Shanghai Has a New Crop of Ice Cream Brands. Can They Rewrite the Rules Häagen-Dazs Set?

With new flavors, new channels and new designs, a wave of young ice cream brands is going after the hold Häagen-Dazs and its peers have on the premium market.

Salted duck egg yolk. Foie gras with fig. Soy milk and youtiao. Fritillary-and-loquat cough syrup. Sichuan peppercorn and pineapple. Gazpacho. Cocktails. A crop of upscale ice cream shops in Shanghai sells flavors this strange.

If you love ice cream, or just follow food news, you may know some of the names already: Gelato Dal Cuore, Pree, Gracie's, Bonus, Shanhe Bingfang, De Medici, SIGNOR Gelato. The shops are small, their designs newer and more photogenic than the norm, and they sit on streets near the old foreign concessions or beside office towers.

All of them push hard on ingredients: "made with freshly cut fruit," "no artificial coloring," "the color comes from the ingredients themselves," "imported nut pastes." Some go further and stress that their ice cream — ice cream — is low-calorie, low-fat and "clean label."

These brands don't stay inside their own shops, either. They moved onto online channels fast: several sell through Hema (Gracie's and Vivi Dolce among them), several deliver (Gracie's, Gelato Dal Cuore, petit pree), and some have opened Tmall stores (Pree, Vivi Dolce and others).

None of this escapes the broader upgrade sweeping the food and drink business: new flavors, healthier ingredients, better-looking rooms and products, and, of course, higher prices.

A single serving (one or two flavors) runs 25 to 35 yuan, close to the 35 yuan Häagen-Dazs charges for one scoop.

In China you cannot discuss a new premium ice cream brand without comparing it to Häagen-Dazs. The brands challenging it think the same way.

Häagen-Dazs Taught China What Good Ice Cream Was, and It Still Rules the Market

"Häagen-Dazs probably taught Chinese people what ice cream is," says Grace Li, founder of the young ice cream brand Gracie's. She reads its position as close to Starbucks': it arrived very early in a category Chinese consumers had almost no habit of buying, charged a steep premium, and became the name of the category itself.

When Häagen-Dazs entered China in 1996, the market held nothing but cheap popsicles and ice bars. Chinese consumers didn't even much like dairy then, let alone full-milk-fat ice cream. Supermarkets shut off their freezer cases in winter — one reason Häagen-Dazs opened standalone stores here.

From the start it held its prices high and built its image with lavishly decorated shops in the busiest commercial districts. But Häagen-Dazs never sold ice cream. It sold a luxurious experience in a high-end setting, and nowhere more so than in China. Looking back, the brand is a small portrait of Chinese consumption in the 2000s: people wanted foreign brands, wanted the European experience that stood for wealth, and would pay extra for it — even if the Danish-sounding name implied an origin that does not exist, and even if ice cream shipped in from France was hardly the freshest way to make it.

"If we put our competitive focus on ice cream, we will certainly lose. Our prices are two to three times other brands'," David Clark, Häagen-Dazs's global business vice president and head of brand, said of the Chinese market.

Its localization was shrewd. Ice cream mooncakes were one of the products that made it in China. By taking the corporate gift and bulk-order market at foreign companies, it made itself known to a great many middle-aged Chinese who never bought ice cream otherwise, and taught them to file the brand under "high-end" — a box of Häagen-Dazs mooncakes cost more than 200 yuan around 2003, after all. Mooncakes once brought in about 28% of its sales. For nearly a decade Häagen-Dazs has ranked first in the premium mooncake market.

Only after Chinese consumers accepted the brand and volumes grew did it spread its products through retail outlets large and small in tier-one and tier-two cities. Today you can buy it in convenience stores and at supermarkets like RT-Mart and Carrefour. Star-rated hotels and more traditional mid-to-high-end restaurants use Häagen-Dazs to vouch for themselves.

In a 2017 interview, Häagen-Dazs marketing director Chu Yimin said the shops were still the brand's largest source of revenue, with about 350 of them in China; other retail channels came behind.

Euromonitor International puts Häagen-Dazs first among ice cream brands in the foodservice channel in 2017, with 16.5% of the market, slightly ahead of DQ's roughly 15%. The brand still carries weight for its parent, General Mills. In the most recent quarterly report — the fourth quarter of fiscal 2018 — General Mills singled it out for double-digit growth across Asia.

Recognition is high, but Häagen-Dazs has settled into a mid-tier brand with nothing new to offer. One look at that fake Danish sign — Haagen Daz — tells you what you'll get: service that is neither bad nor surprising (try tasting every flavor before you buy, and see how far you get), an interior the company calls "Burgundy Red," ice cream made in France and imported, and a flavor list that is nothing to write home about.

Baidu Index shows search volume for Häagen-Dazs falling year after year since 2014. Perhaps feeling the brand age, Häagen-Dazs redid its visual identity in 2017, making "Burgundy Red" the primary color in place of the old black type in a gold frame. To look younger, it also hired artists to draw abstract, graffiti-like paintings for each flavor and put them on the packaging. Whether that fixes anything is another matter.

It can still find room in lower-tier cities. But in a first-tier city like Shanghai, new brands are already trying to change the rules it set.

Ice cream is an import too, and it is not yet the market coffee is: Häagen-Dazs's 350-odd shops are about a ninth of what Starbucks has in China. It has nowhere near the density that makes it hard for a competitor to get in, as Starbucks does.

In Shanghai, Häagen-Dazs has 68 stores. The new specialty ice cream shops already add up to about 25.

The Challengers' First Move: New Flavors, Fast, to Get You Through the Door

With no years of goodwill behind them, the new ice cream brands all start by pulling customers in with new flavors — going out of your way to eat ice cream needs a reason.

Pushing out strange flavors quickly is the strategy many of them have chosen.

"There wasn't one brand in the whole market that was genuinely innovative and fashionable," says Zhuo Fan. That was the opening he and two co-founders saw when they started Pree in 2015. Pree's average ticket is 50 to 70 yuan, and its best-known products include bourbon-roasted cherry, black truffle, and Sichuan pepper pistachio. After the first shop in Xintiandi worked, Pree opened petit pree, a cheaper line (30 to 40 yuan), on the metro-connected level of a shopping mall. Both formats put out at least one new flavor a month.

Pree has made a fragrance-inspired ice cream with the niche perfume house Diptyque, and a protein-powder ice cream aimed at gym-goers. Founders Zhuo Fan and Qi Yashanyu both stress their development work, and both admit one point of inventing flavors is to pull traffic. "If everyone is making vanilla, why would I come to your shop for vanilla?" Zhuo says.

Gelato Dal Cuore, on Shaanxi Road North, is this year's new favorite on Shanghai's ice cream lists. You can see it in the crowd: after dinner on a weekday, all dozen-plus seats are taken. It has put out new flavors nearly every week since it opened; this week's are persimmon and strawberry guava. Founder Mia Zhou says the shop keeps 30 to 40 flavors in its library and may eventually settle into a monthly cycle. "We're one small shop, so we can be this willful. We have the room to play with new things," she says.

For Häagen-Dazs, developing a flavor and rolling it out everywhere carries obvious risk. Holding the bulk-gift mooncake market is the safer bet. It has made products for China — "almond tofu," "caramel mochi," and formal experiments like ice cream sushi — but not many, and new products come slowly, roughly one or two a quarter.

"Häagen-Dazs is probably half a beat slow on the creative side. The biggest difference between us and them is that we're small and react faster, and the flavors we develop are for the Chinese market, even for Shanghai specifically," Grace says. She offers a black sesame flavor as an example; quite a few of the new brands have made one. When Gracie's brings over a classic American flavor such as mint chocolate chip, it adjusts the fat and the sweetness.

Vivi Dolce, a brand born in Beijing, also releases roughly monthly. Founder Li Muyi says: "We're a new brand and our brand power isn't especially strong yet, so new flavors bring consumers' attention." She thinks most ice cream brands develop products the same way: take a main ingredient from what's in season, and find the idea in daily life. "Any taste that exists, any taste you can find in an ingredient, can be made into gelato." Last year we interviewed Li Yu, who took a silver medal at the Tokyo stop of the 2015 Gelato World Tour; he laid out the method in detail — find the idea in the food and drink around you, break down the recipe, turn it into an ice cream base.

Better Ingredients: The Fresh-and-Healthy Story Every Food Upgrade Tells

As with milk tea, coffee or fast food, the new ice cream brands talk about where their ingredients come from and how good the food is. Some play the health card outright.

Each stresses something slightly different. Gelato Dal Cuore uses no coloring and no additives — "the color comes from the ingredients themselves" — and sells only what it has just made. Vivi Dolce says it uses no synthetic stabilizers. Pree uses no thickeners and no ice cream powder.

Pree's Zhuo Fan is careful about it: "Additives make the structure of the ice cream more stable. They may make it feel smoother, or hold its shape longer. It isn't a question of who's right and who's wrong, only a different way of making it."

On ingredients, Gelato Dal Cuore co-founder Mia reels off a list: the cantaloupe, peach, watermelon and banana ice creams are made from fresh fruit; the nut pastes in the nut flavors all come from Italy. Ingredients, she says, are the main reason the shop's products taste good.

The brands making Italian-style gelato never forget to mention their lower milk-fat content, and that their sorbets contain no dairy at all — Vivi Dolce, Shanhe Bingfang and Gelato Dal Cuore all do. QDaily stopped a few customers buying ice cream at Shanhe Bingfang, and two women both said they liked sorbet precisely because it has less fat.

Häagen-Dazs, in fact, was among the first ice cream brands to talk about quality. It has played that card since it was founded in the 1960s, setting itself apart from ice cream's usual position as something cheap and made for children, and going after adult buyers in the United States.

It still says it "uses no emulsifiers or stabilizers, relying on egg-yolk stabilization technology." But it cares more about being imported from France: in retail, convenience-store freezer cases carry a French flag sticker. Whether consumers still buy that is hard to say. Just as the definition of luxury has changed, imported food no longer means high-end food. Fresh food made from local ingredients is gaining ground.

And Häagen-Dazs comes off a factory line, so it cannot claim "handmade" the way the new brands do. Every ice cream operation uses machines, but the small-and-beautiful suggestion behind the word "handmade" is what the first-tier-city consumers who care about it are buying. In practice, handmade ice cream means the ingredients are cut and prepared by hand; at the end you still need the machine.

Delivery and E-Commerce: The New Brands Took the New Channels

Delivery and e-commerce have widened ice cream's traditional channels, and the new brands tend to move quickly on anything online.

Pree went up on Tmall this June, and several petit pree shops now deliver, selling ice pops. Gelato Dal Cuore has been open barely three months and already offers delivery and takeout.

Gracie's took its cue from the coffee war between Luckin Coffee and Starbucks, launching a mini program in late July for delivery and pickup. Sign up and your first ice cream is free; refer a friend and you get a coupon. "We wanted to do delivery from the very beginning," founder Grace says. "Delivery has developed so well these two years — the infrastructure is all there, so it's easy to set up." Owning a factory that guarantees supply, she stresses, is what lets Gracie's deliver at all.

That is not how ice cream used to be sold. A single shop reached only so far. Supplying other restaurants (B2B) was the usual way to pick up new customers.

Zhongjie 1946 was probably one of the first ice cream brands to sell online. The old Shenyang brand solved cold-chain logistics: it reportedly spent four months designing a seamless, high-density foam box, and packs two kilograms of dry ice with every shipment. After 2016, more and more new ice cream brands moved their main battleground online — Vivi Dolce, Alexanders and others.

"E-commerce is for building the brand. What it touches and how far the message travels covers the whole internet," says Vivi Dolce founder Li Muyi. Opening an online store is cheap, she admits, but running one is not. "As a business the profit isn't especially impressive. Mostly you're working for your supply chain," she says, putting logistics and packaging at 25 to 45 yuan an order.

For these brands, the channel that matters most is still the one they own: the shop, where they can control the experience.

But a Photogenic Shop Still Matters, and That Too Is a Rule Häagen-Dazs Set

Pale orange as the main color, white vintage light boxes, neon trim — Huangfu Jin can recall on the spot every visual detail she likes about the shop. She is in college, and almost every time she goes downtown she stops at Gelato Dal Cuore for ice cream. Whether a place looks good has become a serious part of the food business, and it may matter more to young consumers who grew up on social networks.

Gelato Dal Cuore founder Mia says she is "completely obsessed with Instagram and Pinterest." She designed the shop with a designer from New Zealand.

Pree's main line uses black, white and gold; geometric lines emphasize the space and make the shop feel wider. Co-founder Shanyu reached for words like "cool," "gender-neutral" and "striking" to describe it. For petit pree, the cheaper line aimed at younger customers, the main visual is colored polka dots. "We do want it to generate some sharing on its own," Shanyu says.

Opening shops was Häagen-Dazs's own invention in China. Abroad the brand still costs more than Wall's and the like, but it sells mainly through supermarkets. In China the shops were the key to building its high-end image. The new brands have followed that path, but their visuals and interiors are playful or cool, against Häagen-Dazs's decorous "Burgundy Red." As for the overall look inside, Häagen-Dazs has barely changed in more than a decade. KFC and McDonald's, by comparison, both moved to a spare industrial style a year or two ago, and KFC has opened a number of themed stores.

Ice cream has never been only ice cream, a frozen dessert of good cream, sugar and water. The category picked up other associations early: happiness, childhood, love, luxury.

Ice cream brands need packaging.

A scoop of ice cream involves taste and sight, but you cannot ignore the customer's mind either. That is where the old brands are strong — "If you love her, take her to Häagen-Dazs," or DQ's "Turn it upside down and nothing spills."

The new brands see this too. "To make good ice cream, the brand's concept and identity matter a great deal," Grace says. Her hardest problem right now, she says, is getting her brand's idea across: making people know the brand, know it exists, and understand why it makes the flavors it makes.

Through work with Shanghai Tang, Diptyque and Caudalie, Pree is trying to shape a personality and reach the customers it shares with those brands — people with money who want quality, mostly women.

All these new brands understand social media, whose importance may already have passed that of traditional advertising. Pree made a co-branded flavor with the fashion blogger Anny Fan; nearly every brand reposts and replies to Weibo posts from customers who visit or mention it. Founders at Gelato Dal Cuore, Vivi Dolce and Gracie's come out of marketing or PR, so this kind of work is familiar ground.

But Ice Cream Still Isn't a Big Business, and That Is the Same Problem for Häagen-Dazs and Its Challengers

Compared with two years ago, Shanghai has more independent and small-chain ice cream shops, and ice cream is no longer just an add-on to some other food business. Running a single ice cream shop is still hard, which may be why ice cream is only part of these founders' income, and sometimes a sideline.

Bonus and Pree are each one of several food brands run by their respective owners. Gelato Dal Cuore founder Mia mostly runs the ice cream business but keeps her brand consulting work going.

All three Gracie's shops are built alongside the restaurant Al's Diner. Grace told QDaily they thought a standalone ice cream shop would be difficult, and wanted a space where people could eat something besides ice cream, so after starting the ice cream brand they opened Al's Diner, an American casual restaurant. On strategy, Grace says: "Ice cream is the most important thing. The restaurant has always come second."

Adding an ice cream line to an existing food brand carries far less risk. This July Heytea launched an ice cream product, starting in four shops and expanding to all forty-plus for year-round sale. "My shops are already there, my costs are relatively fixed. I only need to prepare ingredients according to what each season demands," Heytea founder Nie Yunchen told QDaily.

There are more like it. KFC put out two durian ice creams at about 13 yuan this summer, and it also has a pricier line, Hokkaido Cremia. Holiland launched a "half-baked cheese" ice cream. Mövenpick, the Swiss brand owned by Nestlé, is slowly opening more shops under Swire Group. Hershey's is trying to sell chocolate ice cream in Shanghai.

All of them compete with the specialty shops.

After autumn the temperature drops and the hard winter comes. Ice cream sales cool with it. How do you get through winter?

Holiday promotions and marketing have given Pree single winter months that matched its summer sales. Vivi Dolce spends more on e-commerce traffic.

Flavors made for winter are another answer. Pree has released roasted fig with foie gras, and caramel bacon. Vivi Dolce says winter takes work on the product mix, and it puts out desserts to go with the ice cream.

Season, though, is not the only thing standing between a specialty ice cream shop and survival in China.

Chinese people love hot water, and many still believe cold food should be avoided. For new brands and old ones alike, that is a real obstacle. Yet none of the new brands we spoke with plans to spend effort educating or persuading people who think cold food is bad for them. Pree, Gelato Dal Cuore and Gracie's all figure those people are not their customers.

"Shanghai has more than 20 million permanent residents. If I can get the business of a million of them, that's already impressive," Mia says.

China is already the world's largest ice cream consumer by total volume, at 4,550 liters, but spending and consumption per person are both low, in the foodservice channel and in retail.

Euromonitor International puts per capita ice cream consumption in China's retail channel at just 3.5 liters a year, less than a third of the 13.1 liters an American consumes. The ice cream and popsicles Chinese people eat also cost less on average.

At 6.57 billion US dollars in total sales, China's ice cream industry is still less than half the size of America's.

In the sit-down foodservice channel, Chinese consumers spend less than 6 yuan a year each on ice cream. Americans spend 18.1 US dollars.

People in the market are always optimistic. Pree's Shanyu takes the missing consumption habit as proof that the opportunity is his: "As a leisure food, ice cream grows in direct proportion to GDP." Pree recently raised money and opened new shops in Chengdu and Hangzhou.

"This market may be ready now," Grace says. Her brand is looking for investment.

Where does ice cream go from here? In the American market these new brands copy, low-calorie ice cream is becoming the mainstream: Halo Top, built on sugar substitutes and a low-calorie promise, reached the third-largest market share in two years.

Americans are paying more to eat less ice cream, and perhaps better ice cream: volume per person has fallen since 2016, but spending per person is up 7.8% since 2014. It has to do with their worry about sugar.

Before China gets there, though, it has to eat a lot more ice cream first. The new brands and Häagen-Dazs both have that habit to build.

Graphics: Wang Kaiman

Cover image from Gelato Dal Cuore, Pree, Gracie's and others