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The Ice Cream Wars Turn Red Hot


Business Week International Cover Story

THE ICE-CREAM WARS TURN RED-HOT

Morris Tabaksblat remembers how he realized the potential of the Chinese ice cream market. Standing in a street in Guangzhou, the Unilever PLC executive watched two parents buy their son an ice cream from a vendor. The boy took one lick, made a face, and threw it on the ground. The same thing happened with a second cone. Astonishingly, they bought him a third one from the same vendor. The child finally found it good enough to eat.

Tabaksblat drew two conclusions from this 1992 incident. First, the quality of Chinese-made ice cream varies so wildly that even children often have trouble eating it. Second, China's one-child policy has produced a nation of indulgent parents willing to splurge on luxuries for their sole offspring. Within months of Tabaksblat's visit, Unilever was building one of the world's largest ice cream factories, in Beijing. The plant is due to open in September.

Unilever is hooked on ice cream, selling more of the stuff than any other company in the world, with 1993 sales of $3 billion. That's about 40% of the worldwide market. To Unilever, ice cream is so important that "we all get down on our knees and pray for a good summer," jokes Co-Chairman Sir Michael Perry. But in case divine intervention doesn't work, Unilever is scouting around the world's emerging markets for acquisitions to balance out a heavy presence in Europe and the U.S. In those markets, it owns such properties as Ortiz-Miko in France and Breyers, Sealtest, and Good Humor in the U.S.

SWEET BOOM. The reason Unilever is pushing hard in emerging markets is that ice cream is no longer just a summer treat for hundreds of millions of new consumers. Rivals Nestle, Mars, and Grand Metropolitan's Haagen-Dazs unit have helped Unilever turn ice cream into a year-round indulgence. They have improved the quality of ingredients, introduced new flavors, and offered such twists as Nestle's Bon Bons--bite-size chocolate-coated treats.

To cash in on this boom, Unilever pursues a local-but-global strategy: It does cook up products to appeal to regional tastes--red-bean and taro (sweet potato) ice cream in Southeast Asia, or watermelon-flavored ice popsicles in China. But since the love of such flavors as chocolate is universal, Unilever also sells certain ice cream products around the world. Its Magnum bar--a stick of rich vanilla ice cream covered with Belgian chocolate--is now sold in 32 countries. Sales grew 46% last year, to an estimated $400 million.

The fight for market share is in full swing in the West. Nestle just bought Italy's largest ice cream company, Finitalgel, and recently acquired shares and options for 22% of Dreyer's Grand Ice Cream Inc. in the U.S., where it has 14% of the market vs. 17% for Unilever.

Even in its new markets, the competitive frenzy is building. Nestle, for example, is also moving into the Chinese market. To win the war, Unilever in June became the first foreign marketer to have street vendors selling its ice cream shipped in from abroad. Unilever has even designed special tricycles for the vendors, complete with dry-ice compartments. Tabaksblat's Chinese ice cream dreams are about to be put to the test.Paula Dwyer in Rotterdam, with Lynne Curry in Beijing


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