Business Strategy and Economical analysis of Danone

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Table of Contents

1. Introduction

The functional food industry, consisting of food, beverage and supplement sectors, is one of the several areas of the food industry that is experiencing fast growth in recent years. (1)  It is estimated by BCC Research that the global market of functional food industry will reach 176.7 billion in 2013‎ (2) with a compound annual growth rate (CAGR) of 7.4%. Specifically, the functional food sector will experience 6.9% CAGR.‎ (2) This kind of growth is fueled not only by industrial innovation and development of new products that satisfy the demand of health conscious consumers but also by health claims covering a wide range of health issues. Actimel is a healthy functional yogurt drink, produced by the French company DANONE, which “helps support your body’s natural defenses”. (1) Actimel has taken advantage of this trend towards a healthy lifestyle and has strengthened its positions in the functional yogurt drinks market.

1.1 DANONE Company Profile

Groupe Danone is a French food-products multinational corporation based in Paris. It claims world leadership in fresh dairy products with Full-year 2012 global sales of €20.9 bn, Trading operating income of €3,000 million in 2012‎ (8) and net income of €1,800 million with a Free cash-flow of €2.1 billion. ‎(8)  The financial year results reflect Solid 2012 performance, with contrasts from region to region; sales down -3% in Europe; growth of over +10% in emerging markets and North America combined. +5.4% like for like growth in turnover value despite the negative effects caused by the world economic crisis. ‎(8) Currently by volume DANONE is the: World number 1 in Fresh Dairy Products, World number 2 in Bottled Waters, World Number 2 in Baby Nutrition and European number 1 in Medical Nutrition. ‎(11)

DANONE has a total workforce of just under 81,000 people, has a significant presence in 62 countries and its products are exported to many countries. Evian for example, which is one of the company’s bottled water products, was exported to 150 countries in 2009 ‎(7) DANONE’s brands include products such as Activia, Actimel, Evian, Volvic and Cow & Gate which are found in the UK and also many more which are marketed in various parts of the world.

Key market segments

DANONE’s four operating market segments are Fresh Dairy Products (FDP), Medical Nutrition, Baby Nutrition and Waters. From these FDP is by far the largest segment as it alone contributes around 56 % equating to €11,675 million, towards DANONE’s total sales figures. (16) FDP is also DANONE’s business line with the highest trading operating income which is more than half of DANONE’s total trading operating income. Figure 1 displays the market segments which DANONE is involved with, and their sizes. (16)          

DANONE’s overall sales in 2012 were €20,869 million; using the above chart the size of each of the market segments can be shown to be €4,250million, €1,288 million, €3600 million and €11,675 million for Medical Nutrition, Baby Nutrition, Waters and FDP respectively.‎(16)

Figure 1 Figure 1 Sales by business line in 2012 (Source ‎(16)

1.2 Company Hierarchy

The Hierarchy structure of Group DANONE as stated in their annual report for 2011. Chairman and Chief Executive Officer is the board and contribute external expertise and experience in areas of importance to the Group such as marketing, sales, commercial, retail, corporate finance, general finance and corporate governance.(8) The Board is responsible for the overall management of the Group and setting long-term strategic and commercial objectives, approval of annual operating and capital budgets, dividend policy, overseeing the Group’s internal control systems and ensuring that appropriate resources are in place to enable the Group to meet its objectives.(9)

Below them there is an established and effective Committee structure to assist in the discharge of its responsibilities.

•        The Audit Committee has responsibility for reviewing the effectiveness of the Group’s financial reporting system and the internal control policies and procedures for the identification, assessment and reporting of risk.(9)

•        The Remuneration Committee has responsibility for determining and agreeing the overall remuneration strategy for executive directors and senior managers, determining the individual remuneration packages for the Chairman, executive directors, Company Secretary and senior management and approving the design of all share incentive plans.‎10

•        The Nomination committee is responsible for considering the size, structure and composition of the Board, retirement and appointment of additional and replacement directors and making appropriate recommendations so as to maintain an appropriate balance of skills and experience on the Board.(8)

•        The Financial Committee is responsible for reviewing the Group’s financial strategy and approving any changes to this strategy, it oversees the Group’s treasury operations and policies including the use of financial instruments such as interest rate swaps.(9)

The group executives are appointed by chief executive officer and are responsible for the day-to-day management of the business and implementing the Group’s strategy.

2. Strategic, Social and economic analysis

Actimel is a probiotic yogurt drink product which falls under the Functional Foods category as it bears a health claim. It contains a specifc strain of L.Casei bacteria called Lactobacillus Casei Imunitass® (L.Casei Danone®), which Danone believes may “help improve the body’s natural defences”.  Actimel is available in ten different flavors, and also a fat-free range and is heavily packaged in a convenient and portable format enabling the consumption of the product “on the go”. It should be mentioned that since 2000 Danone has managed to reduce the weight of Actimel’s recyclable plastic bottles, from 11g to 5.5g per bottle. ‎(22)

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The term “Functional foods” is essentially a marketers’ term and is not recognized in law or defined in any dictionary.  For this reason there are different definitions of the term, one of which that seems to best summarize them all is:

The world market for functional foods, and therefore Actimel, is and has been expanding. This expansion is driven by demographic, social and economic trends. (18) Some of the factors driving this increase in demand include: (‎18)

•        Aging population, increasing interest in ‘healthy living’;

•        Increasing affluence and education among world populations;

•        Increasing understanding of the link between nutrition and health;


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