obliged to make its own arrangements in order to get its products distributed into the market.1
In 1990, Mars agreed with Lyons Maid that it could supply limited ranges of Mars’s products into those
retail outlets that had Lyons Maid freezer cabinets. These arrangements were renewed in April 1993, but
were ended in 1996; since then Mars has had to look for alternative routes to the market.

     5.45. A Mars subsidiary (Doveurope) in France manufactures over 95 per cent of the ice cream sold
by Mars in the UK. Since 1994 Mars has only one cold store in the UK (at the time of the 1994 report it
had two, which were operated by Exel); this is in King’s Lynn and is operated by Frigoscandia.
Frigoscandia delivers direct from this cold store to Mars’s multiple grocery customers in the take-home
market and to its wholesalers for onward delivery to its customers in the impulse market. National
wholesalers such as Booker, Snowking and Brake Brothers (see Table 5.11) handle most of Mars’s sales
to the impulse market. They supply the reference products to their customers together with a range of
other frozen foods. Ice cream is only a small part of their wholesaling activity. Mars’s products are also
marketed through regional wholesalers such as Regale, Duchy Ice Cream, Chase Ices, Ebor Ices and
Eden Farm; while some of these are also general frozen food wholesalers, many are small specialist ice
cream wholesalers. Very recently, Mars has begun to supply directly to certain national accounts which
take supplies from several manufacturers at a central delivery point from which the customer organizes
its own deliveries to its stores (an example is the Texaco account).
TABLE 5.11 Mars’s sales of reference products: breakdown by distribution channel, 1992 and 1997

                             per cent (by value)

Distribution channel           1992       1997

National wholesalers            56         67
Local wholesalers                3         14
Cash-and-carry                  13          4
Lyons Maid                       8          -
Other                           20         15
 Total                         100        100

  Source: MMC, based on data from Mars.


Treats
   5.46. Over 85 per cent (by value) of Treats’ reference products are sold to consumers by mobile
vans, kiosks and at leisure sites. Treats does not sell these products directly to retailers’ outlets; whole-


  1
    See the 1994 report, paragraph 3.59. Mars said that it had faced particular difficulties in finding viable distribution channels
to outlets whose trade was especially seasonal (for example, leisure outlets) and to cinemas and theatres.


                                                                88
salers and cash-and-carry outlets handle all of Treats’ sales of the reference products (see Table 5.12).
Indeed, regional and local wholesalers handle the bulk of Treats’ sales.

TABLE 5.12 Treats’ sales of reference products: breakdown by distribution channel, 1992 and 1997

                              per cent (by value)

   Distribution channel       1992      1997

Regional/local wholesalers     45        59
National wholesalers            -         5
Cash-and-carry                 35        26
Treats’ cash-and-carry         20        10
 Total                        100       100

  Source: MMC, based on data from Treats.




Trade terms
    5.47. BEW and the other manufacturers of the reference products each have standard trading terms;
they also negotiate individual trade terms with their major customers (see paragraphs 4.21 to 4.33, 4.62,
4.66 and 4.70).



Retail outlets
    5.48. BEW estimates that there are now around 100,000 traditional trade outlets, ie CTNs, mobile
vans, leisure outlets and garage forecourts. Of these, about 90 per cent (ie about 90,000) were selling the
reference products. These traditional trade outlets account for almost 80 per cent of BEW’s sales (by
value) of the reference products in 1997 compared with just over 84 per cent in 1992. In addition, BEW
noted, an increasing number of multiple grocery retailers were now selling the reference products in
restaurants, garage forecourt shops and at grocery checkout locations.

    5.49. BEW said that it was unable to say how many retail outlets sold its ice cream products because
it did not know how many were supplied by non-BEW distributors. It said, however, that survey
evidence suggested that BEW’s ice cream was sold in 75,000 to 80,000 outlets. The retail outlets on
BEW’s customer files showed that the most important retail outlets for the reference products were
CTNs. BEW told us that in 1997 this category accounted for about 36 per cent of its sales of the
reference products. Leisure outlets (for example, theme parks, cinemas, museums and stately homes,
holiday parks and camps, bingo and music halls, beach and pier kiosks) accounted for a further 12 per
cent, petrol station forecourts and motorway service areas accounted for 12 per cent of its sales and
mobile vans and other traditional outlets accounted for about 19 per cent. The remaining 21 per cent was
accounted for by various types of grocery outlet (mainly small independent grocery outlets, co-ops and
convenience stores).


MMC’s surveys of retailers
    5.50. During the course of this inquiry we conducted two surveys of retailers: one was a postal sur-
vey of 73 of the larger retailers (ie retailers with five or more branches) selling the reference products;
the other was a telephone sample survey of 800 of the smaller retailers of the reference products. The
postal survey of the larger retailers was undertaken by ourselves, and the telephone survey of the smaller
retailers was undertaken on our behalf by Research International (UK) Ltd (RI), an independent market
research company. A summary of the findings of the postal survey is in Appendix 5.3, and a summary of
RI’s findings is in Appendix 5.4.




                                                    89
Survey of small retailers
    5.51. RI chose a UK-wide sample of small retailers stocking the reference products: the sample con-
sisted of CTNs (56 per cent of the total sample) and grocery and convenience stores (see Appendix 5.4).
Most (94 per cent) of those interviewed were single outlets and most (82 per cent) stocked the reference
products throughout the year. About a third of the respondents said that they purchased their
requirements as part of a purchasing or commercial group.

    5.52. BEW’s reference products were normally stocked and sold by 87 per cent of respondents,
40 per cent stocked and sold Mars’s products, 33 per cent Nestlé’s and 12 per cent Treats’ products (see
Table 5.13). About 44 per cent of respondents sold only one manufacturer’s reference products; 34 per
cent sold two, 16 per cent sold three and 7 per cent sold four or more. BEW’s products only were
stocked by 35 per cent of respondents and 13 per cent said that they did not stock them at all; 6 per cent
said that they stocked only Nestlé’s products and 1 per cent said that they stocked only Mars’s products.
About 52 per cent said that they stocked BEW’s products plus those of one other manufacturer.

TABLE 5.13 Small retailers: manufacturers’ reference products they normally stock and sell

                                                                                      per cent

                                             Respondents’ annual sales: all ice cream products
                                 All             Up to         £1,000 to            £3,000 or
    Manufacturer             respondents        £1,000           £2,999               more

BEW                               87                  83            87                91
Nestlé                            33                  33            32                37
Mars                              40                  35            41                51
Treats                            12                  13            12                10
Häagen-Dazs                        2                   1             2                 6
Dale Farm                          2                   2             2                 2

BEW only                          35                  37            35                29
Nestlé only                        6                   7             6                 4
Mars only                          1                   1             1                 0

BEW and Mars only                 18                  14            19                23
BEW and Nestlé only                9                   9             8                11

One manufacturer only             44                  50            45                33
Two manufacturers                 34                  30            33                39
Three manufacturers               16                  15            15                18
Four or more manufacturers         7                   6             8                 9

 Source: MMC, based on findings from the RI survey.




    5.53. Respondents were asked to say which brands, if any, they regarded as a ‘must stock’ range
including ones they did not stock currently. BEW’s product range was mentioned by 57 per cent of
respondents, about 18 per cent said Mars, 9 per cent said Nestlé and 2 per cent said Treats. Of those
respondents who only stocked BEW’s products, 18 per cent said that Mars had a ‘must stock’ range,
followed by Nestlé at a much lower level. About 27 per cent of those not currently stocking BEW’s
products said that this was a ‘must stock’ range.

    5.54. About 49 per cent of respondents said that they had a freezer owned by BEW, 12 per cent had
a Nestlé-owned freezer and 10 per cent had a Mars-owned freezer; about 36 per cent had a freezer that
they owned themselves. Two-thirds of respondents said that they had only one wrapped impulse ice
cream freezer cabinet in the selling area of their outlet, 27 per cent had two and 6 per cent had three. Of
those who had only one freezer, 44 per cent said that it was owned by BEW, 41 per cent said that it was
owned by themselves, 8 per cent said that it was owned by Nestlé and 1 per cent said that it was owned
by Mars (the rest were either owned by someone else or were jointly owned).

   5.55. The majority (63 per cent) of respondents used only one distributor or wholesaler for their
supplies of reference products. The main determinant of the number of distributors or wholesalers used


                                                           90
appears to be the number of different manufacturers’ products sold: few (11 per cent) of those stocking
only one used more than one distributor or wholesaler, whilst 58 per cent of those stocking more than
one did so. The main reasons given for using only one distributor or wholesaler were the convenience of,
or preference for, dealing with only one, or the specific benefits of using one in particular (such as good
friendly service, prices, deliveries and availability of freezers). About 25 per cent all respondents, or
about 40 per cent of those who used only one distributor, used one of BEW’s dedicated distributors:
about 81 per cent of these had only one freezer and that was a BEW-owned one. About 41 per cent of
those who had a BEW freezer believed they must order the wrapped ice cream products stored in it
solely and exclusively from a particular wholesaler or distributor.

    5.56. In response to questions about the advantages and disadvantages of using only one distributor
or wholesaler, 62 per cent of those using only one said that there were no disadvantages and 20 per cent
said that the disadvantage was fewer brands; all were able to name at least one advantage (such as being
easier or received a better service). Those who used more than one said that the reasons for using more
than one distributor or wholesaler were mainly the ability to stock a wider range of brands and the price.
About 68 per cent of those who used more than one said that there were no disadvantages; those who
thought there were said that the disadvantage was mainly the hassle factor of more invoices, more
deliveries and more administration.

    5.57. The majority (86 per cent) of those who stock BEW’s products said that they were free to
choose anyone from a variety of wholesalers or distributors as their supplier of those products: 14 per
cent said that they were not free to do so. Those who stock only BEW’s products were more likely to say
that they were not free to choose (22 per cent): the reasons given for not being free to choose related
mainly to what they perceived to be restrictions imposed by BEW.

    5.58. Respondents were asked which factors they considered to be the most important when choosing
which wholesaler or distributor to obtain their supplies of wrapped ice cream products from. The most
important factors were the reliability of supply (mentioned by 52 per cent of respondents), the brands
sold (43 per cent), the frequency of deliveries (29 per cent), discount terms (26 per cent), the speed of
restocking in hot weather (23 per cent) and the speed of response to orders (20 per cent).

    5.59. Using a five-point scale, respondents were asked to rate how satisfied they were with the
service they received from each of the manufacturers whose brands they stocked and wholesalers or dis-
tributors they used. The level of satisfaction with manufacturers was high on product range, rate of sale
and reliability of supplies, not quite so high on merchandising and advertising support and promotions.
On most of these measures, BEW and Mars received the highest ratings, followed by Treats and Nestlé.
Retailers seemed least satisfied with promotions: this was the area in which Mars offered strongest com-
petition to BEW, and was the only area in which BEW’s mean score was not significantly higher than
that of the other three leading manufacturers.

    5.60. Small retailers also expressed general satisfaction with the service they received from the
wholesalers and distributors that supplied them. The only area in which there were some reservations
was discount terms, for which the proportion satisfied dropped to about two-thirds. It was noticeable that
satisfaction with Snowking (a national wholesaler) was high: on most measures it did better than the
average and in most cases was equal to or slightly better than for BEW. Those who said that they were
not free to choose their wholesaler or distributor were no less satisfied with their wholesaler or dis-
tributor than the average.



Survey of large retailers
    5.61. Most of the larger retailers who responded to our questionnaire referred to consumer demand
and brand strength as the main factors determining what was stocked, although some also referred to
refrigeration and aspects of distribution (see Appendix 5.3). The majority did not have BEW’s freezers,
some had freezers supplied by Mars or Nestlé, and some had their own freezers; two relatively small
respondents had wholesaler-supplied freezers.



                                                    91
    5.62. Most of the respondents acquired BEW’s reference products directly from BEW (in some
cases, central delivery with own distribution) or from its dedicated distributors, but two used Booker,
three used Brake Brothers and two used Snowking in some outlets. Only two retailers used a regional
distributor. For other manufacturers’ brands of ice cream, Booker, Nestlé, Brake Brothers, Snowking,
the two regional distributors and own distribution systems were mentioned. The main reasons given for
choice of distributor were price, range and service (including drop size). Of those commenting on this
aspect, 14 expressed a general preference for only one distributor per outlet (only two disagreeing).
None of the respondents said that they had experienced any general difficulty in acquiring BEW’s
wrapped impulse ice cream products from other than BEW’s dedicated distributors.

    5.63. Price and service were the factors generally mentioned which an independent wholesaler would
have to be able to offer to compete in, although two also mentioned product range, one the ability to
supply nationally, two mentioned freezers and one ‘promotional investment’. Only four of the retailers
said that if they were to increase their purchases from, or switch their purchases to, independent whole-
salers, they would be more inclined to stock the reference products of manufacturers other than BEW,
although they all stocked more than one brand, and one of them did not stock BEW’s.



Retail prices and pricing policy

Retail prices
    5.64. Manufacturers of the reference products decide annually the RRPs for each of the reference
products well before the start of the summer season; the RRPs then normally do not change during the
year (save in exceptional circumstances such as a change in VAT rates). The MMC were told during the
1994 inquiry that RRPs were generally observed by independent CTNs, but that this was not the case in
leisure centres, petrol forecourts, motorway service stations and some convenience stores (where retail
prices may be significantly higher than the RRPs).1 During the present inquiry, BEW told us that this
was still the case (its own survey of retailers in February 1998 had shown that almost all retail sales of
the reference products were at or above the RRPs (see Appendix 5.4, paragraph 51)).

    5.65. The RRPs of 79 branded lines in seven categories of the reference products in 1997 are shown
in Table 5.14. Within the chocolate bar category the average RRP of BEW’s brands (60p) was lower
than that of Nestlé and Mars (65p each), but higher than that of Treats (55p) (see Table 5.15). The
average RRP of the two Mars products in the adult stick category (97p) was higher than that of Nestlé
(88p) and BEW (87p). However, within the adult refreshment category, the average RRP of BEW’s four
brands (83p) was higher than those of the three other leading manufacturers (65p to 80p). RRPs in the
children’s novelty category ranged from 20p to 65p, the average being 38p.




 1
     See the 1994 report, paragraph 3.81.


                                                   92
TABLE 5.14 The reference products: RRPs by brand, 1997

                                      Number                                                            Number
                                         of        £                                                       of        £
                                      varieties                                                         varieties
Chocolate bars                                                  Children’s novelty products
BEW’s Caramel                             1       0.65          BEW’s Twister                              1        0.60
BEW’s Crunchie                            1       0.65          BEW’s Mister Long                          1        0.60
BEW’s Chunky                              1       0.50          BEW’s Kick Off                             1        0.50
Nestlé’s Rolo                             1       0.65          BEW’s Cool Bits                            1        0.45
Nestlé’s Kit Kat                          1       0.65          BEW’s Tricky Licky                         1        0.40
Nestlé’s Aero                             2       0.65          BEW’s Lost World                           1        0.40
Mars’s Mars Bar                           2       0.65          BEW’s Taz                                  1        0.35
Mars’s Twix                               1       0.65          BEW’s Sparkle                              2        0.25
Mars’s Snickers                           1       0.65          BEW’s Mini Milk                            2        0.20
Mars’s Topic                              1       0.65          Nestlé’s Koola                             1        0.45
Treats’ Big Bear                          1       0.55          Nestlé’s Fruit Pastil                      2        0.60
                                                                Nestlé’s Fab                               1        0.45
Average RRP of chocolate bars                     0.63          Nestlé’s Zoom                              1        0.40
                                                                Nestlé’s Mr Men                            2        0.25
Filled cones                                                    Nestlé’s Nobbly Bobbly                     1        0.55
BEW’s Cornetto                            3       0.75          Nestlé’s Toppit                            2        0.55
BEW’s Magnum Cone                         1       1.30          Nestlé’s Nerds                             1        0.60
Nestlé’s Extreme                          3       0.75          Nestlé’s Hunchback Lolly                   1        0.35
Nestlé’s King Cone                        2       0.99          Mars’s Milky Way                           1        0.35
Treats’ Sorrento                          3       0.75          Mars’s Skittles                            1        0.45
Treats’ Festival                          2       0.55          Mars’s Spangles                            1        0.30
                                                                Treats’ Jazza                              2        0.20
Average RRP of filled cones                       0.87          Treats’ Snocreme                           1        0.22
                                                                Treats’ Juicy Lucy                         4        0.22
Adult stick products                                            Treats’ Humpty Dumpty                      1        0.25
BEW’s Magnum                              4       1.00          Treats’ Traffic Light                      1        0.25
BEW’s Feast                               2       0.60          Treats’ Superstar                          1        0.40
Mars’s Galaxy                             2       1.00          Treats’ Zzapp                              1        0.50
Mars’s Bounty                             1       0.90          Treats’ The Twirl                          1        0.60
Nestlé’s Mega                             4       0.99          Treats’ 5 Ice                              1        0.65
Nestlé’s Toffee Crumble                   1       0.65          Treats’ Space Commander                    1        0.30
Nestlé’s Mint Crisp                       1       0.65
Treats’ Mountain                          3       0.99          Average RRP of children’s products                  0.38

Average RRP of adult stick                                      Cups and bars
 products                                         0.91          BEW’s Cream of Cornish Tub                 1        0.55
                                                                BEW’s Carte d’Or Tub                       3        0.99
Adult refreshment                                               BEW’s Vanilla Bar                          1        0.45
BEW’s Solero                              3       1.00          Nestlé’s Vanilla Cup                       1        0.55
BEW’s Calippo                             1       0.70          Nestlé’s Crème de Crème                    3        0.85
BEW’s Strawberry Split                    1       0.65          Nestlé’s Explorers                         4        0.95
BEW’s Orange Frutie                       1       0.65          Treats’ Vanilla Cup                        1        0.40
Nestlé’s Mirage                           1       0.85          Treats’ Screwball                          1        0.45
Nestlé’s Mivvi Delux                      2       0.95          Treats’ Knickerbocker Glory                2        0.99
Nestlé’s Mivvi                            1       0.65
Nestlé’s Orange Maid                      1       0.60          Average RRP of cups and bars                        0.81
Mars’s Opal Fruits                        3       0.69
Treats’ Refresher                         2       0.50          Card tubes
Treats’ Split                             1       0.60          Wall’s Calippo                             4        0.60
Treats’ Fruit Maximum                     1       0.99          Treats’ Ribena Ice                         1        0.65
                                                                Treats’ Strika                             3        0.55
Average RRP of adult refreshment                  0.76
                                                                Average RRP of card tubes                           0.59

 Source: MMC, based on information from the companies.


 Note: The averages are based simply on the formula:

                          Total price of all products in that category (including different variants)
                                        Total number of products (including variants)

They do not, therefore, take account of the relative volumes sold of each of the products listed. Other categories were
not included in the price comparison because of a lack of products.




                                                             93
TABLE 5.15 Average RRPs for the different categories of reference product: by manufacturer, 1997

                                                                                      pence

           Category                    BEW   Nestlé       Mars        Treats        Average

Chocolate bars                          60     65             65        55             63
Adult stick products                    87     88             97        81             87
Children’s novelty products             38     47             37        32             38
Adult refreshment                       83     80             69        65             76
Filled cones                            89     85             -         75             84
Cups and bars                           79     86             -         71             81
Card tubes                              60     -              -         58             59
Company average*                        67     71             67        54             65

Total number of varieties
 listed in Table 5.14                   38     40             14        35            127

 Source: MMC.


 *The company averages for each category, as well as the average for all categories, reflect not only their products’
RRPs but also their different product mixes. They do not reflect the relative sales volumes of the products listed in
Table 5.14.



Price movements
    5.66. As the 1994 report noted, the launch of Mars’s real chocolate ice cream bar in 1989 marked a
significant change in the character of impulse ice cream products.1 For one thing, its price when
launched, 60p, was markedly higher than most other impulse ice creams; this reflected, in part, the use
in the product of premium ingredients including real chocolate. Since then, other manufacturers have
included premium ingredients in ice cream products; this has been reflected in a higher level of retail
prices for such products.

    5.67. The RRPs of ten selected BEW brands over the period 1982 to 1997 are shown in Table 5.16:
each product’s RRP is shown both in nominal money terms each year and as an index in constant price
terms. While there were some notable price increases over the period 1994 to 1997 (for example, the
RRP of Twister increased by about 22 per cent in real terms), increases in BEW’s RRPs in real terms
since 1993 have generally been smaller than they were in the earlier years.

    5.68. Of the products listed in Table 5.16, only the RRP for the children’s novelty product Mini
Milk fell in real terms over the period 1982 to 1997; on the other hand, the RRPs for Cornetto, Feast,
Orange Frutie and Sparkles all increased (BEW pointed out that quality improvements had been made to
all these products—significant improvements in the cases of the first three). The RRP of BEW’s
Cornetto, for example, rose every year between 1983 and 1998 except in 1985, 1994 and 1996; this
represents an increase in real terms of about 27 per cent (before taking into account any changes in
product quality over the period). Similarly, the RRP of BEW’s Orange Frutie rose every year between
1982 and 1998 except in 1984, 1987, 1996 and 1998; this represents an increase in real terms of almost
40 per cent (before taking into account any changes in product quality over the period). The RRP of
BEW’s Magnum rose from 80p when it was first launched in 1991 to £1.00 in 1997, an increase of about
6 per cent in real terms; similarly, the RRP of its Solero rose from 80p when it was launched in 1994 to
£1.00 in 1997, an increase of about 15 per cent in real terms.

    5.69. The RRPs of Mars’s ice cream brands have generally fallen in real terms since Mars entered
the market in 1989. For example, the RRP of Mars ice cream remained at 60p from its launch in 1989
until 1993; it went up to 65p in 1994 and has remained at that price since (a fall in real terms of about
20 per cent compared with 1989). Of the six products which Mars has sold continuously over the period
1994 to date, three (Mars, Snickers and Skittles) have each had no change in their RRPs, one (Twix) has
gone down from 65p to 50p for the 1998 season, and two have had increases in their RRPs (Opal
Fruits/Starburst from 65p in 1994 to 70p in 1998 and Galaxy from 90p in 1994 to £1.00 in 1998) (see
Table 5.17).


  1
      See the 1994 report, paragraph 3.84.


                                                         94
TABLE 5.16 RRPs of ten of BEW’s wrapped impulse ice cream products, 1982 to 1997 (adjusted for changes in the RPI over the same period)

                                        1982      1983     1984      1985     1986      1987     1988      1989     1990     1991      1992     1993     1994      1995     1996      1997     1998
Chocolate bars
Chunky                 RRP (£)          0.25      0.25         -        -         -     0.30        0.30   0.35      0.37     0.40      0.43    0.45      0.45     0.45      0.50     0.50      0.55
                       Adjusted*          97        93         -        -         -       93          88     96        92       94        98    101         98       95      103      100

Cones
 Cornetto†             RRP (£)          0.32      0.32      0.35     0.35      0.37     0.40        0.42   0.45      0.50     0.55      0.60    0.65      0.65     0.70      0.70     0.75      0.80
                       Adjusted*          83        79        82       78        79       82          82     82        83       87        91      97        95       99        96     100

Adult stick products
 Feast†                RRP (£)          0.25      0.20      0.22     0.27      0.30     0.30        0.33   0.35      0.40     0.45      0.47    0.50      0.55     0.55      0.60     0.60      0.65
                       Adjusted*          81        62        65       75        81       77          81     80        83       89        89      93      100        97      103      100
 Magnum                RRP (£)            -         -         -        -         -        -           -      -         -      0.80      0.80    0.85      0.90     0.90      0.95     1.00      1.00
                       Adjusted*          -         -         -        -         -        -           -      -         -        94        91      95        98       95        98     100

Adult refreshment
 Orange Frutie†        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      0.55     0.60      0.60     0.65      0.65
                       Adjusted*          72        71        68       69        74       71          75     74        77       82        82      86        92       97        95     100
 Solero                RRP (£)            -         -         -        -         -        -           -      -         -        -         -       -       0.80     0.80      0.90     1.00      1.00
                       Adjusted*          -         -         -        -         -        -           -      -         -        -         -       -         87       84        93      100

Children’s novelty products
 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    0.20      0.20     0.20      0.20     0.20      0.20
                       Adjusted*        116         93      106      100       113      116         110    102       100      106       114     112       109      106       103      100
 Sparkle               RRP (£)          0.10      0.08      0.10     0.10      0.11     0.12        0.13   0.15      0.17     0.18      0.20    0.22      0.25     0.25      0.25     0.25      0.25
                       Adjusted*          78        59        71       67        71       74          77     82        85       85        91      99      109      106       103      100
 Twister               RRP (£)            -         -         -        -         -      0.25        0.30   0.30      0.33     0.35      0.40    0.42      0.45     0.50      0.55     0.60      0.60
                       Adjusted*          -         -         -        -         -        64          74     68        69       69        76      78        82       88        95     100

Card tubes
 Calippo†              RRP (£)             -         -         -     0.35      0.30     0.30        0.33   0.35      0.37     0.45      0.47    0.50      0.50     0.50      0.60     0.60      0.65
                       Adjusted*           -         -         -       97        81       77          81     80        77       89        89      93        91       88      103      100

 Source: MMC.


  *That is, the RRP adjusted for movements in the RPI: data shown in index format where 1997 = 100.
  †BEW told us that there had been significant improvements to the quality of these products during this period.
  Note: The price increases in 1991, in part, reflected the increase in VAT from 15 to 17.5 per cent. Unlike most food items in the UK, ice cream is not exempt from VAT; this distinction in the food
industry was first made in 1962 when a 7.5 per cent rate of purchase tax was applied to ice cream as well as to confectionery and soft drinks.




                                                                                               95
TABLE 5.17 RRPs of selected Mars and Nestlé wrapped impulse ice cream products, 1993 to 1998

        Product                             1993        1994        1995        1996        1997        1998

Chocolate bars
 Mars’s Mars                   RRP (£)      0.60        0.65         0.65        0.65        0.65       0.65
                               Adjusted*     103         109          106         103         100         -
 Mars’s Snickers               RRP (£)      0.60        0.65         0.65        0.65        0.65       0.65
                               Adjusted*     103         109          106         103         100         -
 Nestlé’s Aero                 RRP (£)       N/A         N/A         0.60        0.65        0.65       0.65
                               Adjusted*      -           -            97         103         100         -

Adult stick products
 Mars’s Galaxy                 RRP (£)      0.80         0.90        0.90        0.95        1.00       1.00
                               Adjusted*      90           98          95          98        100          -
 Nestlé’s Mega                 RRP (£)      N/A          0.90        0.90        0.95        0.99       1.00
                               Adjusted*      -            99          96          99        100          -
 Nestlé’s Mint Crisp           RRP (£)      0.50         0.55        0.60        0.60        0.65       0.65
                               Adjusted*      86           92          97          95        100          -

Children’s novelty products
 Mars’s Skittles            RRP (£)         N/A          0.45        0.45        0.45        0.45       0.45
                            Adjusted*         -           109         106         103         100         -
 Nestlé’s Nobbly Bobbly     RRP (£)         0.40         0.45        0.50        0.55        0.55       0.55
                            Adjusted*         81           89          96         103         100         -
 Nestlé’s Zoom              RRP (£)         0.30         0.35        0.38        0.40        0.40       0.45
                            Adjusted*         84           96         100         103         100         -

Adult refreshment products
 Mars’s Opal Fruits        RRP (£)          0.60         0.65        0.65        0.69        0.69       0.70
                           Adjusted*          97          103          99         103        100          -
 Nestlé’s Mivvi            RRP (£)          0.60         0.60        0.65        0.65        0.65       0.65
                           Adjusted*         103          101         106         103        100          -
 Nestlé’s Orange Maid      RRP (£)          0.55         0.55        0.60        0.60        0.60       0.60
                           Adjusted*         103          100         106         103        100          -

Filled cones
 Nestlé’s Extreme              RRP (£)      0.65         0.65        0.70        0.75        0.75       0.80
                               Adjusted*      97           95          99        103         100          -

  Source: MMC.


 *That is, the RRP adjusted for movements in the RPI. The data are shown in index format where 1997=100. No adjust-
ment has been made for any changes in product quality during the period.

    5.70. While the RRPs of Nestlé’s wrapped ice cream products have generally remained unchanged
during the three years 1996 to 1998, over the longer period 1992 to 1998 there have been some notable
increases. For example, its Extreme filled cone RRP rose from 60p in 1992 to 75p by 1997 (an increase
of about 10 per cent in real terms) and to 80p in 1998. The RRP of its Orange Maid rose from 50p in
1992 to 60p in 1995, but has remained unchanged since then, while the RRP for its Mint Crisp rose from
47p in 1992 to 65p by 1997 (an increase of about 18 per cent in real terms).

    5.71. The RRPs of ten of BEW’s products together with the recommended selling prices of multi-
packs for the same products are shown in Table 5.18; this shows the difference between the RRP of each
product when sold singly and the implied recommended price for each unit when sold in a multipack.
These data show that the single item RRPs of BEW’s Cornetto, Feast and Twister products are 51 per
cent higher than the multipack per unit recommended selling prices. Similarly, the RRPs of two of
BEW’s more recent products, Magnum and Solero, are 26 per cent higher than their multipack
equivalent prices. During the last inquiry the MMC were told that the rate of price increase on BEW’s
multipacks since 1990 had been markedly lower than that for the same products when purchased singly.1
This pattern seems to have continued for individual products: the 1997 data, for those wrapped ice cream
products which are sold in both single and multipack formats, show greater differentials when compared
with the available 1993 data, except for Mini Milk which had a higher differential in 1993 compared
with 1997. The recommended selling prices of most of these multipack product lines (which accounted
for about 80 per cent of BEW’s multipack sales volume in 1977) generally fell in real terms during this
period (by as much as 9 per cent in the case of Cornetto multipacks). The exceptions were Solero


 1
     See the 1994 report, paragraph 3.87.


                                                        96
multipacks, whose recommended selling price has risen by about 14 per cent since their launch in 1995,
and Twister multipacks, whose recommended selling price has risen by about 5 per cent since their
launch in 1994. In commenting on these data, BEW told us that, against a rise of about 12 per cent in the
RPI over the period 1993 to 1997, the average price per litre of its wrapped impulse ice cream products
had risen by 11 per cent, and the average price per litre of BEW’s multipack ice cream products (before
taking into account the effects of any price promotions) had risen by 17 per cent. BEW noted that the
launch of Solero multipacks in 1995 and the doubling (in volume terms) of sales of its Magnum multi-
packs over the period 1993 to 1997 were important factors in the increase in the average price per litre of
BEW’s multipack ice cream products over that period.1

TABLE 5.18 Recommended selling prices for BEW’s multipacks compared with the equivalent RRPs, 1997

                 RP*         Units per       Price       RRP†           Differential‡
Brand          multipacks    multipack      per unit     single              (%)
                   (a)          (b)           (c)          (d)        1997§ 1993¶

Cornetto         1.99            4           0.50        0.75           51       33
Magnum           2.39            3           0.80        1.00           26       16
Feast            1.99            5           0.40        0.60           51       39
Caramel          1.99            4           0.50        0.65           31        -
Crunchie         1.99            4           0.50        0.65           31        -
Solero           2.39            3           0.80        1.00           26        -
Calippo          1.79            4           0.45        0.60           34       19
Twister          1.59            4           0.40        0.60           51        -
Tricky Licky     1.89            6           0.32        0.40           27        -
Mini Milk        1.69           10           0.17        0.20           18       33

 Source: MMC, based on data from BEW.


 *Recommended selling prices of multipacks.
 †Recommended retail price of a single unit.
 ‡Differential = ((d)–(c))÷(c)×100.
 §Numbers have been rounded after calculation.
 ¶The 1993 data are from the 1994 report, Table 3.10.



Entry and barriers to entry
    5.72. The difficulties facing potential entrants into this market fall into three main categories: first,
gaining access to retail outlets; second, developing new products and manufacturing a wide product
range; and third, gaining the benefits of economies of scale in production and distribution. Before
considering each of these problems in turn, we first look back over the experience of new entry in this
market over the last 20 years.

    5.73. It is relatively easy to enter the ice cream market as a manufacturer of scoop and tub ice
cream. It is, however, very difficult to move beyond this level into manufacturing wrapped ice cream
products; this requires considerable investment in manufacturing facilities, in developing new products,
in promoting particular brands, in ensuring that the products are stocked by retailers nationally and in
efficiently distributing the products to them.


New entrants
    5.74. As noted in paragraphs 5.12 and 5.13, Mars entered the impulse ice cream market in the UK
in 1989. Häagen-Dazs, a US-based manufacturer of super premium ice cream, was acquired by Grand
Metropolitan PLC following its takeover of Pillsbury in 1989. At first, Häagen-Dazs imported its
products from the USA, but since 1992 it has supplied both the UK and other markets in Europe from a
plant in northern France. The company now sells super premium ice cream, sorbet and frozen yoghurt
products mainly, though not exclusively, for the take-home market; it has a small share of the reference
product market.



 1
   During the period 1993 to 1997, BEW’s multipack sales had increased by about 46 per cent in volume terms while its sales of
wrapped impulse ice cream products had increased by only 24 per cent.


                                                             97
    5.75. Treats, which was purchased by Unilever in 1969, had in effect operated as a separate business
from BEW even though it produced some of BEW’s range of products. A management buyout was com-
pleted in January 1991. Since then, Treats has produced a wide range of products for several of the
major retail chains for the take-home market, both bulk own-brand ice cream and multipacks, as well as
Treats’ own range of ice stick confectionery. In many respects Treats’ approach differs from the other
manufacturers; it specializes in manufacturing children’s novelty products, especially lollipops, and it
seeks to compete by offering higher percentage margins to retail outlets than those obtainable from many
manufacturers. Even though the RRPs of Treats’ range of ice cream products tend to be lower than those
of the other three leading manufacturers (see Table 5.15), it remains profitable (see paragraph 4.68); this
was attributed by Treats to its lower marketing expenditure since it did not aim to compete nationally in
CTNs.

    5.76. In February 1992 Clarke Foods bought the Lyons Maid ice cream business from Allied-Lyons.
(Clarke Foods was a new company formed by another new entrant to the UK market, Mr Henry Clarke,
who had sold his interest in an ice cream business in the USA. In February 1991, through a stake in an
investment company, he had acquired three UK-based ice cream manufacturers from Hillsdown at a cost
of £10.3 million.1) Clarke Foods had little time in February 1992 to make plans for the coming summer
season; problems in commissioning new plant also prevented it from achieving more than a quarter of its
planned output; it had also supported a number of new product launches with a major advertising cam-
paign. Furthermore, an exceptionally wet August meant that Clarke Foods, like the rest of the industry,
experienced poor sales. Facing acute liquidity problems, the company’s bankers opted for receivership in
October 1992.

    5.77. Within one month, Nestlé, the world’s largest food manufacturing company, had completed the
acquisition of the two factories at Stourbridge and Telford, the first of which it sold in 1997 (see para-
graph 4.63), and most of the other assets of Clarke Foods, including use of the Lyons Maid brand.
Though Nestlé had the benefit of acquiring the modern production equipment installed by Clarke Foods,
this was itself not sufficient to reverse the decline in Lyons Maid’s (now Nestlé’s) market share (see
paragraph 5.30).

      5.78. We now consider various aspects of market entry in the light of the above comments.


Access to outlets
    5.79. As with nearly all grocery and confectionery products, a new ice cream brand has to fight for
‘shelf space’ with a large number of existing brands, some of which will benefit from strong consumer
loyalty. The difficulty in acquiring shelf space is even greater in the case of the reference products,
because retailers must store and display them within the limited space of a freezer cabinet.

    5.80. Thus, in addition to deciding which means of distribution to use in delivering the reference
products to retailers (see paragraph 5.3), the new entrant must also obtain retail ‘freezer space’. There
are three options:

      (a) The new entrant could gain access to a cabinet already installed by either: (i) persuading the
          retailer, if the freezer is his, to find space in it to try the new products; or (ii) persuading the
          cabinet’s owner to allow the retailer to stock the new product (though (ii) is only likely in
          certain circumstances, for example where there is little or no overlap between the different
          manufacturers’ product ranges. This happened when Nestlé allowed certain Mars products in
          its otherwise exclusive freezers (see paragraph 5.44); there have been similar agreements
          between Mars, Häagen-Dazs and Treats).

      (b) The new entrant could: (i) replace an existing cabinet not owned by the retailer; (ii) supply an
          additional cabinet; or (iii) persuade the retailer to buy a cabinet.

      (c) Exceptionally, the new entrant could aim to supply retailers’ own-label products, though own-
          label products currently account for a very small share of the impulse ice cream market.



 1
     See the 1994 report, paragraph 3.29.


                                                      98
    5.81. A new entrant seeking to sell reference products to a retail outlet that already had an exclusive
freezer cabinet would have to persuade the retailer to add a second cabinet or replace the existing
exclusive cabinet with another one.1 First, there is an inertia or status quo bias problem: the reference
products commonly represent a very small part indeed of the retailers’ total turnover and profits. The
retailer might consider that there are disincentives to switching to a new supplier, or that using an
additional supplier was unattractive if it meant a new or additional cabinet (adding another cabinet would
only be possible if the retailer had space for it). Actual installation would happen only if the expected
return on the space allocated to a second cabinet both: (a) exceeded that from using the space for
stocking and displaying other products; and (b) made up for any reduction in the return on the space
allocated to the first cabinet.



Development of brands
   5.82. To be successful, potential entrants into any retail food market need to launch a brand that
proves to be popular with consumers, wholesalers and retailers. It is much easier to persuade wholesalers
and retailers to stock a new brand if the manufacturer can either draw on an existing brand name, as
Mars and Nestlé are able to do for example, or support the launch by a major advertising and
promotional campaign. Mars told us that, even with the benefit of existing brand names, there was no
point in advertising if adequate distribution could not be achieved.

    5.83. According to BEW (see Table 5.19), 19 of the 20 top-selling (by volume) reference products
were BEW’s brands: the exception was Mars, in fourteenth position. Data provided by Mars showed a
similar picture for all sales of the reference products in the UK, with its Mars product being the only
non-BEW product in the top 15. However, Mars said that data for sales from industry freezers located in
John Menzies’ CTN retail outlets showed five of Mars’s products and two of Nestlé’s in the top 15, and
that sales of multipack wrapped ice cream products from grocery outlets showed Mars’s products in first
and third place (see Table 5.20).

TABLE 5.19 Top 20 wrapped impulse ice cream products, 1997

Rank*       Manufacturer       Reference product

  1              BEW           Magnum Classic
  2              BEW           Twister Original
  3              BEW           Magnum White
  4              BEW           Solero Exotic Fruits
  5              BEW           Cornetto Strawberry
  6              BEW           Calippo Orange
  7              BEW           Calippo Lemon
  8              BEW           Cornetto Choc ’n’ Nut
  9              BEW           Feast
 10              BEW           Solero Forest Fruits
 11              BEW           Magnum Almond
 12              BEW           Magnum Mint
 13              BEW           Chunky
 14              Mars          Mars ice cream
 15              BEW           Mini Milk
 16              BEW           Strawberry Split
 17              BEW           Solero Citrus
 18              BEW           Sparkles
 19              BEW           Cornetto Mint
 20              BEW           Orange Frutie

  Source: BEW.


  *By volume, based on Nielsen Retail Audit data, covering about 64,000 impulse ice cream outlets, during the period
23 March to 29 August 1997.




 1
     The replacement cabinet might be exclusive to the new entrant’s products, but is much more likely to be non-exclusive.


                                                                99
TABLE 5.20 Top 15 wrapped ice cream products, 1997

                                                 Impulse sales from
              All impulse sales                   industry freezers†                   Multipack sales
         Manu-          Reference            Manu-         Reference               Manu-      Reference
Rank*   facturer         product            facturer         product              facturer      product

  1      BEW     Magnum Classic               BEW       Solero Exotic              Mars      Mars ice cream
  2      BEW     Magnum White                 BEW       Magnum Classic             BEW       Magnum Classic
  3      BEW     Solero Exotic Fruits         BEW       Magnum White               Mars      Snickers
  4      BEW     Twister Original             BEW       Calippo Orange             BEW       Cornetto Strawberry
  5      BEW     Solero Forest Fruits         Mars      Mars ice cream             Nestlé    Fab
  6      BEW     Cornetto Strawberry          Nestlé    Fruit Pastil               BEW       Solero Exotic
  7      BEW     Calippo Orange               BEW       Calippo Grapefruit         BEW       Feast
  8      BEW     Feast                        BEW       Solero Citrus              BEW       Cornetto Choc ’n’ Nut
  9      BEW     Cornetto Choc ’n’ Nut        Nestlé    Fab                        Nestlé    Fruit Pastil
 10      Mars    Mars ice cream               Mars      Galaxy Caramel             BEW       Twister Original
 11      BEW     Solero Citrus                BEW       Feast                      BEW       Mini Milk
 12      BEW     Calippo Lemon                BEW       Twister Original           BEW       Magnum White
 13      BEW     Magnum Almond                Mars      Opals Strawberry           BEW       Calippo Orange
 14      BEW     Magnum Mint                  Mars      Bounty                     BEW       Caramel
 15      BEW     Strawberry Split             Mars      Snickers                   BEW       Crunchie

 Source: Mars.


 *By volume, based on IRI Infoscan data, covering about 100,000 impulse ice cream outlets.
 †Based on sales data from 250 John Menzies retail outlets.




Product range
    5.84. It was put to us that, so far as the reference products were concerned, a new entrant that was
not able to offer retailers and consumers a full product range might find it more difficult to expand than
one that was able to offer a full range. Retail outlets need to meet a variety of consumer preferences, as
the range of product types listed in paragraph 5.5 shows. Furthermore, a new entrant which has only a
limited range of products (even if it includes some strong brands which offer the consumer new choices)
will need to find space in a freezer cabinet. This is not an option in those outlets that only have a cabinet
restricted to one manufacturer’s brands.

     5.85. Exceptionally, buying-in products from other manufacturers to fill out the range may, in part,
overcome the constraints of a narrow product range. For example, Treats, the main manufacturer of ice
lollies, has extended its product range by buying-in both cones and chocolate bars from two specialist
manufacturers. Many of Treats’ distributors are themselves small producers of ice cream who do not
manufacture ice lollies but buy-in these items from Treats.



Economies of scale in ice cream production and distribution
    5.86. Whilst it remains the case that the manufacture of bulk ice cream yields few economies of scale
to the large manufacturers that are not equally available to others, the high-volume manufacture of a full
range of reference products requires sophisticated mixing and packaging equipment. Falling unit produc-
tion costs more than outweigh increases in distribution costs that arise in serving the mass market from
one point of production, as evidenced by the marked tendency to concentrate the manufacture of
reference products in a single plant, sometimes supplying outlets in a number of European markets.

    5.87. The distribution of relatively low unit value reference products to retail outlets requires
temperature-controlled storage and transport. Average distribution costs as a percentage of turnover are,
therefore, considerably higher for the reference products than for other snack foods such as sweet
confectionery. The reference products are delivered in refrigerated vans to outlets that usually require
frequent drops of relatively small sizes. The greater the density of the delivery points and the larger the
average drop sizes within a given area, the more efficient and frequent the delivery service can be, as
measured by operating costs and reliability of service in meeting volatile levels of demand. For more
information on economies of scale in the distribution of the reference products, see Appendix 5.5.



                                                       100
     5.88. In the 1979 report it was noted that unless frozen food wholesalers took over more responsi-
bility for distributing impulse ice cream it would be impractical for a company lacking the volume of
sales of BEW or the then Lyons Maid to challenge either of them as a national supplier.1 In the 1994
report, it is noted that distribution is a key aspect of competition, and that there are important economies
of scale in distribution.2 Mars told the MMC then that it was disadvantaged by the absence of an
established national independent wholesale delivery network.3

    5.89. During the present inquiry Mars told us that the difficulties facing potential entrants wishing to
supply the reference products had, in its view, increased substantially over the previous four years (see
also paragraph 6.47). In Nestlé’s view, BEW’s combination of economies of scale and low distribution
costs, the lack of an alternative distribution system offering similar benefits, BEW’s significant advertis-
ing expenditure and the variety and scale of its trade incentives operated as a virtual lock-out for potential
entrants (see paragraph 6.79).


Advertising and marketing
    5.90. Sales of ice cream products in general are supported by their manufacturers’ expenditure on all
types of advertising, marketing and special promotions. For impulse ice cream products in particular,
this expenditure is mainly in support of the new products and range extensions, and developing brand
awareness; this became a more marked feature of the market after Mars’s entry in 1989 (see paragraph
5.13).


Product innovation
   5.91. Between 1985 and 1992 BEW introduced 48 new impulse ice cream products (28 of which
were aimed at children), and Lyons Maid (later Nestlé) launched 38 (including 18 for children).4 In
addition, the entry by Mars and other producers into the market resulted in a further 25 new products.
Over half of the new product launches in the period 1989 to 1992 were chocolate bar products aimed at
adults.

    5.92. There have been many new products since 1992, mostly in the chocolate bar, adult stick and
children’s novelty sectors. In the children’s ice cream sector with its emphasis on novelty, manufacturers
frequently introduce new lines and variants of existing products that are different in shape or appearance
but similar in manufacture and taste.

    5.93. Nestlé estimates that new products accounted for about 30 per cent of sales (by value) of
impulse ice cream products over the period since 1993. Nestlé also said that 15 out of its own 24 impulse
products were new since 1993, and that these accounted for about half of its turnover of impulse
products. BEW told us that since 1992 it had launched over 35 new wrapped impulse ice cream products,
of which it considered ten to be ‘significantly innovative’ (four children’s products, three chocolate bars,
two adult refreshment and one card tube product). Mars estimates that between them the three leading
manufacturers launched 76 new products (including products relaunched under a new name) during the
period 1994 to 1998: BEW had launched 37 including 21 children’s products, Nestlé had launched 23
and Mars 16.


Advertising
     5.94. Since 1976 (when BEW successfully relaunched its Cornetto brand), impulse ice cream adver-
tising has emphasized individual brand names with the intention of making consumers aware of the
widening range of such products being marketed. Advertising expenditure on impulse ice cream products
grew quickly in the period 1991 to 1993, but has since declined. A major part of the decline is accounted
for by Mars and Nestlé reducing their advertising expenditure in favour of promotional activities (see,


 1
  See the 1979 report, paragraph 399.
 2
   See the 1994 report, paragraph 9.17.
 3
   See the 1994 report, paragraph 3.59.
 4
   See the 1994 report, Table 3.13.


                                                     101
for example, paragraph 6.74). Such promotional activity takes various forms, including price discounts
and ‘25 per cent more free’ offers.

    5.95. Monitored advertising expenditure (at rate card prices) on impulse ice cream in 1997 was about
£14 million (see Table 5.21); this implies an advertising/sales ratio of 4.1 per cent. Advertising/sales
ratios for other food and drink products include: all ice cream products at 2.5 per cent, chocolate confec-
tionery at 2.7 per cent, crisps snacks and nuts at 1.7 per cent, carbonated soft drinks at 1.5 per cent and
biscuits at 0.7 per cent.

TABLE 5.21 Advertising expenditure on impulse ice cream products, 1991 to 1997

                               As percentage      As percentage
             Advertising        of wrapped        of all ice cream
Year        expenditure*           sales            advertising
                £m                   %                     %

1991            9.4                3.7                  65
1992           13.1                5.6                  66
1993           15.1                5.8                  62
1994           14.2                4.6                  58
1995           15.0                3.9                  52
1996           13.5                4.1                  52
1997†          14.1                4.1                  57

 Source: Mintel Market Intelligence, January 1998.


 *That is, monitored media expenditure at rate card costs.
 †Data for the year ended September 1997.

   5.96. The most heavily advertised brands of impulse ice cream in 1996 were all BEW’s: Solero,
Calippo, Magnum and Cornetto (see Table 5.22). Other brands that were relatively heavily advertised
were Mars’s Opal Fruits and Nestlé’s Kit Kat. BEW accounted for about 70 per cent of media
advertising of impulse ice cream products in 1996, with Mars and Nestlé each accounting for about 11
per cent. BEW’s own estimates show that, on average, it accounted for about 65 per cent of impulse ice
cream advertising during the period 1994 to 1997.

TABLE 5.22 Advertising expenditure on wrapped impulse ice cream products by brand, 1996

                                     As percentage
                     Advertising      of wrapped
   Brand            expenditure*          total
                        £m                 %
BEW
Solero                  2.44               18.1
Calippo                 2.06               15.3
Magnum                  1.98               14.7
Cornetto                1.93               14.3
Others                  1.11                8.2
 Subtotal: BEW          9.52               70.5

Nestlé
Kit Kat                 0.95                7.0
Pastil-lolly            0.56                4.2
 Subtotal: Nestlé       1.51               11.2

Mars
Opal Fruits             1.03                7.6
Others                  0.49                3.6
 Subtotal: Mars         1.52               11.3

Others                  0.95               7.0
 Total                 13.50             100.0

 Source: Mintel Market Intelligence, January 1998.


 *That is, monitored media expenditure at rate card costs.

    5.97. BEW’s total marketing expenditure (including advertising in co-operation with specific
customers) on its impulse ice cream products (including multipacks) in 1997 was £14.6 million, of which


                                                         102
actual media advertising was £6.8 million (47 per cent of the total) and promotional expenditure (mostly
point-of-sale display material) was about £6.1 million. Actual media advertising expenditure by Nestlé on
all its ice cream products in 1997 amounted to about £[!] million and its promotional expenditure was
about £[!] million. Actual media advertising expenditure by Mars on all ice cream products in 1997
amounted to about £[!] million (split roughly half and half between impulse and take-home), and its
promotional expenditure (including the provision of freezer cabinets to retailers) was a further £[!]
million.




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