Unilever will seek to address headwinds in its ice-cream business this year after a poor performance in 2023.
The segment, which makes up 13% of group turnover, booked €7.9bn ($8.5bn) in revenue for 2023, relatively flat at up 0.5% on 2022, the consumer-goods giant announced today (8 February).
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Unilever’s closely-watched measure of underlying sales growth (USG) was up 2.3% in the ice-cream category last year but volumes dropped 6%.
Ice-cream turnover in the fourth quarter sat at €1.2bn, a 0.2% decline on the year prior. USG was also down 0.4%, while volumes dipped 0.8%.
The underlying operating margin for the category dropped by 90 basis points to 10.8% as a consequence of low gross margin from cost inflation “and volume deleverage outstripping pricing”.
Speaking to analysts on today’s results call, CEO Hein Schumacher said it had been “a disappointing year for ice cream,” which had witnessed significant consumer downtrading to private-label products.
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By GlobalDataThe company saw a marginal decline for in-home ice cream, which makes up 60% of the category business, recording a “high-single-digit” drop in volumes, “broadly offset by pricing”.
Unilever’s out-of-home ice-cream products saw “high-single-digit” growth, aided by “strong pricing”, which was “partially offset by some volume decline”.
Magnum and Cornetto ice creams, two of Unilever’s core so-called power brands, produced close to 85% of the ice-cream unit’s turnover in 2023.
The company said it intends to continue focusing its resources on those brands in the year ahead, with them being “well positioned to meet consumer’s desire for superior and indulgent ice cream”.
Speaking on how the company plans to tackle the weak performance, Fernando Fernandez, Unilever CFO, said: “We are taking actions to restore competitiveness in the category. We start to see benefits of a sharpened pricing and promotional strategy in the United States that brought in-home volumes back to positive territory in the fourth quarter.
“A difficult year calls for reflection and then action. We have put in place a new leadership team led by Peter ter Kulve, who has great experience in the category. This team is reviewing the end-to-end economics of the business with a goal of improving operational grip and productivity.”
Last year, Unilever made a full restructure of the ice-cream team, slimming down the size of the executive group and “replacing 80% of country and regional leaders”, Schumacher said.
The group signalled intensions to reorganise its management last December.
When asked whether the company had seen downtrading in ice cream in the US, Schumacher said: “No, I wouldn’t say so”, adding that the market has “a different dynamic”.
The company’s increase in “promotional intensity to address competitiveness” was showing promise, he said. “I feel with the numbers we’re getting that’s working, and volumes…will turn to positive in North America in Q4”.
Speaking on product pricing, he said: “Clearly, we will price competitively in ice cream and we’re very determined on that” but the CEO stressed that certain ingredients like cocoa and sugar “remain inflationary”.
He continued: “The actions in ice cream should really come from a much stronger execution, a new look at the total supply chain and transforming our distribution and our network into a very competitive set.”
Unilever booked a total group annual turnover of €59.6m, down 0.8% year-on-year, which reflected an “unacceptable” level of competitiveness, said Fernandez.
Operating profit declined 9.3% to €9.8bn while net profit was down 13.7% at €7.1bn. The operating margin dropped by 150 basis points to 16.4%.
Like ice cream, Unilever’s nutrition business also saw a negative impact from input-cost inflation which resulted in higher pricing.
The unit, which produces brands including Knorr stock cubes and Hellmann’s mayonnaise, recorded €13.2bn in revenue in 2023, a 5% drop on 2022.
Underlying volume growth dropped 2.2% in the segment, though sales growth increased 7.7%.
Nutrition took the largest hit in Europe, the company said, due to “continued cost inflation, the targeted exit of unprofitable SKUs and private label share gains, impacting both volumes and profitability”.
