Covid has only delayed the day of reckoning for Reckitt

Reckitt Benckiser’s success owes much to the placebo. From medicines to food supplements, Britain’s 10th-biggest listed company has been expert at selling products that seem to deliver less than they promise.

Reckitt this year agreed to pay $53m to buyers of its Schiff Move Free Advanced dietary top-up after a class-action lawsuit challenged marketing claims that it could help ease joint pain and stiffness. Neuriva supplements, promoted by Reckitt as “clinically proven” to fuel “brain performance”, have been the subject of class-action lawsuits founded on similar scepticism.

Then there’s Mucinex, Reckitt’s biggest-selling over-the-counter medicine with estimated annual sales of about $1bn. Clinical trials of the drug’s active ingredient, guaifenesin, have failed to prove conclusively that it can ease coughs. And in 2015 Reckitt fell foul of an Australian court for marketing Nurofen in specific varieties to treat back pain, period pain, migraine pain and tension headaches, even though the pills all contained an identical dose of generic ibuprofen.

Probably by chance rather than design, Covid-19 has continued the trend. Last September Reckitt installed 800 Dettol-branded antiseptic hand sanitiser dispenser pods across the London Underground network, with a parallel back-to-work poster blitz encouraging commuters to disinfect hands regularly so they could once again enjoy “proper bants” with their office “second family”.

The Dettol dispensers remain in place even though the risk of Covid transmission via surfaces now appears infinitesimally low. The US Centers for Disease Control and Infection said in April it had found “little scientific support for routine use of disinfectants in community settings, whether indoor or outdoor”. Each contact with a Covid-contaminated surface, according to the CDC, has a less than 1 in 10,000 chance of causing an infection, which needs to be weighed against the risk of poisonings from unsafe use of cleaners.

Such findings are awkward for Reckitt, whose recent growth has been on hygiene brands exclusively. Divisional like-for-like sales jumped 28 per cent for the first quarter, it reported on Wednesday. Profit margins improved by 4 percentage points thanks in part to a global rollout of its Lysol-branded range of disinfectants.

The bleach boom makes progress under Reckitt’s new chief executive nearly impossible to measure. Laxman Narasimhan wants to break a culture of short-term targets and private equity style asset sweating that did for his predecessor Rakesh Kapoor. Headline results in the first year of his tenure have been impressive but Wednesday’s update also showed an underlying performance that, to quote RBC Capital Markets analyst James Edwardes Jones, was “a bit all over the place”.

It was no surprise that a muted flu season hurt Reckitt’s over-the-counter medicines sales. Less easy to explain was a flat contribution from Dettol, which for historic reasons reports into Reckitt’s health segment rather than hygiene. Stalled sales followed a 50 per cent jump in 2020, yet management’s optimism for the brand was undiminished: Dettol will find its way into 70 new markets by the end of the year. Corporate customers are increasingly the target, presumably on the assumption that they do not read CDC guidance.

The pandemic has also eased the urgency to tackle Reckitt’s biggest problem: infant formula. Falling global birth rates mean the division is now worth a fraction of the $16.6bn Kapoor paid in 2017. Reckitt put the Chinese formula business on the block in February but a failure to stabilise sales has made the once-mooted valuation of more than $2bn look ambitious.

Narasimhan tried to put his signature on Reckitt in March with a rebrand framed around sustainable growth. It will take more than a new logo. Continued expansion against tough year-on-year comparisons relies on launching brands including Lysol and Dettol into new markets, but history shows that the vast majority of consumer product launches fail.

Old Reckitt was built to make ruthlessness decisions. How much of that culture survives under Narasimhan’s mantra of responsible business has yet to be tested. Covid demand has only delayed the moment when investors find out whether he intends to dismantle or build on Reckitt’s heritage as a brand hothouse that sells things people do not really need.