The world’s largest tea maker is considering getting out of the tea business.
Unilever PLC is exploring the sale of its tea operations after years of weak consumption, in a sign of how changing consumer tastes are roiling some of the world’s oldest and best-known food and drink brands.
The company, which owns brands including Lipton and PG Tips, has struggled to drive growth in black tea, which makes up the bulk of its portfolio. Consumption of the drink has declined in the U.S., Europe and other developed markets as consumers increasingly reach for other types of tea, as well as coffee and bottled water.
The review of the business, which generates annual sales of about €3 billion ($3.3 billion), could lead to an outright sale, part ownership or some other structure, Chief Financial Officer Graeme Pitkethly said Thursday.
While sales to the developed world have flagged, Unilever’s tea business includes a sizable presence in emerging markets like India and the Middle East, where black tea volumes continue to grow. It also has exposure to herbal and green tea, of which volumes are also growing.
The news came as Unilever, which also owns Hellmann’s mayonnaise and Dove soap, reported anemic sales growth for the fourth quarter and said it was continuing to evaluate its broader portfolio. Underlying sales growth for the last three months of 2019 came in at 1.5%, down from 2.9% in the prior-year period, but slightly ahead of the 1.4% analysts had expected.
Unilever has tried to pivot away from black tea in the developed world, buying Pukka Herbs, a British organic herbal tea maker, and Tazo Tea from Starbucks Corp. It also bought premium Australian tea company T2, which sells pricey loose leaf in flavors like beetroot and broccoli and red chocolate mint. It has since rolled the brand out internationally.
For 2019, Unilever’s tea volumes dropped, even as prices helped buoy sales overall.
“All of that premiumization activity still is not able to make a difference because of the size of the black tea category,” said Mr. Pitkethly.
Unilever became a tea giant in 1971 when it acquired Lipton, a business founded by a young Scottish entrepreneur. In 1984, it bought Brooke Bond, the world’s largest tea company, giving it the leading position in Britain, a nation of avid tea drinkers.
Unilever has come up with new products for decades in an attempt to forestall any slowdown, including pyramid-shaped tea bags in the 1990s, which it claimed improved taste.
The company says Lipton is the world’s most popular tea brand and that over 270,000 cups of Unilever tea are brewed every minute globally. Unilever has a presence in about 20 countries, including tea manufacturing facilities. That has sometimes led to criticism of its working conditions, which Unilever has tried to combat by disclosing a full list of its suppliers.
Thursday’s announcement is the latest sign of how packaged food makers are being forced to make big changes to respond to fast-changing shopper tastes. It comes after Unilever sold its 145-year-old margarine and spreads business in 2018 for about $8 billion, after years of unsuccessfully trying to jump-start growth.
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In December, Unilever disappointed investors, warning that sales growth on an underlying basis—which strips out currency and acquisition impacts—would be below its guidance of 3% to 5% in 2019.
The company still expects growth for 2020 to be in the lower half of its 3%-5% target but said Thursday it hadn’t accounted for the impact of the coronavirus outbreak. Unilever has a large business selling food preparation products in China, and restaurants and banqueting halls have taken a big hit from the virus, said Mr. Pitkethly.
Unilever’s full-year revenue edged up to €51.98 billion from €50.98 billion. Net profit fell to €5.63 billion from €9.37 billion, as Unilever came up against a year-ago period that benefited from a large gain from the sale of its spreads business.
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Aside from tea, Unilever is battling changing tastes and rising competition in other product categories. The company has continued to struggle in North America where it is battling longtime rival Procter & Gamble Co. and others including a host of small shampoo brands.
“It’s become very competitively intense, we’ve been losing share over the course of 2019,” said Mr. Pitkethly, adding that Unilever’s Suave and TRESemmé brands were having a particularly tough time in the U.S. “To be honest our innovation program in TRESemme wasn’t very successful last year.”
Apart from slow growth and fierce competition in North America—its biggest market by sales—Unilever is also dealing with an economic slowdown in India, its largest market by volume, along with slowing demand and disruptions to distribution in Nigeria and Ghana.
On Thursday, the company said fourth-quarter underlying sales growth in developed markets declined 0.6%, compared with growth of 0.4% in the fourth quarter of 2018, while emerging markets grew just 2.8%, down from 4.5% a year earlier.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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