The new unit, dubbed “Unilever Baking, Cooking and Spreading”, will give “more focus” to the business and permit it to take “more radical action if required”, said Unilever chief financial officer Jean-Marc Huet during an investor seminar this morning (4 December).
“Spread is an important part of our portfolio and heritage but this is not a barrier to taking determined action. It is accretive to overall profitability and cash generative but it has a history of low growth and at times declines and has been a significant drag on the food category,” he said.
Unilever has disposed of a number of food brands over the past six years, equal to €5.3bn in turnover, including Ragu and Slim Fast. Huet said “pruning and disposals” will continue but did not mention a sale of the spreads business, which includes brands such as Flora and I Can’t Believe It’s Not Butter.
However, the separation has led to renewed speculation about the future of spreads amid calls from analysts to sell all or part of the business which is estimated to be worth around €8bn. Unilever says it has no plans to dispose of the business.
Lamine Lahouasnia, head of packaged food research at Euromonitor, says: “Unilever’s new priority to isolate its spreads division from the rest of its food business certainly raises strong suspicions over its longer term interests in the spreads category. While it is highly profitable compared to the rest of the Unilever business, spreads faces long term challenges in maintaining global growth and ultimately this goes against the company’s highest priority of sales growth.
“Rather than continue to invest in a category which is already highly profitable and facing strong headwinds, Unilever might make better use of any revenues generated from the sale of the division by funding longer term growth areas within its portfolio such as ice cream, home care and/or personal care.”
“Weakness” in spreads
“Weakness” in Unilever’s spreads category has held back the performance of food in developed markets, where Huet said fewer people are eating bread and therefore using less spreads. Even when they do, he added, butter and blends are “too often the spread of choice”.
Unilever has tried to adapt to this changing market, launching a number of marketing initiatives aimed at communicating the “natural goodness” of margarines and encouraging different uses in areas such as baking and cooking that are seeing higher sector growth.
Huet said this has led to “encouraging progress”, with margarines gaining share over the last four quarters but admitted there are still challenges particularly in developed markets.
The new unit aims to address these by making margarines “more competitive”. It will cover North America and Europe be responsible for strategy, planning, marketing, income statement and cashflow once it is operational in mid-2015. Sean Gogarty will continue to run the category but will take on a new role as CEO of the unit.
“This is the next stage of bringing performance and agility to the spreads business. It will be impactful but it will take time but now is the right time to do it,” said Huet.
Driving marketing efficiencies in home care
Overall, Huet said Unilever’s performance over the past 5 years has been good although that performance at its various categories has been “more mixed”. Personal care continues to be the standout category with above average growth and margin, while food is falling down in growth and home care in profit margin, which is growing at just 5%, below competitors.
To boost margins at home care, Huet said Unilever is now looking at ways to simplify its product portfolio and improve advertising efficiencies. The aim is to double operating margins, although he didn’t give a time frame.
“This can be a more profitable category. The priority has been to restore competitiveness in quality and brand support levels. This has been achieved and we are now entering a new phase where we better balance market share gains with improvements in profitability,” he added.