Will Unilever and Ben and Jerry’s Split Impact Other B-Corporations? A Deeper Look at the Financial Performance
Recently, consumer goods giant Unilever announced that it would be separating from its Ice Cream division, helmed by premium American ice cream brand Ben & Jerry’s. The announcement, part of the company’s aggressive Growth Action Plan (GAP), essentially severs ties between the multinational corporation's ice cream brands, including Magnum, Walls, and Cornetto. The aim, per Unilever, is to have the brands become a stand-alone entity.
Initial headlines zeroed in on Ben & Jerry’s, a certified B-Corp with a history of being publicly outspoken on social justice issues. The premium ice cream brand has been at odds with its parent company several times in the past and is one of the pioneers of social justice-driven companies.
For people who watch the performance and outlook of sustainable companies and B-Corporations, this news may be alarming or potentially a sign of the vulnerability of B-corps to a very volatile market. But looking beyond the headline, we find a much more straightforward business story.
In this article, we will examine Unilever's financial performance and the current economic environment that led to this decision.
Unilever and Ben & Jerry’s: A Unique History
Before becoming a Certified B-Corp in 2012, Ben & Jerry’s was at the forefront of the socially responsible business model, often publicly committing to various causes. So it was no surprise that when they were acquired by Unilever in 2000 for $326 million, after four months of intense negotiations, the partnership was unique and driven by the ice cream maker’s commitments to social and economic justice.
Unilever agreed to several unique stipulations for the acquisition, such as committing 7.5% of Ben & Jerry’s post-acquisition profits to a foundation and establishing a $5 million fund for minority-owned businesses.
Ben & Jerry’s also established an independent board of directors, which it still maintains to this day. This unique governance structure was presented in detail in our Ben & Jerry’s Case Study in 2016.
Over the past 24 years, ideological differences have existed between Unilever and Ben & Jerry’s. Based on popular media headlines, the casual reader may infer that the companies decided to split ways after what was sometimes a rocky road. However, a holistic view of Unilever’s recent financial performance tells a much more nuanced story.
The Financial Story Behind Ice Cream at Unilever
Despite owning some of the largest food and personal care brands on the market, Unilever’s lackluster financial performance and strategic missteps hamper the company’s growth and potential. Overall performance in 2023 was flat or declining, with a nearly 14% decline in net profit. In Q3 of that year, the company reported underlying sales growth of 5.2%, with 5.8% price growth and 0.6% volume decline.
That same quarter, the company’s CEO, Hein Schumacher, hired earlier that year to overhaul Unilever's profit, culture, and innovation, announced his highly anticipated action plan (GAP). The GAP focuses on accelerated growth, a simpler brand portfolio, and building back gross margin.
The decision to spin off Ice Cream becomes much clearer with that additional context. Ice Cream, as a whole, does not perform as well as other Unilever brands; in 2023, It grew a modest 2.3% compared to Unilever’s well-being, beauty, and personal care business, which grew 8%. Additionally, the company’s profit margins in ice cream are less than half that of wellbeing and personal care. Unilever also previously identified 30 brands that account for 70% of sales, none of which are in ice cream. For a company trying to simplify, innovate, and regain its financial footing, a business with higher price elasticity and thin profit margins may pose a serious problem for long-term growth.
In a nutshell, ice cream isn’t growing as fast as other sectors. On top of that, consumers are opting out of premium ice cream brands in the wake of inflation and a looming recession.
Feeling the Pinch of Inflation and Dwindling Consumer Demand
Ice cream’s underperformance is not unique to Unilever–between inflation and consumer demand, premium products like name-brand ice cream are not a priority for the average consumer. According to reports, the prices of groceries rose more in 2022 than in the previous four decades, and consumers are paying 25% more for groceries than in 2019, outpacing inflation in almost every other sector.
Consumers are responding to these prices by trading down to save money. In a 2023 McKinsey report, 66% of consumers stated they sought out less expensive goods, and that switch was more prominent in categories such as meat and dairy. With Unilever’s portfolio carrying premium ice cream brands, the outlook is dire for growth and profitability, a fact the brand previously shared in its 2023 report:
“It has been a very disappointing year for Ice Cream with price elasticity in the in-home channel much more negative than that seen in other categories, and strong consumer down-trading to private label. ”
Coupled with ongoing financial performance issues and their aggressive action plan, cutting ice cream from the overall portfolio makes sense.
Is this Activist Investor Behind Unilever’s Decision?
The day Unilever announced the separation of the ice cream portfolio, shares were up, with some publications reporting a nearly 6% increase in share price at one point. The stock’s movement underscores another significant component of the decision to offload ice cream: keeping investors happy. Investors and analysts have been vocal about their displeasure with Unilever’s performance, and after an unsuccessful attempt to acquire pharmaceutical company GlaxoSmithKline’s consumer goods division, questions about the company’s direction arose.
Enter Nelson Peltz. Peltz, a vocal and prominent activist investor, joined Unilever’s board as a non-executive director in 2022. One of the founding partners at Trian Partners, an alternative investment management fund based in New York City, Peltz has a long history of working with consumer goods companies to increase profitability and stock performance. He has previously used his influence to institute similar changes at Invesco, Sysco, Mondelez and, most famously, Proctor & Gamble (P&G).
When the NYC-based investor and billionaire joined Proctor & Gamble’s board after a high-profile proxy war, he made similar demands: streamline and simplify. In response, the makers of Tide reorganized operations from ten to six business units and held a stable market share. The proposed changes also paid off for investors: P&G stock gained 47%, and revenue increased 20% between Q1 2018 and Q4 2022.
Investor pressure is often a driving force for significant changes like those currently underway at Unilever, and based on Peltz’s history, there may be a net positive for investors. However, that doesn't mean this is the end of ice cream.
What’s Next for Ben & Jerry’s?
While the ice cream division may not be a top performer at Unilever, it is still profitable. The collective brands are valued at around $18.4 billion. As for beloved brand Ben & Jerry’s, there are several potential go-forward strategies:
Unilever executes a demerger, where the parent company splits from the subsidiaries, and they are either liquidated or set up as a new entity. Ben & Jerry’s would remain a part of this new entity, which could potentially debut a listing in either London or Amsterdam
Ben & Jerry’s could raise capital and become a private company again, essentially repurchasing themselves from Unilever
A competitor, such as P&G or Nestle, could acquire either the entire ice cream portfolio or negotiate for one or more of the ice cream brands separately
The future is unclear, and Unilever’s announcement says that the process will take around two years to complete. Whatever the company decides, this is an excellent reminder of the importance of looking beyond headlines and analyzing the complete picture of any company’s financials and current business environment.
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