- Unilever is conducting a "strategic review" of its global tea business that could include a sale, the company said in its earnings report Thursday. The tea division, which includes the popular Lipton brand, generates annual sales of about $3.3 billion, according to The Wall Street Journal.
- The New York Post said the review comes as consumers opt for more herbal varieties and make less black tea, which accounts for two thirds of CPG giant’s tea segment.
- “We have really seen this trend play out,” Unilever CEO Alan Jope told analysts. “It’s not a short-term thing. It’s a long-term trend over a decade.”
Unilever has repeatedly denied reports in the past that it is looking to sell its tea business known for popular brands such as Lipton and Tazo. But the company's announcement Thursday that it is conducting a "strategic review" of the segment — which could include a full or partial sale, among other options — underscores how even a popular beverage such as tea can succumb to changing consumer trends. Unilever estimates that more than 270,000 cups of its tea are brewed every minute.
Allied Market Research estimated the global tea market size was valued at $52.1 billion in 2018 and is estimated to reach $81.6 billion by 2026, a compound annual growth rate of 5.8%. "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," the firm said.
Unilever has tried to increase its presence in faster-growing categories within tea, highlighted by its 2017 purchase of organic herbal tea maker Pukka Herbs and the acquisition of Tazo Tea from Starbucks for nearly $400 million that same year. Four years earlier it also snapped up premium tea maker T2, known for its African Rooibos and Honeybush Tea as well as Organic Turmeric Ginger Ninja Loose Leaf Tea.
“All of that premiumization activity still is not able to make a difference because of the size of the black tea category,” Graeme Pitkethly, Unilever's CFO, told analysts in The Wall Street Journal story.
Howard Dorman, national food and beverage sector leader at Mazars USA, told Food Dive that Unilever's tea business is certainly a "marketable" asset for the consumer goods giant.
While it's uncertain who would be interested, companies such as Nestlé or Hain Celestial that already have a presence in tea would be logical buyers. It's also possible private equity or a company looking to enter tea could make its own bid.
Dorman said despite adding tea brands to its portfolio through acqusitions, it wasn't enough for Unilever. "The pressure of them not being able to pivot quick enough into the natural or hebal tea market slowed it down for them," he said.
The challenges mirror problems big beer companies such as AB InBev and Molson Coors are facing in their iconic brews. As beer sales continue to decline, brewers have acquired more craft brands or expanded into new areas such as hard seltzers or ciders, but those have not been enough to offset the drop in its core beer business.
Tea remains one of the most popular beverages in the world due to a number of health benefits, including potent antioxidants, the potential to reduce cell damage or lower cholesterol levels. But consumers, especially younger generations, are looking for even more flavors and increasingly turning to options like botanicals.
As consumer consumption habits shift, large CPGs are constantly tweaking and pruning their broad portfolios — divesting slow-growing or falling segments in favor of trendier ones. In 2017, Unilever sold its margarine and spreads business, which included I Can't Believe It's Not Butter, for $8.03 billion to private equity firm KKR.
Other companies have been making changes too, including Nestlé, which sold its U.S. chocolate business to Ferrero for $2.8 billion in 2018 and announced last month that it would unload its U.S. ice cream portfolio to Froneri in a $4 billion deal.
Whether or not Unilever decides to sell all of its tea business, a portion or retain it, the fact that it is considering a move after denying that any such move was in the works, could signify that the European company believes further declines in the segment will continue and it's unwilling to invest the time or capital to turn it around. As other CPG giants face a similar predicament, it's likely that further announcements to unload a business that would have at one time been unheard of is all but inevitable.