How Will Unilever's Ice Cream Split Impact Wall's and Magnum in the Chinese Ice Cream Market?—A Glimpse Into the Chinese Ice Cream Market
BY Rita BaoMar 29, 2024
Faced with profitability challenges in the ice cream segment, Unilever's strategic move to separate the business aims to reallocate financial and managerial resources toward higher-growth segments. China’s ice cream market competition is expected to be intensified as more food giants are proactively vying for the market share. Brands should swiftly respond to evolving consumption trends to secure consumers’ preference.

Recently, Unilever announced to separate ice cream business to accelerate its Growth Action Plan.1 The rationale behind this decision was the distinct operational model of the ice cream business, such as its frozen supply chain, high seasonality, and substantial capital requirements. The separation of ice cream business would enable the new management team to have operational and financial flexibility to strategize and further develop the business. The separation process is to begin immediately, and expected to be completed by the end of 2025.

2023 was a challenging year for Unilever's ice cream business, which yielded a turnover of €7.9 billion, with a modest sales growth of 2.3%. The growth was primarily driven by price increases, as sales volume declined by 6%. This performance marked the lowest sales growth among Unilever's five major business groups. Faced with profitability challenges in the ice cream segment, Unilever's strategic move to separate the business aims to reallocate financial and managerial resources toward higher-growth segments.

Unilever's 2023 financial results revealed that China ranked the fifth-largest market in terms of its ice cream business. Brands including Wall's, Magnum, and Cornetto have established a strong presence in China, with high consumer recognition and wide distribution channel coverage. In the short term, the split is not expected to significantly impact the performance of these brands. However, the long-term implications will hinge upon the strategic initiatives undertaken by the new management team.

Unilever's Ice Cream Brands in China

China's Ice Cream Market Overview

As per the 2022 China Ice Cream Industry Trends Report,2 the Chinese ice cream industry reached a market size of CNY 160 billion in 2021, with a compound annual growth rate (CAGR) of 9.6% from 2017 to 2021. Despite a high volume of total ice cream consumption, per capita consumption in China remains relatively low compared to western countries, indicating significant growth potential. Investment firms project the Chinese ice cream market to reach nearly CNY 250 billion by 2026, with a CAGR of 9.2% from 2021 to 2026.3 

China's Ice Cream Market Size

In terms of competition, Yili, Wall's, Mengniu, Nestlé, and BAXY are the dominant players in the market. In 2021, these top five brands held market shares of 19%, 15%, 9%, 8%, and 6%, respectively, altogether constituting more than half of the total market share.2 To solidify their positions in the ice cream market, these brands have been expanding their production capacity, building distribution channels, and introducing new products. For instance, Mengniu invested CNY 1.5 billion in constructing a comprehensive base for high-end ice cream production and cold chain logistics. Wall's Taicang factory, the world's first lighthouse factory in the ice cream industry, went into operation in 2022.

Dominant Brands in China's Ice Cream Market

Apart from these leading brands, brands like Brightdairy, Deshi, Dongbeidaban, Wufeng, and Wuyang have leveraged regional advantages to establish themselves as dominant regional players. For example, Deshi is a reputable brand in northeast China known for its popular flagship products, such as the Imperial Palace Museum Ice Cream and Black Beer Ice Cream. These products have gained significant popularity and are well-received by consumers in the region. In addition, emerging brands such as Modern and Zhongjie 1946 are trying to carve out their niches through innovative product concepts and effective social marketing strategies. Moreover, food brands from various sectors have entered the market through co-branding initiatives. For instance, renowned Chinese liquor brand Moutai launched Moutai ice cream in collaboration with Mengniu.

In the future, market competition is expected to be intensified as more food giants are proactively vying for the market share. In 2023, Mars localized its ice cream production in China to facilitate growth in the Chinese ice cream market. Additionally, Chinese infant formula company Feihe has introduced a series of ice cream products, emphasizing key selling points such as "golden milk source zone" and "origin from infant formula source."

Feihe Ice Cream Products

Notable Ice Cream Consumption Trends in China

Diversification of Ice Cream Products

The expanding ice cream consumption scenarios have shifted ice cream from a simple cooling treat to a leisure dessert. This transformation has led to the emergence of various ice cream products such as ice cream biscuits, ice cream cakes, ice cream mooncakes, ice cream milk tea, and culture-themed ice cream. Besides, ice cream flavors have expanded far beyond the traditional milk and chocolate varieties to include options such as rum, milk tea, sea salt, salted egg yolk, and even unconventional choices like spicy flavors. In the future, innovative ice cream products with more diverse forms and flavors will be launched to cater to the evolving consumption needs.

Health-conscious Product Innovation

A consumer survey on ice cream consumption indicated that 48% of respondents prefer low-sugar and low-fat options, and 27% are interested in ice cream with added nutritional substances.3 The combination of deliciousness and healthiness is a significant trend in China's ice cream industry. Products low in fat, sugar, calorie, but high in protein and other nutrients are expected to gain more consumer favor. Additionally, functional ingredients such as probiotics, collagen, and edible herbal materials hold promise for future innovation in ice cream products.

Rational Consumption in China's Ice Cream Market

While consumers may be willing to purchase high-quality products, they are less inclined to pay premiums for products solely based on marketing hype. Chicecream is a typical example, which used to be a big hit in the Chinese ice cream market owing to its distinctive creamy flavors, premium positioning and captivating marketing campaigns, but is now facing stagnation. Amidst the prevailing trend of rational consumption, products that rely on traffic-driven high premiums may struggle to maintain long-term consumer appeal.

Disclaimer: All images used in the article are from the Internet. 

Rita Bao
ChemLinked Regulatory Analyst
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