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Simon BALL (ID No: 5399747) BA (Hons) Top-up, 307LON Regular Assignment 1

MARKETING ANALYSIS November 25th 2013

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Executive Summary

This report concerning the overall situation of the group Danone reveals more positive points than negative ones. In fact, the company is a thriving one as it has reached 20 billions euros in total sales in 2012 for the very first time according to the latest annual report. This encouraging figure shows the success of the internationalization process and the will to meet new customers by adapting the products to local tastes delivering a value proposition for people of all ages, 'to as many people as possible'. To reach that objective of giving health through food and responding effectively to demand, the company has invested a lot in R&D in order to understand the cultural habits of each market where the company does business. This differentiated marketing strategy has shown its success as many brands are leading the competition in several local markets such as Aqua in Indonesia. That is why the majority of revenue comes from outside Europe and the booming economies in emerging countries where the company is strongly involved are a real opportunity for long-term growth. But on the other hand, we have noticed that the company is less profitable in its home markets of Europe even though France remains the largest market due to the positive image of Danone among the French population. The next challenge will be how to deal with this continuing decrease. Moreover, the company can be weakened by the growing importance of private labels and low cost brands that spread the market as its diversification cannot be compared to the giant food companies such as Nestlé or Kraft Foods that are 'too big to fall'. Finally, we suggest that the company still communicates about the health benefits of its whole range of products and the commitment to social responsibility, what the group does best. It would convince more customers that buying Danone is more than a simple purchase. In other words, positioning the brand image around this core capability through this kind of motto: "You buy what is good for you (health), good for us (business) and as a consequence what is good for the entire society".

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Table of Contents

I) Micro-analysis of Danone's activities worldwide ................................ 4 I.1. Strengths and Weaknesses of Danone ....................................................... 4-5 I.2. Analysis of Danone's core business: Fresh Dairy Products (FDP) .... 5-6-7 I.3. Analysis of other business lines ..................................................................... 7 I.3.1. Mineral Waters .......................................................................................... 7-8 I.3.2. Baby Nutrition ........................................................................................... 8 I.3.3. Medical Nutrition ...................................................................................... 9 II) Danone's International Marketing Strategy ......................................... 9 II.1. Competitive strategy ....................................................................................... 9-10 II.2. Geographical segmentation ......................................................................... 10 II.2.1. Europe .......................................................................................................... 11 II.2.2. Outside Europe .......................................................................................... 11 III) Conclusion and Recommendations Dealing with Opportunities and Threats ..................................................... 12 REFERENCES ................................................................................................................... 13

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This report aims to analyse with precision and rigour the business environment of the group Danone by providing key data, comments, and recommendations in order to help the senior marketing team to take the right decisions in implementing the long-term strategy.

I) Micro-analysis of Danone's activities worldwide

I.1. Strengths and Weaknesses of Danone First of all, to conduct an efficient marketing strategy leading the company to the most profitable choices, it is important to always keep in mind the core values of our group and try to define what make us different from the competition. An internal assessment with a critical point of view has always been a motor of success as it forces us to correct what is wrong and improve what is right. That is why it is relevant to talk here about the two first letters of the SWOT analysis, strengths and weaknesses. The main ideas that are going to be developed have been summarized in a table at the end of the paragraph. So let's begin by the strengths that are listed below: - Danone is clearly involved in values that are more just putting words on a well designed website. The company has developed its core business activities around the commitment to social responsibility. In fact, different programmes have been established to fight against societal scourges such as malnutrition and unemployment. For example, Danone Egypt has been working with local NGOs to develop the rural parts of the country and make the population aware of food safety (OMDA-Sahteen programme, see the 2012 annual report). Moreover, environmental issues are paramount for Danone and it has tackled the problem of CO2 emissions by creating the Livelihoods Fund. - In this spirit of social responsibility, the company has a strong policy of R&D trying to develop the healthiest product on the market. The 1400 researchers work hard to adapt the products to the tastes and food habits of the different cultures around the world where the company does business. - The third main point is that internationalization has been a success as the company has invested in emerging countries that are now the motor for its growth. These booming markets will be discussed in further details in another part of the report. - Finally, another main strength is the policy of diversification that the company has conducted competing in four different categories of products. It allows the company to widen its sources of revenues and meet customers of all ages. The regular customer of Danone could be a baby as well as a retiree. But diversification, in the case of Danone could be also seen as the only main weakness. That is the point we are going to develop now.

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In fact, after a deep analysis of the internal competencies of the company, we have noticed that Danone can be associated with one weakness. An independent analysis conducted by MarkeLine in 2013 called 'Groupe Danone SWOT analysis' comes to the same conclusion. Danone diversification is far less important than for the giant groups of the food industry such as Nestlé, Kraft Foods or PepsiCo. This lack of new activities means less cash flow for Danone which is the financial key to having access to more distribution networks and a higher visibility in the market share competition. As mentioned, below is the table which sums up the strengths and weaknesses of Danone:

Strengths

- The 'dual commitment', the faculty of doing business in a respectful way. - The success of internationalization: in 2012, 60% of total sales came from outside Europe (2012 annual report). - Diversification, the three business lines besides the core activity have a lot of potential. - Strong R&D efforts in terms of packaging and adaptation to the cultural food habits.

Weaknesses

- Less operations than the big food groups that are competitors of Danone products. - As a consequence, the company has less visibility in the global market.

I.2. Analysis of Danone's core business: Fresh Dairy Products (FDP) Danone sells products that are classified into four categories: Fresh Dairy Products, Waters, Baby nutrition and Medical nutrition. The following diagram shows the division in sales of these different business activities, information available in the 2012 annual report.

Sales by Business Line in 2012

Fresh Dairy Products 56%

Baby Nutrition 20%

Waters 18%

Medical Nutrition 6%

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Obviously, the major business line or core business of the company is the Fresh Dairy Products (FDP), which is why we have decided to examine in more details this sector of activity through the Porter's five forces framework which allows us to assess the competitiveness of an industry. We have evaluated it according to the market research conducted by MarketLine in February 2013 called 'Global Dairy Industry Profile'. We have summed up the main ideas of this research as follows:

Porter's five forces in the Global Dairy Industry: * Competitive rivalry: High The top three players (Danone, Lactalis and Nestlé) only accounted for 11.8 % of the total market value in 2011. This means that this industry has a 'large number of competitors' (page 22). We will discuss one part to the different competitive strategies of Danone's main competitors later in this report. Moreover, the exit costs are high as competing in this industry requires specialized assets. * Buyer power: Moderate The power of large buyers such as supermarkets that accounted for 61.4% in 2011 of the total distribution channels is high because there are 'a few numbers of large buyers'. But on the other hand, although consumers tend to look for the cheapest products, companies can differentiate themselves in other ways than that of simply selling at the lowest price. That is the case with Danone that try to communicate more about the health benefits of its brands than about a pricing strategy. * Supplier power: Moderate 'The key suppliers to this market are dairy farmers.' (page 19). Forward integration is limited and big firms try to reduce the risk of milk price fluctuation by wholesale buying. As a result, Danone tries to protect its access to agricultural resources in a responsible way to avoid 'unexpected price jumps'. * New entrants: High Even if the barriers to entry can act as a deterrent because of the hard task of differentiation, the resources needed to merge with other companies in order to benefit from economies of scale and have a better presence globally, the MarketLine report concludes that 'there is strong likelihood of new players' especially from artisanal producers in an industry which doesn't require a lot of capital to set up a company.

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* Threat of substitutes: Moderate Although 'there is a wide range of food and drink products that can be used in similar ways to dairy products', milk is an important part of the food habits of many people as it is seen as a necessity for human body growth (medical campaigns of calcium benefits).

I.3. Analysis of other business lines In this section, we have tried to take a more comprehensive look at the three other business lines of the company that have been contributing to the diversification of the group with brands that have been becoming serious challengers in the markets where they have a presence. In fact, this minor business is now a real contributor to the annual growth of the company. All the data given below are extracted from the 2012 annual report.

I.3.1. Mineral Water

This picture extracted from the 2012 annual report gives us information about the top three brands of the waters division of Danone as well as the top three markets in terms of contribution to the 2012 growth. It is relevant to notice that the company is now the second leading producer of packaged water in the world based on volume ('Global Bottled Water MarketLine Industry Profile', 2013). The company has increased its sales in this sector by 10 % between 2011 and 2012.

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It is also relevant that the company has a strong policy of R&D trying to always prove the health benefit of its marketing choices. In this case, Danone calls water 'the vital beverage' and has launched a research programme to 'study the link between hydration, well-being and health' (Hydration for Health).

I.3.2. Baby Nutrition

The Baby nutrition is the third most important business line of Danone as we have shown in the graph introducing this part of the report. The will to take care of customers of all ages, from birth to death, is at the heart of the Danone strategy. Sold in 150 countries, this business division may have a bright future. In the same spirit of communication on the health benefits of its products, the company tries to highlights the importance of developing 'products tailored to the specific needs of young children in each country' backing this assertion with a strong R&D process. Dumex, the Asian brand of Baby nutrition was the leading brand in 2012. Hence the image of the logo presented above.

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I.3.3. Medical Nutrition

Finally, let's finish with the less important division of the company: Medical nutrition (Nutricia). This range of products has been designed for people who suffer from specific diseases. The elderly represent a specific target group for Danone as life expectancy is increasing. In terms of packaging, the products are sold mostly in compact formats. In this sector of activity, the R&D investments are important to prove the medical importance of nutrition on health (12 clinical studies in 2012, annual report).

II) Danone's International Marketing Strategy

II.1. Competitive strategy In this part, we are going to discuss the strategy of the two main groups of competitors that Danone has to compete with: wide diversification on one hand and low-cost strategy on the other hand. As already mentioned, Danone is a medium-sized MNE compared to the giant food companies that have business divisions which compete with Danone products. Nestlé or Kraft Foods are well embedded in the global market. Even if Danone was the global leader in FDP in 2011 with 4.8 % of the total market share (MarketLine, ' Global Dairy Industry Profile', 2013), the other well-known competitors were very close in this segment with respectively 3.3% for Nestlé and 3.1% for Kraft Foods. This means that Danone is exposed to intense competition in its major business without having the benefit of a wider diversification among the top competition.

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That is maybe why Danone is more exposed to the growing importance of private labels which represented 84.5% in 2011 (MarketLine). In times of global crisis which have a huge impact on the purchasing power of many consumers, those brands could represent an alternative to Danone's. Moreover, the failure of the low-cost brand 'écopack' that the French company had to withdraw in September 2009 show the ineffectiveness of trying to position certain products in the low cost market.

II.2. Geographical segmentation As the chairman and CEO Franck Riboud has mentioned in the 2012 annual report, the company is clearly engaged in a geographical segmentation, what he has called 'clearly defined geographical choices'. Today the internal growth of the company is boosted by its operations outside Europe. In fact, the old continent accounted for only 40% of sales in 2012 (annual report). So, it appeared obvious to present the global vision of the group in two distinctive parts.

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II.2.1. Europe Let's deal first with the historic and home market of Danone (the company is headquartered in France), as it is obvious today that a strategic plan is needed to slow down the poor profitability of this market compared to the rest of the world where the company sells its products with promising results. To do so, Franck Riboud develops the idea of moving 'toward greater flexibility and a simpler organization' (2012 annual report, interview with Franck Riboud). This change in the organizational process would allow the company to respond more directly to the specific needs of the Europeans who have got used to eating dairy products in higher quantities than anywhere else in the world. The interview mentions a consumption of '30-35 kg per person per year'. That is why Europe remains a key place to do business for Danone. France is still one of the leading top markets for the company as the French people have a special relationship with the group. To illustrate this point, we can cite the classification of the independent French institute KantarWorldpanel that has revealed that Danone was the favourite brand among the French in 2012.

II.2.2. Outside Europe Danone is today a key player in markets outside Europe where the company does business. In fact, the internationalization process has been a success. The policy of the group at the global level is always to adapt its products to cultural factors and food habits that greatly differ from one country to another one. The first step in the process is to understand the local market by conducting research to analyse the customer profile in terms of nutritional needs in order to produce the best product that fits these particular needs. The credo of 'bringing health through food' is the guiding line of every implementation in a new market through the 'Nutriplanet' programme. The encouraging results of the company include for example the strong performance of both the Greek yogurt Oikos in the United States and the affordable brand Bunda in Indonesia, two completely different places. It is also relevant to notice than the company is well established in Russia which has become the best selling market of the company along with France, accounting for 10% of total sales in 2012. (latest annual report). This emerging country belonging to the BRIC reflects the general idea we have been developing concerning the great importance of Danone outside its home market. In Russia, the French group chose as an entry strategy a joint venture with the biggest dairy producer of the country, Unimilk in 2010, controlling now 20% of the market in this segment. ('Danone upgrades Russian dairy', World News, June 2013). This strategy reflects the general policy of the group when it decides to get a foot into a foreign market to work with local partners to establish strategic alliances in order to approach the market targeted step by step.

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III) Conclusion and Recommendations As the main recommendation appears in the executive summary, we've decided to conclude the topic by providing a table which refers to the end of the SWOT analysis, opportunities and threats, allowing the reader to understand better the current stakes in Danone's external business environment.

Opportunities

- The emerging markets are full of promises with a higher disposable income. - A general awareness of the importance of social responsibility in the buying decision. - Africa can represent a new strategic orientation.

Threats

- A still poor profitability in Europe despite of an internal plan. - The competition with low-cost brands could intensify. - 'Changes in regulatory environment' (MarkelLine, 'SWOT analysis) when offering new products (especially in the Food industry).

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References Books : - Toussaint, D. (2012). Le Génie de Danone (The Genius of Danone). Paris: Descartes & Cie.

Online reports: - 'Global Dairy Industry Profile' 2013, Dairy Industry Profile: Global, pp. 1-36, Business Source Complete, EBSCOhost, viewed 30 October 2013. - 'Groupe Danone SWOT Analysis' 2013, Groupe Danone SWOT Analysis, pp. 1-9, Business Source Complete, EBSCOhost, viewed 2 November 2013. - 'Global Bottled Water MarketLine Industry Profile' 2013, Bottled Water Industry Profile: Global, pp. 1-39, Business Source Complete, EBSCOhost, viewed 13 November 2013. - Danone. (2012). Danone 12 Economic and Social Report. Available at http://danone12.danone.com/en/appli.htm [Accessed 27 October 2013].

Newspaper articles : - Danone upgrades Russian dairy. World News. June 2013, p. 8.

Websites : - Le Figaro. (2013). Danone: marque préférée des Français. Available at http://www.lefigaro.fr/flash-eco/2013/05/17/97002-20130517FILWWW00494-danone-marque-preferee-des-francais.php [18 November 2013].