With a two-litre tub of vanilla and some 'creative pricing' Tudor Dairies has taken a large scoop of the British ice-cream market.
Neil Smith may have spent the best part of his working life in New York, but his recollection of the day he bought his own company, back in the old country, is still doggedly coloured by that most hardy of British perennials: the weather. 'I was staying in a little guest house up the hill,' gestures Smith, abstractedly, 'and I woke up the day before the MBI (management buy-in) actually came through to find nine inches of snow on the ground. By the time the great day itself arrived, we were completely snowed in. I had to plough my way across the fields to get here at all. A foot and a half of snowdrifts', Smith grunts, 'and I'd just bought myself an ice-cream manufacturers.' And that was the good news. The day before, on 10 February 1991, interest rates had peaked at 16% - not, perhaps, the ideal circumstances for a buy-in ingeniously (or so it had seemed) financed entirely on bank debt rather than institutional equity. Then there was the little matter of raw materials for Tudor Dairies' - for such was the name of Smith's happy acquisition - main product line. Thanks to the collapse of sterling against the Deutschmark and the gymnastic cavortings of the EC agricultural green pound, the price of raw materials for non-dairy ice-creams had risen by 50% more or less overnight. A dark moment? Smith snorts: 'Before I found Tudor, I'd turned down a used tyre company and nearly put together what would have been the biggest MBI ever done out of Manchester, a £39-million car alarm business,' says Tudor's new chairman. 'I'd been living on my savings for two years while I looked for something to buy. After six months, friends say, "Is everything OK?" After a year, they stop asking. What do you think?' Galling enough for mortal man, but wormwood for a Harvard Business School graduate and ex-New York McKinseyite such as Smith. Before you reach for the tissues, however, consider the rest of the story. Within six months of buying Tudor Dairies from food giant UB Ross Young, the firm had converted its typical operating losses into a £500,000 profit. It also found itself in a position to pay off its buy-in debts - 'I'd said to Ross that I would like them to leave some money in the business,' notes Smith, with a gift for euphemism of which you shall hear more later - and had managed to get its product into all the major British retail food multiples, including Asda, Sainsbury and Iceland. That year, Tudor's turnover topped £5 million. The latest figures will show that to have more or less doubled, making it the fourth biggest ice cream manufacturer in the UK.
All this suggests that, appearances to the contrary, HBS graduates don't play hunches. Smith, with his US experience of what he calls 'the most advanced ice-cream eating country in the world', is emphatic that he had merely taken the trouble to read the runes for British ice-creamdom. 'Until 1988, people in the UK thought of ice cream as something you had a scoop of with hot apple pie,' says Tudor's chairman. 'It was Mars' launch of the frozen Mars Bar that really changed things over here. It was also the first time a single ice-cream product had crossed the 50p barrier. Anyone could have seen what was happening if they'd looked hard enough.' Indeed, various players on what was then Smith's side of the Atlantic - most notably the American luxury ice-cream makers, Haagen Dazs - did just that, and opened British operations.
Now, all of this might lead you to expect that Smith's first action on taking over at Tudor's half-timbered Henley-in-Arden HQ would have been to hire a bevy of nude models, smear them in Marshmallow Parfait and splash them across the advertising pages of Arena in positions suggestive of post-coital exhaustion. Nothing could have been further from the truth. In fact, Tudor's prime target - and subsequent major earner - has been the resolutely prosaic two-litre tub of vanilla, mass marketed on an own-name basis to the previously mentioned multiples.
Smith's managing director and fellow HBS alumnus, Ron Moore, explains the reasoning behind this apparent bid for commercial suicide. 'First of all,' reasons Moore, 'bulk vanilla accounted for something like 80% of the British market, so it was an obvious place to go. But, at the same time, we saw that everyone after Mars was busy concentrating on developing confectionery-type ice creams, which meant that our competitors were taking their eyes off the ball to look at sexy products.' Moreover, recent Milk Marketing Board research had pointed to the specific role of the two-litre tub - thanks to the unexplained demise of the chest freezer - as bulk vanilla's most likely new mother lode. (Indeed, sales by volume of that commodity did increase by 30.4% between 1991-92.) The final piece in this unlikely commercial jigsaw was provided by the continued economic recession. 'Mars changed the way the British saw ice-cream,' says Neil Smith, 'but many of the premium brands, the three-quid-a-litre stuff, were simply too expensive for a lot of people. That meant that sales of economy ice creams were going to pick up on the back of the premium dairy brands.' This was only part of the story, however. At least as productive was what Smith - a master of the business school euphemism - refers to genteely as Tudor's capacity for 'creative pricing'. In Smith's rendition of events, Tudor's buy-in team generously elected to 'work with suppliers on creative ways to cut prices, offering loyalty in return for cost cuts'. Moore's version is altogether less fine-boned. 'We said to suppliers, "We want whatever prices you were giving Ross last year - less five per cent". Most of them said "yes" in the end. When our gas company didn't, we said sorry and converted to oil.' Distribution costs - an ice-cream manufacturer's bane - were also slashed by dint of farming out deliveries to locally based hauliers.
In any case, Smith, Moore and sales and marketing director, David Rapkins, were able to pull off a commercial coup that, in financial terms at least, made unclothed models smeared in ice-cream seem positively prudish. At a stroke, Tudor offered to lower the multiples' price-point on the ubiquitous two-litre vanilla tub by20%, from £1.49 to an emotive 99p - an offer that was, not surprisingly, rapidly taken up. With eyes (and budgets) still mesmerised by Haagen Dazs' acres of chilled flesh, response from competitors to this piece of creative pricing was, says Moore, 'initially quite slow. They didn't take us seriously.' An even more appalling summer than usual has changed all that, however - 'Our sales are still increasing and theirs aren't,' notes Moore, happily - as witness the recent ice-cream wars in British multiples. (Two litres of Sainsbury's best budget vanilla is now down to 95p, for example). 'Things', admits Tudor's MD, 'are getting hot in the two-litre kitchen.' But, as he also points out, 'We've got our feet firmly under the table, and now we can look for other things to do as well.' Just what form these might take is a matter of understandable concern at Henley-on-Arden. On the one hand, Moore is an understandably avid exponent of another prosaic Tudor standby, the hardy raspberry ripple brick. ('The market tried to kill it off,' he says, 'but it refused to die.') On the other, Smith - who still spends half his days in New York looking for likely licensing ventures - is clearly attuned to the merits of confectionery products as a way forward. One recent likely candidate appeared to be an American comestible consisting of an ice sandwiched between what Smith describes as 'two cookies'. That Tudor eventually rejected this calorific goody nicely illustrates its chairman's own distinction between ice-creams that pose as what he calls 'fashion products' and those less fickle articles described as 'commodities'.
Into this latter category certainly falls Tudor's revived Henley brand, a 'premium' ice-cream (ie, one that, risibly enough, actually contains both ice and cream as opposed to aerated vegetable oils), sold from Tudor's picturesque headquarters since 1893. Smith's team have resuscitated Henley's original recipe - adulterated for reasons of economy during Ross's tenure of the firm - and nostalgic Brummies now once more queue for cones along Henley-on-Arden High Street on Saturday afternoons. More to the point, the company has also been appointed sole purveyor both to various local National Trust properties and to the Royal Shakespeare Theatre at nearby Stratford-upon-Avon. Tudor's chairman seems satisfied with this role as a de facto Heart of England Haagen Dazs, although both Moore and Rapkins clearly feel that the brand has potential national appeal.
One thing over which there is no debate, however, is the need to find a new product - not necessarily ice-cream based - to counteract the vertiginous seasonality of Tudor's sales graphs. 'The trouble with being good,' Moore remarks, 'is that it makes your peaks peakier, which makes your troughs troughier.' While take-home ices do not suffer from the alpine fluctuations of so-called 'hand-held' products - 'You don't buy a Mr Whippy at the Christmas fair,' observes Moore - seasonality is still a generic problem for ice cream manufacturers. As Smith points out, there is no particular reason why this should be so - 'The world's biggest eaters of ice-cream are the Russians, and it gets cold there, too' - and Smith has taken on the British weather before, and won.