Fresh dairy business contributes to Danone sales gain

by Eric Schroeder
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PARIS — Increases in both volume and value contributed to third-quarter organic growth of nearly 6% at Groupe Danone, while sales for the first nine months rose approximately 8% on a like-for-like basis.
Within the company’s Fresh Dairy Products business unit, sales increased 3.5% during the third quarter, reflecting a 1.5% decline in volume and a 5% increase in value. Excluding Unimilk, which Groupe Danone acquired in June 2010, Fresh Dairy sales rose 4% on a like-for-like basis, fueled by a 1% increase in volume and a 3% gain in value.

Fresh Dairy Products sales totaled €2,785 million ($3,812 million) in the third quarter, up from €2,446 million in the same period a year ago. For the nine months, sales were €8,457 million ($11,576 million), up from €7,201 million.

“Regional performance was consistent with results for the second quarter, except in Russia and the United States, where sales stabilized from last year,” Groupe Danone said. “In the United States, strong growth in the high value-added Greek-style yogurt segment has contributed to modify market trends. This led Danone to launch a revamped line under the Oikos name, with satisfactory initial results. Markets in Latin America and Africa/Middle East remained vigorous, with continued double-digit growth, while Western Europe held steady.”
Groupe Danone said Activia and Indulgence brands provided most of the division’s momentum.

The company also said it made significant progress in integrating its joint venture with Unimilk. Unimilk, a privately-owned company, is Russia’s second largest manufacturer of dairy products and baby food. Established in 2002 it operates 28 production plants in Russia, Ukraine and Belarus, and sells its products in Kazakhstan.
Danone-Unimilk will begin operating as a single company in early 2012.

Looking more closely at the company’s presence in the United States, Pierre-Andre Terisse, chief financial officer, said during an Oct. 18 sales conference call with analysts that the United States “is an important market for us, and this is a market which we have made a priority of.”

“Over the past 24 months a real amazing phenomenon has happened in the U.S. market, which has been the appearance and the development of the Greek segment,” he said. “The Greek segment has moved from basically nothing, as part of the category 24 months ago, two years ago, to something today which represents 25% of the category in a market which is of course small by itself in terms of penetration, but very sizeable altogether.”

Mr. Terisse said the Greek segment has “distorted” overall category growth in the short term in two ways. First, it has boosted the value growth of the category because of Greek yogurt’s high value per cup, but has negatively affected volume growth. Second, while boosting the development of the Greek category it has weighed on the development of other segments, which in many cases have slowed.

Asked whether the Greek segment is a threat to cannibalize the entire category, Mr. Terisse said no.

“We believe it will continue growing and it will, on the other hand, last and stay as an important segment of the market,” he said. “But we definitely don’t believe this is the end game. In fact, when you look at what Greek is addressing, it’s addressing concerns or needs or attraction from the consumer that are very much the same as the one that has been addressed and that remain addressed by Activia, i.e., healthy and very good taste.”

In addition to Greek yogurt, a priority for Groupe Danone in the United States has been Activia.

“We believe Activia … is one of the main weapons we have to develop the U.S. market,” Mr. Terisse said. “We have reshaped the advertising and we are going to push again very much on that brand.”

One way Groupe Danone is pushing the brand is through the YoCream franchise, which the company acquired in 2010. Mr. Terisse said Groupe Danone has introduced Activia Frozen in YoCream outlets this year with good initial results.

Franck Riboud, chairman of Groupe Danone, confirmed the company’s full-year targets for 2011, including a 6% to 8% increase in sales on a like-for-like basis, and an increase of about 0.2% in trading operating margin.

“We stand by our full-year targets for 2011,” Mr. Riboud said. “Danone is in very good shape, with operations in Asia, Latin America and Africa/Middle East continuing to post robust growth. In Russia and the United States, we are working to strengthen our leading position, and our performance in Western Europe remains good. It’s the on-going construction of our growth drivers — more than fluctuations in the weather or financial markets — that continues to energize our operations and give me confidence in the future.

“So I am confident that 2011 will see us deliver strong, profitable growth, right on target and despite the steep increase in commodity prices at the beginning of the year. I am also confident about 2012.”

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