The strategic alliance between Danone and North American kefir specialist Lifeway Foods made headlines last year. However, as New Nutrition Business correspondents Michael Roberts and Sergei Yarunin explain, Danone is focusing on a global strategy starting first with Russia, the home of kefir.

Danone‘s alliance with Chicago-based Lifeway Foods at the end of 1999, which saw Danone take a 20% stake in the small NASDAQ-quoted kefir maker, might have looked like the isolated purchase of a promising North American functional foods manufacturer. However, it now seems that this move is part of a wider strategy to apply Danone’s expertise in nutrition to a new range of functional dairy products: kefir. The open question is whether or not Danone now plans to make kefir a global product synonymous with its brand name.

Danone is hoping that its trade name will become synonymous with a Russian cultural institution, kefir, with the hope that it can break into this lucrative market.

The new French wave

Danone has been in Russia since 1992, but it has taken its time to move into kefir. The yoghurts and biscuits business form the backbone of its range and were the first products the company developed in Russia. In the kefir market the first product that Danone developed was Classic Kefir. This has been supplemented by three flavoured varieties of kefir (lemon, strawberry and peach) – which were added this year.

Problems making kefir on an industrial scale meant it was not widely available until the 1950s when a new method for commercial kefir production was developed. This method enabled kefir to become one of the staple foods of the Soviet period. More nutritious and with a longer shelf-life than milk (there was no UHT milk in the Soviet period), it was on the menu of every canteen and school.

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Danone’s market entry strategy has been built on constructing a new image for kefir. The staple food of soviet refrigerators, Kefir has a crusty image. For a company charging over twice as much for its kefir brand as the market leader (Wimm-Bill-Dann), this image problem is a commercial one too.

Danone’s answer has been a major TV and poster campaign under the slogan of: “the taste you remember from your childhood!” In the campaign, Danone has placed its faith in pictures of young, rich, successful “novy-russky” (new Russians) quaffing bottles of kefir to freshen Kefir’s stale image. The bottles themselves are an innovation. Danone is the only player in the kefir market to offer products in plastic bottles (0.4 litres) – the packaging thus distinguishing its product from the tetra-packed market leader and soft-packed bottom end of the market.

Danone the young pretender

Danone’s market strategy is not without risk. German company Ehrmann has just opened a dairy plant outside Moscow and will be producing kefir in the near future. However, Danone’s main competitor is not a fellow western European company, but one of Russia’s post-communist period success stories: Wimm-Bill-Dann. Indeed, to call Wimm-Bill-Dann a competitor of Danone is to miscast the roles. Wimm-Bill-Dann is the King of Kefir, while Danone is very definitely the young pretender.

Divining market shares on a national scale is complicated by the federal structure of Russia and the intricacies of the dairy market. Russia-wide (a distance which covers 11 time zones) there are over 1,000 dairy plants – each producing its own variety of kefir. Outside the main metropolitan areas, kefir retains its commodity status – with no brands or product differentiation. Figures for 1999 suggest that kefir accounts for 80% of total fermented milk sales in Russia – a figure which has remained stable since the Soviet period, although per capita consumption has declined some 30%. Taking official data, total kefir production is around 600,000 tonnes annually – which at an average price of 30 cents per litre yields an overall market value of the order of US$180m.

For the kefir market, figures on market share are not available. But in the liquid milk market, Wimm-Bill-Dann has a 60% market share. Moscow kiosk traders (who still account for the majority of city food sales) put Wimm-Bill-Dann’s share at closer to 40% in the kefir market. They also claim that flavoured kefirs are the fastest growing segment of the market appealing to younger consumers. Wimm-Bill-Dann introduced flavoured kefir varieties in its Bio-Max range launched this year.

So much for the Russian market. The real prize at stake may be the much wider eastern European and global market. Danone has the capability to launch kefir globally and Wimm-Bill-Dann has proved successful at developing export operations -indeed, it is thought to be launching a milk-based flavoured drink in three north European countries.

WHAT IS KEFIR?

Kefir is a stirred beverage made from milk fermented with a complex mixture of bacteria (including various species of lactobacilli, lactococci, leuconostocs, and aceterobacteria) and yeasts (both lactose-fermenting and non-lactose- fermenting).The small amount of CO2, alcohol, and aromatic compounds produced by the cultures give it its characteristic fizzy, acid taste. Kefir fabrication differs from that of yogurt in that kefir grains (small clusters of microorganisms held together in a polysaccharide matrix) or mother cultures from grains are added to milk and cause its fermentation.Many health benefits have been traditionally reported. kefir has been used for the treatment of atherosclerosis, allergic disease, and gastrointestinal disorders, among other diseases. Until recently, most research has been limited to studies lacking modern statistical practices or to reports written up in Slavic languages, rendering them inaccessible to most western scientists. However, recent studies have investigated antibacterial, immunological, antitumoral, and hypocholesterolemic effects of kefir consumption on animals. Results suggest potential benefits.

Source: Abridged from http://www.danonenewsletter.fr/eng/news_11/titre 2.html

Danone’s R&D group in Paris has been investigating the possibilities of kefir for some years. This fermented beverage is little-known outside eastern Europe. One of the major problems with kefir has been the difficulty of producing it on a large commercial scale. In Russia that problem seems to have been overcome and Chicago-based Lifeway Foods also has a reliable large-scale production process. Interestingly, Danone’s recently concluded joint venture in Scandinavia also aligns it with one of western Europe’s kefir producers. Sweden’s Skånemejerier, which has a track record of successful innovation in functional foods -notably its top-selling probiotic fruit juice Pro Viva – and last year, launched a kefir (see picture) on the Swedish market.As the health benefits of kefir become better understood Danone is increasingly well positioned to become the global leader in kefir. The real prize will be to develop the embryonic US kefir market (where the kefir market is worth barely $20-$25 million a year at present). Danone will be helped in this position as America’s No.1 yoghurt brand and also by the fact that – almost without exception -American food and drink companies still “don’t get” the power of the digestive health message for consumers, despite the fact that, globally, it is products for digestive health which have proven the most successful part of the functional foods revolution.We can expect to see more moves by Danone in kefir in North America in the next two-three year.

By Michael Roberts and Sergei Yarunin, of New Nutrition Business

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