Ice Cream Wars: Nestlé vs. Unilever

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To stoke growth, both companies have relied on getting consumers to pay more for frozen treats. With their tit-for-tat moves on American icons Häagen-Dazs and Ben & Jerry's—a once-homegrown brand now distributed around the world—the food giants have helped lead a consumer trend away from down-market, mass-produced brands to more profitable superpremium products. "By focusing on superpremium brands, both companies have increased the value of their products," says Euromonitor packaged food analyst Francisco Redruello.

Responding to Health Concerns

Rising economies around the world should further the trend, as people have more money in their pockets to spend on goods such as up-market ice cream. "The focus on quality, indulgence brands has been integral to our growth," says Jean-Marie Gurné, head of Nestlé's ice cream strategic business unit. Gurné predicts Nestlé's worldwide ice cream sales should increase by 3% next year.

At the same time, both Nestlé and Unilever have been alert to growing health consciousness, particularly in Western Europe and North America. The industry has responded by rolling out lower-fat, lower-calorie products. Nestlé's $2.5 billion takeover of Dreyer's Grand Ice Cream in 2002 helped it secure the lion's share of this increasingly important market in North America. Dreyer's low-fat "Slow Churned" line, with 50% less fat and 30% fewer calories, has proved a runaway success, even forcing Unilever to roll out similar products under its Ben & Jerry's marque.

"Better-for-you ice creams have been a real boost," says Carl Short, an analyst with Standard & Poor's, which like BusinessWeek is a unit of The McGraw-Hill Companies (MHP). "Nestlé and Unilever are both focusing on this growth market in an attempt to attract new customers."

Targeting Street Sales in Asia

While such healthier options have helped boost sales in developed markets, the biggest growth prospects lie in Asia, where the ice cream business is set to increase by double digits over the next five years. Total revenue from the Asia Pacific region reached $11.6 billion last year, with $3.7 billion in China alone.

For now, market penetration remains low, although both Unilever and Nestlé are gearing up in countries such as the Philippines and Indonesia in hopes of attracting increasingly affluent consumers. Because many homes in developing countries don't have freezers, the companies are focused on selling single-serving portions through street vendors. That should help expand their markets in countries where refrigeration remains an out-of-reach luxury.

As of now, Nestlé and Unilever appear evenly matched, though analysts say Nestlé has shown a greater willingness to innovate in local markets than its Anglo-Dutch rival. Either way, the increasing globalization of the ice cream industry makes it hard for local makers to take on the big boys. With their massive distribution networks and rich marketing budgets, Nestlé and Unilever have an edge. And both have said they may make more acquisitions, particularly in Asia, in the future.

No question, the days of the local ice cream shop have passed. But as long as the European food giants provide a tasty treat to help people cool off in the summer heat, no one particularly seems to mind.

Check out BusinessWeek's slide show for a look at ice cream across the globe.

Scott is a reporter in BusinessWeek's London bureau . Flanagan is an intern in BusinessWeek's Paris bureau.