Lysol and Economics

How Reckitt Benckiser Group PLC was affected by the pandemic

Since Reckitt Benckiser Group PLC produces the Lysol products along with other household cleaning supplies. I chose to do research on this company because throughout these past two years, they have had a huge spike in demand for their products due to the COVID-19 pandemic. It is the perfect company to use to identify some of the effects of shifts in demand and changes in supply and demand. The COVID- 19 pandemic is a worldwide crisis that has affected thousands of businesses and companies. Reckitt Benckiser Group PLC has been fortunate and received a spike in demand due to the scarcity in supply in the first quarter. According the CNBC news, Reckitt Benckiser has “continued to see a strong demand for its disinfectant products as a result of the coronavirus pandemic, with sales in the first quarter up 50%...” However even with the increase in sales, production still is not able to quite keep up. Narasimhan reported that they are making 20 times the amount of sanitizer in July as they did the previous year. Keeping up with this type of demand could be costly. The company did not anticipate this huge surge in sales in the year before so the on demand production is causing the company to invest in factory equipment sooner than planned which would lead to a decrease in net income. According to Wall Street Journal, “While productivity is improving at its own facilities, the company relied on third-party manufacturers to meet last quarter’s demand spike, which will increase operating costs.” This would lead the company to higher the prices for their products.Living in California, the effects of the pandemic are still very prevalent and I have seen first hand the length people are willing to go through to get these products. Not only are people willing to wait in outrageously long lines, go to multiple stores to get a handful of the supply due to the limitation set by wholesalers, or drive miles in hopes of finding Lysol products at a distant store; they are also willing to pay a pretty penny for these products. I have seen people who were able to get bulk supplies before the shortage sell the household cleaning items for almost four times the amount they are actually sold for in stores on websites such as facebook and amazon. This then causes a shift in who qualifies for these products, the lower income families who cannot afford the sky rocketed prices are left to fend for themselves. Another effect that this increase in demand has had has been in the stock market. People are investing in RBGLY stock which has been increasing exponentially. This increase has caused people to invest in this stock however, this could be detrimental in the long run. When the pandemic has settled or we have found a cure, people may not feel the need to stock up on these household products, or they will begin to realize they have enough and don’t really use them as often. With a guaranteed decrease in demand and increase in manufacturing, the supply may be surplus which will cause the company’s revenue and net income to decrease. According to zacks.com people are already beginning to realize that this stock may not be a good investment for momentum investors. However this is difficult to predict in the moment with the company

spike and keeping up with the pandemic, people may also develop a new way of life where Lysol becomes a household essential no matter if there is a global pandemic or not. However eventually the stock market will level out or worse, drop. Although the increase in demand has been an overall plus for the company. The shelves are still being wiped from their products and people have been able to survive without the Lysol wipes and spray. The company is going to invest in more equipment and high manufacturing rates which will cause them to lose money in the purchases. The increase in price of the products could have adverse effects and cause people to not buy as many items as they would like. The changes in supply and demand have their pros and cons, this has helped me realize that even though a company may be thriving in the meantime, people should be wary of where they invest because drastic changes could occur in any minute.

Customers have been going crazy over cleaning supplies.

References

1. RB.L. ​RECKITT BENCKISER (RB.L) Q1 2020 TRADING UPDATE ​, 30 Apr. 2020, ​www.rb.com/media/6020/q1-ims-final.pdf​.

2. Gao, Michelle. ​Why Disinfectant Wipes Aren't Returning as Fast as Toilet Paper​, CNBC, 24 July 2020, www.google.com/amp/s/www.cnbc.com/amp/2020/07/24/why-disinfectant-wipes -arent-returning-as-fast-as-toilet-paper.html​.

3. “Reckitt Benckiser Group.” ​Forbes,​ Forbes Magazine, 12 May 2020, www.forbes.com/companies/reckitt-benckiser-group/?list=global2000%2F​.

4. kevin_stank. “CEO of Lysol Maker Says Sales Are Still up as a Result of Coronavirus Pandemic.” ​CNBC​, CNBC, 16 July 2020, www.cnbc.com/2020/07/16/ceo-of-durex-condom-maker-intimate-occasions-dow n-during-pandemic.html​.

5. Ryan, Carol. “Lysol Maker Is Cleaning Up, but at What Cost?” ​The Wall Street Journal,​ Dow Jones & Company, 30 Apr. 2020, www.wsj.com/articles/lysol-maker-is-cleaning-up-but-at-what-cost-11588252808