Unilever to divest most of its tea business but keep RTD Lipton

7 Aug 2020

After a nearly seven-month review of its tea business, Unilever announced that it would divest the majority of its €3 billion ($3.5 billion) tea business, which includes tea brands PG Tips, Pukka Herbs and Tazo that generated €2 billion ($2.3 billion) in revenue last year. The Dutch-Anglo company will retain its Indian and Indonesian units as well as its joint venture with PepsiCo.

Unilever forged its partnership with PepsiCo in 1991 to allow the soda manufacturer to distribute Lipton, Brisk and Pure Leaf ready-to-drink iced tea beverages. Each company owns a 50% stake in the ready-to-drink tea business, which David Pitkethly, Unilever’s chief financial officer said in a July 23 call with analysts, is a lucrative market worldwide. “The ready-to-drink tea market is two-thirds of the global tea market,” he said. This partnership with PepsiCo, he continued, has been “extremely successful.”

Unilever to divest most of its tea business but keep RTD Lipton

Traditional black tea, on the other hand, has not had such a successful past few years. Consumer preferences are changing in the U.S. and in Europe, and cups of Jo are replacing English Breakfast blends as people look for a caffeine kick. Even in the UK, where tea has remained popular for centuries, the trade publication, The Grocer, reported that Britons consumed 900 million fewer cups of tea over the 12 months ending May 2018. Furthermore, Unilever noted at the beginning of 2020 that although traditional tea remains popular in developing countries, growth is beginning to stagnate. Herbal tea, however, remains in demand with consumers in developed countries.

Still, tea remains a growth category worldwide with World Tea News reporting that sales are expected to hit $73 billion by 2024.

Pitkethly said that the divestiture, which is anticipated to be complete by the end of 2021, will be challenging. "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," he said in the company’s earnings call.

To alleviate the complexities of splitting its tea business, analysts speaking to Reuters suggested that Unilever could sell the entire tea business and then license back the Indian and Indonesian business units.

Nevertheless, Unilever CEO Alan W. Jope said, “The balance of Unilever’s tea brands and geographies and all of our tea estates have a very exciting future, but this potential can be best achieved, we believe, as a separate entity.”

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