The November 2017 CIMA OCS Pre-seen focuses on a fictional dairy ice cream manufacturer called Struans. The real world ice cream market is a very differentiated one. All manner of producers compete for customer attention and loyalty - from genuinely artisanal, small-scale specialists, to international powerhouses and globally-recognised brands. There have been interesting developments in recent years, both in terms of marketing and production. It’s also a very challenging industry from the perspective of supply chain management. Fortunately, VIVA has dived into the real world industry for you and gathered all the key data and information that’s relevant to the Struans pre-seen case. The following is just a sneak peek into some useful points from the full industry analysis, which you can get as part of one of our unrivalled Study Packs for the November OCS exam.
Global Consumer Trends
We’ll start by taking a look at some of the most important consumption trends in recent years, and some projections about what is likely to happen in the coming years within the industry in terms of changing consumer preferences. The first chart below tracks the average number of times per year that consumers in the US ate frozen treats over the last two decades. When it comes to anticipating trends in developed nations in Europe and beyond, the US is often a good place to start. Very often the US signals changes that are on the horizon in other such countries. As you can see, in general US consumers are eating ice cream less frequently than they did in the 1990s. Tellingly, frozen yoghurt – considered a healthy alternative - has also been on the decline, and US consumers overwhelmingly still opt for ice cream over its healthy cousin. Yet despite the declining consumption rates, the shift in consumer preferences in terms of the types of ice cream being consumed has sustained the value of the market. As Forbes have pointed out, the rising popularity of higher priced artisanal ice creams and premium brands has resulted in the value of US sales increasing by 2% over the last year. So despite lower volumes of sales, we’re seeing higher per volume value due to more discriminating consumers.
Another interesting consumer shift may be on the horizon, at least if a recent study by market research group Mintel is anything to go by. Increasingly, a majority of consumers (especially younger consumers) are reporting interests in non-dairy alternatives to traditional dairy ice cream. As you can see below, in some European countries the percentages are as high as 70%! Additionally, according to the same report, roughly 1 in 5 said they would be willing to pay a higher price for such products. It’s worth considering the significance of such a figure, however, for 2 reasons. Firstly, 1 in 5 is not a particularly impressive proportion! That means that 80% did not say they would be willing to pay a higher price for non-dairy alternatives. Secondly, though these kinds of consumer surveys have their uses, they are limited in their predictive power about what consumers will actually do when it comes to making a purchasing decision. Saying that one would be willing to pay for something is notoriously not the same as actually paying for it! So despite consumers expressing a favourable attitude towards non-dairy ice cream, buying trends still show consumers moving towards luxury and premium dairy ice cream varieties, particularly adult consumers. This of course is important to bear in mind, because typically non-dairy alternatives are more costly to produce in terms of sourcing ingredients like almond and or coconut. A company would therefore likely need to charge higher prices in order to cover those costs, and would therefore want to have strong reasons to believe that consumers will in fact be willing to pay the price. Whether verbal reports are enough is not obvious…
There are several other factors that influence consumer trends which we go into in more detail in the full analysis. However, we’ll now turn to some issues pertaining to the supply and distribution side of this industry. There are several interesting features of the ice cream industry supply and distribution chain. One is the influence and behaviours of the large supermarkets in relation to food manufacturers in general. We’ll set that controversial issue aside for the purposes of this overview (though we cover it in the full analysis). Here we’ll take a quick look at what’s called the “cold chain”. The cold chain simply refers to all the stages in the distribution and storage process in which the ice cream must be kept within an optimal, consistent temperature range. Cold chain management is crucial in maintaining both the quality and safety of the final product. The reason is that sudden fluctuations in the temperatures to which the ice cream is exposed can cause what’s called “heat shock”. Heat shock, as Robert Roberts, professor of food science notes, can cause ice cream to become icy and grainy, thus compromising the creamy texture of premium and luxury products. Increasingly, companies are introducing advanced technologies into their distribution and storage facilities. These technologies allow them to track in real time the precise temperatures to which the products are being exposed, allowing manufacturers to be immediately notified if any batch of products is at risk of heat shock. Moreover, heat shock can undermine the safety of ice cream if the exposure is long enough. Harmful bacteria can form in the culture if the temperatures get too high.
Real world companies
As indicated in the introduction, there is great variety in the ice cream manufacturing industry. As mentioned in the pre-seen, Struans is a relatively small family business that takes pride in producing a premium quality dairy ice cream product. Most larger and multinational companies tend to deal in lower quality ice cream. However, there are also global powerhouses that have a presence in the luxury and premium segments. Here we take a quick look at one such company. In the full industry analysis, we also reveal a real world equivalent of Struans. Indeed, so similar is the real world counterpart that it is likely that Struans was directly modelled on that particular company. But for now, we turn to one of the most recognised brands in the industry – Ben and Jerry’s.
Founded in 1978 in Vermont, USA by Ben Cohen and Jerry Greenfield, from the beginning Ben and Jerry’s was associated with community activism and having a “social conscience”. It opened its first franchise store in 1981, and grew rapidly throughout the US on the back of both the uniqueness of its flavour combinations, and due to its attention-grabbing marketing ploys and gimmicks. In 2000, Ben and Jerry’s was acquired by the enormous Anglo-Dutch conglomerate Unilever. Unilever kept the branding and committed to sustaining Ben & Jerry’s progressive values and activism.
Undoubtedly, Ben and Jerry’s success was partly due to the high quality of their ice cream. Both owners had taken courses in ice cream production before founding the company and knew the process first hand. However, the real key to their success seems to have been their approach to marketing. From the beginning, Ben and Jerry’s opted for jarring, humorous product names and playful imagery. However, they combined this apparently playful, whimsical identity with a strong commitment to social activism and supporting disadvantaged groups. In many cases, their marketing and advertising took the form of politically-opportune stunts. In some cases, they renamed their ice cream flavours in response or protest to certain political events that were going on at the time. This brazen approach accelerated their brand awareness and eventually established their name as one of the most globally recognised in the industry…
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