- Nestlé will sell its U.S. ice cream business to Froneri, an ice-cream-focused joint venture the Swiss company created in 2016 with PAI Partners, in a deal that valued the business at $4 billion.
- The deal, which includes iconic brands Edy's, Haagen-Dazs, Outshine and Drumstick, is expected to close in the first quarter of 2020. Nestlé's U.S. ice cream business had sales of $1.8 billion in 2018.
- Nestlé will continue to manage its remaining ice cream businesses in Canada, Latin America and Asia once the transaction closes.
For much of the last two years, Nestlé has been overhauling its portfolio to capture growth in the food space and shed underperforming or slow-growing businesses. Last year, Nestlé sold its U.S. chocolate business, a deal that included more than 20 American candy brands like Butterfinger and Baby Ruth, to Ferrero for $2.8 billion.
Similar to its exit from candy where it competed with sweet giants Hershey and Mars Wrigley in the U.S., Nestlé's biggest competitor in the ice cream space domestically is Unilever. The European company's portfolio includes well-known brands such as Ben & Jerry's, Talenti, Breyers, Klondike and Popsicle. GlobalData estimated Unilever has almost twice the global market share of its nearest competitor.
“Nestlé's presence in ice cream is dwarfed by its nearest competitor, Unilever," Simon Harvey, food Correspondent at GlobalData, said in a statement. "By effectively transferring ownership of U.S. brands such as Dreyer's, Drumstick, Outshine and Skinny Cow to Froneri, the fast-moving consumer goods giant may have concluded its (joint venture) is better placed to serve the low-margin category and make up ground against its rival."
The announcement Wednesday that it is selling its U.S. portfolio of frozen ice cream brands underscores the Swiss food giant's efforts to avoid the financial heartaches facing other companies in the CPG space. As consumers shift away from processed, center-store items and toward better-for-you and popular products, food companies have regularly unloaded less "healthy" brands, or purchased ones that cater to these trends.
Just this year, Kellogg sold its cookies and fruit snacks businesses to Nutella-maker Ferrero for $1.3 billion. This sale helped enable the cereal giant to focus on its core business. Simply Good Foods, the owner of the Atkins brand, purchased bar maker Quest Nutrition for $1 billion in August. And a week later, Hershey, which has succeeded by innovating its candy portfolio while boosting its snacking focus, bought protein bar maker One Brands after adding Amplify Snack Brands and Pirate Brands to the fold in prior years.
For Nestlé, the decision to unload its U.S. candy and ice cream operations comes at a time when the world's largest food company is making investments in other areas that are resonating with consumers. In 2017, the company announced a global target to remake about 10% of its portfolio.
Nestlé made a major bet on the future of plant-based foods with the 2017 purchase of Sweet Earth for an undisclosed sum. In the past few months, Nestlé expanded Sweet Earth into Awesome Burger and Awesome Grounds, the company's first foray into plant-based beef in the United States,. Last week, the company announced it would try the ingredient in its DiGiorno and Stouffer's brands.
It's also spending money to refresh its water business through the introduction of Poland Spring energy water and Nestlé Pure Life Plus, the brand's entrance into functional water. In addition to launching new lines, Nestlé announced in October that Nestlé Waters will restructure from a globally managed business to one that is managed locally in each of the company's three geographic regions to improve its proximity to the customer.
Another focus has been the expansion of its coffee presence through the purchase of a stake in coffee shop chain Blue Bottle, the acquisition of Chameleon Cold-Brew and the dolling out $7.15 billion for the right to market Starbucks' beans, capsules and other products in stores.
The cash Nestlé will get from the sale of its U.S. ice cream to the joint venture will give it money to invest in other parts of its operations. Even in areas where it has a commanding presence, like water and plant-based foods, Nestlé is facing competitive pressure that will require further investments to remain relevant and attract finicky consumers. Its water operations, which make up about 8% of its global sales, has been growing more slowly, while scores of competitors, from Tyson Foods to Kellogg, have entered the plant-based space or improved existing offerings to make them more meat-like.
In 2016, Nestlé and PAI Partners merged Nestlé's European ice cream business in 20 countries and PAI-owned R&R to create Froneri, one of the world's largest ice cream companies. "The creation of Froneri has been a phenomenal success," Nestlé CEO Mark Schneider said in a statement. "We ... are convinced that Froneri's successful business model can be extended to the U.S. market."
Nestlé already was intimately familiar with PAI and Froneri, and found a willing buyer that has excelled in ice cream globally. Since Froneri was formed, it has achieved rapid sales and profit growth and steadily gained market share, according to Nestlé. It posted sales of around $2.94 billion in 2018.
The goal for Nestlé is to achieve similar success going forward across its broader business, and a sale of its U.S. ice cream unit could put it one step closer to reaching that goal.