Frederick's Dairies admits Loseley interest

By Ben Bouckley

- Last updated on GMT

Related tags Ice cream Milk

Premium, own-label ice cream makers are struggling with high input prices and low margins
Premium, own-label ice cream makers are struggling with high input prices and low margins
Frederick's Dairies says it could be interested in buying parts of South Wales ice cream firm Loseley, after a media report this week stated that private equity backer the Foresight Group had stopped funding the company.

It was reported in The Grocer​ that Foresight had decided not to invest in the luxury ice cream producer; Loseley posted losses of £4.7m for the year to March 2010, based on a reduced turnover at its legacy Hill Station business.

Lancashire-based Frederick's and Somerset firm Lovingtons were two ice cream players rumoured to be interested in a possible takeover, and Frederick's deputy md David Taylor told the business was of interest, although he took "no pleasure"​ in any problems Loseley faced.

“We wouldn't look to buy the business in its entirety – and it’s had its problems over the past few years in various guises – but clearly as a competitor then we could be interested in parts of the business: people or kit, although not the site itself.”

Phil Jackson, head of food mergers and acquisitions, Grant Thornton, said: “The business has been around a long time, and been under different ownership, but it has always struggled, despite different people trying different things with it."

Rising cream and sugar prices

Taylor said Frederick's predicted recent cost hikes for inputs such as cream and sugar at an early stage, and had also considered the business impact of the recent VAT increase well before time. Meanwhile its branded focus (around 80% of volumes) meant higher margins.

However, he said that due to no fault on the part of current management, Loseley had spent recent months “struggling to simply stay alive”​, was unable to hedge on commodity prices due to its smaller size, then got hit latterly by price increases.

Jackson said these problems mirrored those of the ice cream market as a whole. “You only have to look at the number of ice cream firms that have gone bust in recent years, in what is a highly cyclical market,” ​he said.

Not only were producers facing cost pressures due to high commodity prices, he said, they are also “being beaten down by the supermarkets”​ due to promotions and low margins.

Niche players struggle

Julian Wild, corporate finance partner, Rollits, said: “Premium ice cream has a chequered history, and it’s difficult to make money in a market dominated by the major players such as Unilever and R&R Ice Cream.”

“When you’re a niche, premium player it’s hard to compete. It’s heavily seasonal and you need to be a big volume player. However, it is an area where it’s pretty easy to lose money. I hate to say this, but there are a lot of bodies buried in the ice cream sector.”

Speaking to back in February​, Loseley md Neil Burchell (the former boss of Rachel's Organic) told that he feared heavy discounting by retailers attempting to keep a lid on inflation, as well as low margins.

"Some of the premium brands in ice cream are indulging in some very aggressive promotional activity and the fear I have is that it will drive the ice cream market into the same position as the cheese market. That's very damaging and I do question whether it is prudent," ​he said.

Neither Loseley nor the Foresight Group were available for comment as we went to press, while Lovingtons refused to comment.

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