Unilever has announced that as part of its “Growth Action Plan” it plans to “separate” its ice cream business. To quote from the announcement: “The Board believes that Unilever should be increasingly focused on a portfolio of unmissably superior brands with strong positions in highly attractive categories that have complementary operating models. This is where the company can most effectively apply its innovation, marketing and go-to-market capabilities. Ice Cream has a very different operating model, and as a result the Board has decided that the separation of Ice Cream best serves the future growth of both Ice Cream and Unilever. Following separation, Unilever will become a simpler, more focused company, operating four Business Groups across Beauty & Wellbeing, Personal Care, Home Care and Nutrition. These Business Groups have complementary routes to market, and/or R&D, manufacturing and distribution systems, across both developed markets and Unilever’s extensive emerging markets footprint”.
Having recently acquired some shares in Unilever I do have a view on this. To my mind this makes sense as selling ice cream is hardly a good business to be in. There are no barriers to entry and although strong branding can help ultimately it’s a “me too” kind of business.
The history of Ben & Jerrys is interesting. You can read the founders book under the title “Ben and Jerry’s Double-dip: Lead with Your Values and Make Money Too”. They told a good tale of their “social values” but in reality they sold a premium, high fat, ice cream when the competitors were selling bland products. That enabled them to build a niche and a reputation. When Unilever acquired the business in 2000 there were protections put in place that could enable the social mission to continue – for example to block sales to Palestinian territory – which has resulted in hampering Unilever ever since. This was in essence a pretty daft deal as mixing commerce with politics never makes sense but Unilever were so keen to acquire the brand that they went along with this nonsense.
Selling ice cream, premium sector or not, is bound to be a low margin and a very seasonal business so disposal of this problem child by Unilever makes good sense.
Megan Boxall has published an article on Unilever’s ice cream business here: https://www.stockopedia.com/academy/newsletters/a-lesson-from-the-fallout-of-misaligned-acquisitions/ . She argues that sales in the ice cream business have been driven mainly by price rises not volume growth. It is surely true that this is a mature sector and the move to more “healthy” foods is probably limiting growth. Megan is critical of the past acquisitions and the poor allocation of capital.
If Unilever spins off Ben & Jerry’s to become an independent listed business and gives Unilever shareholders shares in the new entity I will be selling those shares.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
You can “follow” this blog by entering your email address in the box below. You will then receive an email alerting you to new posts as they are added.