Why HUL Stepped Away from the Ice Cream Business?

Hindustan Unilever Limited (HUL) is one of the companies that has demonstrated standout operating margin growth compared to its peers over the years. Between 2013 and 2024, the company’s earnings per share increased from 16% to 24%, reflecting its evolving strategic approach. This shift has been supported by various measures, including restructuring efforts and targeted mergers and acquisitions.

HUL has adopted a strategy of focusing on core business areas and reducing exposure to segments that do not align with its operational goals. As part of this approach, the ice cream business was sold. Although this segment includes well-known brands like Kwality Walls, Cornetto, and Magnum, they were operated in a way that was very different from the rest of the company’s core operations. Ice cream requires a cold chain infrastructure, which means it needs specialized storage and transportation at controlled temperatures to maintain product quality. This setup was not typically needed for most of HUL’s other products, which rely on regular supply chains. Additionally, the distribution network for ice cream is unique, as it often involves partnerships with vendors and retailers who are equipped to handle frozen goods. These differences made it challenging to integrate the ice cream business with HUL’s existing operations.

In FY24, the ice cream segment contributed 3% to HUL’s total revenue. While it was a growing category, its operational complexity and lower integration potential with the rest of the business led HUL to demerge this segment. By doing so, the company could shift its resources and focus to its core product categories, which offer higher profit margins and better alignment with its broader strategy.

Similarly, the sale of Pureit, HUL’s water purification business, to A.O. Smith India was another strategic decision. The business generated a turnover of ₹293 crore in FY24 and was sold for ₹601 crore. This move further emphasized HUL’s goal of concentrating on its main portfolio while exiting segments that no longer aligned with its priorities.

Over the past decade, HUL has achieved a reduction in manufacturing costs. From 11.30% ten years ago, these costs now stand at 6.19%, reaching their lowest level. This focus on efficiency has been a key factor in the improvement of operating margins, which have risen from 16% to 24% during the same period.

In addition to cutting costs, HUL has pursued mergers and acquisitions to strengthen its portfolio. By acquiring smaller companies within its core categories, the company has used its larger scale to achieve cost efficiencies and operational synergies. This strategy has allowed HUL to consolidate its position in its core markets.