Unilever is making one of the biggest strategic changes in its modern history by reducing its exposure to food and concentrating more heavily on beauty, personal care and home care. The move is based on a straightforward investment argument: a company built around fewer, faster-growing categories may be easier to manage, more efficient to operate and more valuable to shareholders than a broad consumer conglomerate containing businesses with very different growth profiles.
The strategy has gained urgency because investors have not consistently rewarded Unilever with the valuation multiples given to more focused consumer companies. The company has traded at a substantial discount to businesses such as Procter and Gamble and L'Oreal, suggesting that scale alone is no longer enough to command a premium in the consumer goods sector. The challenge for Chief Executive Fernando Fernandez is now to prove that simplifying the portfolio can produce better growth and returns rather than merely creating a smaller company.
The proposed combination of Unilever Foods with McCormick is the centrepiece of that transformation. Announced in March, the transaction is designed to create a major global food company while leaving Unilever more concentrated on home and personal consumer categories. The deal is expected to give Unilever and its shareholders a 65 percent stake in the combined company, alongside a substantial cash payment, while transferring the operational responsibility for the food business to the new company.
The Old Diversification Model Is Losing Its Appeal
For decades, diversification was considered a major advantage for large consumer companies. A portfolio containing food, cleaning products, personal care and other everyday goods could spread risk across different markets and consumer habits. Weakness in one category could potentially be offset by strength in another, while a global distribution system could be used across a broad collection of brands.
The investment environment has changed. Investors increasingly want evidence that management capital is being directed toward businesses capable of generating stronger organic growth rather than simply maintaining a large collection of established brands. A company with several unrelated businesses can find it harder to allocate marketing, research and development spending according to the growth potential of individual categories.
That is the logic behind Unilever's restructuring. Its food operations remain profitable, but their growth has been slower than several of the company's beauty, personal care and home care businesses. The problem, therefore, is not that food is inherently unattractive. It is that a slower-growing division can influence how investors value the entire group when faster-growing businesses are contained within the same corporate structure.
The shift reflects a broader change in corporate strategy. Companies once sought maximum scale and diversification, while investors now often place greater value on businesses with clear category leadership and a more concentrated growth strategy.
The McCormick Deal Changes What Unilever Is
The food transaction is more than a disposal of underperforming assets. It changes the identity of Unilever itself. Once the separation is completed, the remaining company will be much more closely associated with beauty, personal care and home care, giving investors a clearer picture of where management intends to generate future growth.
The structure also means that Unilever shareholders do not simply walk away from the food business. They will retain a significant economic interest in the combined company created with McCormick. That allows them to retain exposure to food while giving Unilever management greater freedom to concentrate its resources on the categories it considers more attractive.
The transaction is therefore an attempt to separate two different investment propositions. The new food company can pursue scale and growth in flavors, sauces and related categories, while Unilever can concentrate on brands such as Dove, Vaseline and other businesses where management sees greater opportunities for premium products, innovation and market expansion.
That separation could make the underlying businesses easier for investors to evaluate. But it also removes some of the diversification that previously helped spread Unilever's earnings across different consumer categories.
Early Growth Gives Management Some Evidence
Unilever's recent operating performance provides some support for the strategy, although it is too early to treat the improvement as proof that the restructuring has succeeded. In the second quarter of 2026, underlying sales increased by 5.8 percent, with underlying volume growth of 5.5 percent. The company described the volume performance as its strongest in more than a decade.
The improvement was particularly visible outside food. Beauty and wellbeing recorded strong growth, while personal care and home care also delivered solid volume increases. Home care was especially strong, with underlying sales growth of 9.1 percent in the second quarter, while beauty and wellbeing grew by 8.1 percent.
Food, by contrast, was almost flat in the second quarter, with underlying sales growth of only 0.2 percent and a slight decline in volume. That contrast provides a clearer economic rationale for the portfolio reshaping than the argument that food is simply no longer profitable.
Unilever is also increasing investment behind its brands. Marketing spending reached 16.1 percent of revenue during the second quarter, while the company continued productivity measures and portfolio simplification. The combination of stronger volume growth and greater brand investment gives management an opportunity to demonstrate that the remaining business can grow without depending primarily on price increases.
Portfolio changes are easier to announce than to execute. Unilever must now demonstrate that the businesses it retains can produce sustained growth after the separation of food. Investors are likely to pay close attention to several consecutive quarters of volume performance rather than a single strong reporting period.
This is particularly important because Unilever has already undergone several major structural changes. The company completed the separation of its ice cream business in 2025 and has continued reducing its range of products and simplifying its operations. The food transaction therefore adds another major transformation to an organisation that has already experienced substantial change.
The risk is that management could create a simpler corporate structure without creating a materially better economic model. Reducing the number of divisions does not automatically improve productivity, innovation or consumer demand. The remaining businesses still face intense competition, changing consumer preferences and pressure from retailers.
Unilever therefore needs to show that simplification is producing measurable advantages. Those could include stronger market shares, faster product innovation, better marketing effectiveness, improved margins and sustained volume growth. Without those results, the argument for a higher valuation becomes much weaker.
Procter and Gamble Offers Both a Model and a Warning
Unilever's strategy resembles the restructuring undertaken by Procter and Gamble, which reduced its exposure to food and other non-core businesses and concentrated on consumer categories where it believed it could build stronger positions. That transformation eventually helped the company establish a more focused portfolio and supported a valuation premium.
The comparison is attractive for Unilever because it suggests that portfolio simplification can create value when combined with operational improvement. However, the comparison should not be treated as a guarantee. Procter and Gamble's success depended not only on selling businesses but also on strengthening its major brands, improving productivity and maintaining investment in innovation.
Unilever faces the same requirement. Its remaining portfolio contains globally recognised brands, but established brands do not automatically generate strong growth. Consumers can switch between products, private-label competition can increase and premium positioning can weaken if innovation fails to justify higher prices.
The lesson from Procter and Gamble is therefore less about divestment itself and more about what happens after the divestment. A simpler company has greater strategic clarity, but that clarity creates greater accountability because weak performance can no longer be attributed to a complicated collection of unrelated businesses.
The central question surrounding Unilever is no longer whether its portfolio can be made smaller. That process is already well underway. The more important issue is whether the remaining company can convert greater strategic focus into stronger and more predictable growth.
Recent results give management a useful starting point. Volume growth has improved, several major brands are performing strongly and investment in marketing has increased. At the same time, the company still has to prove that these improvements can continue through different economic conditions and across both developed and emerging markets.
The food separation also creates a clearer test of capital allocation. If Unilever can reinvest resources into faster-growing categories and generate better returns, the argument for abandoning the old conglomerate model will strengthen. If growth slows once the restructuring is completed, investors may conclude that the discount was caused by operational performance rather than corporate complexity.
Unilever is therefore not simply selling food to become smaller. It is testing a broader proposition about how large consumer companies should be organised. The success of that proposition will depend on whether a narrower portfolio can translate strategic focus into sustained consumer demand, stronger margins and higher returns. For investors, the coming quarters will determine whether the restructuring represents genuine value creation or simply another change in corporate structure.
(Source:www.euronext.com)
The strategy has gained urgency because investors have not consistently rewarded Unilever with the valuation multiples given to more focused consumer companies. The company has traded at a substantial discount to businesses such as Procter and Gamble and L'Oreal, suggesting that scale alone is no longer enough to command a premium in the consumer goods sector. The challenge for Chief Executive Fernando Fernandez is now to prove that simplifying the portfolio can produce better growth and returns rather than merely creating a smaller company.
The proposed combination of Unilever Foods with McCormick is the centrepiece of that transformation. Announced in March, the transaction is designed to create a major global food company while leaving Unilever more concentrated on home and personal consumer categories. The deal is expected to give Unilever and its shareholders a 65 percent stake in the combined company, alongside a substantial cash payment, while transferring the operational responsibility for the food business to the new company.
The Old Diversification Model Is Losing Its Appeal
For decades, diversification was considered a major advantage for large consumer companies. A portfolio containing food, cleaning products, personal care and other everyday goods could spread risk across different markets and consumer habits. Weakness in one category could potentially be offset by strength in another, while a global distribution system could be used across a broad collection of brands.
The investment environment has changed. Investors increasingly want evidence that management capital is being directed toward businesses capable of generating stronger organic growth rather than simply maintaining a large collection of established brands. A company with several unrelated businesses can find it harder to allocate marketing, research and development spending according to the growth potential of individual categories.
That is the logic behind Unilever's restructuring. Its food operations remain profitable, but their growth has been slower than several of the company's beauty, personal care and home care businesses. The problem, therefore, is not that food is inherently unattractive. It is that a slower-growing division can influence how investors value the entire group when faster-growing businesses are contained within the same corporate structure.
The shift reflects a broader change in corporate strategy. Companies once sought maximum scale and diversification, while investors now often place greater value on businesses with clear category leadership and a more concentrated growth strategy.
The McCormick Deal Changes What Unilever Is
The food transaction is more than a disposal of underperforming assets. It changes the identity of Unilever itself. Once the separation is completed, the remaining company will be much more closely associated with beauty, personal care and home care, giving investors a clearer picture of where management intends to generate future growth.
The structure also means that Unilever shareholders do not simply walk away from the food business. They will retain a significant economic interest in the combined company created with McCormick. That allows them to retain exposure to food while giving Unilever management greater freedom to concentrate its resources on the categories it considers more attractive.
The transaction is therefore an attempt to separate two different investment propositions. The new food company can pursue scale and growth in flavors, sauces and related categories, while Unilever can concentrate on brands such as Dove, Vaseline and other businesses where management sees greater opportunities for premium products, innovation and market expansion.
That separation could make the underlying businesses easier for investors to evaluate. But it also removes some of the diversification that previously helped spread Unilever's earnings across different consumer categories.
Early Growth Gives Management Some Evidence
Unilever's recent operating performance provides some support for the strategy, although it is too early to treat the improvement as proof that the restructuring has succeeded. In the second quarter of 2026, underlying sales increased by 5.8 percent, with underlying volume growth of 5.5 percent. The company described the volume performance as its strongest in more than a decade.
The improvement was particularly visible outside food. Beauty and wellbeing recorded strong growth, while personal care and home care also delivered solid volume increases. Home care was especially strong, with underlying sales growth of 9.1 percent in the second quarter, while beauty and wellbeing grew by 8.1 percent.
Food, by contrast, was almost flat in the second quarter, with underlying sales growth of only 0.2 percent and a slight decline in volume. That contrast provides a clearer economic rationale for the portfolio reshaping than the argument that food is simply no longer profitable.
Unilever is also increasing investment behind its brands. Marketing spending reached 16.1 percent of revenue during the second quarter, while the company continued productivity measures and portfolio simplification. The combination of stronger volume growth and greater brand investment gives management an opportunity to demonstrate that the remaining business can grow without depending primarily on price increases.
Portfolio changes are easier to announce than to execute. Unilever must now demonstrate that the businesses it retains can produce sustained growth after the separation of food. Investors are likely to pay close attention to several consecutive quarters of volume performance rather than a single strong reporting period.
This is particularly important because Unilever has already undergone several major structural changes. The company completed the separation of its ice cream business in 2025 and has continued reducing its range of products and simplifying its operations. The food transaction therefore adds another major transformation to an organisation that has already experienced substantial change.
The risk is that management could create a simpler corporate structure without creating a materially better economic model. Reducing the number of divisions does not automatically improve productivity, innovation or consumer demand. The remaining businesses still face intense competition, changing consumer preferences and pressure from retailers.
Unilever therefore needs to show that simplification is producing measurable advantages. Those could include stronger market shares, faster product innovation, better marketing effectiveness, improved margins and sustained volume growth. Without those results, the argument for a higher valuation becomes much weaker.
Procter and Gamble Offers Both a Model and a Warning
Unilever's strategy resembles the restructuring undertaken by Procter and Gamble, which reduced its exposure to food and other non-core businesses and concentrated on consumer categories where it believed it could build stronger positions. That transformation eventually helped the company establish a more focused portfolio and supported a valuation premium.
The comparison is attractive for Unilever because it suggests that portfolio simplification can create value when combined with operational improvement. However, the comparison should not be treated as a guarantee. Procter and Gamble's success depended not only on selling businesses but also on strengthening its major brands, improving productivity and maintaining investment in innovation.
Unilever faces the same requirement. Its remaining portfolio contains globally recognised brands, but established brands do not automatically generate strong growth. Consumers can switch between products, private-label competition can increase and premium positioning can weaken if innovation fails to justify higher prices.
The lesson from Procter and Gamble is therefore less about divestment itself and more about what happens after the divestment. A simpler company has greater strategic clarity, but that clarity creates greater accountability because weak performance can no longer be attributed to a complicated collection of unrelated businesses.
The central question surrounding Unilever is no longer whether its portfolio can be made smaller. That process is already well underway. The more important issue is whether the remaining company can convert greater strategic focus into stronger and more predictable growth.
Recent results give management a useful starting point. Volume growth has improved, several major brands are performing strongly and investment in marketing has increased. At the same time, the company still has to prove that these improvements can continue through different economic conditions and across both developed and emerging markets.
The food separation also creates a clearer test of capital allocation. If Unilever can reinvest resources into faster-growing categories and generate better returns, the argument for abandoning the old conglomerate model will strengthen. If growth slows once the restructuring is completed, investors may conclude that the discount was caused by operational performance rather than corporate complexity.
Unilever is therefore not simply selling food to become smaller. It is testing a broader proposition about how large consumer companies should be organised. The success of that proposition will depend on whether a narrower portfolio can translate strategic focus into sustained consumer demand, stronger margins and higher returns. For investors, the coming quarters will determine whether the restructuring represents genuine value creation or simply another change in corporate structure.
(Source:www.euronext.com)