How food company spin-offs handle supply chains

Last month, FMCG multinational Unilever announced it was separating from its ice cream division. The company owns some of the best-known ice cream brands, such as Magnum, Wall’s, and Ben & Jerry’s, but this has not prevented the company from separating from these brands. According to consultancy Argon & Co, such spin-offs have risen over the past year.

Food companies spinning off from their parents has many clear advantages: greater control over supply chains and traceability practices, for example. But it also means weathering a transition period between the old system, controlled by the parent company, and the new one.

Brave new worldThere are benefits for both the parent company and the spun-off company. For the parent company, according to Laura Magee, associate partner at Argon & Co, it frees up funds that were otherwise tied up in the spun-off division. This was the case with Unilever, for example. For the spun-off company, it provides them greater levels of control.

“Freed from the larger parent company, spun-off companies can be more responsive to market changes, enabling quicker decision-making and innovation. Operating independently empowers these companies to refine their expertise and operational practices, leading to improved efficiency and competitiveness,” she told FoodNavigator.

In an industry such as food, where supply chains are so important, this autonomy can be crucial. “Immediately following a divesture, supply chains may remain unchanged – but the spun-off company must not become complacent.”

“Ensuring there is a thorough plan in place is critical. This transition is a golden opportunity to reevaluate and potentially reconstruct the supply chain to be leaner, more sustainable, and aligned more closely with the new company’s objectives,” added John Thorpe, partner at Argon & Co.

“Actions could include forging new partnerships, building deeper relationships with existing core suppliers, optimising distribution routes, or investing in technology for improved demand forecasting. For example, a company may choose to localise certain supply chain elements, as these can better cater for regional markets with more tailored approaches.”

One key element of the transition period between ownership and independence is ensuring that traceability remains strong. According to Magee, to do this the company in question must maintain lines of communication with their former parent company.

First, they must carry out a data audit to ensure they know what information they need to keep traceability intact. Secondly, they must obtain said data from their former parent company. Lastly, they must invest in ‘robust’ data management systems.

Spotlight on sustainabilityHowever, there is one benefit companies won’t get from spinning off, according to Magee: avoiding due diligence legislation. While the threshold for companies affected by the Corporate Sustainability Due Diligence Directive (CSDDD) is companies with 1,000 employees or over, due to its focus on large supply chains, Magee points out, all companies will need to do due diligence eventually.

“The goal of the CSDDD is to ensure that companies have frameworks in place to identify and mitigate human rights violations and environmental-related risks throughout their operations and supply chains. All companies, regardless of their size, should be committed to stamping out these issues,” she told us.

“These types of directives tend to initially target large corporations, but ultimately, they will apply to all companies. Sustainability issues are everyone’s problem and collective responsibility: applicable to both the parent company and the divested entity. Newly spun-off companies have a prime opportunity to reevaluate their value chains and redesign their processes to ensure they align with sustainable practices. Rather than evading due diligence, companies should embrace it as a means to build ethical and sustainable operational practices – benefiting processes both in their own four walls and society at large.”