Danone tackles Spanish problems

21 June 2012

MADRID: Danone, the food and beverage group, is attempting to turn around a decline in market share in Spain, indicating the obstacles facing firms trying to progress as the country's economy stutters.

The company, which has a portfolio spanning dairy offerings like Activia and Actimel and bottle waters such as Evian, reported that it had witnessed a "swift deterioration" in consumption in Spain.

Pierre-André Térrisse, the firm's chief financial officer, said at a conference that Spain was a very "important country for Danone … because of the history of the group and in terms of size.

"Spain is an important market for us. It is a market where we have the intention to fight."

More specifically, Danone revealed it has seen a "slowdown in all categories" in Spain, not least because shoppers in the ailing economy are trading down to own-label or other low-cost products.

As a consequence, its market share, in value terms, has dropped from 53.6% to 51.2% in the dairy sector over the course of 2012 to date.

The organisation's troubles in Spain, which yields 12% of its profits, are also expected to contribute to global margins falling by 0.5 points to 14.2%, while sales growth slows to 5% from 6.9%.

"Consumers are looking for cheaper products," said Térrisse. Danone is thus planning to roll out new lines serving this need and reduce prices in Spain to "make its products more competitive," he added.

Overall, Spain delivered 7% of Danone's total sales last year, the same amount as the US, and behind only Russia and France, on 11% apiece.

"Yoghurt is a discretionary product and Danone has quite a large price gap with private labels," Eric Scher, an analyst at Sanford C Bernstein, said.

Nestlé, the Swiss food giant, is rather more positive regarding its prospects in Spain, having previously faced similar obstacles as Danone. Its broader portfolio was one reason for such optimism.

"The switch to cheaper brands has been an issue that's been around for awhile and which has already peaked for us," Jose Lopez, the company's head of operations, said.

Data sourced from Financial Times, Reuters, Wall Street Journal, Bloomberg; additional content by Warc staff