Two of Europe's largest dairy processors last week underlined how tough trading is on the Continent with announcements that jobs will be axed as they battle weak consumer confidence and fierce competition.

Danone said it would "adapt" its management structure in Europe and cut EUR200m in costs from its regional business after months of pressure, particularly in southern Europe.

The Activia maker said it was "too early" to quantify the impact on jobs but set out its plans in a bid to "win back its competitive edge" in a market that still accounts for over half its sales.

Europe's importance to Danone was highlighted back in the summer when it issued a profit warning on the back of poor sales, particularly in the south of the continent.

Danone insisted its actions are not related to Nelson Peltz, the US activist investor, recently taking a stake in the business. Peltz, who has a record of investing in major food companies he believes are under-valued and insisting they act to improve their performance, said last month Danone's shares were under-valued and argued a "leaner cost structure" was needed.

Whatever the catalyst for the changes in Europe, there remain question marks over their impact. Danone may say the cuts have nothing to do with Peltz coming on board but, given his history in putting pressure on directors and his call for the company to improve its profitability, it is by no means certain all of the savings will be used to re-invest in the group's brands as it insisted last week.

Moreover, economic conditions in some of Danone's key European markets such as Spain and Italy remain dire. Tougher action could be needed in the coming months.

Indeed, Europe is hardly seen as a growth market for dairy companies. In a recent interview with just-food, a senior executive at FrieslandCampina spoke at length about the growth prospects of Asia and Africa but said Europe was a market with an ageing population and a saturated dairy market.

Last week, the Dutch dairy giant announced it would cut over 200 jobs from its business in Germany to try to make it more competitive. The company told just-food dairy consumption was falling in Germany, which had hit its sales and profits in the country last year. And with powerful German retailers fiercely competing on price, FrieslandCampina felt it had to act.

Dairy companies like FrieslandCampina strongly believe in the potential of markets in the East and are investing in those countries to cater for increased demand for dairy.

However, Western markets, particularly in Europe remain tough. As well as last week's announcements from Danone and FrieslandCampina, for example, French dairy giant Sodiaal last month announced plans to close three plants in its domestic market.

And the need to manage stagnant businesses in Western markets while investing in the East is, of course, a trend seen across the food sector for a number of years. There are, however, signs it is intensifying. Barry Callebaut last week announced it would buy the cocoa ingredients arm of Singapore-based Petra Foods, largely for its exposure to fast-growing Eastern markets. However, earlier this month, the Swiss chocolate group said it would close a factory in the UK, news that came weeks after the company announced plans to open its first factory in Turkey.

Elsewhere last week, UK food manufacturers were again urged to tap into the faster-growing economies of the East, markets where competition is only going to increase.

Those that adapt to the new global economic realities fastest will have a better chance of thriving as we move throughout this decade and, throughout 2012, we have seen a number of examples. General Mills is one that this year has continued to react to the shift in power between West and East but they are not alone. The trend will no doubt continue next year and beyond.

This is the last weekly column for 2012. The year has proven another challenging one for the industry, with economic, customer and regulatory pressure. However, there are opportunities to go after in the year ahead. Before you do, though, all at just-food.com would like to wish you a Merry Christmas and a Happy 2013.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food