Danone’s new strategy focuses on four pillars

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PARIS — A new corporate strategy for Danone SA will focus on four pillars as the company targets like-for-like sales growth of 3% to 5%. The strategy comes after a review acknowledged that Danone was underperforming relative to its markets.

“Over the past few years, between 2017 and 2019, our categories have grown by 3% to 4%,” Antoine de Saint-Affrique, chief executive of Paris-based Danone, said at a market event. capital on March 8. . “In this context, we experienced an average growth of 2.7% over the same period. The last time we exceeded 3% was in 2014. We have structurally underperformed our markets, losing our share to competitors, allowing new entrants to establish themselves and position themselves in all categories and geographical areas. So the problem is not only our level of growth, but also the composition of our growth.

The four pillars are: restoring Danone’s competitiveness in the main categories and geographies; the selective expansion of Danone’s presence in segments, channels and geographies; seeding future avenues of growth; and portfolio turnover.

“More than half of our revenue is generated in core platforms that are fundamentally sound businesses and operate in growing categories,” said de Saint Affrique. “Around a quarter of our revenue is generated on struggling and underperforming platforms, which need to be remedied, and finally, around 20% of our revenue is generated in areas that are experiencing rapid growth and where Danone has a structural competitive advantage.”

Mr. de Saint Affrique gave potential for future expansion in the plant category in China as an example of the second pillar. Danone also plans to expand water distribution to the out-of-home market, reducing reliance on retail.

“When we think about sowing for the future, we’ll do it right, and we’ll do it systematically, exploring, testing, scaling, and we want to go at it from different angles,” Ms. . of Saint-Affrique. said of the third pillar. “Starting by leveraging the joint venture and partnerships that we’ve had, some for decades without really getting the most out of it, and then refocusing our venture capital funds on what we believe will be the key to tomorrow.”

Danone plans to strengthen partnerships with universities and suppliers, he said.

Danone expects portfolio turnover to reach around 10% of net sales.

“We will actively manage our portfolio through a combination of select disposals and add-on acquisitions,” said de Saint-Affrique.

In another change, Danone will report financial results for four geographies: Europe; North America consisting of the United States and Canada; China, North Asia and Oceania including China, Japan, Australia and New Zealand; and the rest of the world including Southeast Asia, Latin America, the Commonwealth of Independent States (CIS), Africa, Turkey and the Middle East. In fiscal 2021, Europe had the most sales at €8.34 billion ($9.08 billion), followed by the rest of the world at €7.37 billion, the North America at €5.56 billion and China, North Asia and Oceania at €3.01 billion.

Previously, Danone had two geographical areas, Europe and North America being one and the rest of the world the other.

The review confirmed that Danone operates in healthy, trending and growing categories, that it benefits from a strong portfolio of brands both globally and locally, and that it benefits from a balanced geographic exposure to developed markets and emerging. The review also acknowledged Danone’s historical underperformance relative to its markets, which was attributed to a lack of focus on its core portfolio, late and small-scale innovation efforts, inconsistent execution and to low investments from one year to the next.

“In that regard, I’m very happy that we’re aiming for predictability, boring consistency and openness about what works and what doesn’t,” de Saint-Affrique said of the inconsistent execution. “I want Danone to deliver regularly on time. I see it as a condition for restoring your confidence, restoring Danone’s luster and, ultimately, restoring value to the company.

The current year will be a founding year, according to Danone, which expects like-for-like sales growth driven by prices of between 3% and 5% and a current operating margin above 12%. In 2022, Danone expects higher productivity compared to 2021. The percentage of input cost inflation is expected to be in the low to mid-teens.

Danone expects 2023 and 2024 to be years of ambition and profitable growth. Like-for-like revenue growth should again be between 3% and 5% with current operating income growing faster than like-for-like revenue.

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