Unilever likely put Lipton Tea on the block amid slowdown in demand

As the flat white trounces black tea, Lipton owner Unilever is weighing a sale of one of its best-known brands.

The Anglo-Dutch giant initiated a review of its global tea business, which includes the more than century-old label and generates sales of almost 3 billion Euros ($3.3 billion). The move comes after the company’s slowest quarterly growth in a decade.

Unilever is following a consumer shift to coffee as a primary source of caffeine, with takeaway cafes proliferating from London to Beijing and capsule-spewing espresso machines supplanting kettles on kitchen counters around the world.

In the UK, almost 900 million fewer cups of tea were drunk over the 12 months through May 2018, according to trade publication The Grocer. Even those who eschew coffee are giving a pass to the traditional cup of English Breakfast or Earl Grey, opting for herbal alternatives.

Demand for black tea has been “slowing in developed markets for several years due to changing consumer preferences,” Chief Financial Officer Graeme Pitkethly said on a call. The strategic review “could include a whole range of options — no ownership, partial ownership.”

The review accelerates Chief Executive Officer Alan Jope’s restructuring of the owner of Dove soap and Ben & Jerry’s ice cream, which has been hurt by sluggish demand for big brands. Under predecessor Paul Polman, Unilever sold its margarine and spreads business to KKR & Co. for about $8 billion. The company tried to profit from growth in herbal tea by acquiring the Pukka brand in 2017.

The shares rose as much as 1.6% early Thursday in Amsterdam. The tea review is expected to conclude by midyear.

The company posted 1.5% growth in underlying sales in the fourth quarter, just above a consensus analyst estimate but still the slowest in a decade. For the full year, sales declined 0.5% in the developed world as shoppers switched to supermarkets’ own-label products and higher-priced niche products.

Rival Nestle SA, which has a portfolio of coffee brands including Nescafe and Nespresso, has also launched a sweeping overhaul of its overall lineup, including recent deals to divest portions of its luncheon-meat and ice cream businesses. In 2017, Starbucks Corp. announced that it would close all of its 379 mall-based Teavana stores due to persistent underperformance.

Unilever’s strategic review of tea suggests there might be “wider action on the portfolio,” Jefferies analyst Martin Deboo said in a note.

Jope has been quicker than his predecessor to rethink Unilever’s business. In 2014, Polman separated the spreads business into a standalone unit, but it wasn’t sold until three years later, after Unilever rejected an unsolicited takeover approach for the whole company from Kraft Heinz Co.

Tea has been around much longer, but now looks like it could be one of the first targets for Jope’s cull.

“It has been significantly dilutive to growth for the past ten years,” the CEO said on a call.