(Bloomberg Opinion) -- In a locked down world, cat food is in, but deodorant is out. How consumers adapt to pandemic life is playing out in the contrasting performances of two big consumer goods companies: Nestle SA and Unilever.
Nestle, which has been fine-tuning its focus on food, on Friday posted its highest rate of growth for almost five years, with a 4.3% increase in first-quarter sales excluding currency movements, acquisitions and disposals. That far outstripped the showing at Unilever, which didn’t manage any sales expansion in the first quarter despite demand for disinfectant soaring.
Food is usually the sleepy cousin of faster-growing personal-care products, such as skin creams and shampoo. However, the Covid-19 crisis has turned this on its head.
Nestle, which generated about 15% of its sales from pet care in 2019, has doubly benefited from an embrace of our furry friends in this unsettling time. Not only did people panic buy for their cats and dogs, but they’re pampering them more now that they’re spending more time with them. Pet food sales helped Nestle’s overall organic sales growth increase by more than 7% in both the Americas and Europe.
By contrast, Americans and Europeans are spending less time worrying about their own appearance, be it tinkering with their hair, shaving or applying makeup and moisturizer. With nowhere to go, the change in behavior is so radical that, according to Unilever, a typical day stuck at home entails on average 11 fewer “personal care moments.”
That’s a big problem for Unilever. The company generates 42% of sales from its beauty and personal-care brands, such as Dove moisturizers and Timotei shampoo. And it’s absent from some categories that have been performing well, such as hair dye for use at home.
But this isn’t just the corporate equivalent of being in the right place at the right time.
Nestle’s chief executive officer, Mark Schneider, has made some canny changes to the Swiss firm’s portfolio, which includes coffee, bottled water and frozen food. Of course, no one had a crystal ball, but those decisions now look prescient. The company sold a skin-health business that makes Botox, which looks very wise now that nobody can get to the beauty salon. It completed the sale of its U.S. ice cream business at the end of January, so it didn’t suffer as much Unilever from the decline in demand in this category.
Nestle has really scored from its $7 billion deal two years ago for the right to sell Starbucks products outside of cafes. The pandemic has turned people into their own baristas forcing them to stock up on coffee at the supermarket. Schneider is continuing to reshape Nestle, with a strategic review of the Yinlu business that makes traditional Chinese porridge and peanut milk.
Change at Unilever hasn’t been as dramatic. The Anglo-Dutch company has made small bolt-on acquisitions in what have been fast-growing categories such as plant-based meat and premium beauty products like Hourglass cosmetics. This is sensible given long-term trends, but these products are facing headwinds right now. For example, a large proportion of the company’s beauty offerings are sold through North American retailers such as Ulta Beauty Inc., which are currently closed.
Now led by company veteran Alan Jope, Unilever has also been more reticent about big disposals. It sold its spreads business in 2017, and is reviewing its tea division, which includes brands such as PG Tips and Lipton.
Investors certainly seem to be backing Schneider’s approach over that of Jope. On a price-to-earnings basis, Unilever is at its biggest discount to Nestle for more than a decade.
How Unilever performs during the crisis should spur a rethink of the portfolio. The company is well placed in one sense with many of its brands in the mass-market segment. In the downturn that will inevitably follow the pandemic consumers will trade down. But some brands also look tired. Will a large number of people really turn to Brut aftershave and V05 shampoo or Toni&Guy when supermarkets and discount retailers do a good job in cheaper alternatives?
Home workers using less deodorant isn’t just an issue for those sharing a lockdown space.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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