Reckitt Benckiser shares underperformance has elicited a response from management who today announce a strategy to streamline the business by disposing of non-core brands and focusing on so-called ‘Powerbrands’.
In the face of margin pressure and shifts in consumer behaviour, Reckitt Benckiser is embarking on a major transformation with plans to sharpen its brand portfolio, focusing on high-growth, high-margin Powerbrands that dominate their categories. This strategic shift top acheive a ‘sharper, simpler Reckitt’ follows a comprehensive nine-month review.
The reshaping involves significant disposals. Reckitt will exit its ‘Essential Home’ portfolio by the end of 2025, which includes well-known brands like Air Wick, Mortein, Calgon, and Cillit Bang. These brands generated £1.9 billion in revenue for FY2023. Additionally, the Mead Johnson Nutrition business, featuring Enfamil and Nutramigen, is now considered non-core. Reckitt will explore all strategic options for these assets to maximise shareholder value.
The focus will now be on ‘Powerbrands’ – Reckitt’s core portfolio is thriving. Powerbrands such as Mucinex, Strepsils, Gaviscon, Nurofen, Lysol, Dettol, Harpic, Finish, Vanish, Durex, and Veet have demonstrated strong performance. This group has achieved a 7% net revenue CAGR between FY2018 and FY2023, with an impressive 61% gross margin in FY2023. Emerging brands like Move Free and Biofreeze, along with local heroes such as Lemsip and Airborne, will also be part of the future-focused portfolio.
Cost optimisation is a key component of the new strategy. Reckitt aims to streamline its organisation, reducing management layers and duplication. The company will transition to a unified category structure operated through three geographical regions: North America, Europe, and Emerging Markets. This restructuring is expected to yield significant savings, with a targeted 300 basis point reduction in fixed costs by 2027. The end goal is to reduce the fixed-cost base from 22% to approximately 19%. However, this transformation comes at a price, with estimated one-off cash restructuring and transformation costs of around £1.0 billion.
The new Reckitt will emerge on January 1, 2025, reporting financials in three segments: Reckitt, Essential Home, and Mead Johnson Nutrition. While the core Reckitt business focuses on health and hygiene, dedicated teams will manage the Essential Home and Mead Johnson Nutrition segments to maximize their potential value. Through these strategic moves, Reckitt aims to create a leaner, more agile company poised for long-term growth and shareholder value creation.