The Emperors of Ice Cream

Is there any better way to celebrate July as National Ice Cream Month than by starting up a food fight? With Nestle's(Nasdaq: NSRGY) Haagen-Dazs and Unilever's(NYSE: UN) Ben & Jerry's scooping it out for ice cream supremacy, where does your loyalty lie? Not all Fools agree. Jeff Fischer (TMF Jeff) is a fan of Ben & Jerry's while Rick Munarriz (TMF Edible) favors Haagen-Dazs on his plate. Don those bibs. It's about to get messy. 

The Ben & Jerry's Argument
By Jeff Fischer (JeffF@Fool.com)

You wouldn't know it from Ben & Jerry's website, but the popular "small town" ice cream maker is actually owned by Anglo-Dutch giant Unilever(NYSE: UN), since it purchased the $12,000 upstart for $326 million in 2000.

With $56 billion in annual sales, Unilever's top brands include Hellmann's and Lipton, so Ben & Jerry's is only a small part of Unilever, but ice cream is a billion-dollar product line. What makes Ben & Jerry's so popular? Must you really ask?

The company's dozens of ice cream flavors are so unique that direct competition literally doesn't exist. There is no real alternative to Ben & Jerry's popular "Phish Food" or "One Sweet Whirled" flavors. And even simpler recipes such as "Chocolate Fudge Brownie" and "Mint Chocolate Cookie" taste better than competing products, partly because Ben & Jerry's uses the best ingredients with an eye to health and the environment.

Additionally, in what has become a much-anticipated event, Ben & Jerry's rolls out new flavors every year, reliably generating new sales and renewed marketing vigor, while phasing out slower-selling ice creams to maintain costs. It's a brilliant strategy that keeps the brand fresh and focuses on maintaining best-sellers over the years, while seamlessly phasing out laggards.

It's hard to get detailed financial results for Ben & Jerry's because Unilever absorbs them, but in 1999 sales were $237 million and profits were $13.5 million -- and the company had donated 7.5% of its pre-tax profits to charity. Today, Ben & Jerry's continues to be heralded for its charitable work, its employee relations, and its role in local communities and worldwide causes.

Unilever itself is a giant mother, with $3.7 billion in net income last year (or $3.78 in earnings per share) and an expected $4.40 in earnings per share this year. Trading at $53, the stock is priced at only 12 times forward earnings estimates, while it offers a dividend yield of 3.36%. That's pretty sweet for a healthy operation selling dozens of top consumer products.

Plus, Unilever's business created $5.5 billion in 2002 free cash flow (operating cash flow minus capital expenditures). The whole business (as measured by enterprise value) is priced at only 7 times that free cash flow -- a low multiple by any measure. At this price, investors who love Ben & Jerry's delicious flavors might consider owning a piece of the business, too.

The Haagen-Dazs Argument
By Rick Munarriz (TMFEdible@aol.com)
 
You know that low-maintenance girl next door with that radiating glow of natural beauty? That's Haagen-Dazs, folks. Ben & Jerry's is that prissy girl from the other side of town with hours of caked-on makeup. Did I lose you already? Let me explain.

Haagen-Dazs has cornered the super-premium market on the simplest of flavors: vanilla. Have you ever tried Ben & Jerry's vanilla? I don't see too many hands being raised out there and that's because Ben & Jerry's best-selling flavor is "Cherry Garcia," followed by its chocolate chip cookie dough concoction.

In other words, Ben & Jerry's has had to load up its frozen treats with gimmicks because it just can't cut the basics the way Haagen-Dazs can. Every single one of Ben & Jerry's 10 best-selling flavors is caked in novelty makeup. From fudge-covered almonds to fish-shaped fudge morsels, it is the high-maintenance ice princess with something to hide.

That's important because while Haagen-Dazs has gone on to craft some semi-exotic creations, it has never lost its core of simple original flavors like vanilla, chocolate, and coffee. Ben & Jerry's, on the other hand, has gone on to bury more than a hundred different obsolete flavors.

Frozen in time
Haagen-Dazs nailed its penchant for quality long before there was a Ben or a Jerry. In the early 1920s, Reuben Mattus set out to expand his mother's ice cream business. Don't let the fancy name rock your geography. This all took place in the Bronx.

From peddling his fruit ice and ice cream pops from a horse-drawn carriage to the Haagen-Dazs empire that would evolve over the decades, Mattus knew that culinary excellence was not something to be cheated. Dark chocolate from Belgium. Vanilla beans handpicked in Madagascar.

Not only did Haagen-Dazs create the super-premium category, it pioneered the high-end ice cream bar business with its line of novelties in 1986.

Since you've bean gone
While Mattus cashed out 20 years ago and the brand has fallen into much larger conglomerates such as Pillsbury and now Nestle USA, it's been evolutionary. Haagen-Dazs is now being scooped regularly in 54 different countries.

As for Ben & Jerry's and that cool hippie demeanor that prompted them to name flavors after festival rockers like The Grateful Dead and Phish? It's more for show now as the company that once resorted to advertising for a new CEO on its ice cream cartons has gone corporate.

While I'm sure that Jeff has highlighted the social good that Ben & Jerry's has accomplished over the years, it's just hard for me to work any of the company's frozen treats into an a la mode situation. "Chunky Monkey" just doesn't work well with a serving of warm peach cobbler. Good luck trying to work "Oatmeal Cookie Crunch" into a three-layer cake. I may have felt warm inside as I was digging into Ben & Jerry's Apple Pie ice cream, knowing that the pie pieces were baked in prison for charity, but my taste buds don't carry a conscience.

Haagen-Dazs works for me. It's the rich promise of the simple things, like the aura that encases the smiles and splendor of the girl next door.  

Ben & Jerry's Rebuttal
By Jeff Fischer (JeffF@fool.com)

Rick seems to have a plain-Jane tasting palette, preferring to linger over bland old vanilla rather than savor something with some life to it. Luckily, as the growing popularity of Ben & Jerry's shows, Rick isn't in the majority. Most of us prefer flavor in our lives -- and in what we eat. But should one want vanilla, Ben & Jerry's does make "The World's Best Vanilla." I've had it -- and it's amazing.

It's appropriate that Rick brought up Haagen-Daz's 1920s history: The company's ice cream feels about that dated. Its cartons are drab, with their old gold trim, and the flavors haven't changed much since Flappers took to wearing round hats.

Meanwhile, Ben & Jerry's continues to boldly lead the world to new, tantalizing ice creams that men in 1929 never even dreamed of. And its parent company, Unilever, is priced tastefully at 12 times forward earnings and 7 times free cash flow, with a 3.3% yield. Chocolate, mint, caramel, chunks of cherry goodness, and so much more -- what's not to love, especially at this price?

Haagen-Dazs Rebuttal
By Rick Munarriz (TMFEdible@aol.com)

Jeff, you ignorant hazelnut!

Well, OK, Jeff isn't exactly ignorant and, last I checked, if he was indeed a hazelnut he'd be in danger of being consumed as a key ingredient in several of Ben & Jerry's earlier creations. Thanks for the tip on "The World's Best Vanilla" -- I guess that settles it. You win. If it says it's the best, I guess the consumers who vote with their dollars are just wrong about the proper definition of "world" and "best." But before you get too carried away with your gloating, just ask yourself why "The World's Best Chocolate" resides in the company's flavor graveyard in Vermont.

And while you're paying homage, think about some of those flavors gone obit city. Are you shocked why "Root Beer Float My Boat" sunk as a sorbet? A sorbet, Jeff! Good heavens, what were they thinking, man? Who could ever learn to market something called "Ooey Gooey Cake" as a low-fat frozen yogurt offering?

You can bash Haagen-Dazs for sticking to its roots, but is that so bad? Why is Coke still the best-selling soda in the Coca Cola(NYSE: KO) family of pop stars? Am I supposed to buy into the Ben & Jerry's mantra that if you can't cut the basics, dip the chocolate in cherry-flavored ice cream?

Besides, now that Haagen-Dazs parent Nestle has received FTC clearance to consume Dreyer's(Nasdaq: DRYR), we all know who the real emperor of ice cream is.

With that, I'll leave you with my Haagen-Dazs rebuttal recipe.

TMF Edible Crunch
1 large-sized Hershey's chocolate bar
4 tablespoons of butter
2 cups of Cap'n Crunch cereal
2 quarts of Haagen-Dazs Vanilla!

Melt the butter and the chocolate bar in a pan. Add the Cap'n Crunch and mix it well. Scoop out the mixture and pat it down as a crust in a greased pie pan. Freeze the pan while the Haagen-Dazs softens. Then fill the pie pan with the ice cream. Top with M&Ms or sprinkles if desired and return to freezer. Serve when hardened.

Care to add some sprinkles to your vanilla portfolio? Click here.

Rick Aristotle Munarriz really loves Haagen-Dazs and the imagery of the girl next door -- but not as much as he loves his wife. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

Jeff Fischer and his wife (since Rick brought wives into the battle) will enjoy many cartons of Ben & Jerry's this summer, although their freezer presently has two cartons of Ben & Jerry's and two cartons of Haagen-Daz in it. Well, variety makes life sweet. Jeff's various stock holdings can be viewed online, as can the Fool's disclosure policy.


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