Danone believes it can return its business to “profitable, superior top line growth” in six months time, as benefits feed through from the French dairy group’s attempts to tackle the still sticky spots of dairy in Europe and infant nutrition in China.
The last 24 months have not been without their challenges for Danone. In particular, the French group has been squeezed on two fronts: European dairy sales have come under sustained pressure and the fallout from the Fonterra ingredient recall caused Chinese infant formula sales to plummet.
“Dairy in Europe is definitely dragging,” chief operating officer Emmanuel Faber conceded. The division, which accounts for 20% of group sales, has been hit by a slow-to-no growth environment and the group’s flagship Actimel brand is in decline in the region.
Meanwhile, in China Danone saw sales fall by 80% in the five months to end-December, Faber told the Consumer Analyst Group of Europe conference in London this week.
Last August, Danone was forced to issue a consumer-facing recall of its Dumex infant formula brand in China following Fonterra’s recall of concentrated whey powder over concerns that the ingredient was contaminated with a bacteria that can cause botulism.
Over the course of this year, however, the firm is confident that it can rebound. Growth, which looks set to be back-half weighted, is nevertheless going to gather pace, Faber insisted.
“We have good signs that some of our key markets are improving [in Europe],” Faber said pointing to France and Spain. Italy and Germany are “more difficult” but, the executive insisted, a focus on NPD and marketing should see Danone through.
The company is also on track to generate more than EUR200m (US$275.86m) in cost savings in the region by year-end, Faber said. “We are not only thinking about the top line, we are adjusting our cost base.”
Faber also believes Danone is making progress in turning around its Chinese business.
Danone’s sales are still significantly below pre-recall levels, at about 35% of their previous weight. However, Faber suggested the company has reassessed its strategy in the market and is gearing up to deliver growth through “three engines” in China – the relaunched Dumex brand, a soon-to-be launched premium Nutricia brand and e-commerce.
Faber said that by tweaking Danone’s product offering in Chinese infant nutrition the group plans to extend its appeal and broaden its competitive set.
Lowering the price point of its entry level Dumex brand pits it against domestic manufacturers, who are increasingly winning over consumers despite widespread concerns over product quality and safety. Dumex International represents a mid-card mass market brand that is imported from Europe. Meanwhile, the launch of Danone’s “ultra-premium” Nutricia offering is a “more tactical” move that pits it against the likes of Nestle’s Wyatt Nutrition business, Faber revealed.
The company is currently launching the first two propositions, with the “ultra-premium” line due to be rolled out later this year.
The group is also examining its channel growth strategy in China, with a growing focus on e-commerce in addition to the more traditional routes-to-market presented by modern trade and mum and baby stores.
“That is a channel that is increasingly very important,” Faber said. “We will come from a one Dumex strategy to a Dumex, plus Nutricia, plus e-commerce.”