COLD COMFORT

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.