Inside Franchise Business - - Contents -

Could an ice-cream busi­ness melt your heart or freeze your fi­nances?

No mat­ter how con­sumer tastes change, there will al­ways be a place for ice cream. Af­ter all, the sweet treat has lived down the years since at least the sec­ond cen­tury ... Alexan­der the Great en­joyed it, and Ro­man em­peror Nero Claudius Cae­sar (AD 54-86) would send run­ners into the moun­tains for snow, which was then flavoured with fruits and juices.

Ice cream lives on as a favourite Aus­tralian in­dul­gence, even as con­sumers

grow even more aware of the ne­ces­sity to eat healthy foods.

In the 16th cen­tury, Eng­land dis­cov­ered “cream ice”, which was a reg­u­lar at the ta­ble of Charles I, but it didn’t be­come avail­able for the gen­eral pub­lic un­til 1660 when the Si­cil­ian Pro­co­pio in­tro­duced his blend of milk, cream, but­ter and eggs at Cafe Pro­cope, the first cafe in Paris.

Nowa­days, ice cream is avail­able in most coun­tries, widely avail­able from stores and even street ven­dors. Of course, this means it falls within the realm of fran­chis­ing as well.

While vanilla, choco­late and straw­berry have been stal­wart flavours of the ice cream in­dus­try for years, con­sumer tastes have be­come more so­phis­ti­cated, height­en­ing a de­mand for gelato, sor­bet and gourmet op­tions. Lux­ury brands such as the fran­chised chain Moven­pick cater to in­dul­gent tastes, while in­de­pen­dent busi­nesses like Aus­tralia’s Gelato Messina chain, with its fo­cus on Ital­ian her­itage and pre­mium in­gre­di­ents, have helped drive the de­mand for cre­ative and even quirky mixes.

Fran­chis­ing of­fers a mea­sure of sta­bil­ity to ice-cream re­tail, as it is hard for in­de­pen­dent stores to cope with the ris­ing costs of milk and sugar. Prof­its are more achiev­able for larger fran­chise net­works, says an Ibis World re­port, thanks to economies of scale. The re­port says an­other ben­e­fit is the ne­go­ti­at­ing power of big-brand fran­chises, which can se­cure more ad­van­ta­geous rents for prime sites.

Fran­chise net­works

The four largest companies in the sec­tor in Aus­tralia all have ex­ten­sive fran­chise net­works, and to­gether ac­count for more than 40 per cent of in­dus­try rev­enue. While they also have the ad­van­tage of strong brand recog­ni­tion, smaller ice-cream fran­chise chains are start­ing to chip away at their mar­ket share.

More companies are ex­pected to align their prod­ucts to match gourmet tastes while also of­fer­ing low prices. This will ef­fec­tively drive com­pe­ti­tion at the top level and re­sult in over­all re­duced in­dus­try prof­itabil­ity, says Ibis World.

As the sec­tor be­comes more com­pet­i­tive, growth will be buffered by health-con­scious con­sumers pulling away from ice cream with its high con­tent of fat and sugar. This trend is ex­pected to slow in­dus­try growth over the next five years. And as obe­sity lev­els con­tinue to rise, con­sumers may also look to ice-cream chains to pro­vide low-sugar al­ter­na­tives.

How­ever, says Ibis World, cus­tomer per­cep­tions that gelato and frozen yogurt are health­ier op­tions might boost these cat­e­gories over the next few years. As fran­chises start spe­cial­is­ing in these seg­ments, they will bring in­no­va­tion and fresh store con­cepts that will en­er­gise the sec­tor.

Mean­while, what is sell­ing now? The Ibis World re­port breaks down the mar­ket in terms of turnover:

31 per cent: The largest cat­e­gory is hard-serve ice cream, which is los­ing pop­u­lar­ity to newer prod­uct cat­e­gories. How­ever, a revival is likely as companies de­velop new and ex­otic flavours.

16 per cent: Gelato has a higher sugar con­tent but a wider range of flavours than most ice creams.

14 per cent: Soft-serve ice cream is a lower-cost prod­uct with its spot in spe­cial­ist stores be­ing threat­ened by

the en­try into this mar­ket of fast-food companies.

12 per cent: Frozen yogurt is a grow­ing seg­ment thanks to cus­tomer per­cep­tions it is a health­ier op­tion, de­spite it gen­er­ally con­tain­ing more sugar than ice cream. The trend is be­ing driven by store growth.

15 per cent: Ice-cream sun­daes, ice-cream cakes and sor­bet each ac­count for 5 per cent of in­dus­try rev­enue.

A fur­ther 12 per cent of turnover in stores comes from non-core prod­ucts such as soft drinks, smooth­ies, pan­cakes, waf­fles, hot dogs, cof­fee and tea.

Start-up costs can be high for an ice-cream fran­chise be­cause of store fit-outs in­clud­ing freez­ers and dis­play equip­ment. How­ever, it can be rel­a­tively easy to find a fran­chise for sale. No skills are needed to set up in a fran­chise as train­ing is pro­vided.

Key play­ers in the sec­tor

Baskin-Rob­bins Aus­tralia h as 1 2.2 p er cent mar­ket share (the brand is owned by Dunkin’ Brands Group in the US, which also owns Dunkin’ Donuts).

Su­pa­treats Aus­tralia, which is the Wendy’s li­censee and a sub­sidiary of a Sin­ga­pore firm, has 10.7 per cent mar­ket share.

Fran­chised Food runs three ice-cream fran­chises: Cold Rock Ice Cream­ery, Mr Whippy and Tram­po­line, which to­gether have a 10.4 per cent slice of the mar­ket.

New Zealand Nat­u­ral, owned by Hong Kong-based Emer­ald Foods Group, snags a 7 per cent share.

Other companies make up the re­main­ing 60 per cent of the mar­ket, with Ge­latis­simo es­ti­mated to have less than 5 per cent share. Nes­tle, which owns the Moven­pick brand, and Unilever, which has the Ben & Jerry’s brand, ac­count for less than 3 per cent each; and in­de­pen­dent Gelato Messina is es­ti­mated to have a stake of less than 2 per cent.

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