‘Traves-tea’ – Unilever could sell out-of-fashion brands PG Tips and Lipton

Never was there a more shocking millennial-induced horror story than this – the traditional brew is suffering because herbal alternatives are in fashion. The shift in consumer behaviour could see household goods giant Unilever (LON:ULVR) attempting to offload its PG Tips and Lipton brands.

The news came following the company posting its slowest quarterly growth in a decade, which has prompted CEO Alan Jope to adjust the ship’s course: streamline and focus the company on fewer brands.

The company said it would consider a partial or full sale of its tea business – with demand for black tea falling 2.7% in the last two years – but said would consider “all options”. This came after lacklustre growth of just 1.5%, though the company said it expected performance to improve in 2020.

Unilever owns a host of household names – Dove, Knorr, Persil, Hellman’s and Wall’s – to name a few.

It added that in addition to streamlining its less productive operations, CEO Alan Jope is also targeting “brands with purpose”. Those lacking clear social or environmental purpose could be removed from the Unilever roster. Speaking last year, he said the company would be taking a close look at Marmite, Magnum and Pot Noodle.

Unilever comments on their performance

Speaking on the company’s 2019 results, Jope said,

“In 2019 we delivered underlying sales growth of 2.9%, balanced between price and volume, a further year of good margin and earnings progression, and strong free cash flow. We saw strong growth from emerging markets and our Home Care division. Overall growth was slightly below our guided range for the year due to the slowdown we saw in the fourth quarter.”

“We are now stepping up execution against our fundamental drivers of growth. These are to: increase penetration by improving brand awareness and availability; implement a more impactful innovation programme; improve our performance in faster growing channels; drive purpose into all our brands; and fuel growth through cost savings.”

“We are continuing to evaluate our portfolio and have initiated a strategic review of our global tea business.”

“In 2020, our underlying sales growth is expected to be in the lower half of the multi-year 3-5% range and will be second-half weighted. While we expect an improvement from the fourth quarter of 2019 into the first half of 2020, first half underlying sales growth will be below 3%. The impact of the coronavirus outbreak is unknown at this time. As we near the completion of our three-year strategic plan, we expect continued improvement in underlying operating margin and another year of strong free cash flow, remaining on track for our 2020 goals.”

Investor notes

Following the update, Unilever shares rallied 2.02% or 89.50p to 4,527.50p per share 30/01/20 16:36 GMT. Analysts from Liberum retained their ‘Buy’ stance on Unilever stock. The Group’s p/e ratio is 22.23, their dividend yield is modest at 2.99%.

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Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.