UPDATE: Aug. 5, 2021: Unilever is officially starting the process of selling large parts of its tea business, which could be valued at about 4 billion pounds ($5.6 billion), Bloomberg reported after speaking to people familiar with the matter. The company has reached out to potential purchasers, and expects first-round bids next month, the business wire reported.
- Unilever plans to divest most of its tea business following a six-month review by placing them into a separate entity, the company said during its recent earnings call. The changes to its tea business would see Unilever divesting the Lipton brand in some areas while retaining it in other markets.
- Unilever said it plans to keep its tea business in India and Indonesia, where its Lipton brand is popular, as well as the joint partnership in its ready-to-drink tea 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.
- "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 call last week. "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."
Unilever announced in January it was conducting a "strategic review" of its global tea business. Now half a year later, the consumer products giant has finally reached a decision where the company is ready to divest much of the slow-growing business but keep the best parts. As consumers have opted for more herbal varieties, black tea, which accounts for two thirds of the CPG giant’s tea segment, has fallen out of favor.
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 compound annual growth rate 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."
Similar to Nestlé, Coca-Cola, PepsiCo and Kellogg, Unilever and other large food manufacturers have been boosting their portfolio with healthier and portable options while jettisoning brands that are slow growing. For Unilever, the decision to keep parts of the tea business hinges on where Lipton is especially popular, in India and Indonesia, or in the case of PepsiCo, a business that its CFO said during its earnings call has been "extremely successful." As shoppers consume more beverages on the go, ready-to-drink options such as those being made under the nearly 30-year-old Unilever-PepsiCo partnership are poised to thrive even more.
"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."
Analysts told Reuters that Unliever 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 last week, Unliever likes the success of the business in these areas. The CPG giant is probably in no hurry to act further despite looming complexities involving the Lipton name.