Reckitt’s deal to sell its China baby formula business helps to draw a line under one of the biggest strategic mistakes in its history.
Questions were asked right from the start as to why Reckitt spent so much money buying Mead Johnson, a baby milk group which generated approximately half of its sales in Asia at the time of the acquisition in 2017.
Competition has been tough in the China baby formula market and the acquisition turned out to be a major disappointment. Three years after the deal, Reckitt took a £5 billion goodwill charge linked to the purchase of Mead Johnson, effectively putting its hands up and saying it got it wrong.
“At the same time, the company scrapped its margin improvement targets for the acquired business and now the China-focused part of Mead is being sold,” says AJ Bell investment director Russ Mould.
“Reckitt will be eager to put this episode in its rear-view mirror and focus on addressing another thorn in its side, namely slow growth.
“It has well-known brands but that doesn’t guarantee sales. Consumers want a bargain, and they can get very similar products from supermarkets’ own-label brands at a cheaper price than Reckitt’s goods.
“That suggests Reckitt will have to spend heavily on marketing to keep its brands front of mind when consumers go shopping. The business will also have to be better at product innovation.
“Strong sales of its healthcare products during Covid were a welcome shot in the arm, but the business cannot be complacent as it seems highly likely that health and hygiene sales in the coming years won’t match those of 2020.”