Unilever’s ice-cream business hive-off: Should HUL follow its parent’s exit?

Last week, Hindustan Unilever Ltd (HUL), in which that MNC has a majority stake, said it would set up a panel to review ice-cream prospects in India. This was taken as a signal of the Indian unit following suit.

Also read: HUL forms independent panel to review ice cream business post Unilever’s spin-off plans

Would-be buyers are reportedly in warm-up mode for a bidding contest for a ‘fridge-biz’ that has a big cat’s scoop of India’s emerging ice-cream market.

Apart from Nestle India, fizzy-drink bottlers and quick-service chain operators RJ Corp and MMG Group may be keen to snap up Kwality-Walls and other brands.

Should HUL offload its ice-cream business, it would be parting with a brand that’s often the first encounter of urban Indians with any of its promotional signage, thanks to a vast network of push-carts that give significantly large numbers a livelihood.

Unilever offered the rationale of business efficiency for its decision to shed ice-cream operations, 14% of its €60 billion topline last year.

While it needs to focus on “a portfolio of unmissably superior brands with strong positions in highly attractive categories that have complementary operating models," it said, its ice-cream model was not aligned with others, given its seasonality, supply-chain complexity and greater capital intensity.

This explanation seems to echo what some equity analysts have argued: Unilever is a player in such disparate markets that it would generate more value for shareholders overall if it splits itself up into its constituent operations, each listed separately.

Also read: How HUL's Rohit Jawa plans to beat India's clock speed

Its board, however, sees synergy across its four other business groups focused on the global markets for beauty and well-being, personal care, home care and nutrition.

The MNC has made no reference to any other factor, not even the hot potato that Ben & Jerry’s (B&J) ice-cream became for its open sympathy for people in “Occupied Palestinian Territory," Gaza and the West Bank. Unilever had acquired B&J in 2000 on a pledge to let its managers uphold its own brand values.

Edgy activism was part of its identity. But the public stance it took in 2021, seen as anti-Israel, appeared to put it at odds with its owner after it set off a diplomatic row and stirred calls in the West for people to boycott all Unilever products.

Given the Gaza War that broke out last October, Unilever’s dilemma over B&J’s freedom must have intensified.

Should HUL also sell its ice-cream venture? Not only has it been a success, the logic offered by Unilever is arguably weaker in an emerging market like India, where the heft of HUL’s distribution network spells an advantage across FMCGs and its corporate backing offers a stamp of quality that stands out in a crowd of offerings.

Since its top ice-cream brand has always been hyphenated, it could easily drop Walls and continue to sell ice-cream under Kwality, which was India’s market leader before HUL bought it. Moreover, losing access to Unilever’s research labs need not be a setback so long as local efforts can plug that gap.

Also read: HUL: Gradually improving outlook to test investors’ patience

In short, it’s unclear if HUL should follow Unilever out of this promising market—unless it must, willy-nilly. But then, HUL is also answerable to Indian shareholders, and what’s good for Unilever globally needn’t be good for India.

An exit therefore deserves due deliberation. Many of HUL’s successes can be attributed to the autonomy it had before India re-opened its economy to foreign investment. On ice-cream, like a big cat that won’t be caged, it should think for itself.