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Lindsey Hook
Capstone Thesis
The American University of Rome
11 May 2017
Table of Contents I. Current Situation 1 Danone’s History 1 The Evolution of Strategy 1 Danone’s Performance Today 2 Strategic Posture 3 II. Corporate Governance 5 Board of Directors (Featuring Top Six) 5 Top Management 6 III. External Environments: Opportunities and Threats 7 Political-Legal 7 Economic 8 Sociocultural 10 Technology 10 Task Environment: Focused on the Fresh Dairy Industry in the USA 11 IV. Internal Environment: Strengths and Weaknesses 13 Corporate Structure 13 Corporate Culture 14 Corporate Resources 15 Research and Development (R&D) 20 Operations and Logistics 22 Human Resources Management (HRM) 23 Summary of Internal Factors 24 V. Analysis of Strategic Factors 24 Situational Analysis 24 Review of Mission and Objectives 25 VI. Strategic Alternatives & Recommended Strategy 26 Strategic Alternatives 26 Recommended Strategies 27 VII. Implementation 30 VIII. Evaluation & Control 31 IX. Conclusion 32 Appendices 33 Annotated Bibliography 36 Acknowledgements 42
I. Current Situation
Danone’s History
From the beginning, Danone has followed their mission to bring health through food to as
many people as possible. This all started in Barcelona, Spain in 1919, when Balkan native
Isaac Carasso noted that many Spanish children were suffering from severe intestinal
problems. He introduced a product from the Balkans called yogurt, a food produced by the
bacterial fermentation of milk with many benefits to the digestive system (Danone). In 1929,
the product was introduced in France with the name ‘Danone’, the nickname of Isaac’s son,
Daniel. Daniel then established the company as ‘Dannon’ in the United States while fleeing
persecution during World War II.
The beginning of the company’s major strategic acquisitions began in 1979, with
assorted food firms such as La Pie qui Chante, Galbani, and Volvic (Danone). In the early
1990s, Danone made international growth a major priority by penetrating new markets in
locations such as China and Eastern Europe by acquiring well known brands in their
respective countries such as China’s ‘Amoy’, a producer of soy sauces and frozen foods
(Danone).
The Evolution of Strategy
Initially, Danone was involved in several industries such as beer, frozen food and biscuits. In
2000, in order to realign the company with its healthy nutrition mission, they sold off their
brand, Kronenbourg, France’s most popular beer (Capron, 172). From then until 2007, they
sold all of their brands such as biscuits, meat and cheese which did not contribute to their
company identity as nutrition providers (Capron, 172). Finally, in 2012 they introduced the
Danone company manifesto to strengthen their global economic and social impact in order to
bring health through food to everyone (Danone).
1
Danone’s Performance Today
Today, Danone is a French multinational food products corporation and number 54 out of 100
of the world’s most powerful brands, according to Forbes. The firm consists of four major
business lines: Fresh Dairy, Water, Early Life Nutrition, and Medical Nutrition (Danone). The
group is present in more than 130 countries across all five continents (Danone). Danone’s
main competitors include Nestle, General Mills, Coca Cola and Kraft Heinz. The infographic
below shows their relative position in each of their four industries.
In terms of shelf space for the fresh dairy sector, as seen by the photo below, Danone
occupies roughly 50% of all yogurt shelf space at an average large grocery store in the USA,
and has 34% market share of spoonable yogurt in the US (Watson, 2016). The photo below
was taken at a Super Stop and Shop near Boston, MA, part of Ahold, Inc. which also owns
grocery giants of the American east coast Publix and Giant.
2
Overall, 2016 has been a good year for Danone with profit margins increasing from 5.7% to
8.3% from 2015 to 2016 and a successful acquisition of organic and plant based dairy giant
White Wave. This allowed the to double their profits and market share in the US. Earnings
per share also increased from 2.10 to 2.79 from 2015 to 2016.
Strategic Posture
Current Mission
“To bring health through food to as many people as possible.”
Current Goals by 2020
(From Danone’s 2016 Annual Report and Shareholder Meeting)
• Zero fatal accidents and 50% fewer workplace accidents with medical absence compared to
the reference year 2014
• Reduce greenhouse gas emissions, foster “carbon positive” solutions, offer healthy and
sustainable products, reinforce the resiliency of its water and food cycles, and eliminate
deforestation from its supply chain by 2020. Reduce of carbon intensity by 50% (for the
same base year and scope) by 2020
• Increase sales in yogurts “Activia" (which launched under-target in Europe), “Light and
Free” and “Danonino”
• Increase profit margins for fresh dairy
• Cut costs in areas such as employee travel and communications in order to implement
growth patterns and enable Danone to manage a balance between sustainable growth and
good margins, protecting results with high recurring eps growth
• Have the product portfolio in the US be 100% GMO-Free products by 2020
3
Current Strategies (From Danone’s 2016 Annual Report and Shareholder Meeting)
• Fresh Dairy: Developing consumption of the products in all regions around the world and
acquiring companies in successful emerging markets such as organic and plant based Dairy
in USA with their recent WhiteWave purchase.
• Waters: Establish initiatives to promote healthier hydration through partnerships with
public health authorities and scientists and by communicating directly with consumers in
order to inspire healthier hydration practices.
• Early Life Nutrition: Collaborate with healthcare professionals in the sector and perform
local surveys to better understand local dietary habits and nutritional needs to fuel
successful innovation.
• Medical Nutrition: Increase global coverage by establishing products in new countries and
develop various distribution channels.
Current Policies
Danone’s policies are all aligned with their mission of bringing health through food to as
many people as possible and their goal to grow the company sustainably.
These policies include:
• No advertising of early life nutrition products for children under six years old.
• ‘RESPECT’ Policy since 2006: Protecting the Sustainable Development Principles across
the supply chain, particularly suppliers in all Divisions to ensure compliance with the seven
fundamental labor principles formalized by Danone since 2001 based on standards defined
by the International Labor Organization.
4
II. Corporate Governance
Board of Directors (Featuring Top Six)
A complete list of the Board of Directors can be found in Appendix 1.
Danone’s board of directors are required to own a minimum of 4,000 shares each which
represent €240,800 based on the share closing price on December 31, 2016 (Danone).
Chairman Riboud (ex-CEO of Danone and with the company for 25 years) owns the largest
amount of shares of almost 320,000, followed by CEO Emmanuel Faber owning almost
68,000 shares. All other 13 members of the board own from 4,000 to 8,000 shares per person
(Danone). They boast expert experience in sectors such as politics, big food business and
5
investment management. Each Director is required by the company annually to report the list
of board appointments and duties exercised at all companies within the past five years, and to
answer the questionnaire provided for European regulation 809/2004 concerning in particular
the existence of conflicts of interest (DANONE RULES OF PROCEDURE OF THE
BOARD OF DIRECTORS). Board members are also bound by French law to strict
confidentiality.
There are four permanent committees on the board:
• Audit Committee
• Nomination and Compensation Committee
• Strategic Committee
• Social Responsibility Committee
Top Management
The people who make up Danone’s top management are shown above. It is mainly made up
of the heads of each of the firm’s four sectors plus other crucial positions such as Chief
Financial Officer. All members have been with the company for 10-15 years by working in
several departments, with the exception of Bridgette Heller who joined one year ago. Danone
6follows a social governance approach that places its social and societal responsibility at the
heart of its management and strategic decision making (Danone). The firm’s top management
is skilled enough to deal with future issues, as they have extensive experience both with
Danone and other important companies, including some competition such as Unilever.
CEO Emmanuel Faber has been with Danone since 1997 when he joined as Head of
Finance, Strategies and Information Systems. He became a member of the Executive
Committee in 2000, and CEO in 2014, replacing Franck Riboud. What makes Faber an
especially good fit for the firm is his unique outlook on business through sustainability and
good health, directly aligned with Danone’s mission. He is constantly attending various
conferences and events around the world, both popular and unpopular, to understand various
points of view on business and the external environment in order to eliminate what he calls
‘blind-spots’ (Thomson, 2016).
III. External Environments: Opportunities and Threats
Political-Legal
Threats
One recent threat for Danone are Chinese Trade Laws Against Middlemen. According to the
firm’s CFO Cecile Cabanis, it is no longer possible to use middlemen to sell in china through
Europe. These laws are tightening due to nation wide food safety crisis. In 2008, a baby food
scare exploded in China when the world’s largest milk supplier, Fonterra, sold ‘fake’ milk
powder in formula, causing kidney damage in 300,000 babies across the mainland after
having consumed melamine-tainted milk powder, and six infants died (Yan, 2016). Because
Fonterra is also a Danone supplier, the firm’s baby food sales suffered and only rose 1.7% in
the third quarter of 2016, a sharp slowdown from second quarter's 7.2% growth (Reuters,
72016). In July, Danone noted that demand from Chinese consumers buying baby formula
online was declining due to changes in the Chinese regulatory environment (Reuters, 2016).
Economic
Opportunities
Despite baby formula scares, China is increasingly dependent on infant formula. By 2019,
their demand will more than double and China will account for more than half of global sales,
projected to reach $70.6 billion by then (Wang, 2016). Fewer than 16% of urban Chinese
women exclusively breastfeed their babies for the WHO’s recommended period of six
months, according to data from the National Health and Family Planning Commission
(Wang, 2016). This number is even lower than 30% in rural China, likely due to the country-
wide belief that breastfeeding is easily replaced by artificial alternatives such as formula
(Wang, 2016).
Increasing popularity in snack foods, specifically dairy, is also an important opportunity. In
the United States alone, snacks account for a whopping 40% of the country’s $370 billion
packaged food market and snack growth is set to increase by 3% annually until 2019 due to
increasing demand from millennials (Crawford, 2015). Currently, dairy-based snacks account
for around 13% of total snacks consumed, globally (Business Wire, 2016). This gives Danone
the opportunity to increase and diversify their portfolio in order to capitalize off of the
increasing demand.
Finally, an opportunity that Danone has recently capitalized on is strategic
acquisitions in order to gain market share. Their recent purchase of American organic and
plant based dairy giant, WhiteWave will allow them to double profits in the US to $6 billion
and also double their market share, since WhiteWave’s star brand Horizon Organic controls
the majority of America’s organic milk market (Danone).
8Threats
The most crucial threat currently facing Danone is
Other Brands
private companies stealing market share. As of March Dannon
27%
34%
2017, private greek yogurt brand Chobani has
overtaken yogurt giant Yoplait in market share. Yoplait
19% Chobani
Chobani reached about $1 billion in sales within their 20%
first five years, making it a fierce competitor (Buss,
2017).
Since Fresh Dairy Products is Danone’s largest sector at more than €10,7 billion in
global sales in 2016, increasing dairy prices pose a large threat to the company (Danone,
2016). The price of milk increased nearly 17% in 2016 due to the culling of herds because of
decreasing milk demand and the high costs of raising cows for milk (Craymer, 2016). This
will not only effect Danone, but dairy industry as a whole, by slowing profits.
Finally, diseases among dairy cows poses a threat to Danone and the rest of the dairy
industry by putting them at risk of potential milk contamination and therefore possible
sickness and scandals. According to the USDA, from 2006 to 2016, the average herd size of
dairy cows has increased by 151%. Due to dairy cows living in such filthy close quarters,
Bovine Johne’s Disease, a incurable infection common in cows, becomes much more likely
to occur, since it is spread through feces and calves suckling from their mothers (National
Johne’s Disease Program, 2013). Even though Danone’s dairy supply chain is significantly
more sustainable and small scale than they competition, nearby dairy farms with less
sustainable practices could still infect Danone’s. All it takes is a cow that breaks out of the
pasture, or a strong force of wind or rain to spread the disease.
9Sociocultural
Opportunities
In the US especially, millennial customers are becoming increasingly more health-aware and
conscious of what they and now their children are eating, as can be seen in the graph below
of increasing sales of organic food in the US (Organic Trade Association).
Technology
Opportunities
As seen in the case of China, several countries worldwide are dependent on early life
nutrition. In order to satisfy Danone’s mission of bringing health through food while also
generating profit, technology presents itself as an opportunity. While baby formula will never
be a substitute for breast feeding, infants in places such as China can grow and develop
healthier by consuming fermented baby formula. Fermentation provides extremely beneficial
bacteria that can keep infants from getting diseases by fortifying the immune system early on.
In fact, mothers who are breastfeeding are encouraged to eat fermented foods in order to pass
on these benefits to their babies. The technology inside Danone’s pre-existing R&D centers
should be used as an opportunity in order to release a product like this into the market since
one does not currently exist.
10EFAS TABLE
Key External Factors Weight Rating Weighted
Score
Opportunities
Health Oriented Eating Trends in Food/Beverage Industry, 0.21 4 0.84
leading to Increased Demand
High Demand for Waters, Specifically Plant-Based 0.13 3 0.39
Increasing Demand for Dairy Snacks and Organic Products 0.12 3 0.36
Increased Development of Fermented Baby Formulas 0.10 3 0.3
Strategic Acquisitions of Smaller Companies to Increase 0.07 1 0.07
Market Share
Threats
Cheaper Private Label Companies Stealing Market Share 0.13 3 0.39
Chinese Trade Laws Against Middlemen 0.10 2 0.2
Increasing Dairy Prices 0.09 2 0.18
Risk of Dairy Cows Getting Diseases 0.05 1 0.05
Totals 1 2.73
Task Environment: Focused on the Fresh Dairy Industry in the USA
Threat of New Entrants (Medium)
Barriers to entry are somewhat high between economies of scale, access to distribution
channels, fierce competition, and experience in the industry. Small scale artisanal producers
can enter without huge amounts of capital. Government regulations such as the FDA also act
as a barrier to entry with strict laws regarding food safety, increasing compliance costs
therefore potentially discouraging new entrants (MarketLine, 2016).
Buyer Bargaining Power (High)
The buyers in the US Dairy Industry are mainly large supermarkets. On-trade business
constitute the major buyers in the US dairy market, accounting for 48.0% of total sales value,
resulting in higher buyer power, since players can only sell to a small number of large buyers
(MarketLine, 2016). Switching costs for buyers are not particularly high, but some retailers
11allocate contracts to single suppliers of dairy products (MarketLine, 2016). On the other
hand, dairy products are an important part of most American diets, forcing buyers to keep
their shelves stocked full of it, slightly weakening their power (MarketLine, 2016). In fact,
almost 20% of Americans eat over the suggested dairy limit (ODPHP).
Substitutes (Medium)
According to Market Line, “Dairy products are an important part of most peoples’ diets and
the benefits of calcium are highly publicized and are therefore unlikely to be completely
replaced”. Though you could replace dairy products such as milk with water, fruit juice or
soda, they are completely different products with different health benefits. Dairy products
may now also be easily replaced with plant based non-dairy products such as soy milk and
vegan cheeses.
Supplier Bargaining Power (Medium)
The suppliers to this industry are dairy farmers that produce milk, which can then be made
into various dairy products. Usually, a large-scale dairy processing and packaging company
has several individual or co-op farms supplying it with milk, but no company large or small is
immune to rising milk prices (MarketLine, 2016). Big players often use hedging by buying
supplies on the futures market with an agreed price so not be caught by unexpected price
jumps. This boosts switching costs for players and increases supplier power (MarketLine,
2016). Suppliers can differentiate their raw materials by producing organic milk.
Rivalry Among Competing Firms (High)
Competition between dairy companies are high since the industry is controlled by a few
major players, some with many brands, as shown in the chart below. Industrial production of
dairy is a highly particular process, requiring substantial equipment and specialized assets,
12therefore increasing exit costs and barriers to entry (MarketLine, 2016). However, large
players also operate in consumer goods markets or other food markets, and therefore may not
be as reliant on sales of dairy products, which decreases their competitive threat.
IV. Internal Environment: Strengths and Weaknesses
Corporate Structure
Outlined below is Danone’s general corporate structure. It is led by the firm’s executive
committee, which is given authority by the CEO to ensure the operational direction of the
Company, implement the strategy defined by the Board of Directors, check the coherence of
the actions taken by the operational business lines and business units and decide on the action
plans while agreeing on the budget (Danone).
13Danone is first organized based on sector, and from there it is separated by country, and
further into departments. For example, Fresh Dairy Products has offices in countries such as
France and Italy which are then divided into departments such as field sales and business
development (The Official Board). Danone’s structure is similar to that of its competition,
specifically Nestle. General Mill’s structure is different in that instead of dividing into
company sectors and then countries, it breaks directly from department to brand. For
example, HR is connected directly to yogurt brand Yoplait.
Corporate Culture
Danone’s corporate culture as a whole is dynamic and emphasizes employee self-awareness
to help them be more aware of their skills. Specifically, a culture of leadership exists based on
the principle that every employee can develop leadership skills and propose ideas freely. This
idea is demonstrated specifically through constant ‘tinkering’ with innovative ideas to get
employees involved. Recently, Vice-President of R&D Waters of Danone Research,
Christophe Perthuisot stated that every Friday afternoon, he asks staff and colleagues about
ideas they’ve always wanted to try. There are spaces in most of the labs for this exercise
where employees are encouraged to try new ideas and fail without risk (Chu, 2016).
According to reviews on GlassDoor, employees are generally pleased with their
working experience at Danone, especially their benefits packages. This is especially noted
since on International Women’s Day in March of 2017, Anne Hathaway released in her UN
Women speech that, by 2020, all 100,000 Danone employees worldwide will have right to 18
weeks paid parental leave for both men and women. The company was named a 2017
#HeForShe Thematic Champion. Such a high amount of paid parental leave is a considerable
feat, regardless of country or culture.
14The only considerable complaint from Danone employees, both past and present, is the high
turnover of management. The work that needs to be done is clear, but the constant
inconsistency of managers can make employee efficiency difficult.
Corporate Resources
Marketing
One of Danone’s main policies that aligns them with their mission is the marketing rule that
no early life nutrition product will be marketed for children under six years old.
In terms of their marketing strategy, the firm tends to
go through joint ventures to reach exactly the customer
they want, such as their collaboration with Starbucks
to create ‘evolution’: a brand including products such
as yogurt, fresh fruit juices and smoothies made with
Dannon’s specially developed mild greek yogurt. This
new portfolio Inspired by Dannon- branded ready-to-eat Parfait Greek yogurt products was
co-created by Starbucks and Danone for exclusive distribution in the US. Starbucks offered
the products through its stores in spring 2014, and Danone in grocery channels in 2015
(Starbucks, 2013). The goal of this marketing collaboration aligns with Danone’s mission in
order to promote increasing healthy yogurt intake in the US, since the average American
consumes one cup of yogurt a week versus up to five in some European countries (Watrous,
2015). Therefore, increasing distribution and being where people are eating and making
healthy food choices proves to be a major enabler for the firm’s yogurt business.
Since Danone operates in more than 130 countries and follows a localization strategy
by customizing their products to the culture and taste preferences of the area, their marketing
must match.
15Below is an example of the differences in marketing strategy between a range of Danone’s
yogurts in two of its most important countries. The main differences lie in colors, ingredients,
and language.
USA: Bright Colors & Sugary Flavors Russia: Clean Colors & Natural Flavors
As seen in the graph below, Danone’s sales come mainly from the ‘ALMA’ region which
includes Africa, Latin America, Asia (including India) and Oceania.
40.5% 39%
20.5%
Like many of their products, Danone’s strength in marketing is innovation. Dannon in the US
is bringing coupons to TV through the use of mobile devices with a downloadable coupon for
yogurt (Jaekel, 2017). This is the first time that a consumer packaged brand has been able to
distribute their coupons through national television ads. The campaign ran on various
networks in the United States including TLC, A&E, VH1 and Hallmark Channel, from
January 18 until March 31 (Jaekel, 2017). It encouraged viewers to text ‘DANNON’ to a
number in order to receive a coupon directly to their mobile device when they purchase from
16the new line of natural whole milk yogurt (Jaekel, 2017). This innovative strategy provides
Dannon USA with a unique competitive advantage in marketing since non of their
competitors are advertising this way.
The fresh dairy industry specifically is in the shakeout stage of the industry life cycle ,
therefore it is important to gain all the market share possible through more brand acquisition
and intriguing marketing techniques. In the US especially, where yogurt is not an old product
consumed for generations based on culture and tradition like in Europe, it is important to
capture the attention of American consumers as Dannon does with captivating TV ads,
collaborations with popular nationwide brands, and packaging designed for the target market
of each line of yogurt.
Finance
Note: Because Danone is a unique company with a combination of four different industries,
an industry average was calculated using four of Danone’s direct competitors, using their
respective financial statements.
As shown in Figure 1 on the next page, Danone is a profitable company, and though they
have experienced a 2% decrease in sales from 2015 to 2016, they have increased their net
income by 30%. A reduction in the cost of goods sold as a percentage of sales from 50% to
48% was a component in net income growth despite flat sales (Danone). Danone’s goal for
sales growth for 2016 was 3.0%. The company reached just under the goal at 2.9%, the
reason being decline in sales for baby formula in China according to Cecile Cabanis, Danone
CFO, at their annual shareholder meeting. This growth goal is conservative, because the firm
only wants to grow slowly and steadily as they always have in the past, leading them to the
global power they are today.
17Figure 1: Danone’s Sales to Net Income (in € millions)
€30,000
Sales Net Income
€22,412 €21,944
€22,500 €20,869 €21,298 €21,144
€15,000
€7,500
€1,787 €1,550 €1,253 €1,398 €1,827
€0
2012 2013 2014 2015 2016
Profitability
Shown in Figure 2 above are Danone’s key financial ratios as compared to the calculated
industry average amongst its main competitors as previously stated. Danone’s profit margin
has been increasing steadily since 2014, when current CEO Emmanuel Faber was instated.
Because Danone’s products, specifically in the fresh dairy sector, are of higher quality
than its competitors, featuring non GMO ingredients such as whole milk, their costs are
higher. The company is working to decrease their overall company costs in terms of
communications and employee travel to increase their profit margin, rather than sacrifice the
high quality of their products. Profit margin will likely continue its spike in 2017 with the
recent acquisition of WhiteWave, allowing Danone to double their US dairy profits from $3
to $6 billion. WhiteWave company Horizon Organic has nearly 25% of the organic milk
market, a sector that has increased by over 22% in the last five years according to
Euromonitor (Kowitt 2016). This move into the organic and plant based market through
WhiteWave will give Danone profits the opportunity to soar.
18Figure 2: Danone’s 5 Year Analysis
Industry
2012 2013 2014 2015 2016
Average
Net Profit
8.0% 6.7% 5.3% 5.7% 8.3% 9.0%
Margin
Operating
13.2% 10.0% 10.2% 9.8% 13.3% 15.6%
Margin
Net Working
(1630) (2757) (3149) (1204) 10063
Capital
Current Ratio 0.81 0.74 0.70 0.87 2.11 1.05
Earnings per
2.78 2.42 1.88 2.10 2.79 2.62
Share
Liquidity
As seen in Figure 2 above, Danone’s current ratio of 2.11 is soaring above the industry
average of 1.05. This is likely due to the recent WhiteWave acquisition and its influx of
resources. It is important because despite the increase of debt discussed in the next section,
the company remains in a state where they can pay off their financial obligations.
The WhiteWave Acquisition
The recent WhiteWave acquisition was a cash transaction with a price of $56.25 per share,
representing a total enterprise value of USD 12.5 billion, including WhiteWave’s debt and
other liabilities. The WhiteWave acquisition will be financed entirely through debt. This
acquisition is likely the reason for Danone’s increase in total debt from €10,209 million in
2015 to €20,557 million in 2016.
Figure 3: Danone Vs Competition
Kellogg General Kraft Industry
2016-2017 Nestle Danone
Co. Mills Heinz Average
Net Profit
6.1% 9.0% 10.0% 13.8% 8.3% 9.4%
Margin
Operating
10.2% 15.0% 16.0% 23.5% 13.3% 15.6%
Margin
EBIT Margin 10.5% 15.3% 19.4% 28.4% 13.3% 17.4%
Current Ratio 0.66 0.85 0.72 0.92 2.10 1.05
Earnings per
1.96 2.75 2.77 2.82 2.79 2.62
Share
19Since Danone owns significantly less brands than most of its competitors and therefore
naturally has less profit, it is especially important to analyze the operating margin of the firm.
Although it is slightly under the industry average as shown on the previous page in Figure 3,
it is clear in Figure 2 that it is increasing at a rate steady enough to reach the industry average
within the next one to two years.
Research and Development (R&D)
Research and Development plays an central role in the implementation of Danone’s growth
strategy. Danone believes that food plays an essential role in addressing health challenges
(Danone).
The company’s R&D strategy focuses on four main innovation areas:
Progress: building bridges between science and food to contribute to the health of people of
all ages, from the youngest to the oldest
Reliability: committing to the nutritional quality of the products and managing natural
resources sustainably
Cultures: staying connected to eating practices, integrating
20Danone has two main international research centers, four specialized centers, and 55 local
research and development branches. They want to promote proximity with consumers and
their markets, in order to develop products close to local needs and tastes (Danone).
As shown in the map below, Danone’s R&D centers are concentrated in their largest
markets: Europe and Asia. The two main centers are located close to the company’s Paris
headquarters in France and The Netherlands. The four specialized centers are in Spain,
France, China and Singapore. Most of Danone’s research is with their most technical sectors:
early life nutrition and medical nutrition (Danone).
An interesting part of Danone’s R&D is that most of it is not outsourced, compared to its
competitors who outsource most of their research. Technology plays a big role in the
company’s R&D because the products they sell all relate to nutrition, therefore extensive
research with specialized equipment is necessary to ensure high nutritional value from the
various bacteria in yogurt to the quality of milk powder and vitamins used in baby formula.
Danone also supports the scientific community by awarding research grants worldwide in
collaboration with various educational institutions such as Harvard University.
21IFAS Chart
Weighted
Key Internal Factors Weight Rating
Score
Strengths
#1 for Global Yogurt Sales 0.20 4 0.8
Excellent Brand Reputation for Quality and Taste 0.14 3 0.42
Strong Strategic Mergers and Acquisitions such 0.13 3 0.39
as WhiteWave
Strong Relationships and Control Throughout All 0.09 3 0.27
Parts of Supply Chain
Great HR Benefits Package 0.08 2 0.16
Weaknesses
Low EBIT Margin Compared to Competitors and 0.15 2 0.3
Industry Average
US Customers Unhappy with Change in Activia 0.10 3 0.26
Yogurt Consistency
High Management Turnover Leading to Unhappy 0.08 2 0.16
Employees and Inconsistency
Growth Goals Not Reached-Sales in China 0.03 2 0.06
Decreasing
Totals 1 2.82
Operations and Logistics
Since Danone operates in more than 130 countries, efficient production and distribution is
extremely important. Danone owns most of its distribution and production centers through
strategic acquisitions they have made over the past 20 years in countries such as China and
Russia.
One of Danone’s most important markets for strategic distribution channels is China.
They have optimized company presence across different distribution channels to develop
links with mothers. The company is investing heavily in the growing network (40% annually)
of specialized stores for mothers and children. Mothers go to these stores for advice on
feeding their babies and young children. Danone also continues to develop e-commerce, a
22very popular and efficient way of connecting with consumers in China, via a dedicated team
(Danone).
Due to the nature of resources needed to produce Danone’s products, manufacturing is
very sensitive to price fluctuation of raw materials. The company’s two main product
portfolios, fresh dairy and waters, depend on milk and spring water, two resources that are
both affected by climate. Just in 2016, milk prices rose 17% (Craymer, 2016).
Human Resources Management (HRM)
Danone’s most important HRM project currently is WISE: “Work In Safe Environment”.
WISE is a global program implemented by Danone since 2004 that aims to develop a strong
health and safety culture at all its subsidiaries and reduce workplace accidents by 50% by
2020. This program defines health and safety rules and best practices. It is deployed in all the
Divisions around the world, at both plants and logistics warehouses and in distribution. It also
applies to subcontractors working at Danone sites. The Human Resources Department, runs
the project with designated managers at each level: Division, subsidiary and site to conduct
various audits yearly (Danone). This program is especially important and well implemented
in developing countries.
Overall, employees have positive reviews on working at Danone. One reoccurring comment
throughout websites such as Indeed.com and Glassdoor.com is that the work to life balance is
great, which is especially unique for American employees since they are much more
accustomed to working long hours and not having much time for personal life. One thing that
many employees mentioned though, was the fact that everything is constantly changing at
Danone and consistency is lacking. This is an effect of high turnover among management.
23Information Systems
Danone has developed an innovative solution to measure the carbon footprint of its products,
a module that has been deployed at several subsidiaries equipped with the SAP/Themis
integrated information systems (Danone). Their strengths in IS lies in innovation, providing
them with a competitive advantage.
Summary of Internal Factors
Danone’s most important core competencies are made up of the combination of global
resources and economies of scale, since they are the number one seller of yogurt worldwide
and have production and distribution centers in all continents (Gretler, 2016). Danone’s most
distinctive competency is the fact that while being the world’s leader in yogurt, they are also
among the leaders in sustainable business practices, ranked in important sustainability index
such as the Dow Jones Sustainability Index and Ethibel Sustainability Index (Danone).
V. Analysis of Strategic Factors
Situational Analysis
Danone’s main strengths lie in their vast global recognition and strategic acquisitions and
alliances. Since they are a trusted brand throughout the world for their high quality products
such as yogurt, solidified by their #1 standing for global yogurt sales, they have more yogurt
customers than any other company. Another main strength is how quickly and efficiently the
company is increasing their market share in the substitutes for their own products.
The important acquisition of WhiteWave will allow them to not only keep increasing
profits as they assume more brands, but also keep profits sustainable by having had also
acquired their potential yogurt product substitutes of plant based dairy.
24Marketing is also a strong suit of Danone, as they are innovating not only through products
and nutrition, but through TV ads as well, allowing consumers to receive coupons directly to
their phone when they see the commercial.
A major weakness for Danone is their low EBIT margin compared to their
competitors, as outlined in Figure 3 in the finance section. As they move into the new brands
acquired through WhiteWave, it will become increasingly important to lower costs in order to
maximize profits.
The most crucial threats facing Danone now are private companies such as Chobani
stealing market share, Chinese laws tightening on distribution channels, and the possible
continued increase of dairy prices worldwide. In order to remain a strong competitor in the
Fresh Dairy industry specifically, they will need to work on improving and strengthening
distribution channels and market share.
Finally, the most important opportunity for Danone to capitalize on is the consumer
trend of healthy eating, as shown by the sharp increase of more than $10 billion of organic
food sales in the USA (Organic Trade Association).
Review of Mission and Objectives
Since nearly one third of the world’s population is obese or overweight, Danone’s mission to
“bring health through food to as many people as possible” is becoming increasingly more
relevant in today’s global market. As long as Danone keeps the company portfolio limited to
products that promote healthy eating, drinking and living, while also increasing the
company’s top line, they will remain the global power they are.
25VI. Strategic Alternatives & Recommended Strategy
Strategic Alternatives
Since Danone is already a leader in all four of its business sectors, the most reasonable
strategy to implement is stable and sustainable growth. They should specifically focus on
market and product development and market penetration.
The main reasons to adopt these more conservative strategies instead of more risky
ones in the diversification sector, for example, is quite frankly because Danone just spent $12
billion on an enormous company acquisition, allowing it limited space for further massive
expansion at the moment.
One of the most logical growth strategies into a diversified sector for Danone’s fresh
dairy would be to enter into the frozen yogurt market in both a physical store chain and in
grocery stores. Although the frozen yogurt industry boomed around 2011, especially in the
US, the market is now over saturated and recently entered the shakeout phase, making it
unattractive and most likely not profitable to enter. Danone has also attempted to enter the
market of frozen yogurt shops with their pop up shops in New York City and Barcelona in
2012. The ventures went well and received positive customer feedback through food bloggers
and press, but apparently not well enough since both shops closed down and no further ones
were reopened. A similar situation occurred with selling tubs of frozen yogurt in the frozen
section of US grocery stores. Dannon released a line of OIKOS Frozen Greek Yogurt in 2012,
but discontinued the products in 2015 due to low sales (Danone).
It will also be important for Danone to improve their Human Resources operations by
decreasing the rate of employee turnover, especially in management, in order to provide
clarity and consistency to their employees.
26Increasing the company’s presence on social media is also crucial. Using Twitter and
Facebook as examples, because they are the social networks that consumers use to interact
directly with the company and see the latest product updates and commercials, Danone’s
performance is significantly worse than its competitors in terms of follower numbers. Note
that these numbers represent the number of followers each brand has on Facebook
specifically, meaning the user has opted to receive notifications on their news feed of the
company’s posts. Since the internet is expected to be made up of 84% videos by 2018, if
Danone does not increase their visibility on social media, it will hurt their online brand
awareness (Lopes, 2014).
Recommended Strategies
Product Development: Electrolyte Waters
Danone currently sells flavored waters (Juicy) and energy boosting vitamin-enriched waters
(Mizone), but what they do not already sell are electrolyte enriched waters. Electrolytes are
ions that improve body functions from improving muscle movement to the production of
DNA and include elements such as magnesium, calcium, and sodium. One currently well
known brand of electrolyte infused water is Coca Cola’s SmartWater, which is natural spring
water directly enhanced with these electrolytes. However, that is not the only way to consume
electrolytes through water. A main current trend for healthy hydration is plant based water,
filled naturally with beneficial electrolytes. This is the ideal way to enter the market to avoid
already strongly established competition against companies such as
Coca Cola. Global sales of plant based waters grew 21% in 2016
reaching more than $2.7 billion. By 2020 the market is expected to
27double in size to reach $5.4 billion (Arthur, 2017). The majority of value comes from North
and South America, two of Danone’s already important markets, while North America has
better potential for innovation. The most popular sources of plant based electrolyte waters are
coconut and maple (Arthur, 2017).
Market Development: Fitness Center Partnerships
Since millennials are creating consumer trends of healthy eating for both for themselves and
now their children, they will likely want to round off this lifestyle with getting fit. This is
proves to be the case in the US since the average age of gym goers at Equinox, number one
luxury gym in America according to Men’s Fitness, is around 35 years old. Since this
consumer is already interested in eating well and getting fit, it makes an agreement between
Dannon and Equinox gyms the perfect way to
increase sales of ‘Triple Zero’ yogurt. This yogurt
is one of Dannon’s newer products tailored to be
an after workout snack featuring increased protein,
zero sugar, zero artificial ingredients, and zero fat.
Market Penetration: Ignite Social Media Growth in the USA
There are two very effective ways to improve Danone’s lacking social media presence while
also increasing brand awareness and sales.
1. Go Viral Through Packaging
Danimals is the brand of both drinkable and spoonable yogurt targeted to kids in the USA.
Currently, containers are bright and colorful with fun animal characters printed on the
container. An easy and effective way to bring this packaging to the next level would be to
make the plastic tubs of both the drinkable and spoonable containers able to click into each
other, making them stackable one on top of the other. This not only creates a fun and
28‘instagrammable’ way to increase social media followers by
encouraging parents to post pictures of their kids’ creations
using hashtags like #MyStackables, but also devises a fun way
to recycle plastic containers, aligning with Danone’s
sustainability goals.
2. Collaborate with Social Media Stars
Since videos are becoming such an increasingly large part of
internet content as mentioned above, it is essential to produce
intriguing video content now, more than ever. There is no better
way to get your consumers (especially millennials) to get
creative with and be aware of your product than collaborating with social media food stars
such as BuzzFeed’s Facebook page: Tasty. After less than two years following its creation,
the short cooking video tutorial superstar earned the spot of 7th most viewed overall creator
on Facebook, with more than 3.4 billion views to date and more than 85 million Facebook
followers. The idea would be to pay Tasty to feature a Dannon yogurt in one of their videos,
demonstrating the variety of ways you
can incorporate yogurt into your diet
through fun and trendy recipes as seen
in the prototype to the right. After
having used the US as a test market, if
the initiative is successful, it can be
replicated on Tasty pages in other
85 Million 17 Million 16 Million
countries such as Brazil and the
United Kingdom.
Follower Data as of 10 May 2017
29An example of the shocking power Tasty has through their viewers is when in March 2016,
Newell Brands created a sponsored Tasty campaign that featured an Oster grill in a video for
a jalapeño and cheese-stuffed hamburger. While Newell's team expected a boost in views and
social media followers, it didn't expect that the grill would immediately sell out through both
Amazon and Target (Johnson, 2016). The best part? Traceability. The brand's marketing team
was able to attribute the sales lift directly to Tasty (Johnson, 2016).
All three of these recommended strategies work to enhance Danone core
competencies of strong strategic collaborations and excellent global recognition as a
trustworthy and established company. The first strategy of product development of electrolyte
waters would most likely bring in the most profit, while the other two would help to increase
brand awareness and online presence.
VII. Implementation
Since Danone recently made a $12 billion purchase, a necessary aspect of developing growth
strategies was the ratio of cost to efficiency. All three of the recommended strategies above
are low cost and require little implementation.
Danone is already constantly researching new waters and will now have access to
WhiteWaves extensive research base and know how of plant based products, since that is one
of their focuses. Therefore, introducing a plant based electrolyte water would combine the
competencies of both companies to make it a cost effective product with great potential to
even be the first product DanoneWave releases as a joint company.
Establishing a collaboration with Equinox would be low in cost since the main aspect
would be the contracts and negotiations between the two companies.
Enabling the Danimals cups to be stackable would require a slight change in the tops
and bottoms of the plastic containers, allowing them to fit together. There could also be a cost
30of a several hundreds of thousands of dollars to launch social media campaigns and TV
advertisements to educate the consumers about how the new cups work in the US
encouraging kids to want to buy the yogurt/toy and urging parents to publish the works of art
online.
Finally, creating a campaign with Tasty in the US would cost somewhere in the high
six figures to millions of dollars. Newell Brands paid around the mid six figures for the
campaign a year ago in March 2016, and Tasty followers have more than doubled since then.
VIII. Evaluation & Control
Danone has an organizational structure efficient enough to fulfill the process of
evaluation and control of the previously stated recommended strategies for growth as well as
the necessary implementation. The top managers of the Waters and Fresh Dairy sectors,
respectively, would need to evaluate the overall potential success of the strategies.
Danone’s research and development facilities would test and develop the plant based
electrolyte waters, evaluate their quality and collect feedback from local consumers to
improve them.
Danone’s US Fresh Dairy manufacturing centers would evaluate the process of
altering Danimals packaging. Finally, the company’s marketing department within the Fresh
Dairy sector would evaluate costs and legal aspects of any collaborations with US gyms and
Buzzfeed’s Tasty.
Each of the company’s departments will be responsible for the budget allocated to
their activities.
31IX. Conclusion
Overall, Danone holds a solid position especially in aspects of finance and global market
share. Their market share in the US, one of the company’s largest markets, is about to double
with the recent acquisition of WhiteWave. This gives Danone access to a whole new brand
portfolio of organic dairy and plant based dairy alternatives as well as the access to know
how and distribution channels that comes with it.
The company is right in line with, if not above industry average compared to their
competitors, even though Danone makes less profit in comparison due to dramatic size
differences.
As long as Danone keeps implementing strategies according to their mission and
grow sustainable profit, they will continue to be a leader in all four of their segments.
32Appendices
Appendix 1: Complete List of Board of Directors
33Appendix 2: Product Market Expansion Grid
Existing New
Existing Market Penetration Product Development
• Increase social media presence • Introduce electrolyte-fortified
by collaborating with Tasty on waters
Facebook • Introduce Kefir, a very healthy
• Make Danimals plastic cups fermented milk drink
stackable for kids to create • Introduce Danone Juices in
little creations like castles Europe
• Include a small toy in the • Introduce cheeses and butters.
Danimals yogurt for kids pack in
the USA like other countries
such as Egypt do
• Sponsor or host music and/or
food festivals.
New Market Development Diversification
• Sell Triple Zero yogurt in gyms in the • Enter into the dairy production industry -
US like Equinox buy farms and produce milk exactly how
• Open another pop-up yogurt shop in a Danone wants.
city like Los Angeles or Chicago
• Release Early Life Nutrition Products to
the USA such as baby formula with no
sugars or fermented ones.
34Appendix 3: BCG Growth Share Matrix (For All 4 Danone Sectors When Applicable)
Cash Generation
High Low
Star ???
Fresh Dairy: OIKOS Greek Yogurt Fresh Dairy: Dannon Light and Fit
High Waters: AQUA Waters: Mizone
Cash Usage
Early Life Nutrition: NUTRICIA Early Life Nutrition: DUMEX
Medical Nutrition: NUTRISON Medical Nutrition: NEOCATE
Cash Cow Dog
Fresh Dairy: ACTIVIA Fresh Dairy: Triple Zero Fitness Yogurt
Low Waters: EVIAN
Early Life Nutrition: APTAMIL
Medical Nutrition: FORTIMEL
35Annotated Bibliography
ARTHUR, Rachel. "Plant-based Water Sales Predicted to Double by 2020."
BeverageDaily.com. N.p., 27 Jan. 2017. Web. 10 May 2017.
This article from a beverage trade publication outlined the fantastic opportunities in
plant based waters.
Capron, Laurence, and Will Mitchell. Build, Borrow or Buy: Solving the Growth Dilemma.
Boston: Harvard Business Review, 2012. Print.
This book helped me understand precisely which brands Danone sold off, when they
sold them, and why (strategically).
Chu, Will. "Danone 'tinkers' with Company Culture to Innovate." FoodNavigator.com.
FoodNavigator.com, 17 Mar. 2016. Web. 09 May 2017.
This article gave an insider’s look at Danone’s corporate culture that helped me to
assess it as a whole - especially compared to employee reviews.
Crawford, Elizabeth. "Millennials Are Driving Snack Sales Growth & Reshaping How
Americans Eat, Euromonitor Says." FoodNavigator-USA.com. FoodNavigator-USA,
22 May 2015. Web. 09 Apr. 2017.
This source provided me with statistics regarding snack food growth specifically in
the US.
Craymer. "Global Dairy Prices Rise, as Herds Are Culled." The Wall Street Journal. N.p., 17
Aug. 2016. Web. 9 Apr. 2017.
Craymer’s article outlined the importance of increasing global milk prices and why
they are rising, allowing me to analyze it as a threat to Danone.
36"Current Eating Patterns in the United States." Health.gov. ODPHP - Office of Disease
Prevention and Health Promotion, n.d. Web. 24 Mar. 2017.
This report from the US government provided me with statistics on how Americans
eat.
"Dairy Industry Profile: The United States." Dairy Industry Profile: United States, Sept. 2016
Market Line, pp. 1-36. EBSCOhost.
This market research report gave me an idea of who has the most power in the dairy
industry in the US.
"Dannon." ConsumerAffairs. ConsumerAffairs, 27 Feb. 2017. Web. 24 Apr. 2017.
Both these ConsumerAffairs and GlassDoor reviews helped me realize the current
situation of Danone’s Human Resources.
Danone. "Danone: Our Heritage." Danone. Danone, 2017. Web. 08 Feb. 2017.
I used this page of Danone’s official website to learn about the extensive history of the
company started about 100 years ago including what their original strategy was and
what they changed to match the company’s missions and goals.
Danone. "DANONE RULES OF PROCEDURE OF THE BOARD OF DIRECTORS."
DANONE RULES OF PROCEDURE OF THE BOARD OF DIRECTORS (2017): n.
pag. 27 Apr. 2017. Web. 9 May 2017.
Danone’s code of conduct for their board of directors helped me understand what
is expected of board members and what rules and French laws they are expected to
abide by.
"Danone Reviews." Glassdoor. Glassdoor, 2016. Web. 24 Apr. 2017.
37Both the ConsumerAffairs and GlassDoor reviews helped me realize the current
situation of Danone’s Human Resources.
Faber, Emmanuel, and Cecile Cabanis. "Danone Shareholder Meeting." Danone 2017 Annual
Shareholder Meeting. France, Paris. 27 Apr. 2017. Lecture.
Danone’s annual shareholder meeting helped me learn a great deal about the
company’s goals and 2016 performance analysis that are not published in their annual
report and come directly from top Danone managers and shareholders: the ultimate
inside scoop!
Forbes. "The World's Most Valuable Brands." Forbes. Forbes Magazine, 2016. Web. 07 Feb.
2017.
I used this article to see where Danone stands in terms of value up against other
global brands.
Gretler, Corinne. "Danone Sales Growth to Miss Target as Spain, Activia Falter."
Bloomberg.com. Bloomberg, 19 Dec. 2016. Web. 24 Apr. 2017.
Though this article highlighted yogurt performance in Spain, it also aided me in my
research of Danone’s distribution channels.
He, Laura. "China's New Baby Milk Scandal to Trigger Tighter Cross-border E-commerce
Rules." South China Morning Post. N.p., 08 Apr. 2016. Web. 01 May 2017.
This article outlined the legal effects of the recent baby formula scares on Chinese E-
Commerce restrictions.
Jaekel, Brielle. "Dannon Brings Innovation to Television Advertising with Actionable
Experience." Latest News. RetailDive, 24 Jan. 2017. Web. 8 May 2017.
38This article outlined Dannon US’s strategies for innovation in marketing through
creating TV spots with built in coupons that can be sent to your mobile device.
Johnson, Lauren. "How Tasty's Addictive Cooking Videos Helped BuzzFeed Build a Food
Empire." – Adweek. Adweek, 30 Oct. 2016. Web. 9 May 2017.
This AdWeek article aided in my research to find statistics regarding exactly how well
featuring a brand through a Tasty Facebook video could work.
Kowitt. "Danone Gets a Lot More Than Soy Milk With WhiteWave Purchase." Fortune. N.p.,
June-July 2016. Web. 28 Feb. 2017.
This article helped me learn about the financial side of Danone’s recent WhiteWave
acquisition.
Lopes, Marina. "Videos May Make up 84 Percent of Internet Traffic by 2018: Cisco."
Reuters. Thomson Reuters, 10 June 2014. Web. 10 May 2017.
This article outlined statistics of internet traffic over the next two years and solidified
the increasing importance of a strong social media and internet presence for
companies in all industries.
National Johne's Disease Program. "Understanding Bovine Johne's Disease in Beef Herds."
Cattle Council of Australia (2013): n. pag. Farmbiosecurity.com. Cattle Council of
Australia, 2013. Web. 9 Apr. 2017.
This report helped me learn more about the risk of specific diseases among dairy
cows.
"Org Chart Danone." TheOfficialBoard. N.p., 30 Dec. 2016. Web. 09 May 2017.
39This is the organizational chart of Danone’s company, allowing me to complete
internal analysis of the corporation.
"Org Chart General Mills." TheOfficialBoard. N.p., 3 May 2017. Web. 09 May 2017.
This is the organizational chart of General Mills, allowing me to compare Danone’s
internal structure with its competitors.
"Press Release UN Women Announces Four New HeForShe Thematic Champions." UN
Women. United Nations, 7 Mar. 2016. Web. 08 Mar. 2017.
This press release outlined the event in which Danone was named a HeForShe
Thematic Champion due to the company’s statement of 18 weeks paid parental leave
for all 100,000 employees worldwide by 2020.
Reuters. "Danone's Sales Growth Is Hurt By Challenges in China." Fortune.com. Fortune, 18
Oct. 2016. Web. 09 May 2017.
This article outlines the statistics of how Danone’s sales dropped last year in
response to China’s tightening rules on e-commerce for baby formula after mis-
labeling scandals and bad quality milk powder.
Thomson, Adam. "Financial Times." Emmanuel Faber, Danone CEO: on the alert for blind
spots. Financial Times, 3 Apr. 2016. Web. 25 Apr. 2017.
This Financial Times article let me learn more about Danone’s CEO, Emmanuel
Faber’s approach to business and leadership.
Wang, Jeanette. "Why Countries Such as China Pay Price in Lives for Baby Formula
Dependence." South China Morning Post. N.p., 12 Feb. 2016. Web. 09 May
2017.
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