Unilever food spin-off – summary
- Unilever considers exiting food
- McCormick merger talks moving fast
- Disentangling supply chains is essential to a potential spinoff.
- Unilever’s beauty division is expected to diverge from its food business, resulting in a leadership shift.
- Supply disruptions can threaten the stability of retail stores.
- The sale of Big Food could trigger significant competition and reshape the industry
Unilever is getting out of the food business?
This question has been the focus of Big Food’s conversation ever since the news broke about a possible spin-off earlier in this month.
So far, the evidence is overwhelmingly in favor of a yes.
Sources “familiar” with the situation claim that things “progress quickly”.
What would the sale of Unilever’s entire Foods Division mean to Unilever and other players in the food and beverage sector?
Unilever Foods is a spin-off of Unilever
Issy Pérez, former Central America general manager at Kraft Foods and managing partner of consultancy Boyden says that carving out major divisions within a business can be a difficult task. These separations require the careful rebuilding or transfer of centralised, deeply-rooted systems, such as quality assurance, compliance with food safety regulations, contracts for procurement, and networks that co-manufacture.
The interconnectedness of large food businesses like Unilever means that the greatest operational challenge will be to dismantle it without disrupting the complex supply chain.
This is not the first or last time that a business has sold a large part of its assets.
Perez says that Danone sold Horizon Organic and we’ve had similar experiences with Nestle, when they spun off their US confectionery division.
Unilever’s split will result in two very different organisations. Nestle, Danone and Unilever would continue to work within the same food and beverage sector, but the Unilever division could lead the two separate companies down very different paths.
Perez says that Unilever leaders will now have to concentrate on skills in the beauty industry, such as quick innovation cycles and digital-first brand building, while also connecting with consumer emotions. Perez says that a separate Foods Division would require leaders with skills similar to those of Kraft Heinz or General Mills – who excel at managing costs, optimizing manufacturing and cultivating retailer relationships.
Unilever Foods Division includes well-known brands like Hellmann’s, Knorr and Knorr.
(Image: Unilever)
Maintenance of operations
Maintaining business as usual is one of the greatest challenges that any company will face when it divides its portfolio.
Perez says, “the playbook is very simple.” Focus on keeping the products in stock, making sure service is smooth, and protecting your brand’s image.
However, executing that playbook is far from simple.
Perez says that retailers are good at handling corporate news but out-of stock issues frustrate them. Brands such as Mondelez International, PepsiCo, and others have shown that the key to keeping on track during changes is to keep your eye on important SKUs. You should also shield customers from any disruptions and make sure you communicate about continuity.
In other words maintaining the stability of the market should be a top priority.
Unilever and McCormick
Unilever, McCormick and other food giants could come together under one roof if they strike a deal.
This would bring brands such as Unilever’s Hellmann’s mayonnaise, McCormick’s Cholula and McCormick’s Cholula Hot Sauce.
McCormick, based in Maryland has a value market of approximately $14.51bn (12.54bn EUR), whereas the Foods Division of Unilever, headquartered in London is worth between $22bn to $35bn.
Perez says that merging two food giants is a complex process. It’s more than just combining two brands. The process involves integration of formulations, ingredients, copackers, allergy protocols and manufacturing facilities in different markets.
Heinz and Kraft’s merger, says he, proved that financial integration takes much less time than technical.
Kraft Heinz is a cautionary story when it comes food and beverage mergers.
Interesting enough, Kraft Heinz was linked with the Unilever Foods breakup, with rumours that the American CPG company had previously spoken with Unilever. These are reported to have collapsed quickly.
What the Unilever Split could Mean for Big Food
Unilever’s decision to abandon food would be one of its most significant strategic turns in the 96 years that the company has been around.
The British multinational could now focus its efforts on categories that are already growing faster – personal care, beauty and wellness.
The consequences of Unilever’s actions go far beyond Unilever.
The spin-off of a Food division would be viewed as a sign that conglomerates are no longer the sprawling giants who do everything.
Unilever brands will continue to exist under the new owner, but the change in ownership would alter the landscape of competition. This deal would cause rivals to review their portfolios and retailers to reconsider their category strategies. Investors will also be forced to focus their attention on the areas of growth that are most promising.
It is a sign of a new phase in the history of Big Food. This will be characterized by streamlined businesses, greater specialisation and more bold strategic decisions.