Packaged Ice Industry in Australia.

The packaged ice industry in Australia is an old, long established business model. It is very similar to the packaged ice business model that existed in the USA....... until the Ice House was invented!

Bags of ice are produced in regional production factories. The ice is kept in frozen storage at the factory, and then delivered on a weekly, fortnightly or monthly basis as required to each retail site. The ice is stored on pallets at the factory, but due to the nature of the retail freezer/merchandisers, the ice needs to be hand unloaded at the retail delivery point.

The retail point has traditionally been the petrol/service station, which of course has matured over the years to also become a convenience store. Supermarkets now stock ice as well, as do liquor stores, but the bulk of ice sold is still via petrol outlets. This is mainly because the bag of ice is quite heavy and the customer does not like to carry it too far to their vehicle.

In New South Wales ice is usually packed into a 5KG bag but in other states is varies from 3 - 5 KG. Consumers have little awareness of how big or small (in KG) the ice bag is.

Retail Sales of Bags of Ice.packaged ice industry retail freezer

On the retail end of the supply chain, bags of ice are stored in an outdoor ice freezer/merchandiser. On most service station sites you will find one of these freezers. Some service stations also store ice in a refrigerated display cabinet inside the store. This is to capture the "impulse" sale and provide added convenience to the consumer.

Ice is generally regarded as a commodity by the consumer and as such regarded as just a generic product. There is little brand recognition or brand loyalty. In fact, most service stations even put their own brand over the freezer.

As I said, to most people "ice is just ice", and consumers are not even aware of the pack size. This commoditisation is to the long term detriment of the existing packaged ice industry, as innovation in supply will work hand in hand with brand awareness strategies, leading to the success of ice vending machines.

Bare bones staffing at service stations typically leaves only one staff member on site at any one time. As such the outdoor ice freezer is usually locked, meaning a customer needs to walk into the shop to get the key to the freezer, go back outside to the freezer and load their ice into the car, but only after smashing it on the ground a few times to break it up into small pieces! Then the customer has to walk back into the store, return the key and pay for the bags of ice. This is not what I would term to be convenience! More about that can be read on our convenience versus destination page.

Stock losses due to theft from outdoor freezers is quite high, with the usual modus operandi being that the customer takes multiple bags of ice from the outside freezer and then returns inside to the shop and only pays for one.

ice industry truckPackaged Ice Industry Barriers to Entry.

The outdoor ice bag freezer is usually supplied free of charge to the retailer by the supplier. This model has existed from the early days. This has suited both the retailer and the supplier but locks the retailer into the one supplier, who expects exclusivity of supply due to the supply of  a "free" freezer.

Consequently a typical "chicken and egg" syndrome has been built into the industry.

A high barrier to entry exists, as new industry participants not only have to meet the capital expense to build a large regional ice plant, they also have to meet the cost of supplying every one of their new prospective clients with a "free" freezer for the ice to be stored in. This, along with the cost of a fleet of new large refrigerated trucks prohibits virtually any new entrant into the packaged ice industry.

Packaged Ice Industry Supply Chain.packaged ice industry retail freezer

Bags of ice are problematic to transport and sell profitably. The product is of relatively low value compared with it's other traits in terms of the supply chain. It is bulky, heavy and needs refrigeration, so you need big heavy trucks to move lots of it at one time. It is also treated as a food product under Australian regulations, even though most ice consumed is for cooling packaged drinks. This makes it costly to transport compared to other products.

Like any distribution business, packaged ice is packed in a truck and a driver will have a set "run" on any given day. Retail sites will be on a weekly, fortnightly or monthly delivery cycle on a needs basis, according to the requirements of each site to some extent, but mostly the delivery cycle is determined by the ice companies ability to make a profit from the "run" as a whole.

Ice companies have traditionally been low tech and an ice company only has a vague idea as to exactly how much ice to deliver to each site before the "run" has commenced. They just don't know how much room will be in the freezer until they arrive. Most retail customers are also restricted in the amount if ice they can stock by the size of the ice freezer they have on site.

This can leave gaps in the supply chain from the perspective of the retailer, and it is common for some retailers to be "sold out" of ice for more than a week. The retailer cannot easily change to another ice company, as in most regional areas, there is only one ice company, although in metropolitan areas it is a little easier to change suppliers.

Each individual site is only a very small user in its own right, but grouped together, each "run" is profitable, although for the ice company to make a profit, this whole process has to work like clock work every time and margins are eroded the further away from the factory the ice has to be delivered.

Meeting Peak Demand.

Peak demand is another problem, and this has serious impact on the way ice is distributed. In the ice business, everyone wants to buy a bag of ice at the same time,..... or they don't want to buy it at all.

In Australia, approximately 20% of all ice sold for a given year is sold in the 7 days between Christmas Eve and New Years Day.

As previously stated, retailers have a fixed storage capacity and cannot easily gear up for peak demand. As such on days like Christmas Day and New Years Eve, ice companies deliver pallets at a time and just dump then in the forecourt of the service station out in the hot sun. Hardly the way you want to store a normally-refrigerated food product....? Pallet wrapping offers little resistance to the day's heat, and the whole pile is left as a slushy mess by days end.

The ice trucks start rolling at about midnight on Christmas Eve and endeavour to have ice "on the ground" at every outlet for about a 6am start. It's a costly and wasteful way to business, and there is lots of loss from meltage and bags of ice that are not sold. The poor consumer who rolls up at about midday Christmas Day is forced to pay full price for half bag of melted ice and hot water.

Demand is always huge regardless but exact demand is weather dependant. Ice companies have no control over this and they start stockpiling ice for the Christmas period for many months before.

Profit Margins on Bags of Ice.packaged ice industry retail freezer

Bags of ice have a high gross profit to the ice company, as a bag of ice costs about 50 cents to produce. When it is done right, owning an ice company is like owning a gold mine. Near monopoly conditions exist and there is virtually no downward pressure on prices.

Retailers also enjoy good gross profit margins, with local competitors nearly all selling the same product from the same supplier in a set area. This begs the question, who is controlling the retail price?

Direct evidence is always difficult to obtain in cases such as this, but there is some anecdotal evidence around that some ice companies threaten to withhold supply from retailers when retail pricing is not set as per their wishes, especially if you take into account the facts of peak and off peak demand. For some reason the retail price of ice is mostly about the same all year round?

Sold Out....

Retailers endure being sold out of ice for extended periods when demand is clearly there. Retailers would not endure this situation with any other product. All this for a product that the convenience retailer still regards as convenience item! Common sense dictates that the ultimate inconvenience for a consumer is for the retailer to be sold out.

Experience tells me that there are many high volume users of packaged ice, but the majority of customers only use ice sporadically and maybe even only once a year. As there is no brand loyalty, consumers just call into the "local servo" to buy a bag of ice, as they expect it to be there. For reasons previously stated, there is high chance that any given store will be sold out at that particular time, which leaves a bad a taste in the mouth of the consumer. This does not serve the retailer well in generating more foot traffic over the longer term.

You would think that service station operators, particularly the independents would be desperate to change this system to something better, but ignorance of the real market and old business practices are set in. When presented with the alternative of an ice vending machine, service station operators are hesitant to make the capital investment required, as they are blinkered and conditioned to having a "free" ice cabinet supplied.

This is blindly against their own interests as they really have no idea of how much ice they could really sell at the much lower price point with the ultra convenience delivered by an ice vending machine. These retailers could enjoy even higher propfit margins by eliminating an inefficient and some-what unreliable supplier, with a floored supply chain and question marks over the food safety of the product, especially on a hot Christmas Day! What better way to upset your customers!

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