Over the past 15 years, Groupe DANONE has moved into a number of emerging markets, including China, Indonesia, India, North Africa, and South Africa. In all of these countries, the sale of high quality food products is held back by the low purchasing power of consumers. Today Asia, Latin America and the Africa/Middle East region account for no less than 24% of group sales. To make its products accessible to low-income consumers, the company launched DANONE's Affordability Initiative. Through this Initiative it has developed products with significantly enhanced nutritional value that meets local needs at an affordable price, without compromising high standards for quality and food safety.
Innovation
Because DANONE's roots are in Europe, where purchasing power is relatively high, the Affordability Initiative was a complex task requiring the identification and analysis of best practices throughout the Group. Adjusting prices to the purchasing power of consumers in emerging countries means trimming production costs across the board. In addition, products must be adapted to the habits of local consumers who tend to buy only what they need each day and choose the cheapest products as a matter of course. The Group thus keeps prices at levels not exceeding psychologically important limits—one renminbi in China, one dirham in Morocco, and 1,000 rupiah in Indonesia. Distribution channels are also a factor, since the primary outlets in emerging countries are small neighborhood stores. Because they are numerous and widely scattered, these stores are difficult to supply, and their limited storage capacity and cash flow require suppliers to make frequent deliveries.
In meeting the challenge of affordability, the Group is working to build authentic brands that stand for high nutritional value, not second-rate products. Its Biskuat product is already a success in Asia, and several pilot programs are underway in other parts of the world. These include a one-rand yogurt in South Africa and Moufid yogurt, which sells in Morocco for one dirham. Danone's new model for emerging countries will build on the success of these initiatives.
Danone Biscuits China achieved 85% of its 2004 sales with products offering nutritional benefits, and nutrition has been a main driver for the success of the company—founded in eastern China ten years ago—in winning the number-one place on the Chinese biscuit market. This approach results from a simple observation: half of China’s population suffers from a lack of calcium and 15% from iron-deficiency anemia. To meet the needs such deficiencies, Danone Biscuits China has made added nutritional value a top development priority since 1998. Innovations include Danone Milk Biscuits with added calcium and vitamin D; Sunshine breakfast biscuits combining slow energy release with calcium, iron and vitamin supplements; iron-enriched Prince Sandwich—approved by China’s National Disease Center—and Hi Calcium soda crackers. Another is the Wei Zi line of crackers combining added fiber, calcium and vitamins with fat content 30% lower than for standard crackers.
*Source: 4th China Nutritional Survey 2002.
In 2004, Danone stepped up the development and launch of nutritional biscuits that are affordably priced in China, Indonesia and Malaysia. The biscuits sold for 1 yuan, 500 rupiah or 30 ringgit cents, respectively—the equivalent of just a few cents in U.S. currency. Currently, Biskuat is the number one brand of biscuits on the Indonesian market. The Biscuit line is not only consolidating its historical positions, but also moving out into new territory. Asia is a natural priority since it accounts for over 50% of world growth in demand for biscuits. Danone has thus taken initiatives that include the construction of a new factory in Suzhou, China, with a capacity of 17,000 metric tons a year on its first production line, a figure that could later rise to 100,000 metric tons. Production has begun with Danone & Milk biscuits and TUC crackers. A key challenge on Asian markets is to develop products with high nutritional value at prices affordable for the majority of people, and Danone has responded with varied offerings suited to local tastes and purchasing power, with prices often set at one unit of the national currency. In June 2004, Danone Shanghai Biscuits thus launched individual 40g packs of Tuc and Danone & Milk at just one renminbi apiece—roughly one-tenth of a euro.
Impact
This combination of convenience and affordability has paid off, with Danone Shanghai Biscuits reporting an 8% rise in 2004 sales as 33 million packs added 1,200 metric tons to volumes without cannibalizing the company’s existing lines. The same strategy has been adopted for Tiger in India and Biskuat in Indonesia, reflecting the scope it provides for new development on emerging markets in general.
Inspiration
"At the very heart of Groupe Danone, a core belief is that food plays a major role in promoting well-being and health in everyone. We believe that the food industry is an actor with a role to play in the field of public health. This is why we continually strive to enhance the nutritional quality of our products, to invest in research, and to develop information and educational programmes aimed at promoting the virtues of physical activity and a balanced diet."
The World Inquiry editorial team edited this profile from the original submission of the interviewer or other source. The views expressed do not necessarily represent Case Western Reserve University, the Weatherhead School of Management or the Center for Business as an Agent of World Benefit. More >>
