Danone SWOT & PESTLE Analysis

Strength

1. Strong presence in specialized nutrition segment: This segment sold under Nutricia’s umbrella brand, recorded the highest sales growth of 9.3% to 7.1 billion euros in 2017. It constitutes 29% of the group’s sales. It performed especially well in Asia. It offers products for the sensitive individuals from preterm birth to the old & for people with specific allergies. One of its highest selling component is specialized nutrition for infants to complement breast feeding which is 85% of Early Life Nutrition segment. Advanced Medical nutrition sales rose by 5% in 2017. This segment promotes synergies and space for further expansion as presently the products in this segment are limited to a few countries.

2. Wide product portfolio: Danone’s diversified product basket includes products ranging from essential dairy and plant-based products, packaged natural water and flavored and vitamin-enriched waters to early life nutrition and natural water and flavored and vitamin-enriched waters. These attractive categories are aligned with the changing consumer trends which puts the group on a sustainable and broad-based growth path. The renewal of production lines across these categories increase its market penetration and consumption across the globe. It also gives the group expansionary advantage and scalability.

3. Solid International footing: Danone is the global leader in fresh dairy products and plant-based products and second largest seller in early life nutrition and packaged waters by volume. 66% of Danone’s sales contribution came from international sales in 2017. It has established a solid footing in the largest consumer base, China with 7% sales. USA with 18% and France with 9% sales of the group in 2017 have been the largest international market bases for the group. It has also increased the production capacity of Aptamil plants in New Zealand to tap the growing demand. Water sales in Latin America and North America remained strong, giving a fillip to the weak dairy segment performance in Europe.

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Weakness

1. Lacklustre performance in dairy segment: Danone’s sales growth in dairy segment has declined by 2% in 2017 to 4.5 billion euros. The essential dairy and plant based international sales’ recurring operating margins fell by 29 basis points in 2017. It was driven by the sharp decline in volumes in Premium Dairy segment. It was due to excess supply of organic milk in the industry. The absorption of this oversupply through reallocation of the surplus to other products will be with a significant time lag. This is why it sold two-third stake in Yakult. This can negatively affect the revenue in 2018 as well. If Danone fails to revamp its dairy segment then more shutdowns may follow leading to decline in sales and hence revenue.

2. Overdependence on Limited Suppliers: The ferments used in Essential Dairy and Plant-Based business, powdered milk for the Advanced Medical Nutrition business in some Asian countries and sub-contracted services or information technology services are purchased by a limited number of suppliers. Only 15-20% of European, Russian and South African cow owners provide the bulk of overall volume. This overdependence can adversely affect its operations if the limited suppliers fail to meet Danone’s qualitative and quantitative standards. It can also hamper its operations due to delays in procurement of necessary inputs. The risks due to contamination also rise as supply chain is disturbed. Danone needs to increase the alternate supplier base to circumvent these uncertainties.

Opportunity

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Threat

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Political

1. Lobbying for favourable policy framework: Danone has signed for Amilie Gadient of Hill + Knowlton Strategies. The key issues for lobbying are agriculture policy, dairy processing, healthy food and nutrition, supply management and trade issues. The group has been lobbying for avoiding extra-territorial sanctions for operating in Iran. They also seek exemptions in the region. The group is also incurring costs for lobbying to circumvent label of Genetically Modified Ingredients to avoid flak from US farmers who slammed the group for marketing their non-GMO products for harming sustainable agriculture. It is also making lobbying efforts to reduce the impact of Brexit which can increase competition from with New Zealand products and meat with Australian or American meat with its exported dairy products.

Economical

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Social

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Technological

1. Data Analytics to capitalize flexible marketing opportunities: Danone is using Google Analytics and fast prototyping to understand thee changing demand pattern for new products and flavors. It has developed Lemonades for selective Chinese regions through these tools. It aligns the flexible marketing opportunities with in time delivery and innovation of the products in-demand to match consumer needs. Ser in Argentina, Dan’Up in Mexico and France’s Les 2 Vaches’ sales growth doubled in 2017 as Danone tapped local brands were fine-tuned as per regional relevance using data analysis. It gives them competitive advantage to capture local trends and innovate faster which helps them in keeping their market leadership across its operating zones.

2. Leveraging digital technology for tailored nutrition: Advanced digital technologies such as big data and machine learning can generate valuable insights which can be used to create innovative products and solutions. Danone Nutricia Research in 2018 started a new Precision Nutrition D-Lab at Singapore which will be an innovation hub and focus on advanced digital technology to provide tailored nutritional care in early life. Technologies such as big data and machine learning will be leveraged to create products that can meet infant nutrition needs better. The lab is also working on other digital solutions such as an app which can monitor infant stool consistency and the impact of supplements and other nutrition products on the same. These initiatives will help Danone strengthen its footprint in the infant nutrition technology and help it generate increased customer satisfaction.

Legal

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Environmental

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