The future of ice cream looks a lot like Halo Top

  • Halo Top generated $132.4 million in sales last year, according to data from IRI.
  • The company's success grew in 2016 after a GQ writer wrote an article about eating nothing but the ice cream for 10 days.
  • Halo Top is a good example of the trends that are shaping the ice cream industry.
Source: Halo Top
Halo Top Ice Cream.

Halo Top promises shoppers the indulgence of ice cream without the guilt, and millennials are eating it up. Literally.

The brand launched in 2012, but it did not explode until 2016. Halo Top has become one of the most Instagram-able products available in the frozen dessert aisle, with 28.8 million pints sold last year, generating $132.4 million in sales, according to data from IRI.

Halo Top's growth reflects shoppers' growing desire to shop for healthy, unique products from small brands. That's good news for brands like Halo Top, but that doesn't necessarily mean traditional ice cream brands are doomed — although they may need to play catch up.

Ice cream is still a profitable industry: last year, sales reached $6.6 billion, up 3.4 percent, according to Nielsen. But conventional products aren't necessarily driving the growth. While the sales for the whole category increased, sales of products that fit within the Food and Drug Administration's definition of "healthy" grew 85 percent last year.

"There's no turning back here. This is not a fad," said Jack Ringquist, principal and global consumer products leader, Deloitte Consulting. "This is truly an evolution that's occurring and (big companies) need to truly adjust to become positive players as opposed to resistors."

'Consumers are paying attention'

Small companies are driving growth throughout the food industry, according to research from Nielsen. Halo Top is leading the effort in the pint section of the frozen desert aisle. The brand is privately owned and is still run by Justin Woolverton, its 36-year-old founder.

Woolverton used to make ice cream for himself in his spare time. His hypoglycemia prevented him from eating store-bought ice cream because it was high in sugar, so he experimented with Greek yogurt and fruit.

He stumbled upon a cheap ice cream maker on Amazon and decided to test out a new recipe. When he tasted it, he had a "eureka" moment, knowing he had created something other people would want to eat. He convinced an ice cream factory to let him use their equipment and spent the next two years toying with the recipe when he wasn't working at a law firm.

Once Woolverton was satisfied with his product, he quit his job and focused on getting his ice cream, which was then called Eden Creamery, in stores around Southern California in 2012. After being sued for copyright infringement, Woolverton rebranded his product Halo Top.

He was sued again by another company in 2015. He was allowed to keep the name, but he had to change the packaging, which he considers a lucky break. The new packaging put its nutrition facts "front and center," prominently displaying the calorie count of the entire pint on the front of its cartons.

One-half cup of Halo Top's vanilla ice cream is 60 calories, while one-half cup of Ben & Jerry's ice cream is 250 calories. Woolverton knew the difference would be attractive to shoppers, but he did not realize how much it would drive sales. Customers may buy three or four pints at a time because it's lighter, so they may feel better about it eating it more often, he said.

"We built kind of a lifestyle ice cream that you can stock up in freezer," he said.

But Ben & Jerry's does not necessarily mind the difference.

Courtesy of Ben & Jerry's
Ben & Jerry's debuted non-dairy ice cream made with almond milk last year. Shoppers are more interested in dairy-free options, with sales up 49 percent in 2016, according to data from Nielsen.

"We try to stay away from let's just cut out all the taste and make something that's calorie-free, partly because that's just not our brand and who we are as a company," said Ben & Jerry's spokesman Sean Greenwood. "We'd rather have people come once in a while to eat something that's over-the-top with natural ingredients than to use something out of our palette and that's not worth it."

Despite Ben & Jerry's commitment to its classic recipes, it has dabbled with new products. Last year, it debuted a non-dairy ice cream made with almond milk. This year, it added three more flavors to the line.

Interest in dairy-free ice cream is not contained to Ben & Jerry's. Across the industry, non-dairy ice cream sales were up 49 percent in 2016, according to data from Nielsen.

Nestlé is undergoing similar changes. Kim Peddle Rguem, vice president of marketing for Nestlé Dreyer's ice cream brand, said a "huge" number of shoppers still head to the ice cream aisle looking for "pure indulgence."

"The company is not blind to changing consumer preferences, though," she said.

Last year, it simplified the recipe of more than 100 products. It also revamped its Edy's and Dreyer's Slow Churned brand, which boasts classic flavor with half the fat and one-third fewer calories than full-fat ice cream. The new line, called "simple recipes," does not contain GMOs or artificial colors or flavors.

Nielsen defines "clean" ice cream labels as those that contain a healthy claim like natural or organic and are free from artificial colors, flavors and partially hydrogenated oils. Such brands are gaining traction. Sales grew 36 percent in 2016, an incremental $62 million in annual sales, according to Nielsen.

"Even when indulging in salty snacks like chips, consumers are paying attention still to the ingredients in those products, and ice cream is no exception to that," said Andrew Mandzy, director of strategic insights for Nielsen's health and wellness growth and strategy business.

But not everyone wants to sacrifice indulgence to save calories.

Halo Top sent CNBC a pint of each of its 17 flavors. Some purists refused to even try the ice cream. Some tasted it and threw it away. Others liked it so much they took pictures of the pints so they could remember what it looked like when they went grocery shopping.

The very idea of light ice cream is divisive, and the fault lines will no doubt shape sales in the frozen dessert aisle.

'Little cruiser' vs. 'Large aircraft carrier'

Healthy or not, one trend is clear: small ice cream companies are leading a revolution in the ice cream industry.

New brands can innovate without the constraints of matching established, beloved flavors, said Ken Harris, managing partner at Cadent Consulting Group. They can invest in creating new products. And similar to the craft beer craze, experts say customers are hungry to shop small and local brands.

Consumers' affection for small has worked for Halo Top. The company has scorned traditional advertising, opting to use in-house employees who publish to social media platforms like Instagram.

"I've always wanted us to be very authentic and avoid overly corporate answers," Woolverton said. "By bringing it inside and managing it ourselves, when we talk to our customers, we get to talk to them the way we really talk."

The hunger for shopping small poses a challenge for big companies. Harris says major brands are more likely to scoop small ones who have developed creative recipes or production processes because "it's easier to buy technology than to create your own."

In some cases, that's already happening. Earlier this month, Dean Foods purchased Fresh Ice Cream Co. for $1 million after the Brooklyn-based company, which sells indie-ice cream Steve's, filed for Chapter 11 bankruptcy protection in February.

Not all major companies will buy the smaller ones, cautioned Ringquist, the Deloitte consultant. What they all must do to stay competitive in today's industry, he said, is to create new products and flavors. Often.

"The technology industry has shown us this model — this very agile, this very fast innovation cycle — so why should we as consumers not expect that from every other category?" Ringquist said.

Halo Top has grown to 17 flavors from four in the last five years. Woolverton has started working with food scientists to improve the recipe, but he still samples the ice cream himself. Even if that means his freezer is stocked with sample brownie bits and his pantry is loaded with 24 jars of peanut butter.

Woolverton initially funded Halo Top on his own, plunging himself into credit card debt. His friends and family, plus CircleUp, a funding network, helped finance the brand's expansion.

Halo Top's big break came in 2016, when GQ wrote an article about eating nothing but Halo Top for 10 days. Since then, sales have boomed. Despite the success, Woolverton does not have any plans to take Halo Top public or sell it.

"We'd rather be a little cruiser rather than this aircraft carrier," he said. "There are no plans for selling. We're having a lot of fun doing what we're doing."