Earlier last month, global food giant Unilever announced its plans to segregate its ice cream business for more streamlined operations focusing on high-performing brands. This put the spotlight on its India vertical, Hindustan Unilever Limited (HUL) as well, which operates the ice cream vertical in the country with four major brands – Kwality Wall’s, Magnum, Feast, and Cornetto. Of course, Quality Wall’s is the umbrella brand. Media reports are now indicating that the plan could be to eventually sell off the business. So, IMPACT got in touch with some brand experts to understand what could be the best way forward for HUL’s ice cream business and what impact will this have on the larger market in the country.
Kwality Wall’s Dilemma
The global giant Unilever is quite certain of its plan to spin off its ice cream business in the next two years in a quest towards accelerating its Growth Action Plan (GAP). In its blog, the company writes, “The Board believes that Unilever should be increasingly focused on a portfolio of unmissably superior brands with strong positions in
highly attractive categories that have complementary operating models.”
However, it can’t be an easy decision for its Indian arm, HUL to bid farewell to Kwality Wall’s – a brand it has built from ground up in the country’s highly fragmented and challenging market. According to experts, the Indian ice cream industry is showing tremendous growth potential as storage and distribution facilities improve along with consumer palettes and technical advancements in the commerce space. While the current revenue of the ice cream market amounts to USD 5.33bn., it is expected to grow at a CAGR of 10.86% in the next four years. This, against the expected global growth average of 5.13% between 2024
and 2030.
Moreover, the company has been extensively investing in scaling up its ice cream business over the past few years – be it the acquisition of Karnataka-based Aditya Milk Ice Cream and Frozen Dessert in 2018 or the launch of Slow Churn to attract the next generation of customers on e-commerce channels. The company has products across price categories and has maintained a bullish stance on the opportunities that lie ahead for the ice cream industry in India.
Viren Razdan, Managing Director of Brand-Nomics says, “I think the HUL India business needs to preserve its ice cream brands and their equity because they are on the cusp of a big opportunity. Though running a successful ice cream business in the country has been quite challenging considering multiple factors, the time is ripe for innovation and expansion. The maturity and sophistication when it comes to storage and distribution technology in India has just started. And it is going to take off really well. Kwality Wall’s is a very powerful brand and can leverage this new leg of growth.”
The Melting Pot
However, it has not been easy for HUL to keep its ice cream business thriving in the country. Dominated largely by regional players, the fragmented Indian ice cream market does not leave much room for established players to create a strong foothold in the industry. Despite being the second largest brand right now, Kwality Wall’s amounts to just 8-9% of the 440-crore-plus industry. Moreover, its contribution to overall HUL earnings in India is not very significant. HUL’s total revenue from operations in FY23 stood at INR 59144 cr., of which the ice cream unit contributed to about 3%.
Srinivas S, Independent Brand Consultant who has also earlier worked with HUL’s ice cream business, explains that Unilever’s decision to let go of its ice cream business was a long time coming because of these factors. “Ice cream is quite an uneasy kind of business, even globally. It is quite peculiar and requires a very decentralised and passionate management. Also, there is a lot of investment that goes into developing cold storage, good distribution, and maintaining the health and hygiene of the product at retail stores. Local brands in India are much better at doing all this, and HUL struggled even in its initial days. They put in a lot of effort to take Kwality Wall’s to where it is today. A lot of acquisitions and mergers happened in the process, initially. But I think they never got a similar kind of return. The ice cream business is comparatively less valuable than other high-value properties that HUL enjoys a lion’s share in, in the Indian market.”
Unilever globally has been pushing its agenda to streamline its operations with a growing focus on hero brands. In the past two years alone, the international giant has sold off its tea business ekaterra along with its atta and salt business in India that was running under brands Annapurna and Captain Cook, respectively. Interestingly, the Indian wing of the business chose to retain its tea business.
Scooping it Out
While Razdan feels it would not be wise for Kwality Wall’s to make its ice cream business obsolete in India, Lloyd Mathias, Angel Investor and Business Strategist thinks that the prudent way ahead is to let it melt. He notes, “Ice cream is a very fragmented market in India with several regional players dominating the charts. While Kwality Wall’s, Magnum, and all other brands in HUL’s portfolio are quite popular, they are competing with regional players that have a stronghold in the market. Moreover, most of these regional brands are backed by milk-producing companies while Kwality’s products are made with vegetable oil. As the market gets more health-conscious, it is definitely going to be more difficult for HUL to scale that brand. Then, there is a lot of competition from boutique ice cream brands when it comes to flavours and experiences. Add all this to Unilever’s global strategy to focus more on successful brands, it would make sense for HUL to demerge its ice cream business in India as well.”
Mathias predicts that the most logical conclusion to this story would be HUL selling off its ice cream business to a leading industry player or a strategic investor. “This will not only increase HUL’s revenue by a sizeable chunk considering these are powerful brands with a heavy portfolio, but it would also bring in a lot of equity for the buyer,” he emphasises.
On being asked what this would mean for the overall ice cream industry, Srinivas maintained that there won’t be a disruptive impact as the brand does not hold a very dominant position when it comes to market share.
On the other hand, Razdan and Mathias speculate that it is going to be a big opportunity for the competitors, especially during the transition period – whether HUL decides to sell, demerge into a separate business, or make obsolete its ice cream brands. The latter also sees great scope for consolidations and mergers in the larger ice cream industry as a follow-up.
Albeit, all of this is still a guessing game as HUL maintains they are exploring options when it comes to their ice cream business. Till they figure it out, let’s scoop some ice cream to beat the rising heat as we witness this moment in history unfold.
