Tea giant Unilever may sell its tea business

SAABIRA CHAUDHURI

JANUARY 31, 2020

THE WALL STREET JOURNAL

The world’s largest tea maker is considering giving up on tea.

Unilever is exploring the sale of its tea business after years of sluggish sales growth, in a sign of how changing tastes are roiling some of the world’s best-known food and drink brands.

The owner of Lipton, Brooke Bond and PG Tips has struggled to drive growth in black tea, which makes up the bulk of its portfolio.

The company says consumption has declined in developed markets like the US and Europe as consumers increasingly reach for other drinks. When they do drink tea, it is increasingly herbal or fruit-infused.

“Insanity is carrying on doing the same thing expecting different outcomes,” chief executive Alan Jope said. “For 10 years we’ve been trying to ignite growth into our tea business unsuccessfully.”

The review of the tea business, which generates annual sales of about €3 billion ($US3.3 billion), could lead to an outright sale, part ownership or a different structure.

Unilever executives said the tea business was a similar size, and had comparable geographic reach, to the spreads division it sold for about $US8 billion in 2018. The company hopes the tea business will draw interest from other tea makers looking to cut costs in what is a highly fragmented market.

The news came as Unilever, which also owns Hellmann’s mayonnaise and Dove soap, reported anaemic sales growth for the fourth quarter and said it was continuing to evaluate its broader portfolio. Underlying sales growth for the last three months of 2019 came in at 1.5 per cent, down from 2.9 per cent in the prior-year period.

Unilever has tried to pivot away from black tea in the developed world, buying Pukka Herbs, a British organic herbal tea maker, and Tazo Tea from Starbucks. It also bought premium Australian tea company T2, which sells pricey loose leaf in flavours like beetroot and broccoli and red chocolate mint. It has since rolled the brand out internationally.

Despite those efforts, the company’s greater presence in black tea has weighed on the business.

For 2019, Unilever’s tea volumes dropped, even as prices helped buoy sales overall.

Unilever became a tea giant in 1971 when it acquired Lipton, a business founded by a young Scottish entrepreneur. In 1984, it bought Brooke Bond, the world’s largest tea company, giving it the leading position in Britain, a nation of avid tea drinkers.

The Anglo-Dutch company has come up with new products for decades in an attempt to forestall any slowdown, including pyramid-shaped tea bags in the 1990s, which it claimed improved taste.

Unilever’s announcement is the latest sign of how packaged food makers are being forced to make big changes to respond to fast-changing shopper tastes.

“Younger consumers are looking for novel experiences,” Mr Jope said. “The black tea drinkers are getting older and consuming less and will start to fall over and that is actually the fundamental problem.”

Apart from shifting demographics, Mr Jope also blamed the low price of a cup of tea as thwarting the company’s premiumisation efforts. Others in the industry, like Associated British Foods PLC-owned Twinings, have been more successful at premiumising tea, but prices in general have remained low, he said.

Unilever’s recent financial performance has piled pressure on Mr Jope — who became CEO last year — to jump-start growth.

In December, Unilever disappointed investors, warning that sales growth on an underlying basis — which strips out currency and acquisition impacts — would be below its guidance of 3 per cent to 5 per cent in 2019.

The company said it still expects growth this year to be at the lower end of that target, but that it was yet to account for the impact of the coronavirus outbreak in China.

Unilever’s full-year revenue rose 2 per cent to €51.98 billion. Net profit dropped 40 per cent to €5.63 billion compared with the previous year, which was boosted by a gain from the sale of the spreads business.

Aside from tea, Unilever is contending with changing tastes and rising competition in the US haircare market, where it is battling longtime rival Procter & Gamble and a host of smaller shampoo brands. It is also grappling with an economic slowdown in India — its largest market by volume.

Wall Street Journal