General Mills' global sweet spotMay 16, 2011: 5:00 AM ET
The food giant's key overseas brand isn't Cheerios. It's Häagen-Dazs. From Paris to Shanghai, it's all about prestige - and churning out growth.
By David A. Kaplan, contributor
FORTUNE -- This twentysomething woman really loves her ice cream -- or maybe she's just between boyfriends. Long brunette hair waving over her dark awaiting eyes, dressed in red chiffon, she's home alone with only a pint of vanilla. The rituals ensue. Her expectant polished lips purse, her hands caress the pint as condensation beads around the rim. With accompanying romantic strings, she speaks in alluring British not heard since Elizabeth II put the moves on Philip once upon a time: "781 heartbeats, 403 rapid breaths, 162 blinks of an eye." Oh my, please stop! No, please continue. The ice cream is "so rich it takes longer to soften into a blissful creaminess -- but the waiting only makes it sweeter." Finally she squeezes the pint to push the ice cream out the top and runs her index finger through the lusciousness, as she gently puts a dollop on her tongue and encircles it with her mouth. Then comes the tag line: "Anticipated like no other -- Häagen-Dazs."
Phew! This 30-second TV spot from General Mills (GIS) -- titled "Sensation," but described as ice cream "foreplay" by one executive -- will soon be airing around the world, the first commercial for Häagen-Dazs ever to play across national boundaries. (It will have different voice-overs to match languages -- including French, Portuguese, Spanish, Mandarin, and Arabic -- and may be toned down in countries like China.) There'll be print advertising as well. Despite varying regional tastes and ice cream products, it's an effort to unite the brand's themes: "indulgence," "affordable luxury," and "intense sensuality," as an internal Brand Character Statement puts it. "While Häagen-Dazs can play on this sensuality in an adult, sophisticated, playful way," the statement explains, "it does so to persuade -- not to shock." Well, the Jolly Green Giant would surely be shocked. So, too, Betty Crocker -- you never saw her making any double-entendres about Betty Crocker Frosting Whipped Butter Cream. The chairman and CEO of General Mills, Ken Powell, loves the sultry Häagen-Dazs ad. "It is where the brand lives," he says.
Managing the Häagen-Dazs brand, celebrating its 50th anniversary this year, is a particular challenge for General Mills (GIS), which has owned it since acquiring Pillsbury entirely in 2001. How General Mills does so is a case study in exploiting a nonpareil niche brand, especially in the burgeoning overseas market. Powell, who oversees dozens of General Mills consumer brands including iconic Cheerios, values both the Häagen-Dazs brand itself and its international significance. "It is a jewel of a brand for us," he says.
With roots dating to the 1860s, General Mills is a low-key multinational based in Minneapolis and isn't exactly known for ad campaigns equating sex and food. Moreover, rather oddly, the Midwestern company doesn't control the product in the U.S., where about 45% of all Häagen-Dazs is sold. All of the company's Häagen-Dazs revenue, in other words, comes from overseas. Nestlé, the Swiss giant, had shared U.S. rights to Häagen-Dazs in a joint venture with Pillsbury; when General Mills bought Pillsbury, Nestlé exercised its right to operate Häagen-Dazs in the U.S. (and Canada) for 99 years -- paying several hundred million dollars for the privilege. (Nestlé declined to discuss financial figures for this story.) So, in the largest market for ice cream in the world -- Americans per capita eat 19.8 pounds a year -- General Mills is shut out from capitalizing on the Häagen-Dazs name or running the new ad. What's more, General Mills is only the fourth-largest player in the global ice cream industry. Unilever (UN), the British-Dutch conglomerate (which owns Häagen-Dazs's main U.S. competitor, Ben & Jerry's) and Nestlé control about a third of the market, followed by Japan's Lotte. General Mills has barely a 2% share. The fact General Mills has done so well with Häagen-Dazs internationally is testament to its own corporate creativity.
High-end, sit-down Häagen-Dazs shops in spectacular locations like the Champs-Élysées in Paris or by the Bund in Shanghai have enabled the brand to have a different aspirational image than in the U.S., where scoop-and-run shops are more of an afterthought to the impersonal retail supermarket and convenience-store business. In aisle 29 you buy a pint of Rum Raisin and move on to eggs and OJ. The Häagen-Dazs shops abroad sell more than scoops. There's ice cream sushi in China, ice cream teppanyaki appetizers in Japan, and a handmade Limited Edition $65 Iceberg Glazed White-Chocolate Holiday Cake in Paris only. Häagen-Dazs shops introduce many locals to the product, but the shops, too, aim to lure you into a mindset, much as Starbucks (SBUX) says $5 buys you a lot more than coffee. It's the reason, for example, Häagen-Dazs is the official ice cream at Wimbledon and the French Open and for all performances at the Royal Albert Hall in London.
Shops bring in less than a fifth of General Mills' Häagen-Dazs revenue but nonetheless are "the physical embodiment of the brand," according to the brand statement. They "provide an ideal environment in which to experience a unique Häagen-Dazs moment." As such moments can cost $79 for a four-person ice cream fondue in France -- dip your gorgeous array of multicolored ice cream balls in warm chocolate sauce, and eat before they melt! -- they're also a sweet way to cash in. They represent a very different M.O. for Häagen-Dazs than Nestlé's in the U.S.
A small take but a vital part
Any U.S. company knows international is where opportunity rests. General Mills, No. 166 on the Fortune 500 and the third-largest domestic food company (behind Kraft (KFT) and PepsiCo (PEP)), had revenues of $14.8 billion last year ($16 billion including revenue from joint ventures), with about 18% coming from international sales. Those sales are about five times what they were in pre-Pillsbury days and have risen an average of roughly 8% a year since 2006. The business consists chiefly of four product groups: cereals (in partnership with Nestlé); snacks (like Nature Valley bars); convenience meals (like Old El Paso and Wanchai Ferry); and Häagen-Dazs. Last quarter alone, earnings rose 18% primarily because of sales abroad. Global Häagen-Dazs sales, in 81 countries, are up 11% for the 2011 fiscal year to date, almost double the growth rate for all General Mills international brands.
Although Häagen-Dazs brings in only half to three-quarters of a billion dollars in sales (the company doesn't disclose the exact figure) -- a fraction of General Mills' overall take -- it's a vital part of the international business. In China alone, Häagen-Dazs last year brought in revenue of about $100 million. In the last three years there, Häagen-Dazs has grown at an annualized rate of 21%. Revenue in France was about $80 million, and in Britain about half that -- both countries with single-digit rates of growth.
Yet numbers don't tell the complete story. As a "superpremium" product, Häagen-Dazs has among the highest profit margins in the company. Just as important, in both emerging and developed markets the brand is a symbol of prestige. In China, for example, Häagen-Dazs products like store-bought "mooncakes" during Mid-Autumn Festival are prized gifts. Some couples in China order Häagen-Dazs wedding cakes costing as much as $2,000.
In a global economy, in which brands now transcend cultures, Häagen-Dazs considers its competition less Ben & Jerry's than Louis Vuitton. General Mills can't claim that about Old El Paso Refried Beans. "If our mindset is competing in ice cream, we fail because we're charging two to three times what others are charging," says David Clark, the vice president and brand steward for Häagen-Dazs worldwide. His is a brand-new position at General Mills headquarters, designed to better coordinate marketing. His father used to run the old Eskimo Pie company in Richmond. While General Mills is a conservative operation with homespun principles, Clark still has to keep his freezer stash of Häagen-Dazs sampling products under double lock and key behind an unmarked door. (It's W3-34 if you're stopping by.) "What consumers value," Clark says, "is the experience we deliver -- the 'for me' experience at home or the 'for us' experience at a shop."
Ice cream is a food category worth $74 billion annually worldwide. It's highly fragmented. But Häagen-Dazs stands out at the premium end. "It's highly differentiated, beautifully positioned across markets -- and with lots of growth opportunities," says the 57-year-old Powell, who's worked at General Mills three decades and made his name as a top executive abroad. (He met his future wife in college when he ran Harvard Student Agencies, which puts out the venerable Let's Go travel guides; she went Europe.) "We can do green tea in Asia, we can do different versions of flavors in Europe -- Häagen-Dazs works everywhere."
What's in a name?
Its very name is an exercise in contrivance. "Häagen-Dazs" means nothing. Reuben Mattus, a 48-year-old Polish-American entrepreneur, came up with it with his wife in 1961. Having served for years in the fading ice cream business of his widowed mother -- he first peddled ice cream pops from a horse-drawn wagon in the streets of the Bronx -- Mattus now wanted to go his own way, with a superpremium brand targeted at adults rather than children. And he intended to charge double or more what ordinary ice cream cost. While other manufacturers battled it out at the low end of an existing industry, Mattus intended to create demand for a nonexistent category.
His dense product was made with butterfat and only real ingredients like eggs and fruit, in contrast to the artificial flavor and bulking agents found in cheaper brands of ice cream. Unlike conventional fare, Mattus's contained little air, or, in the parlance of the trade, "overrun." His pint actually weighed more. It also was intended to be kept at a lower temperature than other ice cream (-23° F), the better to make it firmer and slower to melt -- and someday make TV models have to wait for it to soften into a blissful creaminess.
"Häagen-Dazs," Mattus thought, conferred foreign cachet and evoked the purity of Scandinavian milkmaids. (Never mind the ice cream there wasn't very good.) Early Häagen-Dazs cartons included a map of Denmark, even though the contents were surely made in the U.S.; the umlaut over the first "a" was his idea -- even though Danish knows no such usage. When the product was introduced in France, the French couldn't pronounce it. (Twenty years later similarly faux-Scandinavian Frusen Glädjé came on the market, sold in celebrated, strange white plastic tubs. Although Häagen-Dazs sued for deceptive trade practices, a federal court laughed it off, since Häagen-Dazs was engaged in similar gamesmanship. Frusen Glädjé still disappeared after barely more than a decade.)
Mattus started with only vanilla, chocolate, and coffee. He bought vanilla beans from Madagascar and chocolate from Belgium. The business grew slowly, with Häagen-Dazs available only at gourmet markets in Manhattan and in shops near ice-cream consumption zones like U.S. college towns. In the 1970s national distribution expanded to major supermarket chains and franchised scoop shops coast to coast. Mattus sold the company for $70 million to Pillsbury in 1983.
That year the first international shops opened -- in Hong Kong and Singapore. Two years later Germany and Britain got the first European shops. Today the distinctive Häagen-Dazs logo -- black letters against a white background, with gold trim -- appears in 700 or so shops outside the U.S. and Canada. China has the most, with 112. Then come Spain, France, Mexico, and Japan. There are shops in Saudi Arabia, Israel, Malaysia, Morocco, Turkey, Kuwait, Brazil, and Costa Rica -- and a new one in New Delhi. Says Chris O'Leary, COO of General Mills' international division: "It's our most important single brand outside the United States." Remarkably, virtually all of it for General Mills' foreign markets outside Japan is made in a single French plant -- in the town of Arras. Packages say MADE IN FRANCE, which adds status, particularly for the Chinese, who might be forgiven for wondering why a "Scandinavian" product is manufactured in the countryside outside Paris.
Providing an "indulgent experience"
It is a great thoroughfare of the world. In the 8th arrondissement of Paris, from the Arc de Triomphe in the west to the Place de la Concorde in the east, the Champs-Élysées has history, energy, commerce -- and, amid the stores and bistros, the biggest Häagen-Dazs shop anywhere. Only 40 shops overseas are considered flagships -- in places like Leicester Square in London, Teatro Calderón in Madrid, and City Centre in Dubai. Of those highly prominent shops, the late-night Champs-Élysées is No. 1 in sales.
Opened in 1997, it takes in $9.5 million annually and on a single summer day can sell 15,000 scoops, which doesn't include cappuccinos, sodas, or any of the $16 Nutty Caramel Semi-Freddo ("layers of Dulce de Leche and Pralines & Cream, caramelized hazelnuts, and butterscotch sauce on a base of ladyfingers -- for one person"; please declare your extra weight at customs). That $9.5 million is as much as 25 times that of a small Häagen-Dazs shop elsewhere in Paris. As in many countries, of Häagen-Dazs's roughly $80 million in annual revenue in France, about a third comes from shops. The rest comes from sales of pints and mini-cups in such large supermarkets as Carrefour, as well as from distribution partnerships with the likes of Air France, the National Opera of Paris, and various hotel chains ("Hello, room service?").
The raison d'être of the glass-fronted Champs-Élysées shop is the 200-seat sidewalk café along the avenue; from here you can watch up close as eight lanes of Parisians drive like Bostonians. There are burgundy Häagen-Dazs-logoed umbrellas and, of course, haughty serveurs. On a sunny spring afternoon, I'm here for Fortune conducting intensive research. I, of course, fail to order the correct bottled water -- to go with my Banana Caramel Crêpe. Mon Dieu! When the weather's good, many of the shop's patrons, a million a year, will spend 45 minutes on a festive dessert -- and drop $30 a head. Inside is a traditional scoop operation -- with lines out the door some evenings; Macadamia Nut Brittle is most popular. On the second floor is a dining area -- and above that, the "ice bäar," a fluorescent-lit purple VIP and party space, complete with booze, bouncers, and some ice cream too.
While cash flow's terrific, it's the strategic benefit of the shop that's key. It's about brand awareness and image. "We provide an indulgent experience," says Olivier Faujour, the new president of General Mills France. "But in France the competition is broad if you talk indulgence, where people are very demanding." (Faujour is a great marketing man. At one of Paris's hot new restaurants, he urged me to order the steak tartare. I did. Then he got fish, cooked.) "There is a mystique about this particular Häagen-Dazs shop," says Isabelle Moynier, the marketing director of General Mills France. It's where Rafael Nadal came in every night a few years ago during the French Open to order a triple scoop of Cookies & Cream. He won.
It's all about the mooncakes
For all the macadamia nut brittle of Paris, though, it is in an emerging market like China where General Mills most salivates. It is here that every Häagen-Dazs executive says the potential of the brand lies. General Mills says it expects sales in China, with its population of 1.3 billion and ascending middle class, to triple and to account for fully half its international growth over the next five years. Last year Häagen-Dazs's revenue was a third of General Mills' total in China -- but half its profit there. Understanding the inimitability of Chinese culture -- you're not in Paris anymore -- is essential to Häagen-Dazs's mission.
The brand arrived only 15 years ago, yet China is already its No. 2 foreign market, behind only Japan. Unlike in other countries, about 80% of Häagen-Dazs revenue in China comes from shops. That's because grocery stores typically stop carrying most ice cream during winter, when demand wanes. Freezer space in Chinese homes is also limited, and refrigeration in stores isn't up to Häagen-Dazs's chilly standards -- so much so that it has installed 5,000 of its own freezers, at $15,000 apiece, around the country.
So Häagen-Dazs for the moment is a shops-driven business, all the more so during the lunar year when the mooncakes come out. No less than 28% of Häagen-Dazs's China revenue is from mooncakes, according to Gary Chu, the company's Rutgers-trained president of Greater China. As the business matures, retail will grow. "You start in the shops to build a brand image," says CEO Powell. "As you get traffic and people recognize the brand, you start advertising and putting the product in retail outlets."
In Shanghai's 12 flagships, you quickly learn, thank goodness, that it's not really "sushi" ice cream. Nobody's mixing bluefin tuna in with Chocolate Chip Cookie Dough. But the popular dish is an example of how Häagen-Dazs encourages what O'Leary calls "local interpretation." Costing about $11, sushi ice cream consists of four dishes served on a square lacquer plate. It's meant to look like the Japanese cuisine called kaiseki, which is a series of exquisitely arranged bites of fish, meat, and vegetables. At Häagen-Dazs the dishes are a fruit plate; red-bean cake; sweet red-bean soup -- and three scoops of vanilla, strawberry, and green tea. The "sushi" effect is achieved by wrapping each scoop around the edge not with seaweed but with a layer of chocolate.
One of the flagships overlooks Xintiandi, a bustling dining and retail spot in the center of Shanghai. The place to be is the café upstairs, where waitresses wear berets and claret-colored dresses. Young couples linger here. It's a place to show your love. The menu has a single word on the cover: "indulgence," naturally. Taking in all the indulgence around him a few weeks ago, Chu says the target audience for Häagen-Dazs is 25-year-old women, who come to indulge themselves or have their boyfriends indulge them. They should have their wallets at the ready: Soft-serves at the nearby McDonald's costs 45¢. Here a single scoop of vanilla is seven times that.
Chu likes to recount a local newspaper story about the young woman with a boyfriend who refused to take her to a Häagen-Dazs shop because it was too expensive. Whereupon, as she told the paper, "I dumped him." Chu's eyes widen. He beams. In her he sees the future. "Now that," he says, appreciating those who appreciate the finer things in life, "is the kind of customer we want." Maybe that's her in the new TV ad.
--Fortune editor-at-large Bill Powell contributed reporting from Shanghai. He and his daughter also ate a lot of ice cream there.
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