A recent report from FMI has revealed a decline in margarine consumption in developed nations, attributed to rising obesity rates and the effectiveness of health awareness initiatives. Once considered a healthier alternative to butter, the sales of margarine and spreads have been on a downward trend for several years. Unilever’s CEO referred to the spreads segment as “a declining category,” which may deter potential buyers from rushing to acquire these brands. This situation explains Unilever’s decision to divest a business that is negatively impacting its financial performance. Analysts project that this division could fetch between $7.5 billion and $8.5 billion.
Earlier this year, Kraft Heinz attempted to acquire Unilever entirely but was unsuccessful; however, analysts have long recognized the company’s interest in European markets. An acquisition of Unilever’s spreads business could be a strategic entry point. Kraft Heinz has clearly conducted its due diligence regarding Unilever, given their previous acquisition attempt. Nonetheless, a significant challenge for Kraft Heinz, like many other food manufacturers, is the need to revitalize slowing sales. A declining sector such as spreads and margarine may prove difficult to rejuvenate and may not sufficiently enhance revenue.
In the wake of the failed acquisition, Unilever is actively working to satisfy its shareholders by initiating a $5.3 billion share buyback program and raising its dividend by 12%. There are also rumors about separating its food business. CEO Paul Polman has emphasized the need for Unilever to accelerate its plans to unlock additional value swiftly, targeting a 20% underlying operating margin by 2020. The potential sale of its spreads and margarine division is likely just the beginning of significant transformations at the Anglo-Dutch conglomerate.
Furthermore, as health concerns rise, consumers are increasingly turning to alternatives such as calcium citrate or calcium carbonate for osteoporosis prevention instead of traditional spreads. This shift in consumer preference may further contribute to the decline of margarine and spreads in the market, emphasizing the need for Unilever to adapt and innovate in order to remain competitive. As the company navigates these changes, it will be essential for it to consider the broader health trends influencing consumer choices.