French dairy giant Danone has put its plans for a new factory in Siberia on hold due to a stagnant local market.
Danone merged its operations in Russia and the CIS with local dairy processor with Unimilk last year and Unimilk had planned to build a plant in the Siberian city of Novosibirsk amid growing demand for dairy products.
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However, a spokesperson for Danone said today (27 October) that there had been no “concrete project for construction, nor business plan developed” for the plant. Danone, meanwhile, already has a factory in the city and Unimilk’s previous plans for a plant have been put on ice.
“Currently we don’t see any growth of the market in Siberia,” the spokesperson explained. Production plants in Novosibirsk and in Kemerovo “satisfy our needs in Siberia region and still have potential for development”, she said.
“That is why we have reconsidered plans of previous owners and decided to postpone [the] re-construction of a new facility for few years.”
Last week, Danone said Unimilk had seen “steady” year-on-year sales in the third quarter of the year but saw volumes fall 11.8%. Danone said Unimilk would continue to concentrate on its brand portfolio, increasing profitability, and the integration of the company’s operations in Russia.
The results led analysts to express concern about Danone’s performance in Russia.
Sanford Bernstein analyst Andrew Wood described Danone’s business in Russia as “one disaster after another” thanks to low margins, low growth and a change in management and feels there could be more bad news to come.
“We would not bet against other issues coming out of the woodwork,” he added.
However Jon Cox, head of European beverage and food research at Kepler Capital Markets said Danone’s Russian operations are “set for growth” if it sifts out its lower-end commodotised milk products.
