Unilever Chases Consumers by Focusing on Beauty Rather Than Food

Unilever Plc is exploring the separation of its food business in a bid to refocus its efforts on the beauty, personal care, and wellbeing sectors. This move is part of a broader strategy to streamline operations and redirect resources to areas with stronger growth potential. The company is in the early stages of evaluating potential options, which may include spinning off the food division or retaining select brands.

The food segment has been under pressure due to inflation and a shift in consumer spending patterns, with more buyers opting for cheaper alternatives and fewer calories. This trend has been further accelerated by the rise in popularity of GLP-1 weight-loss drugs, which reduce overall food consumption. Unilever's food sales have also been impacted by declining demand in key markets.

The potential separation would mark a significant shift for Unilever, which has historically competed with major food companies like Nestlé and PepsiCo. A move toward beauty and personal care could transform the company into a major household and personal care player, similar to L'Oréal or Estée Lauder.

Why Did This Happen?

Unilever's pivot to beauty and wellbeing is driven by CEO Fernando Fernandez, who has emphasized these categories as key growth areas. Beauty and wellbeing products have remained resilient despite broader economic pressures, with consumers investing in skincare, vitamins, and personal care routines.

Fernandez's strategy is also shaped by broader demographic and lifestyle trends, including urbanization, increased female labor participation, and a growing emphasis on health and longevity. These factors favor the personal care and beauty markets over traditional food segments.

The food business has seen declining revenue, with turnover falling by 3.2% year-on-year to €12.9 billion in the most recent quarter. This decline reflects broader industry challenges, including shifting consumer preferences and the impact of GLP-1 drugs on food consumption.

How Did Markets React?

Unilever's stock has been under pressure in recent months, with the share price dropping by 13% from its highest point this year to 4,800p. The decline has pushed the stock below key technical indicators, including the 50-day and 100-day Exponential Moving Averages.

The stock has also fallen below the Ichimoku cloud and the Strong Pivot Reverse point of the Murrey Math Lines tool. These technical signals suggest continued downward pressure in the near term, with a potential target of 4,087p.

Despite the short-term volatility, Unilever has taken steps to return capital to shareholders. The company has launched a new €1.5 billion share buyback and raised its dividend by 3%. These moves aim to stabilize investor sentiment and support long-term confidence.

What Are Analysts Watching Next?

Analysts are closely monitoring the company's decision-making process, with a potential deal likely to be finalized by 2027. The food business could be valued in the tens of billions of dollars, attracting interest from private equity firms or other strategic buyers.

Unilever has previously demonstrated its willingness to divest non-core assets, including its ice cream division and snack brand Graze. The company has also sold off local food brands and is expected to continue this trend in the coming years.

The ultimate success of the strategy will depend on Unilever's ability to grow its beauty and wellbeing portfolio and capitalize on shifting consumer trends. If the company can generate two-thirds of its revenue from these categories, it could significantly outperform the broader FMCG industry.

The company's ongoing transformation is also being watched in the context of geopolitical and economic risks, including the impact of the Iran war on supply chains and operational costs. These factors could influence the timing and execution of any major corporate decisions.