Fat Is Back as Unilever Magnum Bites Nestle Skinny Cow: Retail

On a warm summer night in London, Unilever said it was going to measure buxom starlet Kelly Brook’s smile and pulse.

As Chief Executive Officer Paul Polman looked on, the British model got into a black oval device, dubbed the “Infinity Pleasure Pod,” to eat a Magnum ice cream bar at the opening of the brand’s London pop-up store. The pod “has all these lights that react to your brain and the feelings you get and it’s basically different for everybody,” said Brook.

At Unilever, the feeling about Magnum these days is all good. With a hint of sex to sell a child’s treat as an adult indulgence, the chocolate-coated ice cream bars have taken share from larger rival Nestle SA in the world’s biggest ice cream market since their U.S. introduction last year. That will help Magnum’s sales, which have doubled since 2006, top 1 billion euros ($1.24 billion) worldwide this year, making ice cream a standout in Unilever’s sluggish food unit.

“This brand has major legs globally and will be a story for years to come,” Eric Scher, an analyst at Sanford Bernstein, said in an interview. In the competitive U.S. market, where Nestle currently reigns overall, “Magnum has tipped the balance now to Unilever.”

Global Dominance

With almost $13 billion in sales across brands such as Cornetto, Breyers, Klondike, and Ben & Jerry’s, ice cream is Unilever’s single biggest category, accounting for about 15 percent of total revenue, according to researcher Euromonitor. London- and Rotterdam-based Unilever is also the world’s biggest maker of ice cream, with about 20 percent of the $85 billion market, ahead of Vevey, Switzerland-based Nestle, Bloomberg Industries data show.

Conquering America has been a tougher nut for Unilever to crack. The $12 billion U.S. ice cream market is unique because more than half of total sales come from packaged tubs sold in supermarkets and eaten at home, according to Greg Miller, a senior principal at Parthenon Group, an advisory firm serving food and beverage clients. In Europe, more consumption takes place outside the home in single-serve, more-profitable portions.

So Unilever and major players such as Haagen-Dazs-maker Nestle have taken the European playbook to the U.S. and are increasingly shifting their focus to so-called frozen novelties -- single-serve treats on sticks or in cones, Miller said. Frozen novelties command 21.2 percent of the U.S. market, or $2.6 billion, up from 19.6 percent of the market in 2006, according to Euromonitor data.

“Novelties make ice cream more of a snack,” Chris Brockman, an analyst at market research firm Mintel, said in an interview. “It’s where the market has the most potential to grow.”

Sacred Cow

To get to the top of the U.S. market, Unilever has to unseat Nestle’s Skinny Cow, the best-selling novelty in the U.S. Sales of the world’s biggest food company’s low-fat offering peaked in 2010 and have gone downhill since, Brockman said, as consumers seeking indulgent treats have gravitated to break the calorie bank on full-fat items.

“Taste has come back in,” Brockman said.

That’s where Magnum comes in. Introduced in 1989 and made with Belgian chocolate, Magnum’s flavors include Double Caramel and Mochaccino. A typical Magnum has 240 calories and 16 grams of fat, compared with 100 calories and 1 fat gram in a Skinny Cow fudge bar. Sold in 50 countries, Magnum is Europe’s top ice cream brand, yet U.S. managers for years didn’t think it was “strong enough” to bring Stateside, according to Kevin Havelock, president of Unilever’s Refreshments unit, which includes ice cream and tea.

‘Big Bets’

In 2008, the longtime head of Unilever’s U.S. ice cream business retired, and Havelock prepared to bring Magnum across the pond. Magnum did so well in U.S. test markets in 2010 that Havelock pushed up its U.S. debut from 2012 to April 2011. Supported by a marketing budget of about $15 million, Magnum became one of Unilever’s “big bets” of last year, Havelock said.

The bet has paid off. Americans snapped up more than 100 million Magnum bars in the U.S., so many that supplies ran low, forcing Unilever to send boxes over from Italian factories to meet demand. Sales hit $100 million in the first year, surpassing Unilever’s forecasts by 50 percent, Havelock said in an interview. Wal-Mart Stores Inc. expanded its offering from four flavors to six, and its warehouse chain Sam’s Club added the line.

7 Sins

Magnum’s success derives from its appeal as a tasty yet affordable treat, as well as its racy marketing, which takes a page from sister brand Axe body spray, according to Scher, the Bernstein analyst. In 2003, Magnum released “7 Sins” Magnum bars. Today, its U.K. website says the brand is “For Pleasure Seekers.”

“The opportunity for Magnum was clear,” Mintel’s Brockman said. “The focus on the diet brands had dragged the market down. Magnum could change this stagnation and boost the emerging premium end of the market, which is not particularly crowded.”

Those sales have come largely at the expense of Nestle, whose Skinny Cow brand has lost a half-point of market share in frozen novelties over the past year, Symphony IRI data show. Even Nestle’s more caloric Haagen-Dazs bars have recorded slower growth. Unilever has built on the initial U.S. rollout with Magnum Minis, smaller bars with 150 calories, to tempt the Skinny Cow defectors.

Fueled by Magnum, along with revamped products from Klondike and Breyers, Unilever may soon supplant Nestle as the biggest U.S. ice cream maker, said Havelock. Nestle spokeswoman Diane McIntyre declined two requests to comment.

Pleasure Pod

Beyond the U.S., Magnum has entered Pakistan, Thailand and Malaysia over the past year, global brand director Sophie Galvani said in an interview outside the Pleasure Pod in London. In Asian emerging markets, Magnum costs about three times as much as locally produced ice cream bars, lending it cachet among the emerging middle class, a group projected to increase from 500 million people to more than 3 billion across Asia by 2030.

Galvani said Unilever’s global use of temporary Magnum stores -- they have popped up in Jakarta, Paris and Istanbul -- will hit Sao Paulo soon. Galvani said the cafes exist to generate buzz, as shown by the horde of photographers following Brook’s every move as she emerged from the Infinity Pod in a raspberry-colored dress and designed her own Magnum bar topped with white chocolate and brownies.

Polman, Unilever’s CEO, chose white chocolate as well, with chili flakes. “Make mine healthy,” he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE