Danone’s localized strategy for global expansion
After COVID-19, Danone SA is getting ready for business. A series of actions unveiled on October 19 pave the way for increased local decision-making to be a catalyst for global expansion.
The chairman and CEO, Emmanuel Faber, stated, “Local empowerment is king,” during a conference call with financial analysts on October 19 to go over third-quarter results. In this pandemic, governments and nations are setting the direction for how economies and societies will develop in the next one, two, three, four, five, and ten years.
“Governments have returned to the game in a big, big way. It is a matter of multilateralism, as you are aware. Therefore, it is even more crucial that we continue to believe that local communities are where food and agriculture should begin.
The announcement of personnel plans includes the appointment of Shane Grant and Véronique Penchienati-Bosetta to the positions of macro-regional chief executive officers of Danone North America and Danone International, respectively. the retirement of Cecile Cabanis in February 2021 and the appointment of Henri Bruxelles as chief operating officer of end-to-end design to product delivery. Juergen Esser will be Ms. Capanis’ replacement.
Mr. Faber stated, “One, countries will be empowered for relevance and speed of action.” Second, that aligns with the pyramid’s delaying strategy to streamline operational procedures. Stated differently, the remainder of the organization must function as leanly as possible in order to support the nations. As a result, we think there will be more room for expansion due to the ability to make decisions quickly and locally as well as significant cost savings in the way the business operates as a whole.
Danone has also started a strategic review of its product lines and brands. The company’s operations in Argentina and the Vega brand will be the focus of the initial review, which will be ongoing. The businesses’ combined sales are estimated to be around €500 million ($589 million).
Mr. Faber underlined that management has realized that the company needs to reduce the number of stock-keeping units (SKUs) on its list.
“Our customers have made it evident that the limitations in their supply chain and logistics are causing them to reduce their range,” he stated. “Therefore, we have a chance to ensure that we concentrate our selection of SKUs. In certain instances, it may increase to 20% or 30% reductions in SKUs that we offer in certain nations and categories.
The management wants the most of the changes to happen in the next twelve weeks so that by the time 2021 rolls around, the company will have a revised plan ready to go into effect.
Sales for the third quarter came to €5.8 billion ($6.8 billion), a 9.3% decrease from the same period last year. Changes in exchange rates were responsible for 7.1% of the sales drop. Businesses that catered to customers away from their homes, such as restaurants and offices, as well as those in China, where Danone’s Early Life Nutrition division has been hampered by border closures, were also hardest hit.
Sales were down 2.5% from the second quarter of 2020, which is half of the decrease the company saw in the second quarter, according to Ms. Cabanis.
Sales for Danone’s Essential Dairy and Plant-based division reached €3.2 billion ($3.8 billion) in the quarter, a 4% increase over the same period last year.
“Every segment of the business has experienced growth, including the Essential Dairy segment that offers probiotics and functional yogurts,” stated Ms. Cabanis. “Among the best-performing segments are creamers made with organic milk and coffee. Both in North America and Europe, sales of plant-based products were well into the high teens. These sales are still boosted by increased frequency, penetration, and growth into two new categories and ingredient categories. Plant-based sales have reached €1.7 billion so far this year.
When examining the performance by region, North America and Europe have maintained a mid-single-digit momentum since the year’s beginning. Thanks in part to the Actimel and Danone brands, it was maintained in Europe by additional gains in market share. Alpro reported double-digit growth outside of its market and high teens growth inside its four historical markets.
Danone’s Specialized Nutrition and Waters divisions both saw declines in sales during the quarter, with Specialized Nutrition falling 5% to €1.9 billion and Waters falling 8% to €1.3 billion.
“The level of traffic and the number of openings in out-of-home channels are completely correlated with the performance here (Water),” stated Ms. Cabanis. “We saw a 25% decline in out-of-home sales during the quarter, while at-home sales are holding up well.”
Specialized Nutrition faced numerous challenges in its Chinese business.
“In comparison to a high base last year when China was growing at more than 20%, we experienced a steep, double-digit decline in the quarter,” Ms. Cabanis stated. This was the outcome of cross-border channel contraction and pantry destocking dynamics brought on by COVID-19-related headwinds regarding channel logistic issues.
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The ongoing closure of borders and travel restrictions between Mainland China, Europe, Oceania, and Hong Kong caused a significant decline in cross-border sales, with about 60% of sales occurring through these channels. Recall that together, these channels—the Hong Kong platform and the so-called indirect channel—account for 40% of our infant nutrition business in China.
Maintaining the momentum that many of Danone’s brands have gained market share, improving the top line across the board, and delivering on efficiencies are among the company’s goals for the fourth quarter.
“The recent health measures implemented by many European countries have affected out-of-room channels once again, demonstrating that the visibility is still limited,” Ms. Cabanis stated. Furthermore, we do not currently anticipate a material improvement in the cross-border channel dynamics that affected China’s Early Life Nutrition in Q3.
As a result, we anticipate that Q4 sales growth will confirm a sequential improvement over Q3, but it will still be negative. FX will be a challenge going forward.
Mr. Faber stressed that management is making these adjustments in an effort to address the problems the company is facing in its numerous international markets.
He remarked, “We know we need to also change the way we play the game overall.” Once more, that is precisely why this 12-week plan is so crucial to our success: it will ensure that we keep up the good work that the teams put in every day, grow in market share, and maintain margin control.