Danone plans to reduce prices on its dairy products in Spain in a bid to boost sales in one of its major – and most challenging – markets outside France.
Falling sales in Spain, which is in the middle of a double-dip recession, prompted Danone to issue a surprise profit warning last month. Trading down by consumers meant Danone lost share to private label.
Speaking to analysts after Danone reported its half-year financial results on Friday (27 July), CFO Pierre-Andre Terrisse, said the company had seen sales fall in the “negative mid-single digits” in Spain during the second quarter.
Terrisse said Danone still sees Spain being under pressure for the rest of the year and insisted the company has been looking at ways to bolster its business, including reviewing the prices of its products in the country.
“We have seen negative mid-single-digit evolution in sales in April [and] we have seen that continuing throughout the quarter. We do not expect the situation is going to improve over the rest of the year. We have already started managing the situation,” he said. “We have reviewed all the price points to understand where the elasticity stands and we will now be ready to be more efficient in the way we use the pricing to meet consumer demand.”
Terrisse acknowledged the price of Danone’s dairy products in Spain needed to be more competitive and pointed to the company’s experience in France, where in 2008 it decided to lower prices to boost sales.
“When we look at Spain, we basically think of it converging towards what France has been doing. France used to have a pretty high level of premium until 2008, which they have progressively adjusted to get to a position where they are very competitive today. Spain has to follow the same trajectory, with time, probably not at the same pace, but definitely it will have to converge a bit more to France,” he said. “Don’t read into that that it will move to the level of France in the coming 18 months. In the coming two or three years, there will be a convergence closer to France.”
According to Societe Generale analyst Warren Ackerman, Nielsen data showed Danone had managed to increase its market share in Spain in June. However, Terrisse said the category had been “really negative in June” and he had a note of caution for the months ahead: “I don’t expect things to improve in Spain and southern Europe, going forward. We need to be agile and make changes to our portfolio.”
However, Danone had one point of upbeat news about its business in Spain. In May, it launched frozen yoghurt brand Yolado and Terrisse said Danone planned to expand production of the product. “Yolado is a real small innovation but looks very promising. This is a very good product. We have completely saturated the line and we are looking at additional capacity.”