Microeconomics Ice Cream Analysis
ECO 201 : Microeconomics Research Paper The Unilever Group Ben and Jerry’s Homemade Inc. Ice Cream June 9, 2011 Deborah Minassian ECO 201 : Microeconomics Research Paper The Unilever Group Ben and Jerry’s Homemade Inc. Ice Cream June 9, 2011 Deborah Minassian Abstract Ben & Jerry’s Homemade, Inc. has been in business since 1978. Approximately 40% of the world’s frozen dairy desserts, 5. 6 billion liters per year, are manufactured at more than 450 U. S. ice cream plants. This makes the United States the largest producer of ice cream and related products in the world.
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With the world’s largest milk supply, an abundance of land, and investments in research & development, U. S. frozen dairy dessert production has remained steady and strong for many years, and is prepared to do so for many more. The purpose of this paper is to give the reader a microeconomic overview of Ben and Jerry’s Homemade Inc. Topics found in this paper include supply and demand conditions, Ben and Jerry’s competitive advantage, the barriers within the ice cream industry, ice cream substitutes, Ben and Jerry’s market share and the market structure of their business.
Introduction Ben and Jerry’s is a subsidiary of The Unilever Group. The Unilever Group is a large international company that provides consumer goods including foods such as soups, sauces, dressings, noodles, prepared meals, and tea products; home care products for cleaning and deodorizing; and personal products including soaps, shampoos, deodorants and hand creams. The Unilever Group is also the largest producers of ice cream in the world. The Unilever Group was founded in 1930 and is based in London, the United Kingdom. The Unilever
Group’s growth strategy embraces a focus in four strategic areas. These areas are: 1. Winning with brands and innovation by offering a diverse portfolio of superior products. 2. Winning in the market place through sustaining winning relationships and to be consistently brilliant at customer service. 3. Winning through continuous improvement by translating efficiency into more competitive costs and an improvement philosophy “a little better every day. ” 4. Winning with people through obtaining top talent and investing in training and leadership development.
The Unilever Group acquired Ben and Jerry’s on April 12, 2000 for $326 million. The acquisition of Ben and Jerry’s continued The Unilever’s goal of acquiring the best in business. Supply and Demand of Ice Cream Is there anyone that doesn’t like ice cream? Everyone in my family will ecstatically exclaim “I Scream, You Scream; We All Scream for Ice Cream. ” Ice cream is a highly competitive market and includes many varieties in all sorts of ways. There are not only different flavors of ice cream; it also comes in different forms.
You can purchase ice cream flavors in different size containers as well as pre-made cones, bars and bites of all sorts. Is the market competitive? Absolutely! Is the market saturated, one might think it is. As with any consumer product, if companies price their items too high, they will see a drop in demand and therefore the supply will be greater. The demand for ice cream is plentiful all year round. I was one who thought that ice cream was in greater demand in the summer but learned that ice cream is in demand all year around.
Ice cream’s best substitute is frozen yogurt as well as soy, coconut and almond milk frozen products. These ice cream alternatives can prove to be a bit more expensive than ice cream. When the prices of these substitutes are high, the demand for ice cream goes up. Along with ice cream substitutes we must also consider the complements for ice cream. Complements for ice cream include cones (plain and sugar), hot fudge, whipped cream, nuts and jimmies. According to The Unilever Group’s Annual Report, they reported a revenue growth rate of 11. 0% over the previous year.
Since The Unilever Group is a Great Britain Company and reports revenues in the form of the Euro, the growth is attributed to the change in the exchange rate between the EURO, the US dollar and other exchanges around the world. If all exchange rates remained equal they would have reported a decline in profit of 1. 0% which is a result of the world economies. The Unilever Group’s report on ice cream stated that they saw volume growth and share gains in most markets. Specifically they saw a strong performance in Western Europe, Mexico, Indonesia and Australia.
Much of this growth was due to the Magnum Gold acquisition and the marketing of this product in these markets. Product quality improvements helped their Klondike line achieve strong results in the U. S. A. The Unilever Group maintained a negative price growth in ice cream. The negative price growth reflected slightly lower gross margins, at constant currency, with commodity costs higher. According to Market Line a leading business information company, in 2007, the companies with the largest shares in the ice cream business was Unilever, Nestle and General Mills. The breakdown is as follows:
This chart demonstrates the amount of market share Unilever had among its competitors during 2007. Competitive Advantage Although Ben and Jerry’s is owned by a large international corporation, company’s mission statement continues to describe what Ben Cohen and Jerry Greenfield started in an old gas station: A social mission to operate the company in such a way that a concern for the global community is calculated in corporate decisions; an economic mission to provide financial return for employees as well as shareholders; and a product mission to make the best ice cream in the world using Vermont dairy products.
Ben and Jerry’s ice cream is classified as a super-premium ice cream. Their competitive advantage is in their name recognition, the cool names they pick for their ice cream flavors and their commitment to the environment, using fresh local products and their philanthropic work. Ben and Jerry’s also participate in the substitute market through their frozen yogurt and low fat options. Striving to provide a better product than their competitors, Ben and Jerry’s customers believe that their ice cream is worth paying more money.
Since premium ice cream costs more than grocery store and other regular brands of ice cream, Ben and Jerry’s differentiation moves them ahead in the pact allows them to demand a higher price for their ice cream. They use high-quality; fresh local ingredients and the innovative flavors they develop excel them beyond their competitors giving them a competitive advantage in the ice cream market. Their cool flavor names like Phish Food, Cherry Garcia, Late Night Snack and Clusterfluff sets them apart from vanilla, chocolate and strawberry.
Ben and Jerry’s also uses recycled materials and environmentally contentious ways contributes to their uniqueness and keeps costs down. Market Share The United States ice cream market grew 24% between 1998 and 2003, as manufacturers aggressively launched new products and extensions to existing product lines. Since the market is driven by children; the 2010 Census projected a decline in youth populations through 2025 which will force manufacturers to develop products attractive to indulging adults. (Bureau, 2011) According to Mintel International’s (Chicago) “The U. S.
Ice Cream Market” report, ice cream is loved universally. The market grew nearly 24% between 1998 and 2003, not surprising considering 93% of all households surveyed consume ice cream products. Yet, households with children are lead consumers of ice cream, with 34% of such households consuming four or more quarts of ice cream per month, compared to 20% of households without children. Frozen novelties were 20% more likely to be purchased by households with children than those without. Continued growth of ice cream sales demands nearly constant innovation and a close watch on the marketplace.
The buzzword in the early 1990s was “healthful”; manufacturers had to devise products with lower fat and sugar content. When demand for healthier ice cream products eroded in the middle of the decade, manufacturers increased the offerings of indulgent, super-premium products and met with good results. Now, consumers are seeking more-healthful choices once again, and several manufacturers, including market leaders such as Good Humor-Breyers (Green Bay, Wis. ) and Dreyer’s (Oakland, Calif. ), have developed new versions of their products to accommodate those consumers.
However, at the same time, sales of premium and super-premium products continue to accelerate, as consumers sacrifice more-healthful eating for sumptuous flavor. While basic varieties lead sales in the ice cream category, Mintel found other ice cream products, such as frozen novelties, frozen yogurt or tofu, and sherbet-type products are growing at a faster rate. This is a product area that most of the premium manufacturers have entered and as pointed out earlier in this paper, these are the substitute products that directly compete with ice cream. Market Structure
Ben and Jerry’s is one in a classic monopolistic competitive market place. There are many companies offering similar products, but each defining a unique product among them. Ben and Jerry’s commitment to natural products and philanthropic ways were completely turned upside down when they were acquired by The Unilever Group. The acquisition contributed to doubts among Ben and Jerry’s loyal customers about the long-term viability of a company so socially responsible now focused on profits. However, the company has remained true to its mission for the environment, supporting local dairy farmers and continuing their philanthropic ways.
Future Markets Moving forward, Ben and Jerry’s should continue what they do best; making the best super-premium ice cream with the freshest ingredients. Consideration for a line of ice cream that is considered more healthful, containing fewer calories without giving up on flavor, could be a new market trend for the company. As a subsidiary of The Unilever Group, marketing their ice cream in their European and Asian markets may compete with some of their other brands but widen the distribution of this Vermont made product.
The ice cream industry today is in equilibrium. There are many varieties and selections of frozen desserts to choose from in supply and the consumers available to buy them. Conclusion Ice cream is a favorite for everyone young and old and Ben and Jerry’s ice cream is a mainstay in the monopolistic competitive market in which it lives. With their colorful branding and using cool names for their various flavors, their super-premium ice cream is high in demand. Ben and Jerry’s Homemade Inc. continues to live by its mission statement and company goals.
Although they are a subsidiary of The Unilever Group, an international consumer products company, they are not consumed by the profit margins only the ice cream which is a large part of their business. The Unilever Group is the largest distributor of ice cream in the country. Ben and Jerry’s offers a variety of super-premium ice cream flavors as well as frozen yogurt. Moving forward, Ben and Jerry’s may want to consider getting into the “healthy and fit” markets to broaden their consumer base.
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