Deal or no deal: Unilever's potential Skippy sale
Skippy sale on the cards as Unilever "evaluates options"
Consumer goods giant Unilever is "considering options" - including the potential sale - of its Skippy peanut butter brand in the US and Canada. The news has sparked fresh speculation that the group will ultimately sell off larger chunks of its food portfolio, which could lead to an eventual split. With Unilever insisting it "remains committed" to food, Katy Askew looks at the strategic rationale behind the possible sale.
Earlier this month (4 October), Unilever confirmed it is "exploring options" for its North American peanut butter brand and pantry staple Skippy.
A spokesperson for the consumer goods giant told just-food the "ultimate objective will be to identify the best way forward for Skippy's continued growth and profitability and for it to remain an iconic, consumer-loved brand."
These "options" include - but are not "limited to" - a potential sale, the spokesperson emphasised.
The news comes on the heels of Unilever's move to sell off its US frozen foods business, including the Bertolli and PF Changs brands, to ConAgra in July for US$265m. If Unilever does sell Skippy, which accounts for around 4% of the group's US retail sales, the company would have off-loaded units that account for a total of around 8% of US retail sales.
The brand generated full-year sales of around US$300m in 2011 and, according to analyst estimates, the disposal of Skippy is expected to generate proceeds of between US$300-400m.
While Unilever has insisted it remains committed to the food side of its business, it has focused its attention largely on its faster-growing personal care and household products business which has a strong presence in emerging markets and boasts an organic growth rate of about 10%.
The group has made a number of acquisitions in this space, while simultaneously trimming back its food portfolio in a series of divestments over the past four-to-five years.
"Overall I think they are cleaning up the portfolio," Kepler Capital Markets analyst Jon Cox tells just-food.
According to Cox, for the time being at least, Unilever seems "happy to take the cash flows generated by the food business to invest in expanding its home and personal care business, specifically in emerging markets".
However, he adds that this process will mean that food will increasingly become "less relevant".
"Ultimately I think there is the potential for the disposal of all of the food business, maybe starting with spreads," he suggests.
According to Euromonitor senior company analyst Ildiko Szalai, even if food is "becoming less relevant" to Unilever it still represents a significant proportion of the business. In the first half of this year, food generated almost one-third of sales, although volumes were down 1% in the period.
"With food at 28% [of sales] they really have to deliver the same results, with both home care and personal care growing at about 10% in organic terms," she tells just-food. "It is very important that they get this strategy right. In products like ice cream you have to give it to them that are investing in innovation. They have lots of new products and are launching existing brands into new markets. But for example, when it comes to the US or western Europe, they really have to find a growth area."
In this context, the rationale behind the sale of Skippy becomes less clear. While Unilever has repeatedly insisted it is committed to the food side of the business, the company has suggested that it is divesting non-core, slow growth food brands in order to streamline its portfolio. However, according to figures from Euromonitor, Skippy is a strong brand in a relatively high-growth category.
Skippy is the second-largest brand in the nuts and seeds spreads category, with 17% value share. Additionally, the category itself is expected to report a compound annual growth rate of 2.6%, or in value terms $200-230m, over the next five years.
"This is a dynamic category if you think that ice cream is expected to grow by just 0.4% in the same period," Szalai emphasises. "This was a dynamically growing brand and category for Unilever in a market where core operations are actually going to contact over the next five years."
It seems likely then than the motivation for the sale comes from issues surrounding margins at Skippy. Another likely factor is Unilever's ability to generate synergies between Skippy and the rest of its operations in North America.
It is likely that Unilever will not be short of suitors for Skippy. The brand commands the second-largest market share behind JM Smucker, meaning that the US jellies and spreads maker can likely be ruled out of the running due to competition concerns.
An argument for the split was that it would enable Kraft to focus on acquisitions that are specific to its expansion needs. Kraft management also highlighted that it intended to expand its Planters nut brand, emphasising the strong growth prospects that the nut category offers. However, it is unclear whether a link-up with Skippy would be appealing for Kraft as it could cannibalise sales.
Meanwhile, ConAgra - which has indicated it is aiming to drive growth through m&a - could again be interested in another Unilever asset. Through the acquisition of Skippy ConAgra could potentially augment its Peter Pan peanut butter business.
And, as ever in food industry disposals, it is quite likely the US's second-biggest peanut butter brand could have sufficient scale to spark interest from private-equity quarters looking for stable returns and growth prospects that are ahead of the US food sector average.
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