Once again, the subject of Unilever’s presence in food has returned to the headlines but, while company observers believe the FMCG giant will leave the sector at some stage, they argue the Hellmann’s maker shouldn’t dash for the door just yet.
This publication feels like it’s been writing about Unilever’s future in food for almost two decades. In his ten years at the helm, former CEO Paul Polman talked often about “weeding and feeding” the company’s food operations – offloading some brands and investing in others as a way of driving growth from that side of the business. The Dutchman presided over a series of disposals – from Skippy and Slim-Fast to larger divestments in areas like spreads and tea – and regularly faced questions about Unilever’s future in food.
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The debate has continued under his successors as Unilever continued to sell or hive off assets in food, including more recent moves like the deals to offload The Vegetarian Butcher and Unox, or, more strikingly, the listing of its ice-cream business as The Magnum Ice Cream Company in December.
Yesterday (17 March), Bloomberg reported Unilever is weighing up a separation of its remaining assets in food, which, after the ice-cream flotation, centre on the Hellmann’s, Knorr and Horlicks brands, with a range of other, smaller businesses like Colman’s and Marmite in the UK.
Citing unnamed sources, Bloomberg reported the deliberations are in their early stages and feature a number of options, including separating all its assets in food, or just some of them. The company may not push on with any move before 2027, the publication added. Unilever declined to comment when approached by Just Food.
And, surveying the reaction in the City this morning, there appears to be a school of thought that believes Unilever’s long-term future does lay outside food – but that the company should, for now, focus on improving the performance of the division (and the wider business) before embarking on another major reshaping of its portfolio so soon after the ice-cream IPO.
“We have always felt that eventually it will become a pure-play HPC company. However, the mechanism of how it gets there remains a thorny and complex issue, so it needs to tread carefully to find the route that creates the most shareholder value,” Barclays analyst Warren Ackerman wrote in a note to clients today.
“Unilever has just completed a big piece of work with Magnum and think the focus this year needs to be delivering its algorithm and improving the performance of foods. However, assuming Unilever deliver in 2026 and hopefully with a more stable consumer backdrop, it would be better positioned to consider its options from a real position of strength.”
Unilever’s 2025 financial results were seen as solid after a fourth quarter that beat analyst expectations but the company’s guidance for this year disappointed some equity analysts.
The company said it saw its growth this year to be “at the bottom end” of its “multi-year guidance range of 4-6%”, with a “modest improvement in underlying operating margin”.
Last year, Unilever’s group underlying sales rose 3.5%. From food, they increased 2.5%. The food division now accounts for just a quarter of Unilever’s €50.5bn ($58.06bn) annual turnover.
An exit from food and a focus on home and personal care would boost the group’s organic growth. “It would make its 4-6% organic-sales-growth algo less of a stretch weighed down by a foods business which is unlikely to grow more than 2-3%,” Ackerman says. “An exit of foods would free up resources for Unilever to double down on its health and wellbeing and personal-care strategy.”
However, he notes the food division does generate stronger margins. The company’s group underlying operating margin stood at 20%, with food’s at 22.6%. “Unlike ice cream, Unilever’s foods margins are above the group average and would dilute the group underlying trading operating margin but we estimate would be broadly neutral to gross margins,” Ackerman adds.
Degroof Petercam’s Fernand De Boer, another analyst covering Unilever, says he sees a separation of the last food assets as a “logical next step” in the context of the previous moves but expresses a note of caution. “All those spin-offs in the past, for me, it’s very unclear whether that created any value really for the shareholders. It also included a lot of spin-off costs,” De Boer says.
“They just separated ice cream and I think it’s hardly creating value, in my view, so I think they should really focus on improving their own business now, delivering on their targets, instead of going for a new, complicated, demerger process.”
Asked whether Unilever should retain a presence in food, De Boer replied: “At some point, you can indeed argue whether it belongs together? That’s not the point. They simply have to show that they can manage this business properly.
“In food, in nutrition, they have a sizeable business, it’s very big in total. They have a number of very strong brands. They have good margins. So, you could separate it but I think they should be able to the maximise value of this company within Unilever. Why not? You’re talking about a large business not a small, sub-scale business.
“This was always a question – also when they announced ice cream – ‘What are you got to do with foods?’. So, I can imagine they say ‘Okay, we have this is as an agenda point and we are going to look at it.’ But they have to be honest: what did the ice cream demerger bring to the shareholders?”
It was Unilever’s previous CEO, Hein Schumacher, who announced the ice-cream divestment but current chief executive Fernandez was, at the time, the company’s CFO and his near 40-year career at the group has predominantly been outside food.
“CEO Fernando Fernandez is very much a beauty guy and the direction of travel is clear,” Ackerman says. “That said management we felt were indicating during the FY25 results that an exit of foods wasn’t something on the table in the short term and, even when it might be, it would need to be a compelling and value-accretive option. Indeed, Fernandez said that, by retaining foods, he felt that its value would only increase over time which is why we find the timing of the Bloomberg article somewhat surprising.”
In a conversation with Fernandez posted on Unilever’s YouTube channel in December, JPMorgan analyst Celine Pannuti described the group’s food business as “the elephant in the room” in the wake of the move on ice cream and asked the chief executive what “are the impediments for you to not dispose foods?”
Fernandez described the remaining food assets as “margin-accretive, cash-accretive, [with] low capital intensity”, adding: “I believe we have a food portfolio that is the envy of the industry.”
Hellmann’s and Knorr account for 60% of Unilever’s food business, Fernandez said, a figure that will rise to 70-75% once the company “completes the disposal of around €1.5bn of businesses in what I call the periphery of foods, particularly in local food brands in Europe”. He added: “This will give us a lot of optionality in the future.”
One theoretical option put forward in recent months by analysts at Jefferies was the idea of merging Unilever’s remaining food business with one of the companies Kraft Heinz was looking to create by splitting in two. That scenario – for now at least – is a non-starter after Kraft Heinz’s recently-installed CEO put the US group’s own separation on hold.
For Ackerman, there is, in any case, unlikely to be much of a clamour for a separation of the food business so soon after the ice-cream listing but he argues Unilever should, at some stage, make a move.
“The bottom line is that we don’t think there is much investor appetite for another 18-month, painful, Magnum-esque exit process. The exit of Magnum overshadowed almost everything else and was a big distraction, not to mention the uncertainty it could create internally,” he says.
“That said, at some point, Unilever will need to rip off the band aid and one could argue there is never a good time but we don’t think the timing is now given everything else going on.”
