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Unilever's Strategic Resolve Amidst Ice Cream Business Shake-Up in Russia

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Michael Chen

May 16, 2024 - 11:25 am

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Unilever Maintains Russian Ice Cream Production Amid Global Unit Shake-Up

Unilever's Ice Cream Brands

In an unexpected turn of events, Unilever Plc has announced its intention to continue producing Cornetto and Carte D’Or ice cream in Russia. This decision comes despite the consumer goods giant's recent move to offload its worldwide ice cream segment as part of a significant company reorganization.

In March, Unilever revealed plans to either sell or separate its ice cream division, which includes renowned brands such as Ben & Jerry's and Magnum. This section of the business essentially reported revenues close to €8 billion (approximately $8.7 billion) the previous year. Nevertheless, Unilever has made clear that its Russian ice cream operations, which hold net assets valued at nearly €600 million inclusive of four production facilities, will not be included in the proposed spin-off or sale.

A spokesperson stated on a Thursday that the Russian division stands in isolation from Unilever's broader network, ensuring its exclusion from the sell-off strategy.

The Russian subdivision's exclusion comes at a poignant time as Unilever confronts increasing pressure to withdraw from Russia, particularly in light of the ongoing conflict with Ukraine, which has persisted into its third year. Despite these difficult circumstances, the company has taken a different route. Under the stewardship of former Chief Executive Officer Alan Jope and now succeeded by Hein Schumacher, Unilever ceased promotional activities in Russia. Additionally, the corporation suspended the import and export of its products to and from the country.

The Role of Inmarko in Unilever's Russian Operations

The cornerstone of Unilever's ice cream production in Russia is Inmarko. Acquired in 2008, Inmarko manufactures a series of popular ice cream products including Magnat, Russia's answer to Magnum, and a twisted ice treat akin to Twister by the name of Max. Alongside these, it also produces a selection of ice creams that draw from Soviet traditions under the Golden Standard brand. Prior to its acquisition by Unilever, Inmarko reported €115 million in annual sales in 2007. At the time, Paul Polman, who was CEO, praised the acquisition stating it "filled an essential void in a vital market."

The Dilemma Faced by Multinationals in Russia

Following Russia's widely denounced invasion of Ukraine, international conglomerates like Unilever felt a moral and political urgency to condemn the actions. However, the task of unloading assets within an environment labeled as originating from "unfriendly countries" presents extraordinary challenges and is further complicated by hefty exit taxes. Notably, corporations such as Mondelez, Nestle, and Procter & Gamble have preserved sizable ventures within Russia. A core argument made by some of these corporations against pulling out is that such an act would equate to conceding their establishments to associates of President Vladimir Putin.

In February, Unilever undertook a meticulous examination of its Russian business, which culminated in the conclusion that measures initiated at the commencement of the conflict had effectively minimized the economic benefit funneled to the Russian government. Data obtained from Russia's tax website reveals that Unilever saw a 5% uptick in sales within Russia, amounting to 62 billion rubles (around $680 million) last year. Simultaneously, tax payments on income elevated by 7% to reach 2.8 billion rubles.

Despite the complex geopolitical landscape, Unilever's perseverance in the Russian market underscores the intricate balancing act that multinational corporations must perform—weighing ethical stances, shareholder interests, and pragmatic business operations. As Unilever navigates through these turbulent waters, its decision to sustain its Russian ice cream production has become a poignant example of how global businesses cope with international crises.

The ongoing operations of Unilever in Russia, specifically those that concern ice cream production, shed light on the broader industry dilemma of engaging in markets that are subject to political upheaval and public censure. The decision to maintain a stronghold in such markets comes under scrutiny, as it poses questions regarding corporate governance, social responsibility, and the implications of remaining present in regions with contentious political dynamics.

Ethical Considerations in Emergent Markets

The survival strategy adopted by companies like Unilever in Russia may be influenced by several factors, from the practical difficulty in finding buyers for their assets to the potential loss incurred from imposing sanctions, including exit taxes. The tacit economic support these operations provide to the local economy contrasts with the international community's efforts to isolate the Russian administration through economic sanctions. This juxtaposition poses serious ethical dilemmas for these companies' leadership and their stakeholders.

Furthermore, the underlying value of the assets held by Unilever in Russia, such as the Inmarko brand, and the sustained profitability underscore the complexity of making business decisions that have both financial and ethical dimensions. The preservation of employment for local staff and the continuation of providing consumer goods to the Russian populace could arguably represent responsible corporate behavior. However, it also leaves corporations open to criticism for indirectly buttressing a regime facing widespread condemnation.

Future Trajectory of Unilever’s Global Ice Cream Business Realignment

Looking ahead, Unilever’s decision to detach its global ice cream business, except for the Russian division, is a bold strategic move that seeks to streamline the company’s operations and allocate resources more efficiently. By focusing on areas with the most significant growth potential and innovation capabilities, Unilever is aiming to create a more agile and responsive business structure that can better navigate the rapidly changing consumer goods landscape.

This realignment also allows Unilever to concentrate its efforts on other thriving segments of its portfolio, potentially freeing up capital for investment in high-growth areas such as plant-based foods and sustainable products, which align with shifting consumer preferences and the company's long-term sustainability goals.

Reactions and Outlook on Unilever’s Continued Presence in Russia

The revelation of Unilever’s strategies, marked by its steadfastness in the Russian market, may resonate differently among various stakeholders. Investors may view the maintenance of the profitable Russian branch positively, considering its healthy balance sheet and the challenge of extracting value in a politically charged market. Meanwhile, advocacy groups and consumers with ethical concerns could perceive the company’s actions as an affront to the efforts aimed at holding the Russian government accountable.

In an era where corporate actions are increasingly scrutinized through the lens of social responsibility, the delicate approach that Unilever is taking reflects broader corporate conundrums when operating in politically complex environments. The juxtaposition of economic pragmatism and ethical considerations continues to spark debate and will likely shape the future of global corporate strategies, particularly in industries with significant international footprints.

Inmarko's Cultural and Economic Impact in Russia

Delving deeper into the business activities of Inmarko, Unilever’s Russian ice cream subsidiary provides an interesting perspective on the significance of local branding and the role that traditional products play in maintaining market share in specific regions. The Golden Standard line of Soviet-style ice creams is not just a commercial product but also a cultural phenomenon, connecting consumers to a sense of nostalgia and heritage, which is a powerful driver in maintaining brand loyalty.

Inmarko’s ability to blend iconic global brands with local favorites, as seen with Magnat and Max—equivalents to Magnum and Twister, respectively—illustrates the sophisticated marketing strategies multinational corporations can employ to ensure a strong market presence. This localization of product offerings underscores the tangibility of global corporate business strategies and their capacity to adapt to distinct cultural preferences.

Conclusion: Navigating Unchartered Business Territory

Unilever’s predicament and ultimate decision to stay put in Russia, despite the geopolitical headwinds, underline a complex scenario where multinational corporations must navigate uncharted business territory. The ongoing Russian operations, especially within the ice cream sector, exemplify how companies can wield strategic flexibility to preserve their interests while grappling with multifaceted moral questions and public opinion.

While the future of international business amid geopolitical conflicts remains uncertain, Unilever’s case offers valuable insights into corporate resilience, adaptability, and the enduring need for nuanced decision-making. The evolving situation will continue to offer a powerful case study on balancing the intricate interplay of commerce, conscience, and community for businesses across the globe.

©2024 Bloomberg L.P. For more information on Unilever and its operations, please visit Bloomberg.