Danone is a European (French) Multinational company and a powerful food brand. It is a leading global food & beverage company built on four businesses. These include essential dairy and plant-based products, waters, early life nutrition, and medical nutrition. From fresh dairy products like yogurt being sold at pharmacies, Danone has surely come a long way while overcoming various bumps in the road. But, what lead to the failure of Danone when it expanded to India?
History of Danone
Isaac Carasso founded Danone in 1919 in the city of Barcelona in Spain. But in 1929, Isaac Carasso shifted the company from Spain to France and opened a plant in Paris. Furthermore, in the US, Issac’s son Daniel Carasso partnered with the Swiss-born Spaniard Juan Metzger.
The company’s initial name was Danone. Issac actually named the company after his son. But when expanding to the US, Daniel Carasso renamed it as Donnon which sounded more American. In 1951, Daniel Carasso sold the American business to Beatrice Foods and returned to Paris.
In 1967, Danone merged with Gervais and hence became Gervais Danone. Back then, Gervais was the leading fresh cheese producer in France. Danone repurchased the American business sold to Beatrice Foods in 1981. The company was renamed from Dannon to Danone in 1983.
Danone began its globalization strategy which commenced in the early 1990s. Before entering the Indian market, Danone’s major product lines included fresh dairy, biscuits, glass containers, and beer. In 1995, Danone was the world’s seventh-largest food group and the pioneer in fresh dairy products and biscuits. It was also ranked as number two in pasta, beer, and glass containers.
In May 1997 Franck Riboud, the Chairman of Danone at that time, announced the adoption of a new company strategy. The new strategy focused on three core business areas namely dairy products, biscuits, and beverages (specifically water and beer). These were the businesses in which the company had global leadership. These areas also represented 85 percent of group sales back then.
Danone India: Hopping Into an Emerging Market
Danone was a 22 billion USD company when it came to India. It stepped into the Indian dairy market with milk products such as flavored yogurts, buttermilk, cold coffee, curd, and smoothies. Danone was an expert at capturing the nutrition-based product segment of the dairy market.
Danone went on expanding rigorously in India. They covered over 200,000 retail outlets in 20 cities. But after hitting this mark, it struggled to expand and capture the emerging Indian market. Due to this, Danone exited the Indian dairy market in 2018.
Danone India: Major Issues Faced in the Indian Market
Danone’s then head of dairy business in India, Jochen Ebert, had emphasized the company’s commitment to the Indian market. In the Indian market, the per capita consumption of yoghurt was just 30-40 litres vis-a-vis 300-400 litres in most mature markets. Danone saw this as a huge opportunity.
To cash in on this opportunity, the company had set up its own milk collection infrastructure in Punjab. It also built its own cold supply chain and invested in a robust innovation pipeline. Danone was heading strong. Then, where did it all go wrong?
Restricting to a Single Category
Looking at the top players in the Indian market like Amul or Mother Dairy, we find that, the secret for success in the dairy business in India is to invest in procurement. Amul, for example, sources 176.5 lakh liters of milk per day. But Danone was just starting out and it had publicly committed to the Indian market.
According to experts, one of Danone’s major mistakes was restricting to just yogurts and smoothies. These products were definitely excellent in quality. And restricting the products to just one category was the reason why it couldn’t keep up with the commitment to the Indian market.
“Danone had a single category, which was yogurt-based products. While the value-added dairy products business is indeed a high margin business, one needs to offer an array of value-added products (just as brands such as Go and Nestle have done) in order to get economies of scale,” explains N. Chandramouli, CEO, Trust Research Advisory, a business-efficiency advisory.
Issues With the Pricing and the Concept
Flavoured yogurt is more of a modern retail product. So, it was basically for the urban market only. Moreover, the products were priced at a huge premium rate. And the worst part was that the majority of Indian consumers, at that time, were unfamiliar with the concept of flavoured yoghurt.
“An average Indian would rather buy an ice-cream for `15 than pay `25 for a cup of flavored yogurt. It has no significance in the life of an average Indian,” says the Joint Managing Director, Vadilal Ice-cream, Rajesh Gandhi.
Even smoothies were like an alien concept in most parts of India at that time. So, for a brand to expect a quick and huge profit on these products was a risky opinion to have.
Sustaining a business on just value-based products, in a rapidly emerging market like India, led to the failure of the French giant Danone in the Indian market. Big names like Mother Dairy and Amul are also present in the value-added dairy products segment. But the difference between these two and Danone is that they just did not stick to the value-added products. Before rolling out the value-added products, they had built a huge consumer base for their packaged milk.
Maybe Danone would have done something similar, if not the same. Instead of sticking to the premium ranged and value-added products, which the consumers were not familiar with, it would have tried to understand the trends of the Indian market. And due to these mistakes, Danone had to exit from the Indian market in 2018, when till 2017, they were publicly expressing their strong commitment to this market.
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Skilled in content writing and management and Content Manager at Mindgrad. A Freelance Writer pursuing Btech in Food Technology and Management