Sale of Unilever’s global tea business unlikely to have immediate impact on Ceylon Tea

• Ceylon Tea makes up around 30-35 percent in Lipton blend being dominant origin
• But worries remain over new owner changing Lipton composition
• “If they change the composition, Ceylon Tea will be the biggest looser.”- TEA Chairman

By Nishel Fernando 
The proposed disposal of Unilever’s global tea business including Lipton brand to CVC Capital Partners is unlikely to impact Sri Lanka’s tea industry in the short-term, but it may pose challenges and opportunities for the industry in the long run depending on future directions of the new owners, experts say.

 Unilever recently announced that it had reached an agreement with CVC Capital Partners to sell its global tea business coming under Ekaterra for US$5.1 billion. The entity hosts a portfolio of 34 tea brands including the most popular, Lipton, which has deep roots to Ceylon Tea.

However, the transaction excludes Unilever’s tea business in India, Nepal and Indonesia as well as Unilever’s interests in the Pepsi Lipton ready-to-drink tea joint ventures and associated distribution businesses.
Completion of the transaction is expected in the second half of 2022.

With approximately US$ 3.6 billion in annual sales, Ekaterra is the largest tea firm accounting for one tenth of the total global tea market. Ekaterra purchase 5 percent of the world’s tea output from a range of countries including its own plantations in Kenya, Tanzania and Rwanda and a factory in Turkey that processes the tea bought from tea farmers.

With a focus on mass-market black tea bags, Lipton remains as the largest tea brand in the world. 

Ceylon Tea makes up around 30-35 percent in Lipton blend being the dominant origin, and Lipton accounts for less than 10 percent of Ceylon Tea exports, as per industry estimates.

However, a leading tea broker stressed that the impact of Lipton is still very strong on certain origins of Ceylon Tea such as Dimbulla and Western High grown teas as well as some Uva tea varieties. 

Sharing his views, Tea Exporters Association (TEA) Chairman Sanjaya Herath noted that the proposed sale is unlikely to impact Ceylon Tea prices and exports in the short-term, while long-term impact would remain on the direction of the new company.

 “It’s little too early to comment as to whether there will be an impact. I doubt there will be a much impact. There won’t be any change in the short-term,” he said.

However, he recalled that when the Tata Group bought popular tea brand Tetley in 2000, it gradually reduced the dominant Ceylon Tea component in its blend by replacing it with cheaper Indian tea origins. Therefore, he noted that a similar situation couldn’t be ruled out in the long term.

“If they change the composition, Ceylon Tea will be the biggest looser,” he added.

Mass-market black tea bags segment has been in a consistent decline almost in all developed markets where Ekaterra has a dominant presence. 

Unilever’s black tea retail sales experienced a decline of US$ 27 million from 2015 to 2020 in developed countries, despite the renewed interest on black tea created by the pandemic. Therefore, experts view that Ekaterra would need to deploy a different strategy in order to effectively compete globally.

A tea broker blamed Unilever for its price-focused approach for the current state of the Lipton brand.

“Some in the global tea business felt that Unilever is responsible for making tea  a yellow label thing through generalisation of tea and bringing under one brand.  The future of tea should not be about selling at the cheapest price by making farmers and workers to starve,” he said.

CVC Capital Partners in its press release last week assured their commitment for sustainable development.

“Ekaterra is well positioned in an attractive market to accelerate its future growth, and to lead the category’s sustainable development. We look forward to working with the team to realise ekaterra’s full potential,” CVC Capital Partners Managing Partner Pev Hooper said.