In yet another sign that the consumer goods industry is trying to accommodate changes in consumer taste, Nestle just parted ways with Häagen-Dazs.
In a deal worth $4 billion, Nestle announced plans on Wednesday to sell its U.S. ice cream division to Froneri, a joint venture Nestle formed with private equity firm PAI Partners in 2016.
While Nestle’s U.S. ice cream operation—which includes brands such as Häagen-Dazs, Dreyer’s and Drumstick—had sales totaling $1.8 billion last year, analysts told Adweek that Nestle likely decided to sell the business due to underperformance.
Nestle’s plan is to “move more of their indulgent portfolio outside of their core business,” said Jitender Batra, a director at consulting firm AlixPartners. He added as consumer demand for healthier options continues to rise, companies across the CPG sector are having to adjust and restructure accordingly.
Analysts noted a big reason behind low growth is consumers gradually turning away from sugar. Company records show Nestle’s milk and ice cream products experienced a global growth rate of only 1.8% in 2018, compared to the year prior. That increase in sales is well below Nestle’s other product categories, such as nutrition (4.6%), pet care (4.5%) and beverages (3.3%).
“There’s been a lot of concerns for a long time about sugar,” said Batra. “Consumers have become much more health-conscious. They are trying to consume less sugar because now it’s much more closely tied to obesity.”
The latest deal parallels Nestle’s sale of its U.S. chocolate division—which included brands Butterfinger and Baby Ruth—to Italian confectionery manufacturer Ferrero Group for $2.8 billion in early 2018. Last year, an Ipsos survey found that 70% of consumers are either very or somewhat concerned about the amount of sugar in their diet. Another example of the healthy market industry trend: Kellogg’s decision to sell its fruit snack and cookie brands—Keebler, Famous Amos—to Ferrero for $1.3 billion last April.
Euromonitor International, a market research firm, estimates that this year, ice cream retail sales in America will reach $15.6 billion. British-Dutch CPG giant Unilever—with Ben & Jerry’s, Klondike and Breyers—currently holds the biggest chunk of the ice cream market with 21% market share. Nestle comes in second with 15%.
Nestle declined to elaborate beyond this week’s official statement. The company expects the deal with Froneri, which previously took ownership of Nestle’s European ice cream business, to close in early 2020.