The $800 million Australian ice-cream industry is scooping up profits – but it’s the premium products that are growing fastest, with customers willing to fork out top dollar for just desserts.
A report form IBISWorld shows smaller ice-cream manufacturers are enjoying a growing slice of the $79.8 million industry profit as customers increasingly see the top-dollar products as affordable luxury snack items – and the future is only looking sweeter.
The industry is projected to grow 5.5% over the five years through 2014-15, while revenue is estimated to rise by 1.5% in 2014-15, to reach $822.6 million.
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Stephen Gargano, IBISWorld senior industry analyst, told SmartCompany ice-cream manufacturers have benefited from rising demand for premium products.
“Niche operators that provide premium ice cream and gourmet gelato products have proven to be extremely successful over the past five years,” says Gargano.
While supermarkets and grocery stores are a strong source of sales, accounting for 67.6% of the market, Gargano says gelato and ice-cream shops have benefited from positioning themselves at the premium end of the market.
“Operators that have been able to faithfully reproduce quality ice-cream products from abroad have been particularly successful. These products are typically home-made and benefit from a high degree of perceived quality,” he says.
“As a result, consumers have demonstrated a willingness to pay premium prices for these products, boosting revenue from these operators.
“Local gourmet products are making an increasingly large contribution to the industry, with Harry’s Ice Cream Co providing a key example. The company provides a range of unique, interesting flavours, with products made locally from Australian produce.
“These local products benefit from the high perceived quality of the ‘made in Australia’ brand. Consumers are attracted by the attention-grabbing range of flavours, encouraging them to pay the premium price tag.”
Lawrence Harris, founder of Brunswick-based artisanal ice-cream manufacturer Harry’s Ice Cream, has been in the ice cream game for 20 years and tells SmartCompany he first noticed a trend towards higher-end products during the global financial crisis in 2008.
“All of the sudden it was a terrible economic time, so I spoke with a guy I had worked with for years and asked him, What do you think will happen?” says Harris.
“He said, ‘Nothing, if anything you’ll be better off’.”
“Ice-cream is seen as one of life’s smallest luxuries, it’s a real comfort item. People who fall on harder times or feel they need to tighten their belt say, ‘Well, we won’t go out for dinner, but we’ll still bring a tub of ice cream home’.”
The report also indicates the larger ice-cream manufacturers, such as Peters (Connoisseur), Unilever (Streets) and Regal Cream Products (Bulla) – which have 35.3%,27.1% and 11.6% of the market respectively – are catching on to the rising consumer taste for premium ice-cream.
“While consumers once shopped at the supermarket for basic take-home tubs of ice cream, supermarkets and grocery stores now stock a wide range of premium products and multi-packs,” says Gargano.
“Supermarkets have introduced more expensive gourmet options into their own private label lines, while also expanding their offering of gourmet options from niche or foreign producers. Products such as Ben and Jerry’s from the US are now readily available in many supermarkets, with these products attracting more revenue at supermarkets.”
Meanwhile, Harris says he is not concerned about more big players entering the gourmet space.
“I fully expect it’s a space that won’t be ignored for much longer,” he says.
Harris’ multimillion-dollar business has diversified to include the additional revenue streams of catering in the restaurant and airline markets, and says he has not been under any pressure from the rising domestic milk costs, which the IBISWorld report sees as a potential “squeeze” on profit margins.
Gargano says as the market becomes more saturated with gourmet products, price will become more important.
“This may serve to limit future revenue growth for the industry.”