Affordable ice cream is back, but summer is long over

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1. Confidence is gone

In 2022, in Daqiao Town, Jiaxing, Zhejiang, a small town with a population of 50,000, the convenience stores, cold drink shops, and supermarkets along the street all want to squeeze out 1-2 square meters in the already cramped space to place a Zhong Xue Gao freezer.

The threshold for investing in a freezer is 2,800 yuan, and the profit from a bottle of Zhong Xue Gao is about equal to that of 20 small puddings. In addition to bringing huge profits, a full freezer of Zhong Xue Gao also symbolizes the strength of a cold drink shop.

As the biggest variable in the Chinese ice cream market in the past few years, Zhong Xue Gao has achieved 1.3 billion yuan in sales of ice cream in its peak year of 2021. This brand that emerged out of nowhere has profoundly changed the ice cream industry, and a once unimaginative and hard business has become sexy.

No one wants to miss the opportunity to increase profits. From 2022 to 2024, Moutai, Ferrero, Mars, Mondelez International, etc., which sell liquor, chocolate, candy and biscuits, all want to share the ice cream market of more than 10 yuan. Even Yili and Mengniu, which sell cheap ice cream, have launched high-end lines such as Xu Jin Huan and Dilan Sheng Xue.

But Zhong Xue Gao's performance took a sharp turn for the worse in the summer of 2022, and no matter how beautiful the story was, it was no longer useful.

The data also shows that the ice cream market has returned to the era of affordable prices. In April and May 2022, Zhong Xue Gao, whose market share was second only to Yili, Unilever, Mengniu, and Nestlé, began to lose ground and completely withdrew from the CR10 stage after November 2023. Among the top ten ice cream brands in the domestic market share in the first half of 2024, only five brands saw an increase in share, namely Dehua, Tianbing, Yili, Guangming, and Mengniu, all of which focused on affordable products.

Data source: Ma Shang Ying; Chart: 36Kr

The top two brands have their own origins. Dehua from Yingkou, Shandong, started out with 2 yuan hand-wrapped red and green beans. This year's new product "A Bunch of Grapes" looks like a bunch of grapes and is priced at 4 yuan, which is very popular among consumers. Henan Tianbing, which has a history of 38 years, sells ice cream at 1-3 yuan, which is very affordable. Together, they are snatching business from Unilever, Nestle and other ice cream giants, whose products are generally more expensive.

It’s not that people don’t buy ice cream anymore, they just don’t want to buy expensive ones. “If we only look at the per capita consumption, there is not much change, but the average customer spending has dropped, so the overall terminal data is declining.”

The ice cream market is already oversupplied, this is the view expressed to us by several distributors. Price slashing and cross-selling are common, and "clearing inventory" has become an unavoidable reality for ice cream people in 2024, even for big brands.

2. Ambition and Frustration

After Zhong Xue Gao withdrew from the market, some people still wanted to create "Zhong Xue Gao", and Mars Group is one of them.

As a consumer goods giant with an annual revenue of 50 billion US dollars, Mars is known as the "Procter & Gamble of the food industry." Chinese consumers are a little unfamiliar with "Mars", but they must have heard of their products: Dove, Wrigley, M&M's beans and Snickers.

In the past few years, the zero-sugar trend has swept the world, and candy and chocolate have become a sweet burden. The sugar chocolate market has also become a market that is predicted to be in decline. The famous Hershey withdrew from the Chinese market in 2022. Meiji, Ferrero, and Mars have all begun to explore possibilities beyond chocolate, and have all chosen to sell ice cream.

At the end of 2023, Mars Wrigley China held a grand ice cream strategy meeting for 2024. The CEO and VP of the China region were all present, as well as distributors who had worked with Mars Wrigley for a whole year. There were nearly 200 people in attendance.

Outside the venue, two giant M&M dolls stood in front of the welcome sign, holding a small sign that read "Chocolate Master Crosses Over to Ice Cream". The venue was magnificent, with a small plate of Dove ice cream on each table. Everyone present was full of confidence in the ice cream.

In 2023, Mars' Guangzhou Yonghe factory, which cost 500 million yuan, officially went into production, realizing the "localization" of ice cream. Within Mars, this year is called the "first year of ice cream in China." 2023 is also the first year of M&M's ice cream on the market. This ice cream cup with a retail price of 18.9 yuan has two flavors: milk and chocolate. The big screen clearly reads: In the first year of listing, the total number of cups sold is about equal to 5 Mount Everests.

Zhang Yu was originally working in other businesses of Mars. At that strategic conference, the company made a special ice cream display, and he realized that "the company was starting to focus on ice cream." At that time, the company was recruiting on a large scale, and Zhang Yu judged that compared with Mars's core business of candy and chocolate, ice cream had more room for growth, so he also transferred to another position.

The wealthy Mars has also poached dozens of people from companies such as Yili, Wall's, and Nestlé to specialize in the ice cream market. These candidates understand ice cream and also understand the Chinese market better.

Mars, which is "localizing" ice cream, has made its first move by selling ice cream at a higher price than Zhong Xue Gao. M&M's ice cream costs 18.9 yuan, Dove Classic ice cream costs 14.9 yuan, and the cheapest crispy rice ice cream costs 9.9 yuan.

High-end products are attractive enough in themselves. As long as you can find customers for high-end products and sell them, the profit margin will be high enough, just like selling clothes and shoes. For the same rent, selling luxury goods will definitely make more money. An imported ice cream trader used moving bricks to compare selling ice cream. Selling low-priced ice cream is like moving cheap bricks, while selling high-end ice cream is like moving gold bricks.

Zhang Yu also agrees with the company's high-price strategy. After all, Mars' Tangqiao brand has been deeply rooted in the hearts of the people. "On the one hand, going for the high-end price band is differentiated. After all, only a few companies dare to set such prices in the market, such as Zhong Xue Gao before. On the other hand, it also leaves more room for price reduction in the future - this is how people's psychology works. If the price is set very low at the beginning, it will be difficult to increase it later."

Unlike the fledgling Zhong Xue Gao, Mars has a solid foundation. Mars is well-known in the industry for its strong channels and strong execution, and the Wrigley gum that has been placed next to the cash register for decades is a concrete manifestation of this.

Mars is also not relentless in spreading ice cream into channels. Mars Wrigley's ice cream specializes in convenience store channels, and has corresponding activity budgets for each type of convenience store. In East China, the larger FamilyMart and Lawson have at least two activities every month, the smaller 7-11 has almost one activity per month, and the smaller Liangyou and Kuaike have one activity every two months.

If Mars wants to enter a convenience store system, each SKU needs 20,000 yuan, but if Zhong Xue Gao wants to enter the market, the cost is much higher than this. "The point is not how much money is spent, but if you are a big brand, no channel will refuse to talk to you."

Sister Huan, who used to be a distributor of Zhong Xue Gao, is now also a distributor of Mars. One of Sister Huan's judgments is that after Zhong Xue Gao withdraws from the market, its share may be divided up by imported brands and high-end brands such as Mars, but this is also a rapidly shrinking market.

Mars, which has been aiming high, has indeed achieved a sales jump. 36Kr learned that in 2022, the scale of Mars' ice cream business in China was 40 million, and in 2023 it reached 200 million, a five-fold increase in performance in one year. Mars confidently set a target of 498 million for 2024.

But in this year's market, this goal already seems radical. Zhang Yu left Mars Wrigley China in May this year. He said: "The company is moving too fast. Judging from the situation in Q2, it is certain that the goal will not be achieved."

Mars has also realized the change in market trends. This year, one of its new products is a Dove ice cream with Wrigley, which is a joint product of its two strong sub-brands. However, the price is much lower than the new product of the previous year. The retail price is 9.9 yuan, and it only costs 7.9 yuan in convenience stores.

Pessimism about the Chinese market is spreading among peers. Ferrero, a chocolate giant like Mars, publicly stated in September last year that "Ferrero Group is actively evaluating the appropriate time and appropriate way to bring ice cream to China." In July this year, a Ferrero insider told 36Kr: "We do want to bring ice cream to China, but not so quickly."

3. Self-rescue of ice cream manufacturers

Unilever is the world's largest ice cream company, which has been selling ice cream for 100 years. Its brands, Wall's, are deeply rooted in people's hearts. But in 2024, ice cream has become the lagging business of the world's largest ice cream company.

On March 19, 2024, Unilever announced that it would split its ice cream business into an independent business, which is expected to be fully separated by the end of 2025. It also plans to lay off 7,500 employees worldwide, which will save it a total cost of 800 million euros in the next three years.

Li Jian, a Wall's salesman, feels that the content of work is changing rapidly. Six regions have been merged into five. The regional managers who were originally responsible for Shanghai and Zhejiang are now responsible for Jiangxi, Shanghai, and Zhejiang. People who were originally responsible for only 30 customers are now responsible for 40 or 50 customers. Everyone's workload is increasing.

People's hearts began to waver. Li Jian sent many of his colleagues away. One third of the colleagues who joined at the same time have already left, and most of the remaining ones are looking for opportunities, including Li Jian himself. "The business is going to be split up, and the performance is not good."

Internal employees tacitly believe that the spin-off of the ice cream business means greater autonomy and more localization, and that "Wall's China will become more like Yili."

Li Jian gave an example from the sales perspective. When he first joined the company two years ago, there was no such thing as "punching in" with dealers.

The so-called clocking in means that salespeople check the inventory in the dealer system regularly. Yili’s salespeople have to clock in every week or even every day, just like going to get off work. When Li Jian visits dealers, “Occasionally, I can always see Yili salespeople sitting there.”

Since the end of last year, Wall's has also started to require salesmen to "punch in". Salesmen need to locate at the dealer first, enter their inventory into the system, and track at least three times a month. The company's requirements are getting more and more, including morning meetings, checking inventory, walking the market, and standing in stores for two hours on weekends.

The task is becoming increasingly difficult to complete. "In the past, we could complete monthly sales on the 10th or 15th of each month, and even help other regions digest inventory." By May and June 2024, even if we work hard until the end of the month, we can only barely complete it.

The turnover rate of salesmen often reflects the performance pressure of a company. Li Jian's region is recognized as a "good market", and a lean camel is bigger than a horse. The less bonuses colleagues who fail to complete the sales target get, the less motivation they have to complete the sales, and they eventually choose to leave.

The salesmen who stayed had to rack their brains to complete the sales. Sister Huan has experienced this kind of helplessness. Some brand salesmen played the emotional card, "Sister, please help me. If you don't help me complete it, I will lose my bonus this month."

What impressed Li Jian the most was that when he pulled out the dealer's backend system, he found that the best-selling products this year were low-priced products such as salt water popsicles, red bean popsicles, and mung bean popsicles. Evergreen products such as Cornetto and Magnum might not even be among the top 10 in terms of shipments.

This was also confirmed by the financial report for the first half of 2024. Unilever summarized the performance of its ice cream business as a "disappointing start": basic sales increased by 0.6%, prices increased by 1.6%, and sales volume decreased by 1%. Unilever specifically pointed out that the Chinese market is full of challenges, especially the sales of Cornetto were adversely affected by the decline of the Chinese market.

Yili was one step ahead and started to clear inventory. In May this year, Yili issued a notice: suspending the supply of Chocolatier bars to customers in Jiangsu, Anhui, Zhejiang and Shanghai. Distributors and sales explained to 36Kr that this was forcing distributors to clear inventory.

The shelf life of Chocolatier is 18 months. Last year’s inventory had not been sold out by May this year, and will basically expire in July or August.

Consumers are sensitive to dates, so dealers prefer new products that move quickly, and old products stored in the warehouse become older and cheaper, and eventually given away for free. The resulting problem is a chaotic pricing system, and new products are difficult to sell, which is something that brands don't want to see.

A dealer explained that the suspension of supply, on the one hand, is to limit supply so that dealers can digest the inventory in their hands first; on the other hand, it also means hunger marketing, forcing dealers to take goods, and often there will be requirements to order new goods and match old goods.

Soon, Wall's also made adjustments. Li Jian said that for high-priced, slow-moving products such as the 13-yuan Magnum and the 9-yuan Cornetto, the company would tighten production capacity to a certain extent, and also listed a bunch of items that were sold out while supplies lasted.

Wall's also cut many high-priced SKUs and streamlined SKUs. "Last year, there were several flavors of the Heart Snow Cup and the Knock Knock Cup. This year, the production line of the Heart Snow Cup was directly cut. The Knock Knock Cup was originally sold for 16 yuan, but it was adjusted to 13 yuan. The original three flavors have become one flavor."

This year, Wall's new products also include water ice with low customer unit price, such as the new flavors of green plum wine and duck shit lemon juice in 2024. The ice cream online distributor "Rongyao Food" shows that the price of a single stick is 3 yuan, and the discounted price of 5 sticks is 13 yuan. The customer service said that the production date of this batch of goods was November last year.

Screenshot from Taobao's "Glory Food"

The tasks of dealers have also become flexible. "In the beginning, we gave a few discounts. If it was not enough, we gave more discounts in the second quarter. We first adjusted the quarterly indicators, and then adjusted the annual indicators."

Li Jian gave an example. A dealer's contract was for 1 million yuan. After half a year, only 500,000 yuan was sold. If the discount was not reduced, there would still be 500,000 yuan. This year's peak season is coming to an end. The dealer simply gave up, which would drag down the brand's sales. It would be better to give a 20% discount. After the discount, only 300,000 yuan would be sold. There is still hope if you work hard - just like an exam. Before, 60 points were required to pass, but now it is adjusted to 50 points. Everyone has more motivation to work hard to pass.

It is unrealistic to grow every year. Huanjie feels that "most brands have been educated by the market this year. At the beginning of the year, they were ambitious and felt that the team could achieve the set goals. Now many brands have either stopped production or reduced tasks."

It is undeniable that no matter how great the pressure is, Yili and Unilever have taken more than 40% of the ice cream market share, and Zhong Xue Gao's situation is even more difficult.

Last year, Li Jian met someone from Zhong Xue Gao while on a mission. "The salesman left, and there was only one leader left in the entire region. When the leader was in the market, he talked to dealers about brand concepts and materials, but the dealers didn't care about these things. They only cared about the size of the box, the purchase price, the selling price, and how much the manufacturer could pay me. They didn't care about the ingredients, as long as they could sell it."

Later, the regional leader of Zhong Xuegao also left, and a former Zhong Xuegao salesperson became Li Jian's colleague and worked as a tally clerk at the Walls Third Party Company.

IV. Inventory, group buying, and “sewer”

In the eyes of dealers, they are the ones who help manufacturers build their business. When the market is good, the brands get the meat and they drink the soup. When the market is cold, the tension between dealers and manufacturers becomes tense.

Yili's cold drink business is a small but fast-growing business in Yili's business empire. However, after reaching a peak growth rate of 33.61% in 2022, the growth rate dropped sharply to 11.72% in 2023. The main reason for this is that Yili's affordable ice cream business is being eroded by other "cheaper" competitors.

After more than ten years of cooperation with Yili, Liu Min decided to give up the cooperation in 2024 as she felt she could not bear the weight of the task.

In 2021, the target was 700,000, in 2022 it became 1 million, in 2023 it rose to 1.5 million, and in 2024 it will continue to rise to 1.7 million. "It feels like the population has soared very fast in the past few years." From 2021 to 2024, the population of Liu Min's small town in Miyun, Beijing, increased by 10,000 people, but her task became 1 million heavier.

Of the goods in Liu Min's hands, Yili accounts for far more than 50%. Not doing Yili is equivalent to losing more than half of her business. However, Liu Min is helpless: "If we continue to do it, we will have to hold back the goods, and we can't afford it." If you don't have money, there will be a group of people with loans waiting for you at the ordering meeting; if you don't purchase goods, the money has already been transferred to the brand account anyway; if you have inventory, you will have to bear the extra storage fees yourself after shipping.

Of course, Liu Min could also choose to give up leverage and be conservative, but strong brands can always find people willing to pay, which is equivalent to handing over their own market to others, which is also something that old dealers are unwilling to accept. "Indeed, we took a big step and lost the bet."

After giving up being a Yili distributor, her cold storage was still filled with more than 400 Yili freezers and thousands of boxes of Yili products.

Manufacturers need sales, and dealers need to sell their inventory as quickly as possible. The goods are transferred back and forth between dealers, the dates are getting shorter and shorter, and the prices are getting lower and lower. The three-yuan Zhong Xue Gao eventually became more than two yuan, more than one yuan, and finally appeared online at an unexpected price.

Local group buying, live e-commerce, take-out... Using new channels to clear inventory has become a new option for dealers. The sales data of Douyin ice cream in the first half of 2024 showed that sales increased by 97.8% compared with the same period last year.

"Ice Cream Diary", who has over 500,000 followers on Douyin, is one of the few top KOLs in the ice cream industry and runs an ice cream shop. Since he started shooting ice cream videos in 2021, he has witnessed almost all the changes that have taken place in the ice cream industry online. He told us that group buying has disrupted the market to a great extent in the past two years.

For example, the purchase price of Magnum is more than 5 yuan, but it is sold at 4.99 yuan during group purchase. The purchase price of Chocolatier is around 1 yuan, but it is directly sold at 9.9 yuan during group purchase. Both are sold at a loss.

"Ice Cream Diary" is well aware of the traffic rules. Don't post videos of unknown brands because no one knows them. But if a bottle of Zhong Xue Gao is sold for 5.9 yuan or 4.9 yuan, everyone knows how cheap it is. "If you do group buying, what do you do if the brand is unknown to consumers?"

An employee of Wall's said: "Last year, group buying had a huge impact on the price system, and the company set up a special team to investigate." Even so, there is one situation: if 10 Magnums and 10 Zhong Xue Gao are sold together, who can tell whether the price is reduced by Magnum or Zhong Xue Gao?

Photo by 36Kr

Sister Huan has started two new projects this year. One is e-commerce. "Isn't it okay to put two sticks in each package and give them to customers as a favor?" Sister Huan's other project is an ice cream vending machine. "Vending machines don't require much labor costs. Businesses that don't require communication with people are the simplest."

Ice cream freezers can be seen everywhere, including buses, bookstores, laundries, flower shops, and express delivery stations. Distributors are trying every means to open up new channels and new scenarios, and freezers can be found in many unexpected scenarios.

Sister Huan said that this is a "sewer" to clear inventory. In a shrinking market, if you still have the same small piece of land, your size will also shrink, and you will definitely not be able to support the team, and you will lose money at the end of the year. "To put it bluntly, I am also stealing other people's cakes. The market forces us to move forward."

There are still some new channels that are growing. Salesperson Li Jian clearly feels that colleagues working in new channels have an easier time completing tasks, such as snack shops and discount stores.

However, the snack discount stores are snatching the business of traditional channels, and the supply prices are also low, which is not a good thing for brands. "You have to seize the business of new channels, because if you don't do it, others will."

The return of affordable ice cream is the result of consumer voting. In a mature market, there will always be products of various price ranges, but in the past two years, high-end products have surged, and supply has far exceeded demand, becoming the "assassin" that everyone wants to kill.

After Zhong Xuegao fell, there are still people who miss it.

But for a long time in the future, there will not be another Zhong Xuegao.