Evaluation of Entry into Ice cream Business for Unilever Bangladesh Limited

Transcription

1 Evaluation of Entry into Ice cream Business for Unilever Bangladesh Limited Submitted to Sharmin Shabnam Rahman Lecturer BRAC Business School BRAC University Submitted by Md. Robin Miah Id# BRAC University Date:

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3 September 2, 2010 SHARMIN SHABNAM RAHMAN Lecture BRAC Business School BRAC University Subject: Submission of Internship Report Dear Madam, This is to inform you that I am submitting the internship project report titled Evaluation of Entry into Ice cream Business for Unilever Bangladesh Limited upon completion of my formal internship attachment period from May 06, 2010 to July 06, 2010 with Unilever Bangladesh Limited. I would like to thank you and show my gratitude for your support and guidance that you provided me during the preparation of this report. Without your help it would have been impossible for me to prepare this report. I would like also show my gratitude to my Company supervisor MD. Risalat Siddique, Brand Manager, UBL for his support during my internship period. I have tried to discuss all the relevant points of a feasibility study while keeping consistency with Unilever Bangladesh Limited s information confidentiality policy. I would be glad to clarify any discrepancy that may arise or any clarification that you may require regarding my project and report. Sincerely, MD. ROBIN MIAH ID# BRAC University

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5 ACKNOWLEDGEMENT I would like to show my sincere gratitude to Sharmin Shabnam Rahman, lecturer, BRAC University, and my Academic Internship Supervisor; for her constant supervision and guidance have been of extreme help to me. I am also thankful for all the times I consulted her and she answered with the utmost patience and perseverance. I am thankful to Mr. Tanzeen Ferdous, Senior Brand Manager, Brands & Development, Unilever Bangladesh Limited, for entrusting me with such an important project and allowing me scope to work independently, providing all required supports. I am also grateful to Mr. Muhammad Risalat Siddique, Brand Manager, Unilever Bangladesh Limited and my Company Internship Supervisor, for his relentless support during each stage of research and work. He supervised and corrected me during the entire research process. Last but no the least, I would like to thank Mr. Hamdan Kabeer, Brand Manager for Lipton, Unilever Bangladesh Limited for helping me in developing the construct of this report and providing me detail regarding Operating Methods for Foods of Unilever PLC. Evaluation of Entry into Ice cream Business for Bangladesh Limited I

6 Executive Summary Unilever Bangladesh Limited (UBL) is a household name virtually for every Bangladeshi national. Being a multi-national, no other company has achieved this level of success. It is regarded as one of the most reputed multi-cultural companies of the world. With its history of over 70 years globally, UBL, an operating and Brand building company of Unilever Group has predominantly served the Bangladeshi market with mainly Home and Personal Care (HPC) FMCG products for last 47 years with limited presence in the food business with Lipton tea. With dominant brands in HPC like Lux, Lifebuoy, Wheel and Pond s, growing brands like Sunsilk, Clear and rising stars like Rexona and Dove, the company now wants to check its possibilities in the foods category which globally is the largest business of Unilever (54% of total portfolio). With this intention in mind, the authorities of UBL in Brands & Development Department assigned the project Evaluation of Entry into Ice cream Business for Unilever Bangladesh Limited. This research was designated to be mainly qualitative in nature and to build on earlier researches done by UBL. To assess the feasibility of entering into ice cream business, I combined primary sources like consumer and trade visits, and secondary sources like earlier research reports to understand market construct, market characteristics, and target consumer groups of the ice cream industry. Based on the collected data, and then assessed the entry prospect for UBL in this industry. Ice cream industry of Bangladesh is estimated to have a size of BDT 220 Crore where BDT 131 Crore belongs to branded segment (BDT 121 Crore Common Format Ice cream that is distributed through retail and BDT 9.8 Crore in the boutique segment) and BDT 79 Crore is in the unbranded low qualitylow price segment. The industry is currently growing at a rate of 19%. The research excluded unbranded segment from discussion as global quality mandate of Unilever prohibits UBL from competing in that market. Branded common format is dominated by Igloo with more than 51% share with followers like Kwality and Polar where Milk Vita and Savoy are minnows. Boutique segment is competed by Club Gelato (20% share), MövenPick, Andrsen s (3 outlets) and Gelateria Igloo (3 outlets). These three have around 17% share. The market is characterised by low competitive rivalry where Dhaka still contributes to more than 61% of total country s sales. This is due to issues regarding electricity and requirement of cold distribution chain by the industry. There are still huge untapped areas of the country. However, the industry is extremely capital intensive and there are lots of entry barriers. Only manufacturers with large capital can invest and thus there has been no big player in the common format segment since Kwlaity (1999). Products or of quite high quality in the Bangladeshi market but price is still out of reach of rural and lower SEC people who belong to low disposable monthly income group. Distribution is mainly done through refrigerated trucks alongside use of carts in the country. Boutique format players serve at their premises, ice cream and other dessert items to offset seasonality of ice cream sales. Promotion in the common format is mainly in newspapers and billboards along with trade based consumer promotions and trader schemes. Consumers of ice cream are mainly Urban kids in the age group of 5-14 who mainly consume normal sticks, cups, cones innovative fillers and water ice creams; there is urban youth in the age group of who consume premium and extrusion sticks and cones and urban mothers in the age group of who are the decision makers for kids and family ice cream purchases. The consumers can be Evaluation of Entry into Ice cream Business for Bangladesh Limited II

7 segmented based on their desired satisfactions from ice cream occasion, portrayed personality traits of ice cream bands and the occasions when they consume ice cream. Analysis shows there is scope for market development and penetration in the country. There is also scope for ice creams that are health conscious and nutritional in the industry. Looking at the scenario of the Bangladeshi market, UBL is suggested to enter the industry in a grand way with tentative initial investment of BDT 45 Crore in manufacturing facility, cold distribution channel development and placing branded freezers at retail outlets. Expected brand is Wall s, the regional ice cream brand of Unilever. Company is also suggested to enter in the boutique segment with Ben&Jerry s the premium boutique brand of Unilever. Products should be differentiated and nutritional with the price range at par or higher than common format players and lower than the boutique format. Extensive promotion would be required and thus presence in television as ice cream is a brand that requires continuous innovation and hype around the brand. Expected outcome of the entry is to have sales of BDT 11 Crore with a market share of 10% in the first year. However, for the first three years company would have negative net profit and is expected to make a net profit of BDT 2.5 Crore with a gross slaes of BDT 38 Crore in the fifth year of business. Thus, Unilever can benefit from entering in this industry if they enter in a grand way. Obviously company has to balance the investment issues for the industry and also acquire necessary resource for ice cream as traditionally UBL is an HPC company. If they can address these issues tactfully they can do well leveraging their existing brand image. Evaluation of Entry into Ice cream Business for Bangladesh Limited III

8 Table of Contents Topic Detail Pg. No 1.0 Introduction 1.1 Background of the Report Objectives Scope Methodology Primary Research Secondary Research Limitation Background of the Organization Global Unilever Group Home and Personal Care Divisions Foods Division History of Unilever Soap and Margarine Origins Surviving the Great Depression Post-war Era: Adapting to New Markets and Technology Restructuring and Major Acquisitions Twenty First Century Unilever Unilever of Today Unilever Bangladesh Limited (UBL) Manufacturing Facilities Employees Product Categories and Brands Brand Launches by Year Corporate Mission Corporate Social Responsibility Corporate Governance Organizational Structure Brands and Development Department Global Ice cream Industry Overview Unilever Ice cream Business Regional Ice cream Business and Unilever Ice cream Consumption India Ice cream Business and Unilever Bangladesh Ice cream Industry Industry Construct Branded Market Unbranded Market Historical Progress of the Industry Market & Competition Analysis Market Description Market Characteristics of the Common Format Segment 20 A. Market size 20 B. Competitive rivalry in the Market 20 C. Market Sales and Growth Rate 22 D. Market Share and Size of the rivals 22 E. Geographic Sales Orientation 23 F. Seasonality of Sales 23 G. Distribution/ Servicing System 24 H. Technology and Innovation 26 Evaluation of Entry into Ice cream Business for Bangladesh Limited IV

9 I. Production Capacity 26 J. Products and Pricing 27 K. Firms as Price Setters 28 L. Promotion 28 M. Players in the Common Format Segment Market Characteristics of the Boutique Segment 35 A. Detail of Operation 36 B. Players in the Boutique Segment Price Comparison of Common and Boutique Segments Consumer Analysis Target Group of Ice cream Geographic Group Target Age Group Target SEC and DMFI Group Ice cream in Consumer Lifestyle Highlights of Purchase Habit of Ice cream Common Habits across Target Groups Habits of Kids Habits of Youth Habits of Mothers Barriers to Ice cream Consumption Emotional Barriers Functional Barriers Research Findings Relevant Occasions in Daily Lives of Consumers Frequency of Ice cream Consumption Market Character: Relevant Occasions vs. Frequency of Consumption Consumer Satisfaction from Ice cream Occasions Industry Attractiveness and Entry Prospects Driving Forces of Growth Trade and Infrastructural Level Consumer Level Prospects of Entry Entry Strategy for Unilever Suggested Entry Areas for UBL Products Placement Price Promotion Scope of Opportunity Geographic Contribution UBL objectives Critical Success Factors Business Projection Basic Assumptions Conclusion 58 References List of Tables Evaluation of Entry into Ice cream Business for Bangladesh Limited V

10 Page Detail No. Table 1: Detail of Trade Visit 2 Table 2: Detail of Consumer Research 3 Table 3: Third-Party Factories of UBL 9 Table 4: UBL Categories and Brands 10 Table 5: History of Brand Launch 10 Table 6: Unilever s Global Ice cream Business 15 Table 7: Per Capita Ice cream Consumption of Countries 16 Table 8: Glimpse of India Ice cream Business 16 Table 9: Market Sales and Growth Rate of Branded Common Format Market 22 Table 10: Volume Based Market Size 22 Table 11: Market Share of Competitors 23 Table 12: Seasonality of Ice cream Sales 24 Table 13: Distribution Method of Market Players 24 Table 14: Production Capacity of Current Market Players 26 Table 15: Ice cream Serve types 27 Table 16: Rank of SKUs 27 Table 17: Rank of Flavours 27 Table 18: Volume Share of Different Serve Types 27 Table 19: Products of Igloo 30 Table 20: Igloo Facilities and Logistics 32 Table 21: Strengths and Weaknesses of Competition 35 Table 22: Players and Shares in Boutique Segment 36 Table 23: Detail of Club Gelato 38 Table 24: Detail of MövenPick of Switzerland 39 Table 25: Detail of Andersen s of Denmark 40 Table 26: Detail of Gelateria Igloo 41 Table 27: Comparative Price Analysis 41 Table 28: Relevant Occasions in Consumers Lives 46 Table 29: % of Variance Explained by Consumer Clusters 55 Table 30: Requirements & Product Attributes Desired by Consumer Clusters 50 Table 31: Value and Volume Based Scope of Opportunity for UBL 55 Table 32: Assumptions for Business Projection 58 Evaluation of Entry into Ice cream Business for Bangladesh Limited VI

11 List of Figures Page Detail No. Figure 1: Unilever s Business Areas and Sales Contribution 5 Figure 2: Unilever s Governing Structure 12 Figure 3: Departments and Leadership Team of UBL 12 Figure 4: Organogram for Brands and Development Department 14 Figure 5: Unilever Ice cream Portfolio 15 Figure 6: Market Construct of Bangladesh Ice cream Industry 17 Figure 7: Geographic Sales Orientation 23 Figure 8: Serve Types and Pricing 28 Figure 9: Igloo Supply Chain 31 Figure 10: Distribution Process of Igloo 31 Figure 11: Target Group wise Consumption Pattern 42 Figure 12: Ice cream in Consumer Life style 43 Figure 13: Frequency of Occurrence of Occasions 47 Figure 14: Frequency of Ice cream Consumption 48 Figure 15: Relevance of Occasion-Frequency of Consumption Mapping 49 Figure 16: Required Market Strategy for Bangladesh 49 Evaluation of Entry into Ice cream Business for Bangladesh Limited VII

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13 1.0 INTRODUCTION This section presents the background of the report, Evaluation of Entry into Ice cream Business for Unilever Bangladesh Limited and outlines its objectives, scope, methodology of project completion and report preparation used in its formation, and limitations of the report. 1.1 Background of the Report This project was assigned as part of the Internship Program of Institute of BRAC University upon completion of four year BBA graduation program. In accordance with the specifications of the Program, the author has completed the 12-week period of the internship at an organization, Unilever Bangladesh Limited (UBL). The project was completed and report was prepared under kind supervision of Academic supervisor, Sharmin Shabnam Rahman, Lecturer, BRAC University and Official supervisor, Muhammad Risalat Siddique, Brand Manager, UBL. The project, on which this report is based, was assigned as a job responsibility of me my self. 1.2 Objectives Broad Objective: Main objective of the project was to evaluate feasibility of entering into ice cream business for UBL. To achieve this broad objective, some specific objectives were accomplished. These are outlined below. Specific Objective: Identify current global ice cream business situation and view of Unilever towards Asian region. Identify ice cream industry construct of Bangladesh and its parameters and characteristics. Analyze sales, financing, marketing, and supply chain issues of branded ice cream segment. Analyze current market players of the branded segment. Analyze consumers of Ice cream in detail. Assess industry attractiveness and entry prospects for UBL. Suggest entry strategy for UBL. Estimate tentative five year business projection for UBL in ice cream business. Evaluation of Entry into Ice cream Business for Bangladesh Limited 1

14 1.3 Scope Scope of research for the project has been limited to Dhaka and outskirts of Dhaka only. As of current market situation, ice cream is primarily an urban product (due to electricity issues of the country) and Dhaka contributes more than 50% of the market and all the major marketing activities are concentrated in Dhaka and thus this scope does not limit overall understanding of the market. The report puts emphasis on branded ice cream segment and takes a cursory glimpse of the unorganized unbranded segment. While carrying out the competitor analysis, all the existent branded segment players and only the major players in the premium boutique segment have been analyzed. Special emphasis has been placed on market leaders and their marketing strategies while formulating the entry strategy for UBL. 1.4 Methodology Both primary and secondary research sources were used to complete the analysis. Primary research was mainly qualitative and was used to understand the ice cream industry first-hand and validate the information collected from secondary sources. Details of both methodologies are provided below Primary Research: Trade Visit: During market visit, a total of 60 shops were visited with formal questionnaires in different areas of Dhaka city. Areas were selected based on SEC orientation of different areas. The areas were: Zone Gulshan, Dhanmondi, Uttara Kamalapur, Mirpur, Mohammadpur, Lalmatia Malibagh, Rampura, Khilgaon, Shantinagar Azimpur, Lalbag, New Market, Dhaka University, Sadarghat Table 1: Detail of Trade Visit Major SEC Orientation SEC A++ SEC A SEC A & B SEC B & C Channels Visited (All Zones) 1. Urban General Stores (UGS) 2. Urban Neighbourhood Grocer (UNG) 3. Premium General Store (PGS)/ SMMT 4. Modern Trade (MT) 5. Confectionary/ Bakery 6. Fast Food shops 10 (6 Igloo and 4 Kwality) cart sellers were interviewed to understand cart distribution and selling method. 4 highest performing boutique players (Club Gelato, MövenPick of Switzerland, Andersen s of Denmark and Gelateria Igloo) were formally interviewed to understand the boutique segment. Evaluation of Entry into Ice cream Business for Bangladesh Limited 2

15 Consumer Visit: To understand consumer perception about ice cream and current industry, focus target groups of ice cream were identified and group discussions were conducted with them. The groups were: Urban kids in the age group of 5-14: Informal discussions with 10 kids regarding their perception of ice cream and how their parents influence their ice cream consumption. Urban youth in the age group of Two group discussions were conducted students of IBA and NSU, each consisting of 10 members. Urban mothers in the age group of Two group discussions were conducted with mothers at Green Herald Int l School and Rifles Public School Secondary Research: Secondary research sources provided useful insight into background and upcoming issues of global and Bangladesh ice cream industry. These were used as information source and then cross validated against each other and using primary research. Internal sources: Unilever s internal sources that contributed to the research were: Unilever global web archive. Unilever Ice cream Academy web site. Unilever Pakistan Ltd, Consumer & Market Insight (CMI) Division. Unilever Bangladesh Ltd archive. External sources: External sources that contributed were: AC Nielsen, Bangladesh. Market Research Information from India. Market Intelligence from Bangladesh. Company web sites of competitors. Earlier reports on the Ice cream industry of Bangladesh. The Internet. 1.5 Limitation This study had few limitations that restricted the research analysis. They are outlined below. By policy, UBL does not disclose any financial, research, production or sales data to any entity outside the company. Because of this policy, it has not been possible to include the data and Evaluation of Entry into Ice cream Business for Bangladesh Limited 3

16 other information used to estimate different financials and work out the entry strategy for UBL in this report. This is especially true in case of the business projection section, where information on the exact size of the target group, market share for the initial years, distributor and trade margins, supply chain costs, etc. have been omitted. Much of the data provided has been modified to maintain confidentiality. First of all, convenience sampling was used for research and this warranted for some biasness in input from traders and consumers of qualitative study. All the market competitors are private companies and thus amount of available public information is few. Also, no research or advertising agency formally tracks the industry. In many cases recent concrete data was not available and estimations had to be made. Research was conducted only in Dhaka even though ice cream consumption habits and distribution issues (e.g. electricity) in other areas of the country can vary in future with proper expansion of the ice cream industry beyond capital and metro cities. Evaluation of Entry into Ice cream Business for Bangladesh Limited 4

17 2.0 BACKGROUND OF THE ORGANIZATION 2.1 Global Unilever Group Unilever is one of the world s leading suppliers of fast-moving-consumer-goods (FMCG), with 400 brands spanning 14 categories of Home, Personal Care and Foods products. In fact, 150 million times a day people use Unilever products at key moments of their day. Unilever employs more than 206,000 people in 150 countries and had worldwide revenue of just over US$47 billion or BDT 3290 billion in Unilever has two parent companies - Unilever NV and Unilever PLC. Unilever N.V is a public limited company registered in the Netherlands and Unilever PLC is a public limited company registered in England and Wales. The two parent companies, NV and PLC, together with their group companies, operate as a single economic entity (the Unilever Group, also referred to as Unilever) with the same board of directors. Unilever's corporate centres are in London and Rotterdam. Unilever s brand portfolio includes worldwide favourites: Lipton, Knorr, Dove, Axe and Vaseline. Their portfolio is diverse in response to the varying needs of their customers across the globe. Unilever offers world-class brands, many of which are customized for local markets. Unilever invests 1 billion or BDT 94.4 billion every year in cutting edge research and development and has five laboratories around the world that explore new thinking and techniques to help develop their products. The following figure shows the portfolio of categories Unilever operates in: Figure 1: Unilever s Business Areas and Sales Contribution The following are some recent highlights from Unilever s three global divisions - Foods, Home Care and Personal Care: Home and Personal Care Divisions: Lux became the first mass-marketed soap when it launched in Today it achieves annual global sales of over 1 billion Evaluation of Entry into Ice cream Business for Bangladesh Limited 5

18 Unilever s oral care brands Mentadent, Pepsodent and Signal have teamed up with the world's largest dental federation, the FDI, representing dentists around the world First launched in France in 1983,Unilever s leading male grooming brand, Axe, now gives men the edge in the mating game in over 60 countries Hindustan Lever has launched a Surf Excel Quick Wash, with a low foaming formulation, reducing the amount of water needed for rinsing by up to two buckets per wash Recent breakthroughs at Rexona include Rexona Crystal, a deodorant that eliminates unsightly white deposits on dark garments Foods Division: Unilever is the world's leading ice cream producer, with brands such as Algida and Wall's in Europe, and Ben & Jerry's in the United States. Unilever is the largest seller of packet tea in the world through the Lipton brand. The acquisition of Bestfoods in 2000 brought Unilever leadership in the culinary category. Knorr is now their biggest brand, with 2.3 billion sales in over 100 countries and a product range covering soups, bouillons, sauces, noodles and complete meals. Becel/Flora pro.activ products have been recognized as the most significant advancement in the dietary management of cholesterol in 40 years. 2.2 History of Unilever Soap and Margarine Origins: The Anglo-Dutch Group, Unilever, was created in 1930 when the British soap-maker Lever Brothers merged with the Dutch margarine producer, Margarine Unie. At the time, an international merger was an unusual move. However, the owners of the two companies could see that bringing together complementary businesses with strong global networks would create new opportunities. The companies were competing for the same raw materials, both were involved in large-scale marketing of household products and both used similar distribution channels. Lever Brothers was founded in 1885 by William Hesketh Lever with his brother James. The company produced Sunlight, the world's first packaged, branded laundry soap. Sunlight was a revolutionary product that helped popularize cleanliness and hygiene in Victorian England. Its purpose was 'to make cleanliness commonplace; to lessen work for women; to foster health and contribute to personal attractiveness, that life may be more enjoyable and rewarding for the people who use our products.' In 1930, Lever chose Margarine Unie as a merger partner. Margarine Unie, a Dutch company had grown through mergers with other margarine companies in the 1920s. The logic for the Anglo-Dutch merger was clear: animal fats were the raw materials for both margarine and soap. Evaluation of Entry into Ice cream Business for Bangladesh Limited 6

19 2.2.2 Surviving the Great Depression: The Great Depression struck not long after the new company was formed. As prices and profits around the world threatened to collapse, Unilever had to act quickly to build up an efficient system of control. But it was not until the end of World War II that Unilever began to recognize the important relationship between marketing and research. In the meantime, Unilever expanded its U.S. operations through two important acquisitions: Thomas J. Lipton Company, manufacturer of tea and the Pepsodent brand of toothpaste Post-war Era: Adapting to New Markets and Technology: Unilever's greatest achievements between 1945 and 1965 were its adaptation to new markets and technology. Unilever's strategy was to acquire companies in new areas, particularly food and chemical manufacturers. Among the post-war acquisitions were U.K. frozen foods maker Birds Eye (1957) and U.S. ice cream novelty maker Good Humour (1961). The advent of the European Economic Community, or Common Market, also created new opportunities for Unilever Restructuring and Major Acquisitions In the 1980s Unilever undertook a massive restructuring. The company sold most of its service and ancillary businesses, such as transport, packaging, advertising, and other services that were readily available on the market, and went on a buying spree, snapping up some 80 companies between 1984 and Specifically, Unilever's core businesses were detergents, foods, toiletries, and specialty chemicals Twenty First Century Unilever: Unilever's fastest growing market in the early 1990s was in Asia. Asian sales of personal products, detergent, and packaged foods were growing more than twice as fast as sales in the United States and Europe. Unilever continued to make acquisitions in the mid-1990s, completing more than 100 purchases between 1992 and 1996, more than half of which were in foods. In 1993 Unilever gained the number one position in the U.S. ice cream market through the completion of two acquisitions. One the largest acquisitions of this period was the 1996 takeover of Chicago-based Helene Curtis Industries Inc., manufacturer and marketer of personal care products, primarily shampoo and conditioners, hand and body lotions, and deodorants and antiperspirants. Unilever ended the 20th century with the launch of Path to Growth, a five-year strategic plan that included a focus on top brands within core market sectors and an emphasis on growth within developing countries. In the face of considerable competitive pressures in various markets around the world particularly from Procter & Gamble, the company announced that it would eliminate about 1,200 of its brands to focus on around 400 regionally or globally powerful brands. Evaluation of Entry into Ice cream Business for Bangladesh Limited 7

20 2.2.6 Unilever of Today: Unilever is truly a multi-local multinational with operating companies and factories on every continent. They have a portfolio of brands that are popular across the globe - as well as regional products and local varieties of famous-name goods. This diversity comes from two of their key strengths: Strong roots in local markets and first-hand knowledge of local cultures World-class business expertise applied internationally to serve consumers everywhere Unilever recently completed the five-year Vitality company initiative in which it began to converge the marketing of disparate arms of their business, including personal care, dieting, and consumables into an umbrella function. More than ever, Unilever brands are helping people 'feel good, look good and get more out of life' a sentiment close to William Lever's heart over a hundred years ago. 2.3 Unilever Bangladesh Limited (UBL) Lever Brothers Bangladesh established its manufacturing facility in 1964 at Kalurghat in Chittagong. Productions started off with Lux and Lifebuoy soap. After meeting the local demand, the surplus production was shipped to Pakistan. It was after independence that Lever Brothers Bangladesh Ltd was constituted with Unilever owning 60.75% shares and the Government of Bangladesh owning the remaining 39.25% shares. In 2004, Lever Brothers was renamed Unilever Bangladesh Limited in order to align their corporate identity and logo with the global Unilever. By tapping into the vast know-how base of the parent company - Unilever, Lever Brothers was able to make their products available to the consumers at an affordable price. In the last decade, Unilever has consistently been achieving double-digit growth in Bangladesh, with an annual turnover reaching at BDT 1 billion in Unilever procures 40% of its inputs from local sources and spends about BDT 150 crores annually in Bangladesh for promotional activities, including advertisements, for its products. Its current offices are located in: Factory: Corporate Office: Unilever Bangladesh Limited 51 Kalurghat Heavy Industrial Area P. O. Box # 125 Chittagong 4000 Bangladesh Unilever Bangladesh Limited ZN Tower Plot No. 2, SW (1) Road No. 8 Gulshan 1 Dhaka 1212 Bangladesh Evaluation of Entry into Ice cream Business for Bangladesh Limited 8

21 2.3.1 Manufacturing Facilities: The company has a Soap Manufacturing factory and a Personal Products Factory located in Chittagong. The factory has to adhere strictly to four important policies: Quality Policy Occupational Health and Safety Policy Environmental Policy Quality & Consumer Safety Policy Total Productive Maintenance Policy Besides these, there is a tea packaging operation in Chittagong and four manufacturing units in Dhaka, which are owned and run by third parties exclusively dedicated to Unilever Bangladesh. The following are the details of these third party operations: Third-Party Factory ARC Surfactants 91, Tongi Industrial Area, Gazipur Progati Soap Factory Tongi Industrial Area, Gazipur SMAH Limited 96, Tongi Industrial Area, Gazipur SMAH Limited , BSIC Industrial Estate, Konabari, Gazipur Brand Wheel Washing Powder, Surf Excel Lifebuoy Soap 70gm Wheel Washing Powder Pond s Talcum Powder Table 3: Third-Party Factories of UBL Employees: Unilever operations in Bangladesh provide employment to over 10,000 people directly and through its dedicated suppliers, distributors and service providers. Ninety-nine percent of UBL employees are locals Product Categories and Brands: In Bangladesh, Unilever offers consumer brands which spans across three categories which are as follow: Home care, which in turn is divided into: Fabric cleaning Household care Personal care, which in turn is divided into: Skin Cleansing Skin Care Oral Care Hair Care Foods Evaluation of Entry into Ice cream Business for Bangladesh Limited 9

22 There are currently 14 brands across the above-mentioned categories: Category Skin Cleansing Skin Care Oral Care Hair Care Fabric Cleaning Household Care Foods Brands Lux, Lifebuoy and Dove Fair and Lovely, Rexona and Ponds Pepsodent and Close Up Sunsilk, Dove and Clear Wheel, Surf Excel Vim Lipton Taaza Table 4: UBL Categories and Brands Leveraging their global network and combining it with local consumer insight, Unilever Bangladesh has introduced relevant innovative products throughout the years. This has led to the development of products in categories such as Detergent powders, Dish wash Bar, Face wash and Deodorants, thus enriching the lives of Bangladeshis. The following table illustrates the way UBL has continuously introduced new brands and even more so in the last decade Brand Launches by Year: Year Brands 1964 Lifebuoy 1964 Lux 1972 Wheel Laundry Soap 1982 Sunsilk 1987 Close Up 1987 Vim 1989 Clear 1988 Fair & Lovely 1990 Lipton Yellow Label 1991 Ponds' 1991 Pepsodent 1992 Taaza 1993 Surf Excel 1997 Wheel Washing Powder 2002 Clinic 2002 Rexona 2003 Vim Bar 2003 Pepsodent Tooth Powder Table 5: History of Brand Launch Corporate Mission: Evaluation of Entry into Ice cream Business for Bangladesh Limited 10

23 Unilever states its mission as follows: Our mission is to add Vitality to life. We meet everyday needs for nutrition, hygiene and personal care with brands that help people look good, feel good and get more out of life. Its goals are: To manufacture high-standard products Promoting products to the highest extent Producing large volume to achieve production cost economies Enabling quality products to be sold out at obtainable prices Corporate Social Responsibility: Unilever Bangladesh supports community development through various initiatives. The Fair and Lovely Foundation undertakes various projects throughout the country to empower women with access to information and resources in the areas of Education, Career and Enterprise. Workshops for rural women teaching them business and vocational skills like pickle making, poultry farming, etc. have been held and Projects on IT education for women will also be implemented through this Foundation Unilever Bangladesh has sponsored the modernization of existing surgical facilities and the setting up of a modern operation theatre and intensive care unit at the Maa Shishu O General hospital in Chittagong, which significantly enhanced access to modern health care for the underprivileged people of the city Unilever is the main sponsor of the Lifebuoy Friendship Hospital bringing health care to thousands of underprivileged riverine population in the country UBL also sponsors students from various education institutes in Chittagong as well as members of the British Council Library and provided scholarships to meritorious students Corporate Governance: Unilever's highest executive body is called the Unilever Executive (UEX). It is led by the Group Chief Executive (GCE), Patrick Cescau. The UEX define the top level organisation structure and manage tradeoffs within the corporate portfolio. They are accountable for all aspects of company operations, managing business performance and overall profit responsibility for the Group. The Unilever Executive is also responsible for defining and shaping the culture, leadership capabilities and behaviour needed to deliver Unilever s corporate strategy. They have responsibility for all internal communications and some aspects of external communications (customers, suppliers, professional bodies, media and investor relations). They are responsible for managing corporate risk and reputation. Evaluation of Entry into Ice cream Business for Bangladesh Limited 11

24 Figure 2: Unilever s Governing Structure The Category Presidents for Foods and Home and Personal Care are responsible for Category strategies, brand development and innovation. The Regional Presidents are responsible for managing the business, deploying brands and innovations effectively and winning with customers. They are supported by the Finance and HR functions Organizational Structure: Unilever Bangladesh is headed by a Chief Executive Officer, Mr. Rakesh Mohan, in Bangladesh. There are five departments headed by five individual directors. Presently the company has the following departments at its corporate headquarters: CEO & Chairman Rakesh Mohan Brands & Development K.S.M. Minhaz Supply Chain Imran Momin Finance IT & Legal Mahatabuddin Ahmed Customer Development Mizanur Rashid Human Resources Jerry Jose Figure 3: Departments and Leadership Team of UBL Brands and Development Department: This department has five parts working together. These are: Brands Development Consumer and Market Insight (CMI) Media Activation Evaluation of Entry into Ice cream Business for Bangladesh Limited 12

25 This department is responsible for nurturing a brand towards market leadership and offering consumers with innovation and novelty in brands. With a deep consumer insight, the Brand Managers look after the brands on a daily basis: planning and organizing activities that boost their image and increase their exposure. The Brands Team has been expanded to Brands and Development, thus providing the opportunity of increased coordination between the Marketing and Development Team and to ensure a successful innovation process at Unilever. The Development team is responsible for developing cost-effective formulations and packaging for the products and developing and improving the processes involved in their manufacture. However, Bangladesh still remains a Brand-Building country while Development generally takes place at regional level. Brand Developing countries are responsible for the brand category strategy, identifying new consumer and technology opportunities, product formulation and packaging design and communication strategy. The critical role of Brand Building is to lead the specific country category and brand operations team to create, execute and evaluate the insight-led Category Building Plan and Brand Marketing Plans created by Brand Development. Development at local levels takes place in the form of packaging innovations and minor product modifications to fit local consumer needs and production methods. Marketing information is crucial for UBL and the company decisions are based to a large extent on the accuracy and timeliness of such information. Consumer and Market Insight (CMI) team ensure that data are collected cost effectively to provide consumer information to aid the company to attain a competitive advantage. This helps to achieve a proactive understanding of the Bangladeshi consumer. The CMI team carries out various market and consumer research through external research agencies such as Sirius and AC Nielson and also coordinates with regional CMI team to gather category research done globally. Brand activation is the core marketing process through which a brand is brought to life through a variety of brand experiences. The activation team builds a brand by creating a physical or emotional space in the consumers lives that enables the brand to interact in a meaningful way. These activation programs drive purchase and preference by building consistent, long term relationships with consumers. The responsibility of the media team is to buy media space, settle the different media packages for each brand and coordinate various partnerships and events with media partners. The Organogram on the following page depicts the different positions in Brands, Development, Media, Activation and CMI. Evaluation of Entry into Ice cream Business for Bangladesh Limited 13

26 Chairman & Managing Director Brands & Development Director Product Group Manager Fair & Lovely Marketing Manager Colour, Oral & Pond s Product Group Manager Hair Care Marketing Manager Skin cleansing, fabric Wash & Household & Head of CMI Company Activation Manager & Senior Brand Manager Tea Product Group Manager Pepsodent Senior Brand Manager Pond s Senior Brand Manager - Lifebuoy Company CMI Manager Senior Brand Manager Wheel Co. Media Manager/ Product Group Manager Lux Activation Planning & Media Operations Manager Company Development Manager Packaging Development Manager Product Development Manager * Company Media Manager reports to BDD for media related issues while has a double reporting line to MM for Lux related issues Figure 4: Organogram for Brands and Development Department Evaluation of Entry into Ice cream Business for Bangladesh Limited 14

27 3.0 GLOBAL ICE CREAM INDUSTRY 3.1 Overview Global Ice cream industry is estimated at 43 Billion Euros 1 ($54 Billion) at the end of Unilever business is currently at 4.7 billion Euros ($6.04 Billion). Nestle outpaced Unilever with recent acquisition of U.S. Company Dreyer's Grand Ice Cream Holdings Inc and became world s largest ice cream manufacturer with 28% market share compared to that of 17.6% Unilever share. 3.2 Unilever Ice cream Business Unilever Ice cream business under the umbrella name of Heart brand (also known as Wall s, Algida, Ola etc in different countries) has been one of the most successful businesses in the food category. As of 2009, Unilever ice cream sales stands as following. Region Europe ,392 2,455 North America 1,269 1,283 1,298 Asia Latin America Total (Mln. Euros) 4,412 4,611 4,781 Table 6: Unilever s Global Ice cream Business Current market standing based on Underlying Sales Growth (USG) and Market share for Unilever in Asia is excellent and market is currently growing at a very high rate compared other three regions. Market is not saturated and many untapped countries like Bangladesh can provide more growth from this region. Unilever Portfolio under Heart or Wall s brand looks as follows: Magnum Magnum Cornetto Carte d'or Carte d'or Light Breyers CarbSmart Solero Ben&Jerry s Figure 5: Unilever Ice cream Portfolio Among these Magnum is Premium Extrusion stick, Cornetto is Cone, Solero is fruit based and Ben&Jerry s is super premium ice cream that is sold through dedicated boutiques. Others are filled SKUs. In recent times there have been additions of sub-brands like Frusi and Moos. 1 Source: Reuters (Global AC Nielsen study) Evaluation of Entry into Ice cream Business for Bangladesh Limited 15

28 3.3 Regional Ice cream Business and Unilever Ice cream Consumption: World ice cream consumption data shows scopes and opportunities for Unilever in this category. Per capita consumption (PCC) of ice cream in the South Asian region is pretty low with 0.1 litres per year. Bangladesh PCC is also estimated to be similar where people consume ice cream less than once a month as can be seen from the following chart 2. Country Per Capita Consumption Volume Value (ltrs/yr) (Euros/yr) Consumption Pattern Australia > 8 times / month Hong Kong Singapore Malaysia Thailand China Philippines Pakistan Indonesia India Table 7: Per Capita Ice cream Consumption of Countries 2-3 times / month < 1 once / month This represents the challenge for the category in this region to be: To Grow the Category & Increase Market Share India Ice cream Business and Unilever: Overall Ice cream industry in India is as follows: Detail Total Market Impulse Take Home Artisan Value (Cr BDT) % 34% 10% Volume ( 000 Ltrs) % 40.2% 5.3% CAGR (Volume) 11% 10.43% 11.33% 12.63% CAGR (Value) 13.52% 13.19% 13.91% 14.02% Gross Profit 49.9% 48.20% 51% 55% Table 8: Glimpse of India Ice cream Business This market data has been considered to understand a similar but evolved market. In the Indian market, Kwality Wall s (a merger between Unilever and Kwality) with its mother brand and two sub brands Cornetto and Max has 16.19% market share in the market. However recent strategic change towards focused distribution and marketing approach in six major cities (Mumbai, Delhi, Calcutta, Chennai, Hyderabad and Bangalore) that contribute to two thirds of total Unilever sales has provided Unilever recent success in the category in India. 2 Source: Unilever Pakistan Ltd. CMI Evaluation of Entry into Ice cream Business for Bangladesh Limited 16

29 4.1 Industry Construct 4.0 BANGLADESH ICE CREAM INDUSTRY The ice cream industry of Bangladesh is a growing one. With an estimated market size of BDT 220 Cr in 2009, the market can be subdivided broadly into branded and unbranded categories. Total Market [BDT 220 Cr] Branded [BDT 131 Cr] Unbranded [BDT 79 Cr] Common [BDT 121 Cr] Boutique [BDT 9.8 Cr] Around 20,000 local manufacturers Figure 6: Market Construct of Bangladesh Ice cream Industry Branded Market: The branded market segment is around BDT 131 Cr with players in both common/ conventional ice cream format (BDT 121 Cr) and boutique format which is still very small in size (BDT 9.8 Cr). Common Format: Common format ice creams are generally produced and packed in factory. These are distributed and sold through retail channels/ carts to the shoppers. Products can be single serving like stick and cones or multiple serving like containers. Moreover, single serving can either be water based where only water and flavours are mixed or cream based where milk cream and flavours are mixed. Branded common format ice cream industry has only five players in the market. They are Igloo, Polar, Kwality, Savoy and Milk Vita. Igloo is currently the market leader. Polar stayed market leader for 10 years ( 86-96) in their initial days and Kwality challenged and took Polar s second position in recent times. However, Igloo bounced back every time they faced challenge. Milk Vita came in the market with proper dairy ice cream but failed to create an impact as their core business is not ice cream. Boutique Format: Boutique format ice creams are sold through dedicated outlets where there is seating facility for consumers. They can see the products/ flavours open in freezers and can choose directly. Also consumers can decide what type of packing to use e.g. cup, cones or containers and based on the consumers decision product is either served for consumption at the premises or take away. Evaluation of Entry into Ice cream Business for Bangladesh Limited 17

30 Boutique format has seen an upsurge from year 2000 with introduction of premium, franchise and imported ice creams. This segment is driven by Dhaka and Chittagong based players. Club Gelato, MövenPick, Andersen s, Gelateria Igloo, Baskin31Robbins and Sub Zero are the major players in the segment. Among these, Gelateria Igloo and Sub Zero are run by common format players Igloo and Kwality respectively Unbranded Market: The unbranded market basically is constituted with around 20,000 local small producers that do not use any brand leverage and compete in the market based on significant lower price in the range of BDT 1-5. Market size of this segment is significantly high with BDT 79 Cr. These producers are mainly rural and suburb based where concentration of SEC C and lower SECs are high. They mainly produce water ice cream sticks or in colloquial terms Baarfi. These are made with saccharine and colours. They also produce small amount of milk based kulfi. These ice creams are very unhygienic and of low quality. 4.2 Historical Progress of the Industry Before 1964: Ice cream market dominated by unorganized unbranded approach. 1964: Igloo started large scale organized approach under K Rahman & Co. Ltd. 1965: Igloo opened up the first ice-cream parlour in Dhaka. 1971: Igloo was nationalized by the government of Bangladesh after liberation. 1972: In June Igloo was handed over to Bangladesh Sugar & Food Industries Corporation. 1983: Abdul Monem Ltd. acquired Igloo under privatization policy. 1986: Polar started operation; introduced food grade plastic based packaging. They immediately became market leader with extensive campaign. 1988: Dolce Vita Gelato, one of the dedicated boutique operator brought premium ice cream. Early 1990s: Rainbow and Snow White started extensive operation in the boutique segment. Late 1990s: American Soft Ice cream started promoting the soft ice cream format. 1995: Savoy was introduced but failed due to product quality though in suburban areas they grabbed share with low price. 1996: In September, Igloo organized a massive marketing campaign Introduced the first straight line extrusion ice-cream in the market They initiated a massive campaign and became market leader after 10 years 1997: In February, Igloo took a devastating decision to increase price for the cup line Igloo not only incurred substantial financial loss but also lost the hard earned market share. The question of sustaining became a central issue. In summer, Price of 11 items were revised and communicated as special discount. This instantly pushed them to the number one position. Evaluation of Entry into Ice cream Business for Bangladesh Limited 18

31 1999: Kwality ice-cream entered the market 2000: Entry of the premium boutique operators like Club Gelato, MövenPick and Baskin31Robbins. 2002: Kwality launched an extensive campaign and started to capture the ice-cream outlets of the city by providing freezers. 2004: Kwality s number of freezers exceeded Polar s and moved to second position onwards: Igloo leads the market and there is immense competition among Polar and Kwality for the coveted 2nd spot. Historical progress of this industry is of great importance. Bangladesh ice cream industry has traditionally been exposed to high quality products for a long time. Igloo initiated the progress of boutique segment (1965) but it lost its way over time. The segment picked up once again in the recent years. Also high quality products and innovations in the common format segment have created an appreciation for continuous innovation and better products in the minds of the consumers. Consumers in Bangladesh see ice cream as a fun product which requires novelty and quality coupled with continuous hype around the brand. This is why we see Kwality and Polar could create early impacts with their entry into the industry as they came up with innovations in product or packaging and arranged massive marketing campaigns during their launches. Igloo had to minimize their effects with similar campaigns to hold on to their position. Evaluation of Entry into Ice cream Business for Bangladesh Limited 19

32 5.0 MARKET & COMPETITION ANALYSIS 5.1 Market Description Bangladesh ice-cream industry is growing. With increasing market demand, size of the industry is growing but due to entry barriers of lengthy and complex production process and high investment few companies enter this business. Although local companies in the branded segment have captured most of the market share, small unbranded local companies own a huge market to themselves. Where branded ice cream consumers look for innovation and quality, unbranded users outside metro cities are currently inclined towards low price low quality products. This creates an opportunity for further market development on the hygiene and health platform. On the other hand, the boutique industry is doing quite well with their approach towards ice cream as a dessert item along with service of other snacks like cakes and coffee at their premises which help them reduce seasonality effects of ice cream. With a complicated scenario in the market, to analyze the industry condition and understand the competitive realities, details of market characteristics and players of both common and boutique segments are explained in following sections. However, unbranded segment is excluded from discussion as Unilever s portfolio does not match the characteristics and price level of this category Market Characteristics of the Common Format Segment: A. Market size: Due to promotion, innovation and exposure to different cultures the consumption of ice cream has increased. As a result the total market size is expanding. At present the local companies in the common format segment have a huge market of about BDT 121 Cr. This market is 16 times larger than the boutique segment and nearly doubles the unbranded segment. Over the years, the size increase of the industry shows the prospect of converting unbranded unhygienic ice cream consumers into branded ice cream consumers. However, price level still remains a big problem for the branded category as petty unbranded ice cream companies with a price range of Tk.1 to Tk.5 have a total market size of BDT 79 Cr which shows a hint of high price sensitivity in lower SEC consumers. Overall market size of 220 Cr indicates that most of the people in the country are exposed to ice cream or some kinds of derivatives of ice cream like Baarfi, however, they probably cannot afford higher priced icy fruit sticks (BDT 6-10) available in the branded segment. B. Competitive rivalry in the Market: Competition is not very intense among the existing five companies because the number of operators is very small considering the total population. Also, complexities of production and distribution process and other entry barriers are stopping new companies from entering the industry. Evaluation of Entry into Ice cream Business for Bangladesh Limited 20

33 Igloo is confident about its unbeatable first position, but there is competition among other companies such as Polar and Kwality for the 2 nd position. However, in current market, no operator is showing much aggressive and visible activity towards growth. It is expected that recent announcement regarding introduction of ISIS diabetic ice cream by Polar in partnership with DANONE would again create some hype in the market. Reasons behind existing level of rivalry among competitors can be attributed to following reasons: The ice cream industry has few sellers because there is economy of scale through large-scale production. The larger firms have a cost advantage over smaller firms; they can produce more cheaply- making it hard for small firms to survive. Market is bigger than capability of current players and can accommodate them without much trouble. This is because PCC of ice cream in the country is still pretty low. This market has substantial amount of barriers to entry, making it difficult for a large number of competitors to enter the market. The cost of setting up a new plant in this industry is quite high. The cost of entry works as an entry barrier. To get people to try new product, the potential entrant will have to run a big competitive advertising or massive promotional campaign, which is expensive. The prevailing companies created barriers in entry for potential rivals by using extensive advertising and product differentiation earlier which has its effects till now. Another fact is that product awareness and brand loyalty to the existing firms make it expensive for potential rivals to enter. To further elaborate present competitive reality of the industry the five competitive forces are discussed below: The rivalry among the competing sellers is weak as market is yet to develop more. With various entry barriers not many new companies are attempting to enter this industry. As there are no direct substitute products to ice-cream, the companies don t face any competition from other industries. As the number of suppliers is very low and, the companies especially Igloo as the best product enjoys high bargaining power or leverage over rivals. But some of the companies such as Savoy are concentrating on increasing profit margin of the retailers for securing a more prominent position in the market. Mainly consumers or buyers decide the pricing. Keeping in mind the various buying power of people, the companies decide the price of each items. Price of the Items that have the most market demand is kept low so that they are in the reach of the general customers. By lowering the price some companies such as Savoy are trying to maintain a competitive edge. Evaluation of Entry into Ice cream Business for Bangladesh Limited 21

34 C. Market Sales and Growth Rate: Sales information of the five existing companies for the current years shows the following trend. Company Name Total Market Igloo Polar Kwality Savoy Milk Vita Table 9: Market Sales and Growth Rate of Branded Common Format Market Volume based market size shows the following scenario prevailing in the Bangladesh market in Company Name Single Vol ('000 Ltrs) Multi. Vol ('000 Ltrs) Total Vol ('000 Ltrs) Total Market Igloo Polar Kwality Savoy Milk Vita Table 10: Volume Based Market Size The total volume of the branded common format ice cream industry is 7500 Tons of which more than 50% belongs to Igloo, followed by Kwality with 27%. D. Market Share and Size of the rivals: Market share data for all the local companies show a trend where Igloo is the biggest ice-cream company dominating with a huge market share. Although even 1-2 years ago there was intense competition between Kwality and Polar but now it seems that Kwality is 2 nd largest ice-cream manufacturing company in Bangladesh. Polar is in the 3 rd position with Savoy and Milk Vita trailing in the market. Market share percentage over the years is presented in the following table. Company Name Igloo 50% 50.31% 51.16% Kwality 25.6% 26.66% 27.06% Polar 17% 16.1% 14.85% Milk Vita 3.4% 3.32% 3.48% Evaluation of Entry into Ice cream Business for Bangladesh Limited 22

35 Savoy 3.9% 3.65% 3.43% Table 11: Market Share of Competitors E. Geographic Sales Orientation: Ice cream still continues to be a city-oriented product and its demand is comparatively low in the rural areas. Reasons behind this are electricity problem outside urban areas and purchasing power of people. Geographic sales orientation of the common format ice cream industry is provided below. 4.80% 2.50% 5.90% 6.90% 18.90% 61% Dhaka Chittagong Khulna Comilla Barisal Others Figure 7: Geographic Sales Orientation Dhaka still is the largest contributor in the ice cream segment. Nevertheless, over the years this trend is shifting. Areas outside Dhaka are also growing making Dhaka s share lower by small percentage. As urban markets are the major contributors, companies design their products keeping in mind the tastes and styles of the urban consumers. Compared to the other companies Igloo is the most expensive in the common format segment, so they target only city based customers who have the purchasing power. Although other companies such as Savoy are offering low priced product, even their main target is urban people due to nation wide electricity problem. F. Seasonality of Sales: Ice cream industries in warmer part of the world are highly seasonal. Same is true with Bangladesh. According to secondary data sources sales seasonality looks as follows: Period Name Months Contribution Super-Peak April, May, June 46% Peak March, July, August 36% Off-Peak February, September, October, November 15% Super Off-Peak December, January 3% Table 12: Seasonality of Ice cream Sales This data was validated through interviews with retailers during market visit. According to them more than 75% sales of ice cream came in the hot months. Another insight that could be identified was Evaluation of Entry into Ice cream Business for Bangladesh Limited 23

36 various festivals and programmes provide scope for higher volume of ice cream sales. According to companies where only 10-15% sales occurs in the winter season, same amount of sales occurs during festivals like the two Eids and Nobobarsha. G. Distribution/ Servicing System: Mainly common format ice-cream is distributed in two methods that are directly to retail shops and through hawkers with ice cream carts/ trolleys. The various channels of retail shops other than cart that serve as distribution outlets for Ice cream are: 7. Urban General Stores (UGS) 8. Urban Neighbourhood Grocer (UNG) 9. Premium General Store (PGS)/ SMMT 10. Confectionary/ Bakery 11. Modern Trade (MT) 12. Fast Food shops (Recently some fast food shops keep branded ice cream cabinets) Distribution details of all the companies are provided below. However, detail of Milk Vita is not available as they are mainly milk producer and they have no dedicated ice cream cabinet for retail stores and currently they are not distributing ice cream in Dhaka city. Company Distribution Method Frequency No. of Cabinets No. of Carts Igloo Distributor/ Cart 2 to 3 times a week Kwality Distributor/ Cart 1 to 2 times a week Polar Distributor/ Cart 1 to 2 times a week Savoy Company 1 to 2 times a fortnight Milk-Vita Table 13: Distribution Method of Market Players Distribution Process: Distribution process through both methods is described below. Retail Distribution: The general distribution that is followed by companies is that distributor sends large refrigerated trucks dedicated to specific territories. These trucks are accompanied by small refrigerated vans. Main road side shops are served directly from the large truck and shops that are inside small streets are served by the small vans. Order and delivery are done on the same day. The strategy followed is that of replenishment. If the branded freezer of the company is empty, they simply fill it up according to requirement of different SKUs as the delivery people see fit. However, shopkeepers have to buy full cartons (usually 24 pieces in a carton) of single serve ice cream; they cannot buy in pieces. Evaluation of Entry into Ice cream Business for Bangladesh Limited 24

37 Among the retail shops, there are about equal numbers of branded and unbranded freezers. This is a normal scene in Dhaka where all shopkeepers require freezer to keep other cold products. However, basic distribution policy is that, if a shop has branded cabinet of a company, they cannot keep competitor ice cream in that cabinet. Thus, penetration can be made possible in shops where unbranded freezers are available. General branded freezer contract policy with Igloo and Polar is that traders have to pay BDT 5000 to take a freezer. Maintenance of branded freezers is responsibility of the company but electricity bill is paid by shopkeeper. However, Polar is not currently giving any new freezer. Kwality gave away their freezers for free; however, they ensured safety of their freezers by checking background of the shopkeepers. Cart sellers: Cart sellers collect required amount of ice cream from nearby distribution house or company showroom (Igloo has one showroom in Panthapath) on a daily basis. They also have to buy cartons of products, not pieces. Kwality carts collect their ice cream from factory (Tejgaon) or nearby distribution house. Cart sellers contribute around BDT 3000 sales in a day and generally sell at BDT 1-2 higher than set price of each product. The cart sellers generally keep at least a two-day stock so that they can meet sudden upsurge in daily demand of ice cream or if they get the opportunity to sell at parties, programs or any open air event (Wedding at community centres or outside cultural programs at auditoriums). If cart sellers need replenishment of stock, they even take service more than once in a day either revisiting showroom/ house or they call up company delivery people to serve them at their location if there is opportunity for selling more ice cream. Policy regarding Damaged Ice cream: All the ice cream producers have very good relationship with the shopkeepers. If the retailers have refrigeration problem, company takes ice cream back until the problem is fixed, whether it is stored in branded freezer or not. Also if any ice cream gets damaged or there is bacterial formation, company takes them back. Usual return time varies from days. For large sellers however, they take less time. Payment Method for Ice cream Purchase: All the companies give credit of around one month to large volume contributing retail sellers and try to maintain good relationship with them. This trend is seen in all channels. Also all the SMMTs and MTs are given credit of one month and payment is made by cheque. Other small shopkeepers have to purchase with cash. However, according to shopkeepers Igloo is currently trying to cut down on credit sales as they believe there is a consumer pull for their brand. Companies like Polar and Kwality also give special commission to large sellers. Polar gives 5% commission on every bill. Evaluation of Entry into Ice cream Business for Bangladesh Limited 25

38 H. Technology and Innovation: Technological advancement in the ice cream industry has been very rapid. Starting with stick mould and filler ice cream production, the companies have come a long way. Assessing the consumer choice and demand the companies are introducing new products very often. Improved and new technology is used for faster production and better quality. Igloo is trying to meet the international standards and launching products such as Sundae, Cornelli, and Nuggets. Other companies are also introducing new flavours suitable for their target segments. Igloo has both the ISO and the HACCP certifications. These were awarded in the year 2003 due to their relentless pursuit of quality and innovation. In September 1996, Igloo introduced the 3D Mould line and straight line extrusion technology for the first time in the subcontinent. Basically, with Igloo s pursuit, all the modern technologies and quality innovations are available in the market. I. Production Capacity: Current production capacity of the major players in the common format ice cream segment is estimated to be as follows: Total Production ('000 Ltrs) Required Capacity (at 300 production days ) Name Capacity (Ltrs/ day) Estimated unutilized capacity (Ltrs/ day) Igloo Polar Kwality Savoy Milk Vita Table 14: Production Capacity of Current Market Players From the table we can see that all the ice cream manufacturers are operating with unutilized capacity. However, one point to be noted is that different ice cream SKUs require different amount of item to be produced. Exact machine production capacity at litre per day does not represent the accurate scenario. Nevertheless, it can be safely assumed that all the manufacturers have unused machine capacity at their premises. Moreover, the larger players like Polar and Kwality have new technology available at their premises. Kwality bought second hand machines from Thailand but both Igloo and Polar bought their s from Italy and Denmark. J. Products and Pricing: Products: The products in the ice-cream market are differentiated. A few firms dominate the market, but an endless variety of ice creams are offered to the consumers. Igloo pioneers all major innovations in the market. The products that are available in the market can be classified into single serving and multiple serving groups. Which are then categorized based on functional attributes/ designs. These are: Single Stick Normal mould, 3D mould, extrusion Evaluation of Entry into Ice cream Business for Bangladesh Limited 26

39 serving Cup and Sundae Flat cup, long cup Cone Normal cone (vanilla, strawberry etc), premium cone (Ripple) Innovative Fillers Snowball, Animal shaped containers, sandwich, nuggets etc Multiple Container 0.5 ltr, 1 ltr and 2 ltr containers serving Family Pack Assorted packs, cakes, shahi kulfi etc Table 15: Ice cream Serve types Among all the products available in the market, most selling SKU for all the companies is Choc-bar stick and highest selling flavour is Vanilla. Following are the ranks of most selling SKUs and flavours. SKU Name Rank Choc-bar (70 ml) 1 Vanilla Cup (100 ml) 2 Vanilla Box (0.5 and 1 Ltr) 3 Lemon Lolly (70 ml) 4 Normal Cone 5 Flavour Rank Vanilla 1 Chocolate 2 Strawberry 3 Ripple 4 Mango 5 Table 16: Rank of SKUs Table 17: Rank of Flavours Choc-bar is one of the earliest vanilla based chocolate coated SKU that has dominated the market strongly over the years. Shopkeepers could not provide an exact percentage on SKU based sales contribution. Most of them ranked the SKUs and flavours according to sequence shown in the above table. Also, according to newspapers and secondary sources Vanilla is the most selling flavour with 60% sales contribution. According to secondary sources percentage sales contribution of various types of SKUs in the common format segment are as follows: Type of Ice cream Value Share Volume Share Impulse dairy ice cream 51.4% 44.3% Impulse water ice cream 11.2% 13.8% Take-home dairy ice cream 37.4% 41.9% Table 18: Volume Share of Different Serve Types Impulse dairy ice cream provides more value share as price per litre is higher than take home multiple serving ice creams. Impulse water ice cream shows a similar trend as of take home ice cream. Pricing: Product pictures and price ranges of each category are provided below. Evaluation of Entry into Ice cream Business for Bangladesh Limited 27

40 Stick Normal Ice Fruit Normal Cream 3D Mould Premium Extrusion Price Tk.10 Tk.15 Tk.15 Tk.20 Cup & Sundae Normal Cup Sundae Premium Cup Price Tk.12 Tk.20 Tk.25 Single Serving Cone Normal Premium Innovative Fillers Normal Premium Price Tk.20 Tk.25 Price Tk.20 Tk.25 Container Normal Premium Family Packs Kulfi Cake Mixed Pack Multiple Serving Price/Ltr. Tk.100 Tk.175 Price/Ltr. Tk.150 Tk 175 Tk 190 Figure 8: Serve Types and Pricing As it can be seen from the above chart, all impulse ice creams are priced within the range of BDT 10 to 25. Other take home multiple servings are priced within the range of BDT 50 (0.5 Litres) to BDT 220 (2 Litres). Another noticeable factor in price is that there are both normal and premium flavours in all types of ice creams. K. Firms as Price Setters: The firms have capability to affect the market price to be low as profit margin is very high. If Igloo reduces the price of an item below the prevailing price level in order to increase its sales, its competitors will fear that their customers will go away from them to buy Igloo products. To retain their customers they will be forced to match the price cut of Igloo. Historically this has been proven to be true. However, due to price sensitivity, companies cannot drastically increase price even if they provide higher quality of product. It was seen in 1997 when Igloo increased price of 11 SKUs and faced drastic sales fall during that time. It shows that the industry might welcome overall industry price increase but not individual company price increase. L. Promotion: The promotion scenario in the industry is not quite organized as of now. Even proper data regarding promotional expenditure is not available from research sources. The reason being, there is not much consumer related activity seen in the market. After Kwality s introduction in the market in 1999, Igloo went on with massive Television promotion of their new products that were available at that time. Evaluation of Entry into Ice cream Business for Bangladesh Limited 28

41 However, in current times there is no TVC running from any company. Companies promote their launches mainly through billboards and newspaper promotions which is currently the most used source of consumer promotion. Some promotional activities that were done by the companies over the years are listed below. Consumer Promotions: 1. Larger players like Igloo and Kwality goes on with campaigns like Gift on stick where various prizes names are written on the sticks and consumers can get them. a. Igloo ran a program on their launch of Macho variant where gift varied from cricket bat to personal computer. b. Igloo had a program in 2006 where gifts on sticks varied from Bangkok visit to sunglass. c. Igloo ran one campaign in 2007 where gold bars were given on purchasing Choc-bar. d. Kwality ran a similar program in 2008 where gifts varied from wrist watches to motorcycle. 2. Some companies ran consumer TTS and gift programs where company products were given free. a. Igloo had a program in 2006 where Igloo butter was given free on purchasing Igloo ice cream cake. b. Kwality ran a program in 2008 where one SKU was given as gift with another SKU randomly. c. Cone Ice cream at your Home program was run by Igloo in 2002 where six cone biscuits were given free with purchase of one litre ice cream. 3. Media placement is another form of placement done by larger companies. a. Igloo purchased Glimpse into World Cup Result space in daily newspapers during World Cup Football One interesting program is done by only Igloo in Bangladesh. They did it in June The program was Igloo Ice cream Festival with main attractions of Get as much ice cream as you want for BDT 200, Get a Fantasy Kingdom Entry ticket with each Entry Coupon, Lucky Draw and Celebrity Adda. Trade Promotions: 5. Trade promotions are mainly given to Highest retail purchasers and also based on time bound trade schemes where various slabs of purchase amount are mentioned for different prizes. a. Igloo takes their highest purchasers to visit countries like Singapore and Thailand. b. Savoy has a purchase slab scheme where first prize is table fan. c. Polar gives special sales commission to their highest purchasers (around 5%). Evaluation of Entry into Ice cream Business for Bangladesh Limited 29

42 M. Players in the Common Format Segment: Branded common format ice cream segment is constituted of five players only. Among them Igloo is the largest player and Milk Vita is the smallest. The following sections detail the basic company detail of all the companies with special emphasis on Igloo, the market leader. Igloo: The pioneering ice-cream company in Bangladesh started its operation in 1964 in Chittagong under K Rahman & Co. Limited (KRC) with a small factory inside Coca Cola bottling factory of KRC. After the independence of Bangladesh in 1971 Igloo was taken over by the government of Bangladesh. Later in 1983, Abdul Monem Limited purchased the entire production setup of KRC Limited including Coca- Cola bottling plant and Igloo ice-cream factory. After taking full charge of Igloo ice-cream by Abdul Monem Limited the manufacturing operations continued in Chittagong till Although, Dhaka fetched the maximum share of the total revenue, the distribution cost increased tremendously in the process of meeting the demand of Dhaka city. To cope with the distribution problem and handle Polar threat, Abdul Monem Limited transferred the factory to Dhaka, changed the ice-cream packaging from the conventional paper to plastic and expanded their market and distribution operation. The new factory of Igloo was setup at Shyampur, Narayanganj and was nine kilometres away from the Motijheel office. The company apart from catering the capital city started to expand its operations in Comilla (1991), Khulna (1992), and North Bengal (1993). These markets were served directly from Dhaka since the storage facilities were not developed till then. The company is now the market leader since 1997 with clear market share victory over others with sweeping 51% share. It is to be noted that Igloo is also a player in the boutique segment with three parlours (2 in Dhaka and 1 in Chittagong). Product Range: Igloo offers the widest choice of ice cream, more than any other competitor in the market. Igloo is offering a total of fifty items, including normal premium and novelty cup, stick and family pack items. Igloo has thirty flavours, more than anyone else in the industry and is continuously launching new and innovative delicacies. Igloo ice-cream can be classified in six groups. They are: Stick Macho, Choc-bar, Mini Choc, Clown, Mega, Shell n core, Lolly Cone Cornelli 2 in one, Cornelli classic Cup Shahi kulfi, Vanilla, Strawberry, Mango, Snow ball Container Vanilla, Strawberry, Mango, Chocolate, Coffee, Diet Vanilla, Tutti Frutti, Ripple, Pralin, Pistachio Innovative Nuggets, Sandwich Family Ripple cake, Party time, Shahi Kulfi Table 19: Products of Igloo Single serve stick, cups and cone items are easy to carry around and convenient to eat which makes it most sold. The core target segment of ice-cream is 6-24 years and this generation is always on the Evaluation of Entry into Ice cream Business for Bangladesh Limited 30

43 move and thus prefers independent cone, stick or cup items. As Igloo initiated the concept of icecream as a family product, they offer some items to be enjoyed with the whole family. Quality and Innovation: Igloo is committed to maintaining the highest quality standard, through its continuous R&D activities. The major ingredients, raw materials and packing materials are procured from the best European sources. Strict quality control is done at every stage of the manufacturing process, from procurement of material, mixing, material flow, ice cream making, packaging, storing (at main warehouse), distributing and market shelving, by the Quality Control Department. Current supply chain for various materials of Igloo is as follows: Australia (Milk Powder) China, Denmark, Singapore & Thailand (Food grade packing materials) Denmark (Ingredients, emulsifiers & stabilizers) China & UAE (Food grade sticks) Figure 9: Igloo Supply Chain Distribution Network: Their distribution network is stretched all over the country with a long fleet of refrigerated vans. Firstly, the ice cream products are stored at the central warehouse of the factory, and from there they are distributed through the haulage vehicle to the operational centres located in Dhaka, Chittagong, Comilla, Rajshahi, Barisal, Bogra, Rangpur and Khulna. Strictest cold chain maintenance during the distribution and selling of the ice creams is ensured. Their distribution process is as follows: Manufacture Stored at -24c Transported by Refrigerated trucks at - Retail outlets (Deep freezers) Refrigerated vehicles (Distributors) Reaches & Preserved in Eight regional stores Figure 10: Distribution Process of Igloo Evaluation of Entry into Ice cream Business for Bangladesh Limited 31

44 Trolley Operation: Igloo also operates through trolleys for extending its reach to consumers at the furthest points. The trolleys are operated near schools, alleys, streets, parks etc. and play rhythmic music to attract the consumers. These are very colourfully decorated with Igloo umbrella and the puller wears specific uniforms. Igloo was the first in introducing and operating these trolleys in Bangladesh for any Fast Moving Consumer Goods (FMCG). Igloo has around 125 trolleys operating throughout the country. Individual trolleys are provided with a regular supply of igloo ice creams. Marketing: The marketing commitment of Igloo is based on the relationship with its customers and consumer by not only manufacturing the highest quality product but also delivering the product by maintaining this quality. To satisfy the ever-changing needs of the customer, Igloo has regularly launched new ice creams and introduced new flavours. And this commitment has positioned Igloo as the market-leading brand by gaining the consumers trust with the positioning as: A WORLD OF GREAT TASTE. Facilities and Logistics at a glance: As of 2009, following are the facilities and logistics enjoyed by the company. Factory location Dhaka Production Lines 4 Packages Stick, Cup, Family pack, Others (Nuggets and sandwich) Mark-Italy Machine suppliers Tetra Pak(Hoyer)-Denmark Sabore, Denmark Hass- Austria Freemark 1100, Italy Machine models FM 3000, FM 6000, Italy SL600, Denmark Cone baking Hass- Austria Chocolate making Macentyre-UK Coverage Nationwide Operational centre 10 Total market vehicles 30 Distribution channel Direct/through appointed distributors Outlet service 7500 Injected deep freezers 4000 Trolley operations 125 Warehouse no 8 Table 20: Igloo Facilities and Logistics Kwality: Kwality is currently the second largest ice cream manufacturer of the country. The mother company for the Kwality brand is Sanowara Drinks & Beverages Ltd, a sister concern of Sanowara Group. The company is famous for powdered milk brands Red Cow and Diploma in Bangladesh. The drinks and beverage concern of Sanowara made an entry into the market in 1997 with Yes brand drinking water and launched the ice cream brand in With heavy communication and novelty products it Evaluation of Entry into Ice cream Business for Bangladesh Limited 32

45 successfully removed Polar from the second place with a current market share of 27%. The company also operates in the boutique segment with two parlours in Dhaka and Chittagong. Kwality ice cream factory is situated in Chittagong with a floor space of 35,000 sft and fully automated machinery/ wrapping/ mix machinery equipments from Italy having capacity of around 20,000 litres of ice cream per shift. The ice cream factory employs 140 people. The company is ISO certified. Kwality was the first true competitor for Igloo products with some major innovation in product design and communication but their quality is perceived to be lower in the minds of the consumers and they do not have extrusion ice cream. The product prices are also similar to that of Igloo but they charge a bit lower than Igloo in premium multiple servings. However, during market visits it was seen that shops that keep only Kwality or Igloo and Kwality both, they can sell Kwality too although the sales amount is lower than that of Igloo. People who look for Igloo, shopkeepers give them that directly but if they get a chance and Kwality ice cream stock is high, they also push Kwality to dry the stock out. This gives an indication that market is larger than what the current players are capable of serving even in Dhaka. Kwality follows a similar distribution model like Igloo but distribution frequency is lower and amount of cart sellers is limited to 25 and they operate only in Dhaka. Polar: Once a giant in the industry, Dhaka Ice Cream Industries Ltd. introduced the first hygienically packed ice cream in Bangladesh in 1987 and the brand name "Polar" was thus born. In the early days, the company started ice cream business with a wide range of products and a variety of flavours in Dhaka city. In 1988, the company started its distribution in the city of Chittagong, then Bogra, and continued to cover more cities. Presently, Polar ice cream is available throughout Bangladesh. The company today trails in the market with 15% market share in the common format segment. Recently, Polar has announced launch of ISIS diabetic ice cream with support from DANONE to turn around in the market. The company has its head office, as well as a modern, large-scale industrial plant in Dhaka. Polar ice cream is made with Danish expertise, using Danish equipment and technology. The production activities and quality control measures are supervised and managed by Danish experts. Polar offers a wide range of delicious flavours and tastes made by ingredients imported from Europe. Dhaka Ice Cream at present has 3 cold stores in Dhaka, Chittagong and Bogra, in Bangladesh. From Dhaka cold store, they distribute ice creams in Mymensingh, Tangail, Jamalpur, Sherpur, Kishoreganj, Netrakona, Comilla, Narsingdi, Barisal, Madaripur, Agaeljhara, Faridpur, Magura, Chuadanga, Jessore, Satkhira, Khulna, Pirojpur and Sylhet through their distributors. In case of long distance delivery points, the company uses auto cooling freezer van. Evaluation of Entry into Ice cream Business for Bangladesh Limited 33

46 In Dhaka city, they distribute ice creams directly to retail stores in freezer vans. Besides that, they have several distributors at different points of the city. Distributors cover their individual areas where company is not able to supply directly in their freezer vans. Similar model is followed by the company to distribute ice cream from their other cold storages through out the country. For storing and selling ice creams in retail stores, the company like the other players arranges a deep freezer with the Polar logo and canopy light box. In addition to this distribution, the company also undertakes home delivery of ice creams for special occasions. Savoy: Savoy Ice-cream brand is owned by Sena Kalyan Sangstha (SKS) Group of industries. It started its journey in March 1995 with a factory in Tejgaon, Dhaka. Yearly turnover is estimated at BDT 3.88 crores with a market share of roughly 3.5%. The factory has been established with Sonali Bank finance at 60:40 equity ratio. The total production capacity of the factory has been estimated at 2400 litres of Ice-cream per day. Total land area of the factory premise is 1.16 Bigha with 8,000 sft area covered with a total project cost of BDT The factory employs 73 people. Product ranges of the company include all the basic designs and flavours of the industry. However, the company has not been much of an innovator in the industry. Their product quality is substantially low than that of other players and they price their products at 10-15% lower than the other competitors. The company imports raw materials mainly from Europe. The general raw materials are Euro cream, Skimmed Milk Powder, Cocoa Powder and Flavour (Vanilla, Mango and Strawberry), Colour (Yellow, Red, Chocolate and Green), Ripple Sauce, Cheney Fruit, Palm Kernel Oil, Anhydrous, Butter Oil (Ghee) and Sugar etc. Milk Vita: Milk Vita is one of the most famous brand names in Bangladesh for its liquid dairy milk. Owned by Bangladesh Milk Producers Co-operative Union Limited (BMPCUL), the company came in the market with proper dairy milk ice cream in form of cups and choc-bar. With a production capacity of around 1600 litres per day, the company is trailing in the market place with 3% market share. Although the Milk Vita Choc-bar was perceived to be extremely tasty by consumers, they probably could not do well due price competition. Currently they do not even distribute ice cream in Dhaka. However, their presence is seen in outskirts of Dhaka and other nearby towns. If the current market situation prevails, Milk Vita would lose their remaining market share and other companies would benefit, especially Igloo. However, one of the advantages of Milk Vita remains to be Evaluation of Entry into Ice cream Business for Bangladesh Limited 34

47 their nation wide milk supply network. They have skimmed milk powder production plant that Igloo does not have. Thus, they can combat the seasonality of milk supply that Igloo with its huge requirement of milk cannot. Strengths and Weaknesses of Competitors: Company Strengths Weaknesses Igloo Strong brand image High product quality Highest no. of variety Strong distribution network Highest visibility Strong promotion High production capacity Presence of extrusion ice cream Items are generally a bit pricy Igloo does not give free freezers like other companies. Reluctant in recent times regarding innovation Local sourcing of liquid milk does not meet demand Failure to use ERP technology, slowing decision making Kwality Polar Savoy Milk Vita Product variety Strong promotion Free freezer distributed Presence in all price segments High production capacity Free freezer Quality perceived to be high compared to Kwality Price is lower Quality is good due to dairy cream Brand leverage from Milk Vita milk Weak distribution Lower exposure low amount of carts in operation Discoloured freezers Lower exposure Low product variety Unused capacity Discoloured freezers Low product variety Weak distribution Small amount of freezers Low production capacity Low exposure Low variety Table 21: Strengths and Weaknesses of Competition Market Characteristics of the Boutique Segment: With a small market of BDT 9.8 Cr and 5.67% share in the branded ice cream market, the boutique segment is currently an increasing segment in the ice cream industry. Boutique segment s history dates back to 1960s when Igloo launched boutiques in Dhaka to save distribution cost and promote a culture of ice cream eating out. In later years, boutiques lost their glamour and retail common format segment picked up growth. However, with Dolce Vita in the late 80s, craze for Italian Artisan ice cream was recreated in the market. Although Dolce Vita is failing in recent times, emergence of MövenPick and Club Gelato in 2000 has uplifted the segment once again. Current growth rate of the Evaluation of Entry into Ice cream Business for Bangladesh Limited 35

48 segment can be estimated to be approx % (higher than the common format segment). Following are the basic detail of all the major players in the segment with their estimated sales 3. Players Outlet # Sales (Cr Taka) Share Club Gelato % MövenPick % Andersen s % Gelateria Igloo % Sub Zero (Kwality) % Baskin Robbins % Dolce Vita % American Soft % Rainbow % Others (off site) % Total Market 6.82 Table 22: Players and Shares in Boutique Segment A. Detail of Operation: General operational procedure followed by all the operators is as follows: Operating method: There is a variation in operational method among the large operators. Club Gelato uses kitchen at own premise where imported ingredients and local milk (daily special service from Milk Vita) are used to make ice cream. MövenPick directly imports ice cream from Switzerland. Andersen s, Gelateria Igloo and Sub Zero produce ice cream at their factory with a mix of imported and local ingredients. Products: Around flavours of artisan dairy ice cream are served at the premises. Most sold flavours are Vanilla, Ferrero Rocher, Butterscotch, Chocolate, Caramel etc Other Products: Larger players also serve ice cream desserts (milk shakes, ice cappuccino etc), pastries and other desserts with normal coffee and tea facility at their premises. Boutiques fight ice cream seasonality with the other products sales during off-peak ice cream seasons. Usually ice cream and other products contribute at 60:40 ratio in summer and during winter and off-peak seasons the ratio reverses. Pricing: Usually the prices of products in this segment are 3-4 times higher than that of the common format segment. Prices do not vary with flavours. Variation depends on serve style (Cone/ tub) and use of toppings and other ingredients (Chocolate sauce/ nut/ fruits) etc. Usual margin charged is around 50-60% over production cost. Similar margin is charged for other products like coffee, ice cappuccino etc. 3 Yearly sales is estimated based on company s approximate daily sales collected during interview Evaluation of Entry into Ice cream Business for Bangladesh Limited 36

49 Target Group: Most of the consumers belong to SEC A and higher SEC A with DMFI of at least BDT 20,000. Foreign delegates and resident foreigners also visit these boutiques. Main purposes of visits in the boutiques are: Youth: hangout with friends and having ice cream and ice cream derivatives Family: Family night out or eat out at a restaurant and then having dessert Foreigners: Having dessert after dinner Rush time at boutiques are: Afternoon 2-4 pm and at night 9-11 pm. Offsite sales: Most of the large operators also sell offsite. They have small freezers for off-site. Club Gelato and MövenPick serves ice cream at high society parties and programmes. MövenPick also has kiosks in known hotels like Sheraton. Promotion: No mass promotion is done by any of the companies. Word of mouth is the most important source of promotion. Posters and banners outside the premise and occasional newspaper advertisements are used to communicate special offers. Growth Drivers: Market growth is driven by image, innovation, quality, decoration of facility, environment and special offers. Club Gelato has the image of selling true Italian dairy ice cream with an excellent hangout environment. MövenPick imports ice cream directly from Switzerland and is perceived to be of high quality. Andersen s operates with the image of ice cream from Denmark Gelateria Igloo (from Igloo) and Sub Zero (from Kwality) could not establish the premium artisan ice cream image. B. Players in the Boutique Segment: There are very few players who have significant impact in the boutique segment. Detailed information of all the major boutique segment players is provided below. Evaluation of Entry into Ice cream Business for Bangladesh Limited 37

50 Club Gelato: Basic Company Information Location: Banani, Road# 11 (Planning for a second one in Dhanmondi) Established in: 2001 Seating Capacity: 48 Area: 1250 sft (including kitchen) Owner: Mr. Jahangir Alam (Bangladesh) Business Type: Joint business partnership with Singapore Staff: 15 people (6 in the kitchen) Production capacity: 150 litres per day Product Related Information Product: Italian style parlour scoop ice cream, fruit juice, coffee and pastries Flavours: Around 32 flavours available Most selling: Ferraro Rocher, Vanilla, Pistachio Innovations: New variants and ingredients are communicated by their Italian supplier and Club Gelato decides what to take from them. Serve type: Cup, Cone, Glasses, Box for take away Consumer Profile Primary: Teenagers and Young Adults (18-30) & Diplomats Secondary: Family consumers for eat out Income Group: High income customers; tentatively from SEC A and higher SEC A Geographic Area: Diversified Rush time: 8-10 pm Sales and Price Information Sales: BDT 50,000 (60% Ice cream, 40% other desserts) daily in summer. In winter however, other products sell more and thus they keep total sales at the same level. Price: 750 per litre for any flavour. Sales Volume: litres per day Supply Chain/ Placement Information Milk: Local sourcing from Milk Vita (40/50 litres per day) Chocolates & Flavours: Belgium, France, Germany Transportation: Mainly air (They can afford it due to high margin) Contribution of various materials: Flavours (30%), Milk (20%), other parts are water and air Promotional Materials Materials used are near premises POS materials for promoting the parlour only. Table 23: Detail of Club Gelato Evaluation of Entry into Ice cream Business for Bangladesh Limited 38

51 MövenPick of Switzerland: Basic Company Information Location: Gulshan Established in: 2000 Seating Capacity: 55 Owner: Mr. Arif Mahmud Business Type: Franchise of International MövenPick Storage Capacity in Shop: 150 litres Product Related Information Product: Imported MövenPick ice creams, coffee, chicken sandwich and Frappe Flavours: Around 30 to 35 flavours available Most selling: Swiss Chocolate, caramel, Vanilla Dream, Espresso, Strawberry Innovations: New variants are communicated by their franchiser and they decide on flavours that they want. Serve type: Cup, Cone, Glasses, Box for take away Consumer Profile Primary: Teenagers and Young Adults (18-30) (70%) & Diplomats Secondary: Family consumers for eat out Income Group: High income customers; tentatively from SEC A Geographic Area: Concentrated in Gulshan and nearby areas. Rush time: Afternoon- Young Adult, 10 to 11 pm Foreigners *the company also serves at parties and has freezers in known hotels where their ice creams are served. Sales and Price Information Sales: BDT 35-40,000 daily in summer. Price: 640 per litre for any flavour. Sales Volume: litres per day Supply Chain/ Placement Information Transportation: Imported finished goods by ship. Ship travel time: 19 days Port clearance: 10 days Safety Cushion: Extra 10 days Promotional Materials Materials used are near premises POS materials for promoting the parlour only. Table 24: Detail of MövenPick of Switzerland Evaluation of Entry into Ice cream Business for Bangladesh Limited 39

52 Andersen s of Denmark: Basic Company Information Location: Gulshan, (2 others in Uttara, Dhanmondi) Established in: 2001 Seating Capacity: 48 Owner: United Group Business Type: Franchise of Australian company Andersen s of Denmark Production: Tongi Factory of United Group Production capacity: 2000 litres per day in factory Storage Capacity in Shop: 150 litres Product Related Information Product: Danish parlour scoop ice cream, and coffee Flavours: Around 30 to 35 flavours available Most selling: Strawberry, Butter Scotch, Green Innovations: New variants and ingredients are communicated by their franchiser and they decide on flavours that they want. Serve type: Cup, Cone, Glasses, Box for take away Consumer Profile Primary: Teenagers and Young Adults (18-30) (70%) & Diplomats Secondary: Family consumers for eat out Income Group: High income customers; tentatively from SEC A Geographic Area: Concentrated in Gulshan and nearby areas. Rush time: 8 to 10 pm Sales and Price Information Sales: BDT 10-12,000 daily in summer. Price: 460 per litre for any flavour. Sales Volume: litres per day Supply Chain/ Placement Information Milk: 20/25 kg packs are imported Chocolates & Flavours: Imported Butte paper: Local sourcing Transportation: Ship Promotional Materials Materials used are near premises POS materials for promoting the parlour only. Table 25: Detail of Andersen s of Denmark Evaluation of Entry into Ice cream Business for Bangladesh Limited 40

53 Gelateria Igloo: Basic Company Information Location: Banani, Kemal Ataturk Avenue (Two others in GEC Mor, Chittagong and Naya Paltan) Established in: 2000 Seating Capacity: 20 Production: From Igloo factory in Shyampur, Narayanganj Product Related Information Product: Parlour scoop ice cream and coffee only Flavours: Around 30 flavours available Most selling: Vanilla, Strawberry, Chocolate, Pistachio, Butter Scotch, Tutti Fruity Serve type: Cup, Cone, Glasses, Box for take away Consumer Profile Primary: Teenagers and Young Adults (18-30) Secondary: Family consumers for eat out Income Group: High income customers; tentatively from SEC A and B Geographic Area: Diversified Rush Time: afternoon and evening Sales and Price Information Sales: BDT 8,000 to 10,000 daily in summer. Nearly one fourth in winter. Price: Varies but 350 per litre of vanilla POS materials at the premises. Promotional Materials Table 26: Detail of Gelateria Igloo 5.2 Price Comparison of Common and Boutique Segments: Price ranges of both common format and boutique segment cannot exactly be pin pointed as products do not follow common structure and variations occur with use of toppings, mixing of flavours and use of coatings. However, a price comparison has been made among the brands based on their price of per litre of vanilla flavoured ice cream in the market. It appears to be as following: Company Price/ Litre Vanilla Club Gelato 750 MövenPick 640 Andersen s 460 Dolce Vita 440 Igloo 100 Kwality 100 Polar 100 Milk-Vita 90 Savoy 85 Table 27: Comparative Price Analysis As it can be seen, there is price gap within the range of BDT Ice cream kiosks and small scooping boutiques can operate within that range. Evaluation of Entry into Ice cream Business for Bangladesh Limited 41

54 6.1 Target Group of Ice cream 6.0 CONSUMER ANALYSIS Who are the consumers of ice cream? This question does not have a clear answer. Ice cream is a food for all. It is the only food consumed by a human being at less than 0 degree centigrade temperature and people of all ages feel indulged to have it. However, we can determine focus target groups for both branded common format and artisan boutique ice cream. Group discussions and market visits were done to get insight into the consumers along side resources form secondary sources. Age based target group is common for both segments but variation among the groups occur mainly based on SEC and DMFI classification Geographic Group: Branded ice cream remains an urban product till date. Geographically branded ice cream has reached urban and semi urban areas up to Thana Head Quarter levels. Ice cream has reached areas where electricity is available. Small artisan players are available in places where large branded players have no distribution Target Age Group: Age wise grouping of target consumers is as follows: Urban kids in the age group of 5-14 They mainly consume normal sticks, cups, cones innovative fillers and water ice creams. Urban youth in the age group of They consume premium and extrusion sticks and cones. Urban mothers in the age group of They determine the family purchases. Even when the father purchases ice cream, decision is taken by them. Consumption pattern of various age groups are depicted in the following chart. Ice cream consumption pattern 20% 30% 50% 05 to 14 yrs 15 to 24 yrs 25 to 35 yrs Figure 11: Target Group wise Consumption Pattern Evaluation of Entry into Ice cream Business for Bangladesh Limited 42

55 6.1.3 Target SEC and DMFI Group: Common Format: SEC A and B is the target group for common format ice cream. However, with rapid increase in price level over the years, has made it a hard to consume product for SEC B consumers who belong to lower DMFI group. Boutique Format: Boutique format s higher margin and high price range makes it an exclusively SEC A ice cream. People belonging to upper and upper middle class have access to the mediocre boutiques and only higher upper class can have premium ice creams like Club Gelato and MövenPick. Another unique target group for boutique format are the foreigners who live in Bangladesh. These people tend to visit the parlours to have ice cream as dessert especially after dinner. 6.2 Ice cream in Consumer Lifestyle Context Social Setting Fun & Excitement Social Togetherness Indulgence Affection for children Boredom relief Pacifier/ Reward Friends Family Companion/ Spouse Guests Ice Cream is best enjoyed in shared company When Where Post Dinner School Time Summers Treat / Celebration Holidays Hangout Figure 12: Ice cream in Consumer Life style This simple overview of ice cream in consumer lifestyle was determined based on in-depth research analysis of UBL and validated through qualitative group discussions by the author. However, detail of in-depth research is provided in a later section of this chapter. Evaluation of Entry into Ice cream Business for Bangladesh Limited 43

56 6.3 Highlights of Purchase Habit of Ice cream Common Habits across Target Groups: There are some common habits that were identified in earlier researches and group discussions with consumers. Common habits mean the consumer approach towards ice cream that is seen across all target groups e.g. kids, youth and adult purchasers. These are outlined below. Ice cream is mainly seen as a dessert or a snack. Impulse ice cream is seen as a quick snack that is consumed when it is in sight. Visibility plays a big role here. Regarding family packs, people see it as a post-food dessert. Ice cream purchase is commonly a planned event. When the contexts arise, people generally take a bit of time to decide whether or not to have ice cream or when they want to go to a boutique they make due considerations regarding which boutique to visit. Ice cream purchase decision is taken based on favourite flavour. People tend to try out new variants and flavours when they first see it. They compare the taste with earlier experience and when they purchase later they choose the flavour they have liked most. For In-Home segment decision is mostly taken on the flavour. Generally people come up with different flavours of choice and most voted flavour is chosen. People become aware of new variants or flavours mainly through word-of-mouth. Advertisement (new launches, special offers and festivals) in newspaper is another source of awareness. People are currently indifferent towards the price level of premium flavours. However, some feel that price of Choc-bar, or water ice creams (lolly) is a bit much. If less, they would have consumed more. Some also feel that companies should come up with branded ice cream in the price range of BDT 5-8. Ice cream is purchased from nearby shops. If required brand and flavour is not available, 2-3 shops will be visited and then available flavour will be selected even if the required one is not found. This is done mainly not to ruin the mood for ice cream. People are very open to try new brands and flavours especially if it comes from a credible source. They would try new flavours and if they are satisfied with the taste, they would repeat purchase. Regarding boutique visits, people feel that boutiques need to have a proper environment, enough flavours and other snacks. While visiting boutique with family or companion, they want variation in flavours, so that they would order different flavours and taste each other s ice cream. It is seen as a sign of togetherness. Frequency of ice cream purchase varies among people. It depends on peer pressure, collective family decision, summer heat and attitude towards ice cream itself as a product. Evaluation of Entry into Ice cream Business for Bangladesh Limited 44

57 6.3.2 Habits of Kids: Kids choose ice cream flavours by the look of the product (generally pictures shown in POS materials and carts). They love colour and designs of the products let it be a common format or a boutique ice cream. Kids (when in house) would go with the housemaid to the nearby shop, choose the flavour they want (within range of the amount given to the maid) and buy it. When with parents, they would take the product they like even if the price is lower than some other product. However, mothers play a role in this decision. They would want their children not to choose too high priced a product or coloured products Habits of Youth: Young people are the main consumer of impulse ice cream. They also are one of the major consumers in the boutique segment. Young people love to try out new products that come into the market. Another side of the coin is that, they are not very loyal to a brand or a flavour and tend to switch a lot. Regarding boutique visits, young people go to boutiques to have an ice cream hang out with peer groups. They would stay there for a longer period of time while they have their ice cream. Some times young people make milk shakes and other ice cream based desserts Habits of Mothers: Mothers worry about their children s health and they prefer vanilla type of brands. However, when price constraint occurs, they go for water ice creams for their children. They try to convince their kid s purchase decision. Regarding family purchase, mother s decision is sometimes prioritized by the whole family. 6.4 Barriers to Ice cream Consumption Emotional Barriers: Overindulge (close to sinful) Undisciplined (no control) Childish (licking) Artificial Image Functional Barriers: People of SEC B feel that ice cream is an expensive dessert (If less expensive would consume more often). It leads to cold / cough - especially in winter / rainy season. It contains artificial additives / preservatives It is very high in calories that lead to fattening. Evaluation of Entry into Ice cream Business for Bangladesh Limited 45

58 It does not quench thirst. Less convenient (portable, immediate eat) Messy / Dripping 6.5 Research Findings The highlights regarding purchase habits, triggers and barriers of ice cream consumption provide a glimpse into the consumer world of ice cream industry. However, UBL CMI conducted a formal research exclusively on ice cream consumers to identify: Occasions of ice cream Frequency of ice cream consumption Expectations from ice cream occasions Personalities that they desire from ice cream Relevant Occasions in Daily Lives of Consumers: Research question regarding usual occasions of life that occurred most frequently in day-today lives of the respondents generated the following replies. Occasion % of Respondents saying "Yes" Watching TV 93 Normal Dinner At Home 91 Normal Lunch At Home 89 At Home, While Reading/Music/Surfing 86 Informal Family Get Together 85 Out Of Home, Hanging Out With Friends 84 Out Shopping 84 Mid-Afternoon Break At Home 83 At Home By Myself During The Day 82 Special Dinner At Home 82 Informal Dinner Out Of Home 82 Normal Lunch Out Of Home 82 Leisure Walk 79 Coming Home From Work/School 78 Special Dinner Out Of Home 78 Celebration 78 A Night In With Friends 77 At Home By Myself In The Evening 77 Special Lunch Out Of Home 76 Mid-Afternoon Break Out Of Home 75 Special Lunch At Home 73 Day out with Partner 72 Midmorning Break 70 At Breakfast 68 Family Day Out 68 During Work Or At School 65 Evaluation of Entry into Ice cream Business for Bangladesh Limited 46

59 Travelling To/From Work/School 65 At The Cinema 61 Special Event 56 Clubbing/ At A Party 50 Post Gym/Sports 48 Table 28: Relevant Occasions in Consumers Lives Respondents were then asked to mention frequency of occurrence of the identified occasions. The identified replies are as follows: Post gym/sports Special event Family day out Special lunch out of home Special dinner at home A night in w ith friends Mid-afternoon break out of home Leisure w alk Out of home, hanging out w ith friends Mid-afternoon break at home Day out w ith Partner/ Spouse Traveling to/from w ork/school Coming home from w ork/school normal lunch at home Normal dinner at home Daily 2-3 Times A Week Weekly 2-3 Times A Month Once A Month Every 2-3 Months Less Often Never Figure 13: Frequency of Occurrence of Occasions This shows that Normal dinner at home, Watching TV, Normal Lunch At Home, At Home, While Reading/Music/Surfing, Coming Home From Work/School, During Work Or At School, Travelling To/From Work/School, Midmorning Break, Day Out With Partner/ Spouse, At Home By Myself During The Day are the most frequent daily rituals of busy lives of consumers Frequency of Ice cream Consumption: Respondents were asked to mention consumption pattern of ice cream during the identified occasion on a scale of 1-5 depicting frequencies like (5) always, (4) most of the times, (3) about half of the times, (2) sometimes, (1) never/ do not know. The responses are depicted in the following table. Evaluation of Entry into Ice cream Business for Bangladesh Limited 47

60 Midmorning break While clubbing, at a Normal lunch out of Special event At the cinema A night in with friends Normal dinner at Informal dinner out of At home by myself At home by myself in Special lunch at Out shopping Alw ays most of the times About half of the times Sometimes never/do not know Day out with Spouse Watching TV Figure 14: Frequency of Ice cream Consumption As it can be seen Day out with Spouse, Special lunch at home, Special dinner at home, Watching TV, Family day out, Celebration are the occasions where most frequently ice cream is consumed Market Character: Mapping Relevant Occasions vs. Frequency of Consumption If we plot frequency of consumption on the X-axis of a chart and relevance of occasion occurrence on the Y-axis taking the above mentioned values as cut-off values we get four quadrants in the chart depicting four market scenarios that any ice cream manufacturer in Bangladesh market might encounter given the current market situation. This market segmentation is based on frequency of ice cream consumption in daily occasions of consumer lives. The segments are: OPPORTUNITY MARKET: High Relevant Occasions-Low Ice cream Frequency QUESTION MARKET: Less Relevant Occasions-Low Ice cream Frequency HIGH FREQUENCY MARKET: Relevant Occasions-High Ice cream Frequency CAPTIVE MARKET: Less Relevant Occasions-High Ice cream Frequency The chart looks as follows: Evaluation of Entry into Ice cream Business for Bangladesh Limited 48

61 Figure 15: Relevance of Occasion-Frequency of Consumption Mapping As it can be seen from the above chart, Bangladesh Market still lies in the Opportunity and Question market zone with a pull towards High frequency and Captive Market zones. This is evident from market data as penetration of ice cream still remains at Thana headquarters levels. Also, this explains the high market growth rate of 17% as market is yet under developed and branded quality ice cream has yet not reached all levels of consumers, especially rural level that constitutes around 75% of Bangladeshi market. From the above analysis, we can establish that target of ice cream manufacturers should be to penetrate more into the Bangladeshi market to create higher frequency of ice cream consumption. The following chart shows the strategies to follow for ice cream manufacturers. Figure 16: Required Market Strategy for Bangladesh Evaluation of Entry into Ice cream Business for Bangladesh Limited 49