Ice cream: A report on the supply in the UK of ice cream for immediate comsumption

Summary of report (html format)
Full text (pdf format)

Adobe Acrobat Reader can be downloaded from http://www.adobe.com

Summary

On 7 May 1993 we were asked to investigate and report on whether a monopoly situation exists in relation to the supply in the UK, otherwise than by retail sale, of ice cream intended for immediate consumption (`impulse' ice cream). If so, the reference (see Appendix 1.1) requires us to report on whether any action or omission on the part of those in whose favour the monopoly situation exists, in respect of the supply to retailers of refrigerated cabinets on terms which prevent the retailer from using the cabinet to stock ice cream from other suppliers (`freezer exclusivity'), operates or may be expected to operate against the public interest.

We found that a scale monopoly situation exists in favour of Birds Eye Wall's Ltd (BEW), a subsidiary of Unilever PLC (Unilever), which accounts for around two-thirds of the wrapped impulse market and over half of the total impulse market as defined in our terms of reference. We also found that a complex monopoly situation exists in favour of BEW, Nestlé UK Ltd (Nestlé) and Mars UK Ltd (Mars), which between them accounted in 1992 for 88 per cent of sales of wrapped impulse products and a lesser but still very large share of the market for all reference products. The first two companies proclaim and, to the best of their ability, enforce exclusivity. The last does not do so, but we deemed its requirement that its full range be stocked to have a similar practical effect, and Mars acknowledged that this was the case. There are numerous other manufac-turers-perhaps as many as 1,000 if the very smallest are included-but having considered their market shares we decided not to include them in the complex monopoly group.

Ice cream sales in the UK in 1992 were worth about £785 million at retail prices, £275 million of which (35 per cent) comprised reference products. These were mostly wrapped impulse products, the market for which is characterized by a high level of branding, and of associated advertising expenditure. Unlike other impulse products such as confectionery, impulse ice cream needs refrigerated storage and transport and a freezer cabinet at the point of sale, not merely as a display device but as an essential piece of equipment which has limited capacity and without which the product cannot be stocked at all. Effective distribu-tion is a key aspect of competition, particularly because demand is not only seasonal but subject to extreme short-term fluctuations as the weather changes. BEW and Nestlé, which acquired Lyons Maid at the end of 1992, argued that by supplying cabinets `free' (ie not separately charged for), on an exclusive basis, they had extended the market, and consumers' opportunity to purchase, to many small outlets that would not otherwise have stocked ice cream, and would cease to do so if exclusivity were prohibited. Importance was attached also, by both companies, to the assurance exclusivity gave of economic drop sizes, effective display and quality control.

The market has changed significantly since a previous MMC report in 1979. In the 1970s, Wall's and Lyons Maid shared between them all but a small part of the market. Thereafter the market share of Lyons Maid significantly declined notwithstanding its insistence on freezer exclusivity whilst that of Wall's (now BEW) increased. Mars entered the market in 1989 with a new product relying on quality and an established confectionery reputation. In four years, Mars ice cream achieved representa-tion in about 50 per cent of outlets and a market share of about 16 per cent in wrapped impulse products (at least 20 per cent in the chocolate bar sector). It has sought to have exclusivity banned, on the grounds set out in Chapter 5, not only in the UK but also elsewhere in Europe. Mars, like Treats Ice Cream Ltd (Treats), the next largest supplier, drew attention to the effects on the market of the degree of vertical integration achieved by BEW as a result of freezer exclusivity operating in conjunction with its distribution system through concession-aires.

We concluded from the information available to us, including a specially-commissioned market research survey of independent retailers, that exclusivity appeared to pose less of a restriction on supply now than it had done at the time of the 1979 MMC report, when the practice was found, on balance, not to operate against the public interest. Retailers have several options available to them including:

- to install an exclusive freezer, on an agreement terminable at short notice;

- to acquire their own freezer in which case they can generally purchase ice cream at lower prices in the form of extra bonus; and

- to add a second freezer where space permits: this is the case in as much as 80 per cent of outlets.

Recent developments in the market reflect retailers' exercise of their choice between these options.

BEW and Nestlé have made ice cream widely available through their provision of freezers, and continue to do so. There is no restriction on other suppliers doing the same, and investment in developing the market should not be deterred. There is no evidence of excessive profits being made and recent trends in the market suggest that competition has been effective, irrespective of any effects of exclusivity. While the need to offer freezers represents a cost of entry, similar to other costs such as advertising, we did not feel that it constituted a barrier to entry in the specific circumstances (including the differential terms available to those not taking a manufacturer's exclusive freezer) that we found to obtain in this market.

In many shops-at least half the total-consumers now have a choice of more than one manufac-turer's product and most consumers can also choose between different retail outlets: we are indeed not convinced from the information we have seen, including our own survey of retailers, that consumer choice would be significantly improved were exclusivity to be ended. In so far as some prices have increased this appeared to be principally due to consumer prefer-ences for higher-quality products.

A number of the other public interest issues raised with us related to distribution questions which we found not to fall within our terms of reference. During the course of the inquiry, however, BEW agreed to change the wording in its terms of trade to make it clear that retailers with a BEW-owned freezer who wished to source supplies other than from BEW's concessionaires would not be prevented from doing so. We conducted a thorough analysis of the differential terms available from BEW and Nestlé (not from Mars) to retailers with company freezers as compared with others to see whether retailers' choice was distorted as a result. We concluded that this was not so to any significant extent except in low turnover outlets which account for only a small proportion of sales, and some of which might otherwise not sell ice cream at all.

We therefore concluded that in the UK market as it is currently developing no action or omission on the part of BEW, Nestlé or Mars in respect of freezer exclusivity operates or may be expected to operate against the public interest.

Full text

Back to the top