Sales at Nestlé and Unilever have benefited during lockdowns. But their out-of-home businesses will be an eyesore from now on
By Carol Ryan
Unilever is ramping up its e-commerce home-delivery service for ice-cream brands such as Ben & Jerry’s. / PHOTO: ROB KIM/GETTY IMAGES
The word “home” was mentioned 50 times on Nestlé’s NSRGY 0.10% second-quarter investor call, compared with just once during the same briefing that took place during 2019. Soon, household-staples companies could sound equally preoccupied with their flagging nondomestic businesses.
Since the Covid-19 pandemic began, consumers have had to spend more time sheltering indoors and preparing their own food. That is a reversal of a long-term trend of people in Europe and the U.S. eating more of their meals out in restaurants, fast-food chains and workplace canteens.
In May 2019, slightly less than half of all U.S. food spending was on goods that were consumed in the home, statistics from the U.S. Agriculture Department show. By the same month of this year, that share had jumped to 61%.
The spending shift has mainly been good news for household-staples companies that make products such as cooking ingredients and home-brew coffee—but only up to a point. Although they got an immediate boost to sales as countries went into lockdown, parts of their businesses will suffer the longer people stay at home.
Nestlé, the world’s biggest packaged-food company, makes 10% of its sales to out-of-home channels, mainly through a division that supplies products such as coffee creamer and spring water to hotels and offices. Add to that food that is usually grabbed on the go, such as candy bars and bottled water, and the company’s out-of-home business counts for 15% of total sales.
French dairy and bottled-water giant Danone DANOY -2.50% has a similar level of sales exposure, while Unilever’s UL -1.21% exposure is as high as 40%, according to estimates from brokerage firm Jefferies.
Pantry loading masked the problem somewhat in the second-quarter reporting season. Unilever’s sales were flat over the period, despite a 56% plunge in sales at its large catering-supplies unit. High demand for the company’s cleaning and hygiene products, as well as stockpiling by consumers in the U.S., provided a buffer.
But as panic buying subsides, consumer-staples companies will find it harder to make up the shortfall in their struggling out-of-home divisions. Nestlé expects sales to grow by just 2% to 3% in 2020 because of the impact of the crisis on its food-service business—a pace below last year’s level.
Companies can try to salvage sales. Unilever is ramping up its e-commerce home-delivery service for ice-cream brands such as Magnum and Ben & Jerry’s, which tend to be eaten outdoors. Nestlé’s chief executive suggested that the company may branch out from supplying beleaguered hotels to food-delivery restaurants that are booming as diners order in.
Household brands have been winners so far during this crisis, but domesticity isn’t good for all parts of their business.
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