Milk producer Dean Foods has agreed to acquire Friendly’s Ice Cream’s retail and manufacturing businesses for $155 million, increasing its investment in branded ice cream at a time of weak sales of its core fluid milk brands.
With about 8,000 grocery stores across New England, Friendly’s would also fill in a gap in Dean’s geographic footprint. The deal does not include Friendly’s 260 U.S. restaurant locations, which will continue to be owned by private-equity firm Sun Capital Partners.
Ice cream generated $972 million in sales for Dean last year, about 12% of its revenue. Friendly’s retail business has grown 105% over the past five years.
“Coupled with the momentum of our current regional brands, the Friendly’s franchise will be a catalyst for growth in our ice-cream business and our brand portfolio,” Dean CEO Gregg Tanner told analysts Tuesday on a conference call discussing the company’s latest quarterly financial results.
Dean posted a $39 million profit for the first quarter as a 14% drop in raw-milk prices helped it to swing from a $74 million loss a year earlier. The company’s stock, which had fallen 9% in the three months, closed virtually unchanged at $18.19 in trading Wednesday.
“Dean has been grappling with swinging raw-milk prices, which in recent years have pressured its profits, as dairy alternatives such as almond and soy milk claim more store shelf space and consumer dollars,” The Wall Street Journal said. “In response, Dean has invested more in brands that can support premium prices, last year consolidating its 31 regional milk brands under a national brand called DairyPure.”
According to the Springfield (Mass.) Republican, Dean’s interest in Friendly’s is part of a shift in the ice cream market toward branded products and away from a white carton labeled simply “milk” or “ice cream.
“You’ve got a regional market where Friendly has a good name,” said Bob Parsons, a professor and agricultural economist at the University of Vermont Extension Service. “And you are looking to squeeze out a few extra dollars from customers willing to pay for a brand name and not the generic store brand of ice cream.”