Rising refrigeration costs
Ice cream makers could live with a 20% decline in volumes over the next few years if only they could keep raising prices. Here is the problem: ice cream is a low-margin business where costs are soaring faster than Unilever or Nestle can raise prices. The biggest cost is not ingredients but the cost of keeping it cool or refrigeration. Rising energy costs depress the margins of ice cream makers. When ice cream volumes were rising, refrigeration costs were not a big concern. Ice cream makers are also staring at the environmental impact of refrigeration. The cooling industry is incredibly polluting and accounts for 10% of global carbon emissions or three times those produced by airlines and shipping combined. As temperatures rise due to climate change, the demand for cooling will increase too.
Ice cream is a terrible business. Just ask the frustrated CEOs of the world’s biggest ice cream sellers — Switzerland’s Nestle, which owns Movenpick, Magnolia and North American rights for Haagen Dazs; France’s Danone SA; General Mills, which owns the rights to Haagen Dazs in Europe, Asia and the Middle East; London-based Unilever, which owns Ben & Jerry’s, Brewers and Klondike; or Inspire Brands, which own Baskin Robbins. They all see ice cream as an albatross around their necks.
Global annual sales of ice cream were up just 4% in US dollar terms last year. In volume terms, growth has been falling for years. Because prices are rising, the value of ice cream sales still managed to eke out a slight growth. The biggest consumers of ice cream are not kids but overweight or obese adults who gorge on salty snacks, sugary drinks and ice cream. The bad news for the Nestles, Unilevers and Danones of the world is not that fewer people are licking ice creams but that GLP-1 obesity drugs are weighing on the business. Morgan Stanley in a recent report cites ice cream as the top item that users of obesity drugs eliminated from their grocery shopping. As the popularity of GLP-1 drugs soars, a meltdown is looming for ice cream.
