Unilever has become the most valuable company in the FTSE 100 after lockdown lifestyle changes increased demand for its cleaning supplies and ice-cream.
The consumer goods company’s share price surged on Thursday on the back of better-than-expected quarterly sales as hygiene fears stoked demand for Domestos bleach and Cif surface spray. Consumers also sought solace from the coronavirus pandemic in a Cornetto or Magnum ice-cream.
The shares closed up nearly 8% at £46.71, making Unilever the largest company in the FTSE 100 with a market capitalisation of £121bn, nosing ahead of the drugmaker AstraZeneca.
Alan Jope, its chief executive, said the health crisis had triggered a downturn that was causing big shifts in shopper behaviour. Ice-cream sales were being bolstered by the so-called “lipstick effect”, he suggested. The term refers to when people respond to recessionary times by reducing spending on expensive designer items but splurging on cheaper luxuries instead.
“I think ice-cream benefits from the lipstick effect of indulgent, affordable, little treats at a time of great stress for everybody,” said Jope.
The shares jumped after the company reported flat quarterly sales. In the three months to 30 June, underlying sales were down only 0.3%, which was far better than the 4.3% drop expected by analysts. Richard Hunter, head of markets at Interactive Investor, said Unilever’s “defensive qualities” were coming to the fore.
Highlighting the disruption to its usual trading patterns, Unilever said its food service business, which supplies restaurants and bars, experienced a 40% hit while sales of its ice-creams to kiosks and cafes were down nearly 30%.
The group made up the lost ground as shoppers filled their kitchen cupboards with jars of Hellmann’s mayonnaise and Knorr stock cubes, as well as cleaning products such as Cif. Sales of ice-cream bought in supermarkets increased by 26%, with the company also reporting demand for home delivery services.
But Jope signalled tough times ahead, saying: “We believe that talk about a quick recovery is too optimistic. A deep, global recession has already started and we are seeing consumer habits changing dramatically. Unemployment is rising across many markets and even for those with jobs, people are saving a bit harder.”
The multinational, which owns more than 400 brands including Dove, Marmite and PG Tips, also said it was taking an “extremely cautious” stance on asking its 50,000 office-based staff to return to their desks.
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After four months of encouraging the public to work from home, Boris Johnson has said that from 1 August the onus was on employers to decide whether staff could safely return to workplaces.
Unilever has about 2,000 office-based workers in the UK and Jope said there would a “very gradual return” from September – and then only if there had been continued progress in containing the disease.
“We anticipate that it will take many more months before we’re back in a steady state of being in the office,” he said.
Unilever said that after exploring options for its tea business it was going to break it up. It is keeping operations in India and Indonesia and a ready-to-drink joint venture with PepsiCo. The remainder, which includes brands such as PG Tips and Pukka Herb, and which had a turnover of €2bn (£1.82bn) in 2019, is being hived off into a separate company that could be sold or have its own stock market listing.
