Danone: A Brief History Group Danone today has very little in common with its original operations, except that the Riboud family has been in charge for over four decades. Danone’s humble beginnings are traced back to Lyon, France where the original firm was a glass container manufacturer named Souchon-Neuvesel. The following information briefly chronicles the history and genesis of Danone.
Danone’s history reflects three common themes, the company achieving a leadership position in its markets, the firm’s (or the Riboud family’s) willingness to exit successful businesses in order to redefine itself in the pursuit of growth, and the company’s successful use of strategic mergers and acquisitions to perpetuate growth.
•1965- Antoine Riboud replaced his uncle as chairman of the family-run Souchon-Neuvesel, a Lyons, France-based maker of glass bottles •1966- Souchon-Neuvesel merged with Glaces de Boussois, a major French plate glass manufacturer (windows for buildings & autos), creating BSN.
The companies came to together for two primary goals, 1.
to cope with the changing market trend toward “no-deposit, no-return bottles, and 2. to create a company that would be large and competitive enough for the expanding European Common Market. •Using acquisitions, by the end of the 1960’s BSN had become one of the largest glass manufacturers in all of Europe. However, the container industry was changing as the demand for paper and plastic containers was spelling doom for glass bottle makers.
BSN recognized this threat and because it did not have operations or ties in the petrochemicals, forestry or steel industries, the company believed a good solution would be to start making the contents for its containers. This strategy marked another redefining moment for the company and once again they would use acquisitions to create scale and generate growth. •In 1970, BSN took control of Evian, Kronenbourg and the European Breweries Company and became the leading French manufacturer of beer, and mineral waters. In 1973 BSN and Gervais Danone merged companies and created the biggest food group in France. For BSN, the merger represented a major opportunity to move forward and enter new markets, with a decisive shift toward food products. •With escalating energy costs hitting the glass-making business hard and convinced growth would not return to this business for some time, BSN Gervais Danone began to exit from plate glass manufacturing, which did not fit in with the food side of its business.
It pulled out of the plate glass sector completely in 1981, selling off Boussois and focused firmly on food from then on. ••1980’s – In a series of acquisitions, BSN began a conquest of Europe by taking over many local companies in various food categories to become Europe’s third-biggest food group. •1982- Purchased Dannon, leading US yogurt maker (co-founded by Gervais Danone’s Daniel Carasso). •Entered the biscuit industry in 1986 by buying General Biscuit and in 1989 they added to its portfolio of biscuit brands by acquiring Nabisco’s European subsidiaries. 1988- Begins aggressive push into global market with over 40 acquisitions in Asia, Latin America, Central Europe, Africa, and the Middle East. •1994- Company changes name to Group Danone, symbolized by a little boy gazing up at a star, to take advantage of the success of its leading brand, which was famous the world over. •1996- Franck Riboud succeeded his father as chairman and restructured the company to focus on three core businesses: dairy, beverages (specifically water), and biscuits. •1999- Sold off its container business and breweries. Danone’s Bottled Water Business
In 2001, Danone’s water division became number one in the world water market based on volume sales with 12. 5% of the global market. As a portion of total firm revenues, bottled water comprised 27% or approximately $3. 4 billion of total revenues for Danone in 2001. Danone has accomplished its leadership position by using a two-tier strategy, first by extending Evian as a global brand and by using acquisitions to acquire top regional and local brands. Danone reports its company financials using the broad segment classifications of France, Rest of Europe, and Rest of the World.
A look at Danone’s water sales by region for 2001 was: 64% Rest of the World, 19% Rest of Europe, and 17% France. Clearly Danone is a favorite in its home country and Europe, where Danone has enjoyed continued growth through innovation. The firm has experienced high growth in Europe with flavored waters and has even introduced diet waters in France and Italy. European growth has even been derived from offering certain sized containers and enviro-friendly containers that easily collapse to encourage popular recycling campaigns.
Danone has not introduced these innovative products in the U. S. water market. However, the company has built a very strong presence globally, where it is typically ranked among the top three companies in the countries in which it operates. Danone’s leadership position in water sales in various countries is illustrated in Exhibit 3. While the data from the table shows how successful Danone’s water operations are globally, the U. S. market clearly stands out as one of disappointing performance. Exhibit 3 Evian: Danone’s Glacier Brand
Driving Danone’s global water sales is the successful extension of Evian as a global brand. Evian is the number two water brand in the world by volume and it is shipped to over 120 countries on five continents each day. Evian distinguishes itself as pristine, natural spring water, bottled at one source, Cachat Spring in Evian-Les-Bains, France. The magnificent French and Swiss Alps converge around the Mont Blanc, which towers above the lakeside town of Evian-Les- Bains. The spring waters from Cachat Springs are world renown and Evian-Les-Bain is famous in Europe for its spa resorts.
Untouched by Man. Perfect by Nature is a trademark of Evian Natural Spring Water and it is used to infer unique pristine water and it is priced at a premium. Evian Natural Spring Water begins as rain and snow falling high in the French Alps. It is said that the water then spends at least 15 years slowly filtering down through a vast, protected aquifer deep within the mountains. This wonder of nature as it is known was created by nature over several millennia by the advance and retreat of the Rhone Glacier, which ground loose boulders into an ultra-fine sand.
As the water passes through this purifying filter and over mineral-rich rock, the water is insulated by all external contamination by dense layers of protective clay and emerges at Cachat Spring from a tunnel in the mountains at 52. 88° F. Bottled and sealed at its source as Evian Natural Spring Water, the water is not artificially altered in any way. Evian Natural Spring Water has a unique history as is shown below. Evian History: 30,000 BCAquifer in the French Alps through which Evian travels formed 1789The Marquis de Lessert discovers the Cachat Spring 1826The Duke of Savoy grants authorization to bottle Evian 1878French
Academy of Medicine recommends Ministry of Health to renew the bottling authorization for the water 1906Responding to a water shortage caused by the great San Francisco earthquake & fire, Evian is donated to support relief efforts 1960Sold exclusively in pharmacies until 1960 1970Evian brand is acquired by Danone Evian is presently ranked fourth in the U. S. bottled market behind Nestle, Pepsi’s Aquafina, and Coke’s Dasani. Prior to the entry of the cola giants into the U. S. bottled water, Evian enjoyed a number one ranking as recently as 1996. In the past five years, Evian’s U. S. market share has been halved from 7. % to 3. 6%. The U. S. Bottled Water Market Beginning in the 1980’s, bottled water has become the beverage of choice for a more healthy fitness-oriented society. Vending machines stocking water and soft drinks are normally first emptied of their water supply, even if a water fountain is nearby. Aside from the fitness attributes of bottled water, consumers are also drawn to the purity that bottled water provides. During the 1990’s, the billions of gallons of water sold in the U. S. have increased from two billion in 1990 to 5 billion in 1999 (see Exhibit 4). Exhibit 4: Bottled Water Consumption in the United States
Molecularly speaking, water is a compound consisting of two molecules of hydrogen and one of oxygen. But from a marketing standpoint, water represents the largest opportunity in consumer beverage market. A free resource, covering nearly 75% of the world, is now a marketed as a premium to an ever-increasing health conscious society. Perhaps a back-to-basics approach is necessary to explain the phenomenon that is bottled water. Water is classified as “bottled water” if it meets all applicable federal and state standards, is sealed in a sanitary container and is sold for human consumption (see http://www. ottledwater. org/public/BWFactsHome_main. htm). There are several different varieties of bottled water. The Food and Drug Administration’s (www. fda. org) product definitions for bottled water are: •Well Water: Bottled water from a well that taps a confined aquifer in which the water level stands at some height above the top of the aquifer. •Mineral Water. Bottled water containing not less than 250 parts per million total dissolved solids may be labeled as mineral water.
Mineral water is distinguished from other types of bottled water by its constant level and relative proportions of mineral and trace elements at the point of emergence from the source. •Purified Water: Water that has been produced by distillation, deionization, reverse osmosis or other suitable processes. (Both Pepsi’s Aquafina and Coke’s Dasani are purified waters. ) •Sparkling Water: Water that after treatment and possible replacement with carbon dioxide contains the same amount of carbon dioxide that it had at emergence from the source. Nestle’s Perrier brand would be considered a sparkling water. ) •Spring Water: Bottled water derived from an underground formation from which water flows naturally to the surface of the earth. Spring water must be collected only at the spring or through a borehole tapping the underground formation finding the spring. (Evian is spring water. ) Bottle water trade organizations, manufacturers, and (more recently) consumers concur that the two favoring differences of bottled water over tap water are consistent quality and taste.
The belief (with varying degrees of substantiated proof) is that bottled water is consistent because it is inspected and monitored by governmental and private laboratories. While it is true that bottled water originates from protected sources (75% from underground aquifers and springs) and tap water comes mostly from rivers and lakes, it is the guaranteed consistency of taste that has drawn consumers to plucking down a dollar or more for a bottle of water (even if that drinking water fountain is a few steps away).
The classifications of bottled water have had little impact on the U. S. consumer. In fact, the result of these classifications has created a murky bottled water market in which little distinction is made in the advantages of one type of bottle water over another. For Evian, this customer indifference has been a substantial disadvantage in gaining market hare in the U. S. The additional handling and transportation costs of bottling from one glacier source in the French/Swiss Alps force Danone to market Evian at a premium price.
Evian’s average cost per case is about 80% higher than that of Aquafina or Dasani. In the U. S. , customers place little value on this premium and simply choose the less expensive bottled water. In Europe, consumers are more knowledgeable of the types of bottled water and accept the premium on the Evian brand. Competing Products in the U. S. Market The primary bottled water competitors in the U. S. market are: Perrier and Poland Springs (Nestle) – Nestle has formidable midrange and high-end bottled water brands in the U. S. with Perrier and Poland Springs.
Perrier has been imported into the U. S. since the turn of the century. It was first bottled in 1863 and is available in more than 100 countries. Every bottle of Perrier sold around the world is bottled at the source in Vergeze, France. Perrier is the best-selling imported sparkling water in the U. S. The source of Poland Springs water is located in a pine forest and protected by 350 acres of preserved land in rural Maine. Poland Spring is a leading brand of bottled water in America, benefiting from Nestle’s formidable distribution network onto U. S. supermarket shelves.
Aquafina (PepsiCo) – Aquafina is also created from tap water, though the company is hesitant to use the description “local water supply” on its website. “Aquafina uses state-of-the-art purification systems, including reverse osmosis and carbon filtration. These processes are what allow us to guarantee Aquafina’s consistent purity and great taste. ” (www. aquafina. com) Dasani (Coca-Cola) — “To create Dasani, Coca-Cola bottlers start with the local water supply, which is then filtered for purity using a state-of-the-art process called reverse osmosis.
The purified water is then enhanced with a special blend of minerals for a pure, fresh taste. ” (www. dasani. com) Options for Marketing Evian in the U. S. Unlike most bottled water markets in the world, the U. S. market poses unique competitive pressures for Danone and its Evian brand. It is evident that the firm never saw the cola giants’ entry into the bottled water market coming or if they had done so, they must have underestimated the impact to their market share and long-term sales growth. Danone’s recent agreements with Coke may be too little, too late to preserve Danone’s presence as a top elling firm in the U. S. water market. Should the alliances with Coke fail, three alternative strategies could be considered for Danone and its Evian U. S. water operations. Go It Alone – For Evian to go at it alone in the U. S. market would mean that Danone would have to accept the brand as a niche product rather than a leading product in the U. S. water market. Leadership in the U. S. bottled water market that is being determined by price and logistics alone locks Evian into being priced at a premium and therefore not competitive for market share.
By marketing Evian’s unique pristine qualities, and positioning the brand as a niche, high-end premium beverage with a ‘healthy’ edge, Evian may be able to provide Danone a higher-margin product, albeit with smaller volumes. A second-part to Danone’s U. S. water market strategy would be to position its Dannon Spring water, a locally-sourced spring water, to compete against Nestle and the cola’s for market share in the high volume, price-driven retail market. However, the Dannon line’s production and distribution would have to be built out with acquisitions.
The strategy to go alone would require high investment from Danone and the return on that investment would be very long in coming. Get out of the U. S. Market – Another option presented to Franck Riboud is to leave the U. S. altogether, keeping the Evian brand in the U. S. only as a niche player. Perhaps management needs to realize that the water drinkers in the U. S. , with their lack of differentiation among bottled water varieties, are not within the scope of Danone’s global marketing strategies. Because the marketing successes that Evian has experienced in other countries cannot translate to the U.
S. market, a no-entry strategy would eliminate costly entry expenditures and allow Danone to shift focus to gaining share in countries where the “glacier premium” is recognized. This option could be referred to as the “LU Biscuit strategy” – while Danone’s biscuit brand is number two in the world, it is non-existent in the U. S. Merger/Acquisition – Among the possible acquisition suitors for Danone, including Nestle, Unilever, even the cola giants, it is Kraft Foods that appears to be the company best positioned to capitalize on the merged synergies.
Kraft is the largest branded food and beverage company in North America and the second largest worldwide, based on 2001 revenue (Nestle is number one). Kraft’s brands are sold in more than 145 countries. According to A. C. Nielsen statistics, they are found in more than 99% of all households in the U. S. Nearly three times the size of Danone, Kraft derives 70% of its revenues from North America and has extensive brand portfolio that includes a variety of food products except for bottled water.
Acquiring Danone would allow for an entry into the growing bottled water market, as well as increase the consumer base into Europe and Asia. One of Kraft’s core strategic goals is to increase its global economies of scale and expand its brands geographically. Acquiring Danone would be in alignment with this strategy – its 90% revenue base outside of the U. S. and owner of the number two water brand in the world could make a Kraft/Danone combination a true synergy fit. Perhaps one of the most important factors stopping an acquisition of Danone is nationalistic, historical and family pride of the company.
Franck Riboud’s family, his allegiance to his French culture, and his sense of individual ownership of the Danone brands are formidable blockades to allowing the company to be acquired. Franck Riboud contemplates Danone’s U. S. bottled water market strategy as he windsurfs the calm waters of Lake Geneva. He muses, “Five years from now, could the decision I will make be the subject of numerous business school case studies as the correct way to maintain market presence in the U. S. or a wrong way? ” Of course, only time will tell…
Cite this Danone: A Brief History of Company
Danone: A Brief History of Company. (2018, Feb 26). Retrieved from https://graduateway.com/danone-history/