Consumer goods giant Reckitt Benckiser, the maker of Dettol, Nurofen and Durex, has warned it will be forced to raise prices in the second half of the year to combat rising raw material costs. The Slough-based company reported a 5% drop in operating profit to £1.4bn for the first six months of 2021, sending shares down 8% on Tuesday, the biggest fall on the FTSE 100.
Chief executive Laxman Narasimhan said the company faces commodity cost increases of 8% to 9%, describing it as “historically, some of the highest inflation we have seen in a short period of time”. He cited oils, surfactants, logistics and freight as key areas of pressure, adding that price increases would be decided on a market-by-market basis to avoid losing competitiveness.
The warning follows a similar announcement from rival Unilever last week, which flagged rising costs for crude, palm and soya bean oil, as well as transport and packaging. Both companies are grappling with supply chain disruptions from Covid-19 and Brexit, alongside a global surge in demand as economies reopen.
Despite the cost pressures, Reckitt said demand for its disinfectant brands Dettol and Lysol remains strong, with sales 80% higher than in the first half of 2019. These products now account for about a quarter of the company’s net revenue, up from 16% before the pandemic. Excluding its Chinese baby formula business, which is up for sale, Reckitt’s like-for-like net revenue rose 3.7% to £6.3bn in the first half.
Financial analyst Danni Hewson of AJ Bell noted that the ability of big consumer goods firms to pass on costs to customers is no longer guaranteed, as shoppers increasingly turn to cheaper own-label products. Reckitt expects to offset the inflation fully by next year, but not by the end of 2021.
