The interview with Magnum’s Bhattacharya: Magnum’s Ice Cream Carve-Out

Unilever’s ice cream division started trading as a separate company earlier in December, nearly a month later than planned due to the impact of the US government shutdown. The Magnum Ice Cream Co., as the new entity is known, plans to increase revenue by 3% to 5% next year, a little faster than the overall market. Being a standalone company allows Magnum to allocate more resources toward capital expenditures, have a more targeted salesforce and focus on product innovation, said CFO Abhijit Bhattacharya, who previously served as the finance chief of health technology firm Philips. He talks about the considerations for the carve-out, his takeaways from previous business separations – including Philips Lighting and NXP Wireless – and the impact of GLP-1s. His answers have been edited for length and clarity.

The interview with Magnum’s Bhattacharya on FMCG Carve-Out Strategy

Walk us through the considerations for the carve-out.

The interview with Magnum’s Bhattacharya offers a rare leadership perspective on FMCG carve-out strategy, capital allocation, and innovation-led growth in the global ice cream industry. It started with Unilever deciding that ice cream should be a standalone entity, because the synergies with the rest of the company were minimal. Ice cream runs on a cold chain, and so the whole logistics network and the supply chain is separate from what Unilever does. If you make deodorant, you make it at the lowest cost in one factory in Europe, and then you ship it around. Therefore, you make the most of your margin. In ice cream, the model is different. You can make the lowest cost ice cream, but the distribution costs are so heavy that you actually have to produce ice cream as close to the market as you can and not in one site. Shipping from Italy to the Nordics, in ice cream, you don’t do this.

The interview with Magnum’s Bhattacharya on Capex Investment in Ice Cream Industry

How does being a standalone affect decisions such as capital allocation?

Magnum’s capex profile is different from Unilever’s. Capex in this business was about 3% to 3.5% [of sales]. We need to step it up to around 5%, because growth has a big correlation to the amount of capex you put in. Being a separate company gives you freedom on capital allocation. I am not trying to criticize Unilever, but when you are managing five businesses and you have a dollar, you rightfully make a choice on where is the highest return on that dollar going to come from? The problem with being in a conglomerate is that there may be better opportunities. When you become a standalone company, you also have the ability to put in more senior personnel. If you are doing procurement for Unilever, you put your big guns on deodorant, soaps and food.The interview with Magnum’s Bhattacharya clearly links higher capex investment in the ice cream industry with improved growth outcomes and operational efficiency.

Where Magnum Will Increase Capex Spending?

In the interview with Magnum’s Bhattacharya, the carve-out is positioned as a strategic move to unlock operational focus and long-term value creation. When you take capex, 40% of it goes toward growth, 40% goes toward productivity, and 20% goes into maintenance. We announced a €500 million ($590 million) productivity program, and that doesn’t come for free. This program is not about firing a lot of people, it is about making our [production] lines more effective. We have a line that makes Klondike ice cream in the US, which comes with a very specific wrapping. The current machinery creates a lot of waste, but we’re going to put in a new one, which eliminates that waste. In Asia and the Middle East, most of the capex will go toward expansion of cabinets, through which we sell our ice cream. In Europe, it’s a balance between productivity and expansion. And in the US, because it’s largely an in-home market, it is [about] making our factories more productive.

The interview with Magnum’s Bhattacharya on Magnum Ice Cream Co Growth Strategy

Unilever has pointed to Magnum’s lower-growth profile as a reason for the separation. How will you drive growth?

A couple of things. We can put in the necessary capex to drive the top line. The second important factor is we now have a dedicated salesforce, whose only job is to sell ice cream 365 days a year, 24 hours a day. They don’t have to start planning in September what they’re going to do with soup sales. Now, that doesn’t mean that in the very cold months, everybody is going to have ice cream, but still, there is significantly more attention to the category than if you are juggling various priorities throughout the year. We’re also going to do lots on the innovation front. If you look at the ice cream category, the bulk of the innovation that has happened over time has been in flavors. It keeps the interest in the category, but it does not drive disproportionate growth. For a company like [ours], we’re two times the market share of the number two, the responsibility to grow the category comes on us. And there, you have things like bonbons. You still have the full indulgence of a Magnum, but you don’t have the guilt of having this huge calorie consumption. We have been making Ben and Jerry’s pints for years, but why don’t we have sticks? Now we have launched them. In food and beverage, everything to do with protein is exploding. Why don’t we have ice cream with lower sugar, which tastes as good? Why don’t we have hydrating ice creams or energy ice creams? Through the use of patented enzymes, we will be able to reduce the sugar content in ice cream by 40%. That’s a game changer. As highlighted in the interview with Magnum’s Bhattacharya, Magnum Ice Cream Co growth strategy focuses on category expansion rather than short-term flavor-led innovation.

The interview with Magnum’s Bhattacharya on Managing Business Separations

This isn’t the first time you’ve helped oversee a carve-out. What is your mindset going into one? 

For me, whenever I look at a separation project, my objective is to ensure that the business is not affected. On Day One, there was not one customer who did not get their deliveries on time. It is very important that we keep the salesforce focused on selling more ice cream. This was my sixth carve-out. You need an engine room that’s working very hard on the separation, with a few supply-chain people, a few from finance, and a lot of legal people. But, from the outside, a customer or anybody else should just see a swan gliding on the water. Underneath, there might be a lot of furious paddling, but that should not be visible to the outside world. In the past, when people were doing a separation, they were rewarded based on how many nights and how many weekends they worked. I am of a different mindset. I prefer to spend a lot of time on planning first. [Then], your implementation happens with much less hiccups and you don’t stress the organization.

Key Lessons from Previous FMCG Carve-Outs

Were there other lessons from prior carve-outs that helped guide you?

Take your time to make a good plan. In my first carve-out, I asked, “We are putting this team together, what are they going to do?” The answer was, “We will figure that out along the way.” I said, “No.” For the first two months, I want to be very clear how many legal entities we are going to have. What are we going to do with the real estate? What are the design principles on taxation in different countries? And then you give people instructions. Otherwise, everybody – with good intent – starts creating mini-separation plans and then you have to pull it all together and it doesn’t work. The bigger thing in all of this is that management from both sides are speaking in unison to the team. It’s a very weird phenomenon, but the moment a separation is announced, it becomes a bit like a divorce where people who have lived together in the same house as colleagues suddenly see each other as adversaries. And that’s absolutely the wrong way to go. The way I explain this to the team is twofold. One is, this is not a divorce. This is like when a kid grows up, they [move] into their own house and start a life of their own without a lot of disruption. And this starts at the top. If I start being critical and having fights, it gets multiplied throughout the organization and then you have a big problem. The last thing I learned from the past is when you do projects like these, there are parts of the organization that take a disproportionate load and it’s always important to keep in touch with these people to make sure they are adequately staffed and motivated. That doesn’t happen on its own, and it doesn’t happen with consultants.

The interview with Magnum’s Bhattacharya on Ice Cream Industry Dynamics

You worked at health technology firm Philips prior to your current role. How did you get your head around ice cream?

A lot of the dynamics are the same, but you still have to know – country by country – what is it that works, what is the history of your brand in each country, where do you need to focus? These are things that you need to spend a disproportionate amount of time on as a newcomer to pick this up.

The interview with Magnum’s Bhattacharya on GLP-1 Drugs Impact on Food Industry

What’s the impact of GLP-1s on your business? 

If you look at the past 20 years, the ice cream industry has grown between 3% and 4%. So it has a reasonably good growth profile. With GLP-1s, the categories that get affected the most are what we call mindless munching, whether it is cookies or potato chips. With ice cream, you don’t do it four times a day or even twice. But, giving yourself a treat is part of the human condition. So we see an impact of less than half of what you see in most snacking categories.

Overall, the interview with Magnum’s Bhattacharya provides valuable insights into FMCG leadership, standalone business strategy, and evolving consumer trends shaping the food industry.

Article Credits – Bloomberg