The world’s biggest seller of tea is going cold and looking at selling its staple product. Unilever P.L.C (NYSE: UL) is reviewing its global tea sales, which include Lipton, Brooke Bond, and PG Tips, following a decline in sales growth.
In western markets like the United Kingdom, black tea bag sales fell by 3.4% last year as the review was mainly due to declining sales of traditional black tea, with consumers moving toward herbal teas and coffee. This is a huge downfall for the company, as black tea makes up the majority of its global tea division, selling in 60 countries and generating $3.3 billion each year.
At a recent conference call, Chief Executive Officer, Alan W. Jope said, “For 10 years we’ve been trying to ignite growth into our tea business unsuccessfully.” The review could see the tea business sold outright, changed to part ownership, or restructured. It’s been reported that the company’s tea business is a similar size to the spreads division which was sold in 2018 for around $8 billion.
Unilever also owns Hellmann’s mayonnaise and Dove soap, which has also reported weak sales growth for the fourth quarter. Over the past three months, underlying sales growth came in at 1.5% in 2019, down from 2.9% year-on-year.
The company attempted to move away from black tea when it purchased Pukka Herbs, an organic herbal tea maker. Despite these efforts, Unilever’s black tea presence has been weighing on the business. However, some segments within black tea, such as ready-to-drink are still performing well. The company entered a joint venture with PepsiCo (NASDAQ: PEP) to sell Lipton ready-to-drink tea, which is also included in the review.
There is now mounting pressure on CEO Alan Jope to boost sales growth. In December, the company disappointed investors when it warned sales growth would be below its guidance of 3% to 5% in 2019. Unilever also predicts growth for this year to be at the lower end of that target and it also hasn’t accounted for the impact of the coronavirus outbreak in China, which contributes 5% to Unilever’s total sales. The tea company’s full-year revenue increased by 2% to $57.2 billion. While net profit dropped by 40% to $6.2 billion, compared to the previous year that reported a boost by a gain in the sale of its spreads business.
Other brands in the industry have also taken action, with Starbucks (NASDAQ: SBUX) announcing it would close all of its Teavana stores in 2017 due to underperformance. Rival, Nestle SA, which has brands like Nescafe and Nespresso, also launched a massive overhaul of its products such as its deals to divest portions of its luncheon-meat and ice cream businesses. KDP (NYSE: KDP), who own Snapple teas, reported that tea is one of the areas where the performance isn’t meeting expectations, at a recent earnings call. It was noted that it will be revealing its plan at some stage this year.
Tea aside, Unilever is competing with changing tastes and tough competition in the U.S hair care industry, facing a long time battle with rival Procter & Gamble (NYSE: PG). It is also struggling with an economic slowdown in India, which is the largest market by volume.
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Written by Alsha Coppolina.
MyWallSt Contributor, Author at MyWallSt Blog
This article was written by one of our MyWallSt freelancers.