Danone Fights to Fix a Souring Growth Recipe -- Heard on the Street
November 23 2020 - 9:31AM
Dow Jones News
By Carol Ryan
Despite a focus on trendy health foods, Danone has lost investor
support this year. Winning it back will be hard work as business
becomes more competitive.
The Paris-based company that makes Dannon and Activia yogurts
announced on Monday plans to reduce costs by EUR1 billion,
equivalent to $1.19 billion, over the next three years and return
to its pre-pandemic operating margin by 2022. It will give country
managers more power, strip out head office costs and sell parts of
its portfolio. It recently put its Vega protein powder brand under
strategic review, for instance.
European peers Nestlé and Unilever began this kind of
restructuring three years ago. A 30% fall in Danone's stock this
year shows why it is moving now. Shares in Nestlé and Unilever are
more or less flat, as are those of U.S. food businesses Kraft Heinz
and Campbell Soup, which own less wholesome brands.
Management recognizes it has a problem with shareholders. It
hasn't helped that Danone will miss a 16% operating margin target
previously set for 2020, which cannot be blamed entirely on the
pandemic. Of Europe's three biggest food companies, Danone is the
only one whose margins fell in the first six months of the year
compared with the same period of 2019.
It now has to impress investors just as competition hots up in
important markets and product categories. While Danone was early to
spot the potential of plant-based foods with its $10.4 billion
purchase of dairy-alternative brand WhiteWave back in 2016, trendy
rivals like Blackstone-backed vegan milk business Oatly are
catching up fast.
In China, meanwhile, local baby food company Feihe is taking
market share from international brands made by Danone as well as
Nestlé and Reckitt Benckiser. They may also be fighting over less
business as China's birthrate is projected to fall 8% this year,
according to Barclays. The French company's baby food unit is by
far its most profitable.
Danone ticks many boxes for today's investors. It has been a
leader on environmental, social and governmental issues and began
reporting a pioneering carbon-adjusted earnings per share metric
earlier this year. A portfolio of plant-based brands and products
that boost immunity plays into consumer trends, particularly in the
wake of a pandemic. A new focus on healthy aging has the potential
to offset some of the higher competition it faces in baby food. So
far this year, sales of brands such as Protinex adult nutrition
drinks have grown by 20%.
Even if the right ingredients are there, though, investors still
need proof that Danone can make the best of them.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
November 23, 2020 09:16 ET (14:16 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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