Unilever stirs pot with review of global tea business

Unilever (ULVR.L) UNc.AS will conduct a review of its global tea business, including the PG Tips and Lipton brands, in an apparent strategy rethink by Chief Executive Alan Jope in the face of slowing group sales growth.

Jope has previously said the company was invested in turning around the tea business over the longer term, but the change of plan could soothe concerns of investors who have lamented a lack of urgency in transforming Unilever’s struggling food and refreshment business.

“We will look at all options for the (tea) business,” Unilever finance chief Graeme Pitkethly said after the company’s results on Thursday showed group sales grew at their slowest in a decade in the past quarter.

Pitkethly said tea is a good performer in emerging markets and in the premium category but all regions and all parts of the business would be considered for review. Options include a partial or full sale of the business, he said without giving a timeframe. The company said the review was triggered by the sales slowdown of traditional black tea in developed markets as consumers shift towards herbal tea. Black tea is the dominant part of Unilever’s tea business, Pitkethly said, selling in 60 countries and generating 3b euros ($3.3b) in annual sales.

Unilever has been suffering elsewhere, too, with stuttering growth in India and China, two of its biggest emerging markets, while intense competition in North America and Europe has also hampered efforts to hit fullyear growth targets.

The food and refreshment business - which makes Lipton teas and Hellmann’s mayonnaise among others and contributes 40% to group sales - has been hit particularly hard in North America and Europe as consumers reach for healthier options. “We are pleased to see some progress on the disposals strategy,” Liberum analyst Anubhav Malhotra said of the review, while Jefferies analysts said it could kickstart further moves to unlock value in the food and refreshment division.

Six months after taking the helm in January last year

Jope announced his attention to target sustainability rather than topline growth. The CEO said he would streamline Unilever’s vast portfolio by focusing on what he described as “brands with purpose”, adding that these were its fastest-growing assets.

The so-called brands with purpose, including Dove, Knorr and Persil, contributed almost two thirds of revenue and drove 75% of sales growth in the first half of 2019, the company said.