Commentary

As Consumers Shun Black Tea, Unilever Weighs Selling Lipton, PG Tips

The Dutch-Anglo conglomerate Unilever is undertaking a strategic review that may result in the sale of its well-known tea brands Lipton and PG Tips as consumers’ preferences evolve.

“The company said the review was triggered by the sales slowdown of traditional black tea in developed markets as consumers shift towards herbal tea. Black tea is the dominant part of Unilever’s tea business,” according to [Unilever finance chief Graeme] Pitkethly on a conference call, selling in 60 countries and generating 3 billion euros ($3.3 billion) in annual sales,” Reuters’ Siddharth Cavale reports.

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“Insanity is carrying on doing the same thing expecting different outcomes. For 10 years we’ve been trying to ignite growth into our tea business unsuccessfully,” CEO Alan Jope, who took the reins a year ago, tells The Wall Street Journal’s  Saabira Chaudhuri.

“Its premium herbal tea brand, Pukka, which has varieties like mint matcha green, ginger and turmeric, meanwhile, has performed well, said the company, which also owns elevated brands like T2 and Tazo,” Jeanette Settembre writes  for FOXBusiness.

“Tea had a global market value of nearly $50 billion in 2017, and the market is slated to surge to more than $73 billion by 2024. But consumers are increasingly seeking out beverages with functional ingredients -- whether it’s probiotics in kombucha (fermented tea) to boost gut health, anti-inflammatory benefits from turmeric teas or an energy boost from antioxidants loaded in green teas,” Settembre adds.

“Unilever announced the review despite denying that it was weighing a sale of its tea segment in November after the Telegraph newspaper reported that it would put the business on the auction block. The company had just launched a review of its portfolio that month and wanted to clamp down on speculation about the future of its tea business, Jope said Thursday. He indicated that the review that’s now underway may not necessarily lead to a sale,” Noah Manskar writes  for the New York Post.

“When we’re thinking about these things, we’ll communicate transparently,” Jope said.

Even in Great Britain, “demand for traditional builder’s tea has been in decline in recent years as tastes among younger consumers shift toward coffee. Meanwhile tea drinkers are increasingly opting for fruit and herbal brews such as Pukka, a Bristol-based brand that Unilever acquired in 2017,” the Telegraph’s  Hannah Uttley and Simon Foy report.

“Last year PG Tips lost its coveted position as Britain’s best-selling tea brand to Twinings, which took the top spot following the launch of a popular range of cold-brew fruit and herbal teas called Superblends. Mr. Jope admitted black tea had an ‘image problem’ with a younger demographic,” Uttley and Foy continue.

“The consumer of builder’s tea was [traditionally] somebody who was born out of habit and who was not into experimentation or trying new products. We do have a demographic issue on black tea,” Jope said on the earning call transcribed  by Seeking Alpha.

Meanwhile, a sale could cost jobs at Unilever’s U.S. headquarters in Englewood Cliffs, N.J.

“In any big deal like this, there has to be synergies that can create cost savings; otherwise, they are not going to do it,” Howard Dorman, national practice leader, food & beverage for consulting firm Mazars USA, tells ROI-NJ’s Tom Bergeron.

“How many potential jobs could be lost depends on who buys the company. Should it be another tea company, Dorman said it would make little sense to keep the marketing and research & development employees. If it went to a private equity firm, Dorman said those types of employees could be spared, but other cuts surely would come,” Bergeron adds.

Adding to a tough week, Packaging Digest last week cited Lipton’s redesign of its 100-count boxes of tea bags as the No.1 example of a recent packaging revamp that seemed successful but went awry.

“Though visually striking … the redesign eliminated individual paper wrappers for the tea bags and instead used gold foil sleeves on paperboard trays holding 25 tea bags each,” writes  Kate Bertrand Connolly. “Several readers were concerned about freshness. One wrote, 'If the purpose is to keep the tea fresh what happens when you open the gold foil up?'"

Overall, Unilever posted disappointing full-year results Thursday. It “missed its underlying sales target in 2019,” Harry Robertson reports for City A.M., and “also suffered a 33% fall in pre-tax profit in 2019 compared to 2018, when the sale of its spread business bumped up income, bringing down earnings per share.”

“The results cap a tough first year at the helm for Jope. The company will act faster on backing new products when they’re successful or divesting them when they’re not, he said on a conference call with analysts. Managers can tell after about 100 days whether a new product is worth more investment or should be discontinued,” Bloomberg’s Thomas Buckley writes  for Yahoo Finance.

“Tea has been around much longer, but now looks like it could be one of the first targets for Jope’s cull,” Buckley adds,

“A cup of tea isn’t merely a drink: It’s the history of the world itself,” a Conde Nast Traveler piece told  us a few years ago. Many of us will take solace these days in the realization that as entrenched as something may seem, things change.

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