Why Refreshments Will Be Unilever’s Fastest-Growing Segment Going Forward
Unilever’s Refreshments segment saw revenue declines in recent years before bouncing back in 2016 to $11.1 billion. The company’s market share in the refreshments space declined from 5% in 2012 to around 3.5% in 2016. This was due to rising competition globally. Unilever saw increasing competition from organic food brands and alternative diet products to its Slim-Fast brand. Meanwhile, the company’s ice cream sales also took a dive, as consumers became more health conscious. In fact, global ice cream sales fell 16.7% year-over-year (y-o-y) in 2016. However, there was strong growth in luxury products such as gelato and dairy-free products made with soy milk, for instance. These higher-priced, high-margin products helped Unilever’s Refreshments business bounce back in 2016. The company is also building its presence in the premium tea category with brands such as T2, Pure Leaf, and other specialty teas, in order to boost growth in the beverage market as well.
Unilever is the leader in the global ice cream market and accounts for 22% of the total market. Despite the current slowdown due to rising health awareness, the global ice cream market is expected to hit the $89 billion mark by 2022, growing at an annual average of nearly 5%. Factors such as growth in premium products and growing consumption in emerging markets (India and China) could help the company pick up its growth in this segment.
We expect Unilever’s Refreshment business to grow in the mid-single digit range in the near term, primarily benefiting from premium brands, partially offset by disappointing summer ice cream sales. We forecast Refreshments revenue to grow at a compounded annual growth rate (CAGR) of 7% through 2022, faster than the revenues from other segments, which we expect to grow at a combined CAGR of around 4%.