Specialty Foods Business Memo: Unilever is Spinning-Off it's Iconic Specialty Foods Brands Into A Separate Company; The Brands Could Be Sold

Anglo-Dutch mega-food and grocery products marketer Unilever is spinning off a number of its iconic European specialty foods brands into a separate company it's created as part of a corporate restructuring program it calls Project Chrysalis.

The global packaged goods giant will transfer 14 specialty brands produced in the United Kingdom, Germany and France into a new corporate unit based in Rotterdam, Netherlands.

Among the iconic European-produced niche brands the company is spinning off include Marmite, Bovril, Pot Noodle and Peperami spicy salami.

Other iconic European specialty brands owned by Unilever such as Coleman's Mustard, PG Tips and Scottish Blend tea will currently remain where they are under the Unilever corporate brand marketing umbrella.

The 14 specialty foods brands are mainstream lines in Europe but are niche, but strong-selling, brands in the U.S.

These and most of the other Unilever-owned specialty foods brands like Coleman's Mustard and PG Tips tea are managed and marketed in the U.S. by World Finer Foods and its Liberty Richter division, which sells them to specialty foods distributors, which in turn distribute them to supermarkets and specialty stores throughout the United States.

In other words, Unilever outsources the entire brand management, sales and distribution of these brands in the U.S. to a third party--World Finer Foods/Liberty Richter. The arrangement is similar to a franchise agreement of sorts. Unilever still owns the brands but World Finer Foods manages, sells and distributes them for a fee

In explaining the move from the Unilever corporate brand management portfolio to the new company, the food and grocery giant said doing so will provide specialized management for what it calls its "specialty jewels." The company also said the change doesn't mean the brands are for sale.

However, there is some speculation among stock analysts who follow Unilever that a sale of the 14 specialty foods brands might be in the offing.

For example, analysts at Citigroup said they believe the spin off of the niche, specialty brands is the precursor to the sale of the brands by Unilever.

In a memo, Citigroup said: "We believe that an eventual disposal of the brands within Chrysalis (the corporate restructuring program) is likely. Why else transfer a number of smaller and local brands to a separate company? We struggle to think of a reason."

Ironically, and perhaps Citigroup isn't aware of how Unilever outsources the brands' management in the U.S., the move to set-up a separate company for the 14 specialty foods niche brands in Europe is essentially what the Anglo-Dutch food and grocery company does in the U.S., by outsourcing the brand marketing, sales and distribution to World Finer Foods.

The reason Unilever and many other large food companies outsource their specialty brands' management to third-party companies like World Finer Foods in the U.S. is because although the specialty brands often do well, they are different in kind (specialty niche) and in sales volume than a large packaged goods marketer's mainline brands, and thus need a different focus, which companies like Word Finer Foods specialize in.

For example, unlike Unilever's big food and grocery brands, which are distributed directly to self-distributing supermarket chains and mass merchandisers, or directly to grocery wholesalers, the niche specialty foods' brands are distributed through third-party specialty foods' distributors.

Marketing companies like World Finer Foods specialize in this form of third-party distribution. As such, it makes good sense for companies like Unilever to outsource the functions to them, not only to use their expertise, but also to save on the additional costs it would require the company to have in order to service this third-party distribution system.

Companies like Unilever, which owns the Best Foods and Hellman's mayonnaise brands, the Knorr brand, Wish Bone salad dressing and the Lipton tea brand, along with many others, have bigger brand fish to fry than the specialty foods brands. Therefore, outsourcing them is a good arrangement for the company.

Unilever's Project Chrysalis is an ongoing corporate restructuring program within the company, in which various brands, business units and ways of doing business are being evaluated. The goal is to create better efficiencies, reduce costs and increase sales and profits.

Thus far, the restructuring project has resulted in the consumer packaged goods' company's selling of a number of smaller brands such As Boursin Cream Cheese and others, which Unilever decided didn't fit into its core business strategy.

Additionally, Unilever sold its Brazilian margarine business last year, and is currently completing the sale of its U.S. herbs and spices division, and has put its U.S. laundry detergent brands up for sale.

Unilever also recently announced it will cut 20,000 jobs globally over the next four years. That too is a result of the Project Chrysalis corporate restructuring program.

Specialty brands like Marmite and Bovril for example have major brand equity in the United Kingdom, where they are produced, as well as throughout Western Europe.

The two brands and many of the 12 others Unilever is spinning off into the new company also are popular specialty brands in the U.S., and have widespread distribution in major supermarket chains owned by Kroger Co., Safeway Stores, Inc., and SuperValu, Inc., as well as in most regional chains and independents.

Wal-Mart, Target and other mass merchandisers also sell many of the iconic, niche brands in their Supercenters and SuperTarget stores, as do thousands of specialty stores across the U.S. and elsewhere in the world like Australia and Asia.

If the 14 specialty foods brands are put up for sale by Unilever, numerous companies in the specialty foods' space would be interested in acquiring them.

Compared to many specialty foods brands on the market, the iconic Unilever-owned brands have much stronger brand equity, along with widespread distribution and strong sales performance, compared to the category average.

Therefore, although merely small potatoes to Unilever, the 14 iconic specialty foods brands would be a big enchilada to numerous companies should Unilever put the brands' up for sale.