Groupe Danone makes changes

by Josh Sosland
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PARIS — Facing difficult volume trends, Groupe Danone is making significant adjustments in its Dairy Division to boost results.

In the quarter ended March 31, the Fresh Dairy segment had sales of €2,121 million ($2,796 million), down 1% from €2,179 million in the same period a year ago. Weakness was attributed to the tough economic climate and a difficult comparison with results in the first quarter of 2008.

Despite the downturn, Danone said trends in the U.S. market began to improve as the quarter progressed. The better climate was attributed to "new product introductions, intensified trade support and consumer promotions and a selective adjustment of pricing."

Pierre-Andre Terisse, Danone’s chief financial officer, elaborated on the dairy market in an April 16 conference call.

In contrast to several parts of the world, where Danone has been trying to improve business through basic price cuts, promotion, advertising or product launches, Mr. Terisse said "a more aggressive stance" was taken in the company’s key markets of the United States and France.

He noted that Danone "suffered last year from volume erosion" in its dairy product line in 2008.

"While we continued during the first quarter to focus on Activia, introducing Activia Fiber and Activia drinks in various flavors, with strong growth as a result, we also did better balancing our efforts, launching a new version of Danimals with a crush cup and Light & Fit, where five new flavors have been added in the 6-oz formats," he said. "This coupled with more aggressive promotion, resulted in a gradual improvement of volumes and recovery of our market share which has improved by more than 1 point since year end."

In discussion with analysts following his presentation, Mr. Terisse said the approach in North America required a balance between focusing on fast growing blockbuster brands such as Activia while still devoting resources to "rebalance our efforts on the core range."

Sales trends in March were better than earlier in the quarter, in part because of extra days in the month versus March 2008. "Even if you strip that out, March remains a strong month across all the countries," Mr. Terisse said. "It’s a pretty reassuring signal."

Mr. Terisse was not specific about steps that have been taken, and he was asked whether changes in how Danone is approaching the dairy market may be viewed as the company is "effectively reinventing itself." He replied that the term reinvention "may be a bit strong."

He appeared to suggest Danone would become increasingly competitive in the market for basic dairy products while trying to protect higher prices and margins for its value-added line.

He said Danone continues to monitor consumer trends and has observed meaningful shifts. "For instance the consumer is shopping for smaller size, for instance, and consumers still are looking very much at products with a very high added value or at least with a very high quality/cost ratio, which is indeed the case of blockbusters, health-benefits, but which can be the case as well of products which are very cheap," Mr. Terisse said. "And in this context we are in some markets, the United States for instance, rebalancing our efforts.

In addition to launching several new products under its "health" and "core" banners, Danone has focused its promotion strategy to a limit of three price points with increased discount levels, is using couponing rather than sampling, has increased advertising support and is utilizing celebrity testimonials. Couponing has included buy-three-get-one-free promotions.

First-quarter sales at Groupe Danone rose 1% to €3,674 million ($4,843 million) on a like-for-like basis. Overall, the company was led by growth in sales in its Baby Nutrition and Medical Nutrition units.

"The tight management of our growth and market shares, country by country, gives us confidence in our ability to achieve growth in the short and medium term, and to reach our objective to increase our underlying earnings per share by 10% on a like-for-like basis in 2009," said Franck Riboud, chairman and chief executive officer of Groupe Danone.

The Waters segment posted sales of €614 million, down 4% from €695 million.

Higher sales were recorded in the Baby Nutrition segment and Medical Nutrition segment, both up nearly 11%.

Commenting on the 10% earnings growth target, Mr. Terisse reminded analysts that the company has long expressed the view "there are different possible routes" toward that objective. Given the weak economic picture, the company is counting on the benefits of soft raw material costs to help it achieve its targets, rather than depending too much on volume growth, he said.

This article can also be found in the digital edition of Dairy Business News, April 2009, starting on Page 8. Click here to search that archive.

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