Nestlé and R&R ice cream company create $2.8bn JV Froneri
The joint venture brands have sales of around CHF 2.7bn ($2.8bn) and a presence in over 20 countries with 15,000 employees.
Froneri will be headquartered in the UK and will operate primarily in Europe, the Middle East (excluding Israel), Argentina, Australia, Brazil, the Philippines and South Africa.
The new company will combine Nestlé and R&R’s ice cream activities in the relevant countries and will include Nestlé’s European frozen food business (excluding pizza and retail frozen food in Italy), as well as its chilled dairy business in the Philippines.
The transaction is subject to employee consultations and the approval of regulatory authorities. Financial details are not being disclosed.
Ibrahim Najafi, R&R Ice Cream CEO, who will become Froneri CEO, said he was excited by the potential for R&R to combine with Nestlé to drive future growth.
Challenges for Nestlé
According Euromonitor International data, Nestlé is the second biggest ice cream and frozen dessert company in the world, behind only Unilever.
Lianne van den Bos, senior food analyst at Euromonitor International, said that in 2015, 38% of Nestlé’s retail value sales were generated in confectionery, ice cream and frozen desserts, and sauces, dressings and condiments (SDC).
This was, she said, a high enough share for some to question the company’s highly publicized strategic aim to reposition itself as the world’s leading wellness and nutrition company.
“Nestlé’s ice cream business currently faces two main challenges,” van den Bos said.
“The first is to reverse the decline in core developed markets since 2008, the second is to increase significantly its Asia Pacific market presence.
“The company will have to respond to the factors causing a poor performance in Western Europe, which are primarily the weak economic climate, rising health awareness and strong competition. Nestlé would do well to intensify its product innovation, paired with an adequate pricing policy.”
She added that, in the long term, spinning off the ice cream division could free up resources to invest in other “healthy related foods.”
Partnering with R&R
According to van den Bos, Nestlé’s working relationship with R&R, with which it has licensing agreements in place in several countries, is in line with a strategic priority for Nestlé.
“R&R is strong in Western Europe, where it manufactures a vast range of private label products and ice cream for the likes of Mondelēz and Mars. Nestlé has needed to focus on reversing the fortunes of its ice cream business in Western Europe for some time.
“Given that Unilever’s strategic priority in ice cream lies in the premium segment, and it has effectively cornered this market, an alternative option for Nestlé is to focus on mass-market expansion, while keeping high-margin premium brands,” she added.
She said with R&R’s expertise in producing private label goods aimed at a wide audience, this could be easier to achieve logistically.
She concluded that while a tie-up with R&R might seem counterintuitive for a company aiming to be the world’s leading nutrition, health and wellness company, it is a good way to separate ice cream sales from its core business and gain operational efficiencies.
