Marketing Strategy and Plan

Franck Riboud is famously impatient with the stock market’s short-termism. So when the executive chairman of Danone in November disappointed analysts by downgrading growth forecasts, he reacted in typical style. ‘The crisis is not our main concern; our main concern is to construct the next 15 years for this group,’ he said. With that in mind, Mr Riboud has shifted strategy to volume growth rather than sales growth. His view appears to be that setting a high sales target in the current economic environment would put undue pressure on managers, risking mistakes and shortcuts to achieve the growth. Much better to cut prices and increase volumes than to shut factories, he has said. Instead the group prefers to reinvest cost savings as it expands and deepen sales in new markets rather than pledge to boost continually profit margins. The company sells its products – including Activia yoghurt and Actimel yoghurt drink, as well as Evian, Badoit and baby food, including Milupa, to 700m people worldwide. It aims to achieve its mission to ‘bring health through food to the largest number of people’ by selling to 1bn people by the end of 2011. Although its international sales are expanding, it still relies on Western Europe for 48 per cent of its sales. After 12 years at the helm of Europe’s third-largest food group after Nestlé and Unilever, Mr Riboud has transformed Danone from a conglomerate into a streamlined business that his father, Antoine Riboud, whom he replaced, would not have been able to recognize. Now focused on three main sectors – yoghurt, spring water, and baby food along with a small clinical nutrition business – he jettisoned beer, biscuits, cheese and other ‘unhealthy’ food and drink on the way. Selling low-growth businesses helped Danone achieve one of the best organic growth rates in the sector, making it a stock market darling – its compound annual growth rate was 8.9 per cent between 2001 and 2007. While there is no argument about the company’s ability to drive sales growth, its commitment to shareholder value is more debatable, according to Alex Molloy, analyst at Credit Suisse, citing Danone’s c12.3bn takeover of Numico, the Dutch baby food business in 2007 and this past year’s c3bn rights issue: ‘Strategically the Numico acquisition was great they paid so much for it that it has not created shareholder value.’ In November Danone cut its sales target over the medium-term to ‘at least 5 per cent’ from 8–10 per cent previously, citing changes in consumer behavior. It also abandoned guidance on profit margins and earnings per share growth but said that annual free cash flow would reach €2bn by 2012. Analysts were disappointed. ‘Without a premium growth rate against its peers, we do not see how the stock can return to a premium valuation,’ wrote analysts at Royal Bank of Scotland. Mr Molloy said: ‘The debate now is whether this crisis has washed out the trend for the great sales growth there was between 1997–2007. Only time will tell but we are positive because people like healthy and convenient food.’ For Danone, the shift towards volume rather than sales growth means targeting and expanding sales in emerging markets. But because people in these countries are less wealthy than in more prosperous countries, the company cannot expect to generate the same profit margins. Its cheapest yoghurt is sold in Bangladesh at 6euro cents in an 80g cup. In France, plain Activia yoghurt sells for 26euro cents for 125g. Danone is experimenting with selling its Activia yoghurt in powdered form, which would allow it to bypass expensive cold storage costs.

1 What environmental factors is Danone responding to by shifting strategy to volume growth rather than sales growth?

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2 Explain why Danone is focusing on only three main sectors. Why these sectors?

3 What rationale can you give for the fact that Danone has retained its water brands (such as Evian, Volvic and Badoit) in view of recent criticisms of bottled water? Use the Advantage Matrix to help you build your argument.

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