PARIS – Danone SA is preparing for business post COVID-19. A flurry of moves announced Oct. 19 sets the stage for greater local decision-making to be a driver of global growth.
“Local empowerment is king,” said Emmanuel Faber, chairman and chief executive officer, during an Oct. 19 conference call with financial analysts to discuss third-quarter results. “It's a pandemic in which the governments, the countries are driving the agenda of what economies and societies will look like in 1, 2, 3, 4, 5, 10 years from now.
“Governments are back into the game in many, many ways. Multilateralism, as you know, is at stake. And therefore, our vision that local where — was where everything needs to start when it comes to food and agriculture is even more important right now.”
Personnel plans announced include the appointments of Véronique Penchienati-Bosetta and Shane Grant as macro-regional chief executive officers of Danone International and Danone North America, respectively. The appointment of Henri Bruxelles as chief operating officer of end-to-end design to delivery of products, and the retirement of Cecile Cabanis in February 2021. Ms. Capanis will be replaced by Juergen Esser.
“One, countries will be empowered for speed and relevance of action,” Mr. Faber said. “Second, that goes with the delayering of the pyramid to simplify the ways of working. In other words, the rest of the organization needs to be as lean as possible in serving the countries. The consequence of that, we believe, is going to be higher growth opportunities because of the speed to market and decisions locally and very significant cost savings in the way we work overall as a company.”
Danone also is initiating a strategic review of its brands and product portfolios. The review will be ongoing but start with the company’s operations in Argentina and the Vega brand. Combined, the businesses represent approximately €500 million ($589 million) in sales.
Mr. Faber emphasized that it has become clear to management that the company’s list of stock-keeping units (SKUs) needs to be trimmed.
“It's clear from our customers, the logistics, the supply chain constraints that they have is getting them to shorten their range,” he said. “And therefore, there is an opportunity for us to make sure that we focus our portfolio of SKUs. And in some cases, it could go up probably in countries and categories to 20%, 30% cuts in SKUs that we are reviewing.”
The goal of management is most of the changes take place during the next 12 weeks and the company enters 2021 with an updated strategy ready to be implemented.
Third-quarter sales totaled €5.8 billion ($6.8 billion), down 9.3% when compared with the same period of the previous year. Currency fluctuations accounted for 7.1% of the sales decline. Other businesses taking the brunt of the impact included those serving consumers away from home, whether it was restaurants or offices, and in China, where border closures have hindered Danone’s Early Life Nutrition business.
Compared to the second quarter of 2020, sales were down 2.5%, half of the decline the company experienced during the second quarter, Ms. Cabanis said.
Danone’s Essential Dairy and Plant-based business had a strong quarter, with sales of €3.2 billion ($3.8 billion), up 4% when compared with the same period of the previous year.
“All segments have been growing, including the Essential Dairy part of the business with probiotics and functional yogurts,” Ms. Cabanis said. “Organic milk and coffee creamers are among the best-performing segment. Plant-based sales were up well into high-teen level, both in North America and in Europe, where sales continue to benefit from higher penetration, higher frequency and also expansion in two new categories and ingredients. Year-to-date, plant-based sales reached €1.7 billion.
“If we look at the performance by region, Europe and North America continued mid-single-digit momentum since the beginning of the year. In Europe, it was sustained … by further market share gains, thanks to Actimel and Danone brands in particular. Alpro posted, again, high-teens growth within its four historical markets as well as outside its market well into double-digit growth.”
Both of Danone’s Specialized Nutrition and Waters businesses were under pressure during the quarter, with Water sales down 8% to €1.3 billion and Specialized Nutrition sales down 5% to €1.9 billion.
“The performance is here (Water) again entirely correlated with the level of openings in out-of-home channel and more broadly with the level of traffic,” Ms. Cabanis said. “In the quarter, we have registered sales declining by 25% in out-of-home, while at-home sales continue to hold up well.”
In Specialized Nutrition, the business in China experienced several headwinds.
“ …We experienced a steep, double-digit decline in the quarter against a high base last year when China was growing at more than 20%,” Ms. Cabanis said. “This resulted from headwinds related to channel logistic issues caused by COVID-19, which generated a cross-border channel contraction and pantry destocking dynamics.
“What happened is that the continuous border closure and travel limitation between Mainland China and Europe, Oceania and Hong Kong led to a sharp contraction by around 60% of the sales done through cross-border channel. As a reminder, these channels include the so-called indirect channel and Hong Kong platform, which represent combined 40% of our Infant Nutrition business in China.”
“We know we need to also change the way we play the game overall." – Emmanuel Faber, Danone SA
Company goals in the fourth quarter include maintaining the momentum many of Danone’s brands have gaining market share, improve the top line across the entire portfolio and deliver on efficiencies.
“… The visibility remains limited, as demonstrated by the recent health measures taken by many European countries that have affected, once again, out-of-room channels,” Ms. Cabanis said. “And we don't foresee, at this stage, material improvement in term of cross-border channel dynamic that impacted Early Life Nutrition in China in Q3.
“We, therefore, expect for Q4 sales growth to confirm a sequential improvement versus Q3 but remain negative. FX will continue to be a headwind.”
Mr. Faber emphasized that the changes management is making is intended to improve the issues the company is confronting in its many markets around the world.
“We know we need to also change the way we play the game overall,” he said. “And that’s really where, again, this 12 weeks agenda is so important for us, that we continue to deliver on the hard work that the teams are doing every day, and we are improving, and we are gaining market share, and we control the margin.”