Sara Lee Corp. to Sell U.S. Popsicle Business to Maker of Eskimo Pie

Sara Lee Corp. has agreed to sell the U.S. division of its unprofitable Popsicle Industries unit to a Wisconsin company that makes Eskimo Pies and frozen Heath bars.

After more than a year of trying to reshape the unwieldy production and distribution system that delivered the icy treats to supermarkets, Sara Lee decided to sell the business to Gold Bond Ice Cream Inc.

The agreement reached Monday comes at time when Popsicle faces increasing competition for space in supermarket freezers as competitors have introduced a variety of frozen fruit and ice cream products in a rapidly expanding market.

The purchase price and other terms of the deal were not disclosed. However, officials of Gold Bond, which makes Eskimo Pies and frozen Heath bars, said there were no immediate plans to lay off any of the unit’s 160 employees or alter current marketing efforts for Popsicle, based in Inglewood, N.J.

The acquisition will make Green Bay, Wis.-based Gold Bond, a closely held 45-year-old family-run company, “one of the country’s largest producers and marketers” of frozen confections, with more than 400 differents types of treats, said Tom Lutsey Jr., president and chief executive officer, in a prepared statement.

Gold Bond vice president Richard Ratcheson said Popsicle’s “name is synonymous with what is now the fastest growing category in the frozen food segment of the market.”

Experts, however, said Tuesday they are unsure whether Gold Bond can restore the profitability of Popsicle, which holds about 15% of the $1.73-billion frozen confectionary market.

The unit, which was acquired by Sara Lee in 1965 and makes Fudgsicle, Creamsicle and Popsicle frozen novelties, has faced stiff competition from a host of new products, including General Foods’ Pudding Pop, introduced in 1981, and the $2 Dove Bar produced by Z Bar of Northfield, Ill.

More recently, the division faltered after Sara Lee began tinkering with Popsicle’s production and distribution system in an effort to standardize product quality and integrate Popsicle’s operations with Sara Lee’s other frozen foods operations.

Writing in Sara Lee’s 1986 annual report, Michael E. Murphy, executive vice president and chief financial officer, said the giant food and consumer products concern replaced Popsicle’s 63-year-old nationwide network of 100 independent dairies and contracted with a smaller group of about 25 manufacturers, including Gold Bond, to make Popsicle products.

“While the restructuring program was the right strategic effort for the long-term vitality,” he wrote, “the conversion process proved to be more arduous than anticipated, resulting in unfavorable short term (financial) results.” Sara Lee took on distribution of Popsicle products to retailers in order to keep a much closer eye on product quality.

But Popsicle, which had sales of about $70 million in the year ended June 28, never really meshed well with Sara Lee, according to Sara Lee sources, because Popsicle products had to be transported to market at temperatures of less than 20 degrees, while Sara Lee’s other frozen goods could be transported at less frigid temperatures.

What’s more, Sara Lee’s sales force proved to be less effective in securing crucial supermarket freezer space than did the independent dairies. “In effect, we had to maintain two independent distribution systems,” the Sara Lee source said.

Meanwhile, Popsicle is trying to make up lost ground in the frozen fruit bar segment, several years after Dole and smaller companies have turned frozen fruits into one of the fastest growing areas of the business. Not until last summer did Popsicle introduce its own version, called Fruitsicle.

Chicago-based Sara Lee still owns the Canadian Popsicle business, which is much smaller than the operation in the U.S. The company says it plans to sell the Canadian unit also.

Popsicle Industries, founded more than a half century ago by the Joe Lowe Corp., introduced a two stick format to its product as a marketing ploy during the Great Depression. The company thought it could win over customers by selling the frozen treat for a nickel and saying it could be split with a friend.

Last spring, however, the company returned to its original single stick format for greater convenience.