In his inaugural address since Unilever’s ice cream demerger, CEO Fernando Fernandez left markets speculating on the future of the company’s remaining food assets.
During the JPMorgan fireside chat on December 9, he remained ambiguous about the potential divestiture of the food division. This topic has gained substantial attention in light of the ice cream spin-off.
Fernandez presented a nuanced viewpoint that could imply intentions to maintain certain food assets or prepare others for sale. “At this stage, our food business is margin accretive, is cash accretive, it has a low capital intensity,” he remarked to Celine Pannuti, the head of consumer staples at JPMorgan. “It’s a very attractive business.”
The new CEO, having taken the helm in March, faced questions about whether food now stands as the “elephant in the room,” considering the likelihood of asset disposal. Pannuti raised concerns about the Horlicks brand’s fit within Unilever’s portfolio. Instead of addressing that directly, Fernandez emphasized the company’s ‘power brands,’ including Hellmann’s condiments and Knorr dried soups.
Currently, Hellmann’s and Knorr account for 60% of Unilever’s food revenue, a figure projected to rise to 70-75%. However, he did not specify a timeline or methodology for this growth, mentioning only the focus on premiumization as a key strategy.
“We’re outperforming the foods industry; you have seen our numbers,” the CEO stated, highlighting strong performance compared to American food brands. He expressed confidence in Unilever’s food portfolio, calling it “an envy of the industry.”
Fernandez noted that Unilever has already offloaded food assets worth around €1-1.5 billion ($1.1-1.7 billion), referring to these as “the periphery of foods.” Recent disposals include the Graze brand in the UK and The Vegetarian Butcher in the Netherlands.
Although it remains speculative to categorize the Marmite, Colman’s, and Bovril brands as peripheral, anonymous sources have suggested that they could also be considered for disposal.
Fernandez conveyed the criteria for food assets to remain within the portfolio: “The business has to outperform the markets, just as other parts of our portfolio have.” He compared this standard to brands like Hellmann’s and Knorr, asserting their critical importance to Unilever.
Looking ahead, Fernandez expressed interest in pursuing bolt-on acquisitions, allocating about €1.5 billion annually toward mergers and acquisitions. While he did not mention food as a focus, he indicated that priorities lie in beauty, personal care, and expanding in the US and India.
Additionally, Fernandez shared that Unilever is ranked as the “number one” food company in the US, holds a shared ranking in personal care, and is positioned “number three” in beauty. He emphasized the strength of Hellmann’s, explaining that the condiments category is one of the most promising segments within the food sector.
By targeting premiumization, especially in what he described as “French kind of stuff,” Fernandez aims for a 50% concentration across Unilever’s portfolio. “Even in the condiment category, we see significant premiumization opportunities,” he added, noting the shift toward premium products.
Food remains a substantial revenue driver for Unilever, generating €13.4 billion in 2024, comparable to other sectors. In contrast, the ice cream category yielded €8.3 billion. Personal care slightly leads at €13.6 billion, followed closely by beauty and wellbeing at €13.2 billion, and home care at €12.3 billion.
Despite this, analysts from Jefferies, led by David Hayes, remain skeptical about the future of the food division. “Divesting food is still one of these options, we think,” they noted, emphasizing the potential need to scale up home and personal care sectors.
In summary, CEO Fernando Fernandez leveraged his recent address to keep the door open on the future of Unilever’s food assets, while also highlighting the growth and premiumization strategies essential for competing in the evolving food and beverage industry trends.
