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Baskin-Robbins and the Walmartization of Ice Cream

It’s been an unusually hot summer, and soaring temperatures have boosted sales of that quintessential summer food, ice cream. But Baskin-Robbins has decided to shut its production facility in Peterborough, Ont., and lay off 80 workers because of…wait for it… increased demand!

From the department of “wait, what?”, here’s the scoop behind this brain-freeze-inducing decision.

Baskin-Robbins, home of 31 flavours (one for each day of the month), brought in $1.8-billion in sales from its 6,777 outlets around the world last year. Same-store sales rose by an impressive 9.4 per cent in the first quarter 2012, and that’s before the heat wave.

Though business is up, the company says expanding production is not part of the game plan. Peterborough is the last place in North America where Baskin-Robbins makes what it sells, and those 80 CAW-organized workers supply a third of the 4,200 outlets outside of the U.S., including 113 Canadian stores.

That production is now moving to third-party suppliers. Canadians’ demand will be supplied by Scotsburn Dairy in Truro, N.S. — for now. Like Peterborough, it’s also a union shop (CAW). But most of what Peterborough produced will now be made in El-Paso, Texas, a right-to-work state with no minimum wage. Only 5.3 per cent of workers are union members in that state.

Does that make Baskin-Robbins the Caterpillar of Peterborough? Not so fast.

The world’s biggest chain of ice-cream stores already operates in 110 nations, and believes future expansion of global domination can best be achieves by focusing on retailing and franchising. They are getting out of manufacturing.

Getting out of manufacturing is one way to drive down costs, by shifting labour-cost decisions to third-party suppliers.

Baskin-Robbins’ plan goes further: drive down costs by extending its presence in emerging markets, where disposable income is increasing; but, importantly, that’s where new suppliers are emerging too.

Call it the Walmartization of ice cream. When you’re big enough globally, you don’t have to make things to change the way things are made. The size of the contracts you’re waving around changes the game. The retailer, not the producer, becomes king of the deal. And the lowest price becomes the law.

Suppliers swallow ridiculously low per unit prices because the bottom line of that contract is huge. Then they find a way to shave their own costs. So Baskin-Robbins lowers its costs by shifting the incentive to find savings onto parties outside the company. Shift costs, increase profits. That’s the formula these days.

And here’s another part of the formula: Baskin-Robbin’s parent company is Dunkin’ Brands, which is owned by Bain Capital – Mitt Romney’s company before he became Presidential hopeful for the Republicans. These firms, and Romney, have been lobbying against supply management, angling for lower dairy prices to help us all get fatter on pizza and ice cream, one crazy-cheap mouthful at a time.

Lower dairy prices are indeed on the menu of free trade deals like the one now being negotiated with Europe and upcoming talks with the Pacific nations, which will most likely see an end to supply management of the dairy industry in Canada. But there’s still cheaper milk products to be found in other nations. And that’s the point of this drive for global dominance in ice cream. Market-spanning giants like Baskin-Robbins, relentlessly driving down input costs, give a whole new meaning to free trade. But remember the other trade: the flip side of low prices is low wages. Someone’s paying the price somewhere.

This blog originally appeared on the Globe and Mail’s online business feature, Economy Lab. http://www.theglobeandmail.com/report-on-business/economy/economy-lab/the-chill-behind-baskin-robbins-plant-closure/article4429433/

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Comments

Comment from Skinny Dipper
Time: July 20, 2012, 7:52 am

This is not a new model for manufacturing and retailing products. President’s Choice does not make its own products. It gets others to make them. The same holds true for Nike and other footwear companies. They don’t manufacture their own shoes.

Comment from Anon
Time: July 23, 2012, 5:50 am

I’m shocked and horrified for the support this article shows for supply management.

If there was ever a “Government of Canada” policy that abused the poor, SM is it. A free market for milk would stop padding the pockets of already rich mega producers of milk and take regressive economic measure off our most vulnerable low income people.

You should be ashamed.

Comment from Thomas Bergbusch
Time: July 23, 2012, 10:21 am

Listening to the local sports radio station, I heard a new Walmart radio ad in my car over lunch. It was all about their new “award-winning” ice cream.

Comment from Purple Library Guy
Time: July 24, 2012, 1:03 am

No Anon, he really shouldn’t be ashamed. The details may be worth tweaking, but a supply-management type of setup is the farm version of unions; it allows farm compensation to remain workable without massive subsidies. It isn’t a problem except when we allow too much inequality, which we should not be doing.

It also keeps production in the country. We are very likely in the coming years to be seeing major disruptions to the international food system, for a number of reasons from rentier commodity speculation to rising fuel prices to economic crisis to global warming; we do not want to be caught at that time with a local food system that’s been shut down in favour of foreign production that stops being delivered.

Comment from Anon
Time: July 24, 2012, 6:28 am

It isn’t a union, Purple Library Guy. It’s an abuse by an independent business owner. It’s the hardworking farm hands on large milk producing company payrolls who need a union. The myth of the family farm for dairy needs to be squashed (for fairness I will note that some small farmers still exist). There are 10X fewer dairy farms then in the 1970s It’s now the business of dairy and with the help of Ottawa, it’s an unfair business that hurts all but a privilaged few – especially the poor.

I know what people think of supply management, but it isn’t true.

Comment from Francis Fuller
Time: July 26, 2012, 6:22 am

Re the debate on farm supply management.

Before you critique the Canadian SM position you need to be sure you are comparing apples to apples and not apple pies to cow pies.

The US achieves its low costs through accepting a degraded quality product with little or no quality enforcement. The consequence of this is that the US milk consumer is likely to ingest bovine hair and feces along with that wonderful “fresh” milk.

Canadian milk supply does not evidence the same issues and we pay a higher price for this quality. Let the US consumer keep their hair and feces; I’ll willingly pay the current tariff to ensure delivery of a high quality product.

Comment from Darwin O’Connor
Time: July 26, 2012, 9:11 am

A little bit of hair never killed anyone and the danger from feces is neutralized by pasteurization.

Comment from Purple Library Guy
Time: July 26, 2012, 5:22 pm

I’ll certainly agree that the farmhands need a union. And indeed, I’d support, for instance, adding conditions onto supply management agreements such that to stay in the deal, dairy farmers must accept unionized employees. But that doesn’t make unfettered price competition and trade suddenly the best model; the two issues are orthogonal. Yes, I know I used the term “union”; it was obviously an analogy. It does not require one-acre farms to work as an analogy, although I suppose a closer one would be strong labour and minimum wage laws.

Meanwhile, supply management is hardly a factor pushing farm sizes larger. It’s not like they’ve stayed small under more “free market” (quotation marks quite deliberate) policy regimes. Heck, ten times as big as they used to be? South of the border I’d be unsurprised if they were a hundred times as big as they used to be.

Mr. O’Connor, you may have a point, although I’d still tend to prefer my milk relatively shit-free. I suspect if we were to allow free trade, keep Canadian milk high-priced, but prominently label the Canadian product “Without feces” and the American product “With feces” an awful lot of people would be willing to pay the premium . . .
But quality control issues and races to the bottom do not stop at trace levels of feces. There are questions of antibiotic levels, not to mention recombinant bovine growth hormone and the human health issues surrounding it, and very likely a number of bad practices none of us are aware of.

Comment from anon (same as above)
Time: August 13, 2012, 7:34 am

In reference to general tone above about paying a premium for quality – you are not paying that premium for quality. You are paying it for business model that is currently 3 times as profitable as a non-farm business. We could open the market, even domestically – quota is a massive barrier to entry for new producers (this is one of the key reasons why there are fewer and few milk farmers), and keep top-notch regulations, they are not mutually exclusive.

Then again, while I know that we use fewer antibiotics in our milk but I’m not allowed to buy unpasteurized organic milk. It’s not like Canada’s product is as nature intended or suited to my tastes.

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