2007 was something of a watershed year at French food giant Danone. The company behind brands including Activia yoghurts and Evian water has wisely decided to focus more on health and nutrition. However, its ongoing problems in India and China are causing concern among some industry watchers. Dean Best reports.
Go deeper with GlobalData
For Danone, the French food giant, the last 12 months was an “historic” year.
Danone looked back on 2007 as an important year in the history of the business. The sale of most of its biscuits operations to Kraft Foods and the acquisition of Dutch nutrition firm Royal Numico were part of CEO Franck Riboud’s plan to focus the Activia and Actimel maker even more tightly on health and wellbeing.
Riboud hailed a year of “remarkable profit growth” and spoke of his “confidence” that Danone’s growth would accelerate in the years ahead. A jump in underlying sales of almost 10% is an impressive result and, more generally, Riboud’s strategy is a sound one.
However, looking at Danone’s rather convoluted set of figures, it was tricky to judge exactly how well the company performed in 2007. Analysts had expected the numbers to make heavy reading – one described the results as a “mess” – as the figures were complicated by the acquisition of Numico and the sale of the biscuits business to Kraft. In fact, that disposal gave an artificial boost to Danone’s annual profits, which more than tripled.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataIndustry watchers also expressed concern over Danone’s ongoing dispute with Chinese beverage partner Wahaha. Over the last 12 months, Danone’s relationship with Wahaha has turned increasingly sour after the French group accused its partner of selling drinks under the Wahaha trademark outside the venture without permission.
Lawsuits have flown back and forth and, although Danone insists it is committed to finding an “amicable solution” to the dispute, analysts have expressed concern that the row could hinder the company’s business in what is, after all, its third-biggest market worldwide. In its results announcement, Danone said it had switched to using the equity accounting method for the Wahaha venture, an admission, perhaps, that the company no longer has complete control over a business in which it holds a majority stake.
Danone’s move earlier this month to team up with Weight Watchers in China shows the company is looking at beefing up its presence in other categories in the market but, nonetheless, it is critical the situation over Wahaha, one of China’s most popular food and beverage brands, is resolved soon.
The dispute with Wahaha shows it would be a mistake for Danone to look back on 2007 with rose-tinted glasses and another spat, this time in India, is further proof that the French company is not having everything its own way.
Danone’s problems over Britannia Industries, India’s largest biscuit maker, may not be having the same short-term impact on the business as the row with Wahaha but it is vital that the company irons out its problems in another of the world’s key emerging markets.
Danone’s partner in India – the Wadia Group – has accused the company of using flagship brand Tiger overseas without consent. The Wadias launched legal action in a Singapore court over the matter and rumours abound that Danone is looking to sell its stake in Britannia and go it alone in India. In December, Danone joined forces with long-time partner Yakult to launch the Japanese probiotic drink in India and the company has also been linked to a dairy project in the state of Rajasthan.
Markets like India and China may be growth engines for ambitious companies but they are unpredictable places to do business. Some of those uncertainties can be mitigated by joining with a local partner, but that in itself can carry its own risks, as Danone is finding out. The company’s moves to join forces with Yakult and Weight Watchers, suggest it wants to team up with more experienced – and less unpredictable – partners.
Nevertheless, for all the instability in the East, Riboud was upbeat about the outlook for Danone. “We are increasing our growth targets for 2008 and beyond,” he said, a move praised by some industry watchers.
After an “historic” 2007, some may feel Danone needs to enjoy a more low-key 2008.
