December 19, 2019

By Lynda Kiernan

In 2016, PAI Partners and Nestle struck a deal to join PAI’s R&R Ice Cream with Nestlé’s European ice cream business to form Froneri, which is now one of the largest ice cream businesses in the world.

It was decided Froneri would be headquartered in the UK and is active in Europe, the Middle East (excluding Israel), Argentina, Australia, Brazil, the Philippines, and South Africa. Within these target markets, Froneri unites Nestlé’s global brands with R&R’s manufacturing capacity and licensing agreements, combining both company’s ice cream businesses as well as Nestlé’s European frozen food business and its chilled dairy business in the Philippines.

Since its formation in 2016, Froneri has been successful in achieving rapid growth in both sales and profits, reaching turnover of CHF2.9 billion (US$2.97 billion) in 2018. 

Now, Froneri and Nestlé have reached an agreement by which Nestlé will sell its U.S. ice cream business to Fronari through a deal valued at $4 billion. 

“The creation of Froneri has been a phenomenal success,” said Mark Schneider, CEO, Nestlé. “We are now making this business our global strategic partner in ice cream and are convinced that Froneri’s successful business model can be extended to the U.S. market. With this transaction, we are taking a decisive step towards our goal of achieving global leadership in ice cream.”

Already with a strong presence in Europe, Latin America, Africa, and Asia-Pacific, and having recently acquired Tip-Top in New Zealand, and Nestlé’s ice cream business in Israel, this deal will now give Froneri a leading position in the U.S. – the largest ice cream market in the world.

“We are excited to bring Nestlé’s stellar U.S. ice cream business to Froneri,” said Frédéric Stévenin, partner, PAI Partners “This is a great opportunity for further growth, building on the expertise of the world’s leading pure-play ice cream company.”

Froneri will now have control of some of the most iconic brands in the category, including Haagen-Daz, Outshine, Drumstick, and Edy’s, and Nestlé will have fresh capital to reinvest in other directions aligned with its recent intent to overhaul about 10 percent of its portfolio, with a renewed focus on coffee, nutrition, pet care, and water. 

 Toward this end, Nestlé also exited its U.S. candy business last year, selling out to Nutella in a deal worth $2.8 billion. 

The transaction gave Nutella control of more than 20 U.S. candy brands including SweetTarts, Nerds, LaffyTaffy, Raisinets, 100 Grand, Baby Ruth, Butterfinger, and Wonka, and made it the third largest confectionery company in the country.

On the opposite side of the sheet, Nestlé acquired plant-based food company Sweet Earth in 2017, from which it launched a plant-based meat line including the Awesome Burger and Awesome Grounds. 

“In the United States, we’re experiencing a consumer shift toward plant-based proteins. In fact, as many as 50 percent of consumers now are seeking more plant-based foods in their diet and 40 percent are open to reducing their traditional meat consumption,”  said Paul Grimwood, Nestlé USA chairman and CEO at the time.

That same month Nestlé diversified further into high-end specialty coffee with the acquisition of a controlling stake in California-based coffee roaster and retail giant, Blue Bottle Coffee, for approximately $425 million.

Demand for coffee in the U.S., the biggest coffee market in the world, is on pace to reach a new record, driven by increased consumption by younger drinkers. Millennials aged between 19 and 34 account for 44 percent of U.S. coffee consumption, according to Datassentials. And despite consumption dropping from 76 percent to 64 percent for people 60 years and older, and consumption falling for those between the ages of 40 and 59, the jump in demand by younger coffee drinkers has more than made up for the shift.

Already the world’s top name in the packaged coffee segment, controlling brands such as Nescafé and Nespresso, the addition of Blue Bottle will launch Nestlé more in line to compete with the likes of Starbucks as it expands its presence in cafes.

Behind these rapid-fire deals by Nestlé is billionaire activist Daniel Loeb and his hedge fund Third Point, which acquired 1.25 percent of the company for $3.5 billion  – the largest initial investment ever made by the fund in a public company, according to Food Dive.

Third Point noted how Nestlé had not been doing as well as its rivals in responding to a changing consumer landscape, and suggested the company improve margins, by reinventing its core business, (something that the Blue Bottle and Sweet Earth deals reflect), and divest non-core assets.

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