According to a report in the South China Morning Post, French food giant Danone has increased its stake in the Bright Dairy and Food Company, becoming it’s third-largest retailer.

The world’s biggest producer of dairy products now owns 20% of the Chinese dairy and industry sources see this move as a step towards Danone taking a controlling stake.

The Shanghai-based dairy company is the third-biggest dairy company in China, behind Mengniu and Yi Li Industrial. However, the two front-runners have been pulling away from Bright who reported a 33% decline in 2005 net profits.

Sales plummeted in June after reports appeared suggesting that one of Bright’s factories had recycled out-of-date milk. Since then, consumers have rejected Bright Dairy products and the company has invested heavily in its marketing spend in an attempt to win back custom.

Profits also felt the negative impact of acquisitions in Jiangxi, Tianjin and Jingyang, which posted losses for the year.

Yi Li and Mengniu have both focused on UHT milk, the fastest growing category in the market, something Bright has as yet failed to do.