July 29, 2020
Unilever plans to disassociate itself in most of its tea business following a half-yearly review by placing them into a separate entity, said the company’s spokesperson during recent hearings. The changes will be seen in Unilever divesting the Lipton brand in some areas while retaining it in other markets, thus shuffling the teas according to the markets.
Unilever said it is planning to retain its tea business in India and Indonesia, where the company’s Lipton brand is popular, as well as in its ready-to-drink tea with joint venture with PepsiCo. The partnership between the two companies has PepsiCo focus on Lipton’s ready-to-drink beverages while Unilever handles the leaf tea. Each company owns a 50% stake accordingly.
“It does present a change going forward potentially with regard to the Lipton brand because if there is a different owner or a more separate operation of the Lipton brand in hot tea or leaf tea rather, then there’ll be some need for some form of special arrangement,” Graeme Pitkethly, Unilever’s CFO, said in a Seeking Alpha transcript during the earnings recently. “But given the essential difference between the two categories of ready-to-drink tea and leaf tea, we’re sure that that’s very manageable.”
Earlier in January 2020, Unilever announced that it was conducting a “strategic review” of its global tea business. Now in mid-year, the company has finally reached a decision where it is ready to divest much of the slow-growing business but will keep the best parts. As consumers have opted for more herbal varieties like black tea, which accounts for two thirds of the CPG giant’s tea segment, has fallen out of favour.
Allied Market Research estimated the global tea market size was valued at $55.1 billion in 2019 and could reach $69 billion by 2027, a CAGR of 6.6%. “Increase in trend of coffee consumption and fluctuating prices of raw materials caused by unpredictable climatic conditions act as the major restraint for this market,” the firm said. “On the contrary, growth in demand for herbal tea and introduction of new flavor and variety of tea is anticipated to provide growth opportunities for the tea market.”
Just like Nestlé, Coca-Cola, PepsiCo and Kellogg, Unilever has been increasing their portfolio with healthier options while discarding brands that are sluggish in growth.
“It’s one of those joint ventures where each party brings unique experiences, Unilever in terms of the brand and marketing capability and Pepsi in terms of their expertise in bottling and distribution, and it has worked very, very well for a long period of time,” Pitkethly told analysts. “And that principally is the reason why we’ve left that out of the conclusion of the strategic review.”
Market Analysts told Reuters that Unilever could eventually sell the tea business it is spinning off, or bring on a minority investor. As for the tea parts it is keeping involving Lipton, they told the news service that Unilever could sell the brand to a third party and license it back for the Indian and Indonesian businesses. It could then choose to sell its stake in the joint venture to PepsiCo. But as Pitkethly said, Unilever likes the success of the business in these areas. Unilever probably is in no haste to act despite looming convolutions involving the Lipton brand.