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EA players alert as US equity firm buys out Unilever spreads business

Monday January 15 2018
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KKR has bought Unilever’s spreads business — which includes Blue Band margarine —for $8 billion. FILE PHOTO | NATION

By MARYANNE GICOBI
By KENNEDY SENELWA

US-based private equity firm KKR looks set to stir East Africa’s spreads market after it bought Unilever’s margarine business, which includes the Blue Band brand.

In the deal, which was concluded last month, Unilever agreed to sell its spreads business for $8 billion to focus on faster growing food and personal care products.

High margins

The New York-based private equity group was attracted to the transaction by high margins estimated by industry players at above 20 per cent.

“The East African region as well as the Europe, Middle East and Africa (EMEA) region as a whole should expect a more aggressive go-to-market strategy from the new owners of Unilever spreads, KKR,” said a research analyst at AIB Capital Victor Koech.

Besides the Blue Band range (Blue Band Gold and Blue Band Spread), KKR will also take over other Unilever spreads like Flora, Rama, ProActiv, Becel, Country Crock and I Can’t Believe It’s Not Butter.

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Unilever declined to comment on how the acquisition will affect its approach to the market until the transaction, set for completion in June this year, secures regulatory approvals.

“At this point we cannot comment on anything outside the information in the press release due to the ongoing regulatory process,” said Unilever public relations officer Patrick Muchiri.

Sources close to KKR said the firm is hoping to push sales by fronting the health benefits of margarine to consumers, including its low saturated fat content and the fact that it is not derived from dairy products.

“We should expect the new owners to concentrate on the emerging markets as they seek to maximise their returns from the acquisition. KKR may also seek to bring aboard healthier and natural alternatives under the same brand,” the source said, adding that the competition was unlikely to react aggressively to KKR’s entry, given that the margarine segment was on the decline, and Unilever was losing market share to smaller rivals.

But leading players in the East African spreads business said they expect competition in the segment to intensify as each company moves to consolidate its market share and brand visibility.

“It is too early to tell how the market will change upon KKR’s entry since the private equity firm is a new player in the spreads business. Our focus is to grow a niche market in the region,” said Bidco chairman Vimal Shah.

Bidco plays in the segment under the Gold Band and Biddy’s trademarks.

Kapa Oil which competes with Unilever and Bidco through its flagship Prestige Margarine could not be reached for comment.

Differentiation

“Market activation, pricing, quality and innovation are key drivers for competitors. Specific packaging and labelling for each market including use of Kiswahili in Tanzania will be key differentiators,” an industry insider said.

Differentiation has been going on in the market in the face of falling sales brought about by alternative spreads such as butter, honey and unprocessed make-dos like avocado. Honey and butter sales have been rising by about 15 per cent annually while those of spreads have been slowing down by about two per cent.

Weakening consumption of bread over health and cost concerns have also contributed to the poor sales outlook. Companies have also been introducing smaller packages that cost less in order to compete in all income segments.

However, consumers could benefit from diversity and innovations as KKR injects resources into the business unlike Unilever which was under pressure from shareholders to cut costs. Unilever said it would distribute proceeds from the transaction among shareholders unless promising acquisitions came up.

Unilever put the spreads business up for sale in April last year following the attempted hostile takeover by Kraft Heinz for $143 billion, including for its other products like Persil powder soap, Dove bathing soap and Knorr food seasoning.

Last year Unilever bought upcoming brands like Tazo tea, Sundial Brands and Carver Korea.

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