February 9, 2017

PAG, one of the largest private equity firms in Asia, and Meridian Capital (an existing investor) have invested $225 million in European dairy processing and ice cream group, Food Union.

Under the terms of the investment, PAG has committed $170 million to the round, while Meridian has committed the remaining $55 million, building upon its original investment in the group in 2013.

Food Union’s business includes an international group of dairy and ice cream companies spanning nine countries that is currently the leading milk processing company in Latvia, and the largest ice cream producer in both Denmark and the Baltics. With sales offices located across Northern and Central Europe in Latvia, Estonia, Lithuania, Denmark, Norway, Romania, Russia, and Belarus, and two dairy production facilities currently being constructed in China, Food Union exports its products to more than 25 countries. Its key markets being Latvia, Lithuania, Estonia, Poland, the Netherlands, Great Britain, Azerbaijan, Russia, and China.

“Food Union has had a tremendous year in 2016,” said Andrey Beskhmelnitsky, Global CEO and founder of Food Union Group. “In Europe, we have solidified our position in our home markets and have acquired two ice cream producers in Norway and Romania. In China, we broke ground on two modern dairy plants which are expected to bring high-end dairy products to Chinese consumers by the beginning of 2018.”

The fresh capital gained through the investment will be allocated to support Food Union’s expansion in China where the group’s two new dairy plants are being completed, while PAG will also offer market-specific guidance to Food Union’s management team as the group expands into Asia.

“PAG’s investment and Meridian’s follow-on investment are an endorsement of Food Union’s strategy and we look forward to working with PAG to build a strong business of dairy products in China,” said Beskhmelnitsky.

Meanwhile, in its home market of Europe, Food Union will remain focused on the development and production of value added dairy and ice cream products with the goal of strengthening its position in the market, as well as improving its ability to lift its exports to the Middle East and China.

“Entry into China, which has one of the largest and fastest growing consumer markets in the world, is a significant step for Food Union,” said Askar Alshinbayev, managing partner of Meridian Capital. “We are confident that working alongside with PAG, we can deliver on our strategy to manufacture European quality dairy products which demanding Chinese consumers can enjoy and trust.”

We All Scream for Ice Cream

Food Union is not the only Western ice cream company to look toward emerging global markets for growth. In March 2015, England’s R&R Ice Cream announced it had agreed to acquire Nestlé’s South African Ice Cream business as a way to capitalize upon a range of demographic shifts on the horizon in Africa, and to grab a share of the US$170 million South African ice cream market.

As the African population grows, it is expected to become both more affluent and younger – two factors that are expected to drive demand for dairy products, but particularly ice cream. The United Nations forecasts that by 2020 the under-50 population of sub-Saharan Africa will increase by 23%, reaching 700 million, and the median age for the entire continent will be only 20 years.

Due to similar demographic shifts, but also to improvements in cold storage and rising affluence, India’s ice cream market is forecast to grow at a compounded annual growth rate (CAGR) of 17.03 percent between 2016 and 2021, according to a report by TechSci Research reports Dairy Reporter.

Meanwhile, in 2014, China overtook the U.S. for the first time to gain the rank as the top ice cream market in the world, according to Mintel.

The value of the Chinese ice cream market nearly doubled between 2008 and 2014, climbing by 90 percent to reach a value of $11.4 billion – compared to the U.S. market which saw growth of 15 percent over the same time period to reach a value of $11.2 billion.

By volume, Chinese sales topped 5.9 billion liters in 2014, and were expected by Mintel to continue growing to 6.3 billion liters in 2015, while the volume of U.S. sales was expected to remain steady at 2.7 billion liters.

“Rising incomes and an increasingly developed retail infrastructure and cold chain network are driving growth in the ice cream market in China,” said Alex Beckett, global food analyst at Mintel. “…China is now the powerhouse of the global ice cream market in terms of overall size, although for per capita consumption, it’s the Americans who tuck into the most ice cream each year. The pace of development, coupled with the immensity of the population, is having an increasing impact on the Chinese ice cream market.”

Herein lies the key to growth for the segment – not only rising population densities, but the potential to close the wide consumption gap too. While U.S. consumers eat 8.5 liters of ice cream per person per year, and Australians eat 9.9 liters per person per year, Chinese consumers are still eating only four liters per person per year – reflecting the future potential of doubling consumption within a growing population base.

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com