Finshots Daily
Original podcast
In today’s episode on 3rd April, we explain why Unilever is hiving off its food business by merging it with McCormick. https://ditto.sh/2cgegs
1,427 words · 1 speaker
Hello folks, you're tuned in from Charts Daily. In today's episode, we explain why Unilever is having off its food business by merging it with McCormick.
Also, here's a quick side note before we begin. This weekend, we're hosting a free two-day insurance masterclass that helps you build real financial security by understanding health and life insurance the right way. If you'd like to save your seat, then you can do so by registering with the link in the description. By the way, it's completely free. Alright, let's get on to today's story. Food is a very personal experience. There is something deeply satisfying about cooking from scratch. Picking fresh ingredients, putting together your own spice mix and knowing exactly what goes into your meal. And that is precisely why packaged food has always been a bit of a compromise. Convenient, yes. Scalable, definitely. But never quite the same. And yet, for nearly a century, companies built massive businesses around that compromise. One of them is Unilever.
Now, sure, when you think of Unilever today, it's mostly thought of as the company behind your soap, your shampoo or your detergent. Even in India, through Hindustan Unilever, the products show up in your bathroom way before it shows up in your kitchen. But honestly, that's not how the story began. When Unilever was created back in 1930, it was not around beauty or personal care. In fact, it was a merger between Liver Brothers, a British soap company, and Margarine Uni, a Dutch margarine business. Margarine is a butter substitute made from vegetable oils and for decades after that, food was not a side category, it was central to what Unilever was. For nearly a century, Unilever has been one of the most powerful food companies on the planet. Its brands like Hellmann's, Knorr and Marmite are not niche products.
They are everyday staples sitting in kitchens across continents, which is what makes its latest move so interesting. See, Unilever is now carving out its food business and merging it with McCormick and Company in a deal worth about 56 billion euros or 65 billion dollars. And to understand why, you need to look at what this deal actually does. Now, for decades, packaged food companies operated on a fairly simple playbook. Build scale, push distribution and rely on brand trust to increase repeat purchases.
When the cost of raw materials and other expenses rose, they had room to adjust. They could either raise prices gradually, shrink pack sizes or tweak ingredients. Most consumers rarely noticed, but that playbook is starting to break. Today, consumers are reading labels more closely, questioning ingredients and becoming far more price sensitive, especially for products they see as interchangeable. Which means large FMCG companies are stuck. They cannot raise prices without pushback, but they also cannot cut corners quietly without risking trust. And while this is happening, the economics are shifting. Consumers today are not just rethinking what they eat, they are rethinking everything they consume, from food to skincare to wellness. The shift is towards cleaner, more transparent products. But while that shift is opening up new growth opportunities in beauty and personal care,
it is making food harder to operate. Because improving what goes into a face cream is very different from changing what goes into something people eat every single day. This is where the gap becomes clearer. For Unilever, it's HPC segment or home and personal care. Now that is benefiting directly from the shift. The products positioned around skincare, hygiene and wellness are seeing stronger demand, faster innovation cycles and significantly higher margins, close to forty-eight percent in some cases. Food, on the other hand, tells a very different story. Its food business generated roughly twelve point nine billion euros in revenue in twenty twenty-five. Now while that looks like a large number, it lacks behind on both growth and profitability. And improving that is not straightforward.
Reformulating products is slow, taste expectations are rigid and consumers are far more price sensitive. At the same time, these legacy brands found themselves competing with smaller health-focused D to C brands. They could do things that older brands would take longer to initiate, such as cleaner ingredients, transparency and independence from using distributors, which in itself is a big win. Now sure, these small brands aren't big enough to disrupt the entire industry on their own, but what they did change was customers' expectations from the food that they're buying. This creates a different kind of pressure today. So this is no longer just about managing a portfolio, it's about choosing where to focus. And this shift hasn't happened overnight. Even in India, Hindustan Unilever sold off quality walls, its ice cream business last year. It didn't seem like much back then, now it looks like the biggest.
of a strategic reset and that is where the steel comes into the picture. Instead of selling its food business outright, Unilever is taking a more unusual route. It is spinning off the division and merging it with McCormick and Company, an American spice giant. In return, Unilever walks away with some cash and shareholders will still own close to sixty five percent of the combined company. Which means that on paper, Unilever is stepping away from food. But it will continue to benefit if it performs well, it just no longer has to run it. By handing over their operations to a specialist like McCormick, Unilever is stepping away from the harder part of the business. The part where it has to constantly fight for growth, different margins and respond to changing consumer expectations. Instead, it gets to do something much simpler.
Hold on to ownership, take cash upfront and focus on faster growing, higher return segments. And if you zoom out, the numbers make the story even clearer. The deal values Unilever's food business at about three point six times its sales and thirteen point eight times its profits. That might sound technical, but here's what it really means. This isn't a fire sale, the business isn't being dumped, it's being repositioned. Then, there's the cash. Unilever will get about fourteen billion euros, that's about fifteen point seven billion American dollars upfront. Some of that will go towards separation costs and taxes. Some will be used to bring down debt to more comfortable levels, but a big chunk, around six point nine billion dollars, is being set aside for shared buybacks over the next few years.
It's Unilever telling investors that the business it left with might actually be worth more than what the market currently thinks. Because once food is carved out, Unilever starts to look like a very different company. For separation, beauty, while being at personal care, would account for roughly sixty seven percent of Unilever's total revenues, up from fifty one percent today. The US and India alone would contribute thirty eight percent of group turnover. In simple terms, it is tailoring itself towards faster growing regions and higher margin categories. And the numbers back that up. For the past three years, this part of the business has grown at about five point four percent annually. Gross profit margins are close to forty eight percent and operating profits are around nineteen percent. Of course, this transition isn't free.
Unilever expects about four hundred to five hundred million euros in standard costs as a result of the separation with roughly five hundred in restructuring expenses spread over the next few years. There's also very temporary overlap period where both sides will rely on shared systems like IT and distribution before fully going their separate ways. But despite all that, the broader plan hasn't changed. Unilever is still targeting steady mid-single-digit growth. It expects at least 2% volume growth. It plans to keep investing in the business while also returning cash to shareholders. With a dividend payout of around 60% and about 1.5 billion euros a year set aside for acquisitions. And when you put all of that together, the picture becomes clearer. Maybe the real story isn't that Unilever is leaving food. It's just that the food business is no longer what it used to be.
And for the first time in nearly a century, even the companies that built it are starting to see it that way. All right, folks, I will see you in the next one. Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected]. Until next time.
Page updated November 10, 2026 · transcript and summary are machine-generated
