Shares in French dairy giant Danone slumped 6% last week, after the company posted a weaker than expected set of half year results and said profit margins were likely to shrink due to COVID-19-related costs.

Last week, Danone posted half year results, which showed a 6% decline in like-for-like sales during the second quarter of the year to €5.9bn, as sales volumes slumped 3%. This was mostly driven by a 28% collapse in sales of bottled water during the lockdown period.

However, sales of specialised nutrition products like infant formula were also down 2% in value to €1.8bn, as sales volumes fell almost 4%.

This whole question of down-trading versus up-trading is there in front of us

Danone said the trading environment remains very difficult to predict, as markets are still volatile and significant uncertainty remains around the COVID pandemic.

Danone CEO Emmanuel Faber said the pandemic was resulting in a “polarisation of the market”, where some consumers were trading up to premium products for health reasons, while other consumers were more concerned with buying affordable food products.

“There is a polarisation of the market. There won’t be a middle class anymore, in a way. Some of that middle class is going to make trade-offs on food. On the other side, we will see up-trading because many consumers are going to be very demanding on health and quality,” said Faber.

“This whole question of down-trading versus up-trading is there in front of us and we have to understand where the opportunities are for us within that,” he added.