Business

Planting conditions are noticed when Unilever’s tea sales heat up

After purchasing his first tea factory in Ceylon, now Sri Lanka, in 1890 the Scottish businessman, Sir Thomas Lipton, began to bring the drink to the masses by conveying it. it’s “directly from the tea garden to the teapot”.

The operation founded by Lipton has become the largest tea company in the world and is now well known. Unilever, which owns Lipton and other major brands such as PG Tips and Brooke Bond, is in the process of selling its tea business as growth slows.

It has partly retained the integrated business model of Lipton’s, which owns both the brand and the location of the tea business. That means any buyer of the existing division, Ekaterra, will have to decide how to handle sensitive questions about human rights and fair pay across the three major plantations Unilever owns. .

Private equity groups including Advent, Carlyle and CVC have bid for the division, which has annual sales of €2 billion and could make £4 billion to £5 billion, the people said. . The second-round bids are due on Tuesday, although Unilever said it still has the option of partnering or going public.

When managing sales, Unilever was looking to solve a problem that had occurred with the tea division. Its Kenyan business has released a review of claims it has failed to adequately assist workers affected by an attack on their 8,900-hectare Kericho plantation amid the violence. ethnic force in 2007.

Seven people were killed, 56 women raped and many injured in the attack, according to a complaint filed by 218 Kenyans last year with the United Nations working group on human rights and transnational corporations. United Nations special rapporteur on extreme poverty and human rights. They are seeking medical and psychological treatment and compensation.

That claim follows a failed UK civil case: Court of Appeal in London rule in 2018 that the matter should be pursued in the Kenyan courts and that the plaintiffs failed to demonstrate that the UK-based parent company Unilever was responsible for the care. The Supreme Court refused to allow the appeal.

Unilever has appointed an independent expert to run its review, one person briefed on the situation. Affected workers are hoping for an outcome this year, the person said. Another said the review is not connected to the spin-off.

Unilever said: “Although UK courts have dismissed the charges against Unilever and found that we could not have foreseen the horrific violence following the 2007 election nor were we responsible, Unilever Tea Kenya still feels that the right thing to do is to review whether any of the claimants did not receive the support the company provided to other employees at the time and, if so, compensate. for what they missed. ”

It said it would cooperate fully with UN agencies if they investigated.

The workers’ complaint says their wages were stopped for six months after the attack, while those returning to the plantation received financial help of £80, about a month’s salary. Unilever previously said it had provided “substantial assistance” to the victims, including “in-kind compensation”, replacement of destroyed property, medical treatment and advice.

Although Unilever does not own Sir Thomas Lipton’s former plantation in Sri Lanka, it does own estates in Kenya, Tanzania and Rwanda, where thousands of people live and work.

Sabita Banerji, executive director of Thirst, an international roundtable on sustainable tea, says sites like this date back to British colonial times, where plantations were set up in remote areas, bring workers and their families from elsewhere.

Workers on such estates are “completely dependent on management for their livelihood,” she said. The workers and smallholders that supply these goods, she added, are particularly vulnerable to poverty.

Unilever is part of the industry’s Ethical Tea Partnership and says it has a number of programs in place to address tea’s “social challenges”, including women’s empowerment programs that have reached 600,000 people in Kenya and India. It said wages in Kericho are “significantly higher than the tea industry average”.

It has recently come into conflict with Kenyan unions as it automates picking and reduces the number of workers.

A banker familiar with the process said these issues could still affect any sale, saying potential buyers were concerned about environmental, social and governance issues. treat. Another banker said bidders may be overemphasizing these things in their bid to buy Ekaterra cheaper.

Consultant Angela Pryce says such social issues are among the biggest challenges facing global tea brands. “Those brands are often very price sensitive. . . so it is difficult to envision an easy solution,” she said.

At the same time, the market is slowing as drinkers in more affluent markets turn to alternatives like coffee, herbal tea and kombucha.

Julia Buech, an analyst at Mintel, said black tea has experienced a “slow but steady decline” in many Western markets, only to be disrupted briefly by the pandemic.

In India and Indonesia, where consumption is growing, Unilever is maintaining its tea business and will also keep an iced tea partnership with PepsiCo. But herbal and premium tea brands like Pukka, T2 and Tazo will join Ekaterra.

The discount for Unilever is still a lot. Its shares have fallen 5.7% since Alan Jope took over as chief executive in 2019, and it is seen as a potential target for activist investors.

“Shareholders are not satisfied with the profits they receive from Unilever. . . Martin Deboo, analyst at Jefferies, said.

The tea handling will be the biggest since Jope is in charge. However, some observers say Unilever missed a trick. “It is more a case of the right strategies than the right portfolios,” said Jamie Isenwater, founding partner at fund managers Ash Park Capital, which owns the shares. . . There are many things you can do in tea. “

Additional reporting by Arash Massoudi and Kaye Wiggins

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