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Biscuits Rebuilding and renewal through local strength Following a phase of consolidation, the business line returned to growth in 2004. It is now ready to take the offensive and build new strengths on major markets. Priorities include the right match with local tastes and cultures, renewal of top brands to realize their full potential, and offerings with increased nutritional benefits. Business_48a53_GB_baf2 24/05/05 15:19 Page 50

> 051 BUSINESS > LU IN Specialization has sales growth such as Thé, THE SPOTLIGHT paid off—in product accelerate, Vandamme, Brun Biscuit sales in categories such as benefiting from and Napolitain also France are back on crackers, sweet consolidation of posted healthy rises the rise for the first biscuits, or cereal market positions, in 2004, as did time in four years, bars, and in different increased regional brands fter a year of transition number of countries. To meet the challenges Highlights rewarding the types of meal or advertising and like Rem and in 2003, the Biscuits this entails, the Biscuits business line has reorganization that snack. Asset brands promotional seasonal specialties, has brought including Prince, outlays, and quicker including Calèche, business line was back reinforced local teams, particularly in RUSSIA teams Mikado, Paille d’Or, product innovation. a Christmas favorite. in a winning mood in marketing, decentralizing its structures for > January 2004—DANONE closer to consumers Croustilles and Smaller brands with 2004 when sales grew more independent operation to get the acquires Chupa Chups’ soft and customers. Cracotte have seen strong traditions a3.9%, rewarding a differentiated strategy benefit of constant, direct contact with cake business, with products tailored to individual markets. trends in local consumer preferences. sold in Russia under the Chok For there is no world market in biscuits. Successes on Spanish and Italian markets and Rolls name. The move Instead there are a host of local, national in 2004 show how effective this can be. consolidates DANONE’s leading and regional markets, reflecting wide Rather than challenging more powerful rivals position in the Russian biscuit differences in taste and culture from one on their own ground, subsidiaries in these market and strengthens part of the world to the next. Consumers countries focused on distinctive products its presence in the east of are also very attached to brands, many of like Petit Ecolier and Mini rollos to capture the country. them with traditions going back a century top places in several profitable niches and or more—brands that were part of their own consolidate their number-two rankings in SOUTH AMERICA childhood and that of their parents. In their respective markets. In Russia, > April 2004—Groupe DANONE France, Véritable Petit Beurre goes back Bolshevik restored its lead with a move into and Groupe Arcor, the top 149 years and Paille d’Or a hundred years, cakes through its acquisition of Chok and Argentinean food group, agree while Opavia in the Czech Republic dates Rolls in 2004, and while the new business to merge their South American back to 1846, Bolshevik in Russia to 1855 was consolidated over only a part of the biscuits operations in January and Liga in the to 1923. In year, its sales were up by close to 20%. 2005, thus becoming the these conditions, trying to build a world region’s top supplier of biscuits. brand is a daunting and, generally spea- Renewal and changing king, pointless task. Instead, the aim must perceptions be to realize the full potential of iconic brands > At the end of July 2004, on local and regional markets, which in A priority in 2004 was to steady sales volumes DANONE announces the sale some case may also mean extending their on historical markets, which was achieved of Jacob’s (UK biscuits) to geographical scope. Examples include Petit mainly through the renewal of existing ranges United Biscuits, a move Déjeuner, Taillefine cereal bars, Mini rollos and efforts to improve perceptions of the followed in August by the sale and Ourson biscuits, all now on sale in a nutritional value of biscuits. ••• of W&R Jacob Ltd in Ireland to Fruitfield Foods Ltd. The divestments allow the Group to focus on markets where it figures holds stronger positions. Biscuits key

LEADING POSITIONS

€ millions 2000 2001 2002 2003 2004 WORLDWIDE* > No. 1: 3 255 3 371 3 232 3 071 3 041 Sales > No. 1: Easten Europe +6.4% +0,4% +2.4% +0,4% +3.9% Organic growth* > No. 1: China1 282 316 317 280 301 Operating income > No. 1: France 8.7% 9,4% 9.8% 9,1% 9.9% Operating margin > No. 1: India 315 308 295 232 256 Cash flow from operations > No. 1: Argentina 172 183 155 145 129 > No. 1: New Zealand Depreciation and amortization 5.3% 5,4% 4.8% 4,7% 4.2% > No. 2: Italy % of sales 83 93 118 110 82 * based on sales volumes. Capital expenditure 2.5% 2,8% 3.7% 3,6% 2.7% 1 Danone is the country’s leading biscuit brand. % os sales 28 835 30 553 27 361 23 996 20 665 Employees

* at constant structure and exchange rates.

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like-for-like > +2.4% 9.8% 0220 2004 2003 2002 2004 2003 2002

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S Industrial pastries Rest Biscuits, Biscuits, Crispbreads, 9.9% Asia- Europe of retailer re effective in the Benelux, where LU has nutritional value has been particularly in Heudebert toast bakery products. Added health benefits such as omega-3 fatty acids nutritional value and ingredients with special Déjeuner brand, as well others combining sugar biscuit launched under the LU Petit Ta optimum nutritional profiles. These include success with new products developed for perceptions, as illustrated by DANONE’s important part in developing new Product innovation, too, can play an and health features Optimizing nutritional 72% of ingredients are from wheat. it began drawing attention to the fact that seen sales quicken significantly since a brand more than a century old that has as shown by the example of LU Petit Beurre, an effective way to accelerate sales growth, Emphasizing this simple truth can be in grains and thus packed with energy. it is too often forgotten that biscuits are rich value in addition to taste appeal. Example: is doing all it can to highlight nutritional To indulgence—which can discourage buyers. biscuits, often considered an unnecessary designed to favor new perceptions of Product renewals and innovation are also have reviewed over half of its recipes. completed, LU France, for example, will continued in 2005, and by the time it is undertaken for this purpose in 2004 will be The sweeping overhaul of ranges r and taste to set products well apart from In this, the aim remains to enhance quality etailer brands and deep-discount offerings. nocdits top place despite the onslaught inforced illefine low-fat biscuits and the first low-

counter this idea, the business line brands and deep discounters. in general. new development on emerging markets re for Tiger in India and Biskuat Indonesia, The same strategy has been adopted cannibalizing the company’s existing lines. 1,200 metric tons to volumes without in 2004 sales as 33 million packs added Shanghai Biscuits reporting an 8% rise affordability has paid off, with Danone This combination of convenience and apiece—roughly one-tenth of a euro. and Danone & Milk at just one renminbi thus launched individual 40g packs of Tuc In June 2004, Danone Shanghai Biscuits set at one unit of the national currency. and purchasing power, with prices often with varied offerings suited to local tastes of people, and DANONE has responded at prices affordable for the majority products with high nutritional value challenge on Asian markets is to develop biscuits and TUC crackers. A key Production has begun with Danone & Milk could later rise to 100,000 metric tons. on its first production line, a figure that a capacity of 17,000 metric tons year of a new factory in Suzhou, China, with initiatives that include the construction for biscuits. DANONE has thus taken for over 50% of world growth in demand Asia is a natural priority since it accounts into new territory. historical positions, but also moving out The Biscuit line is not only consolidating its New frontiers flecting the scope it provides for • a strategic focus in Asia Nutritional biscuits: 15% from iron-deficiency from a lack of calcium and of China’s population suffers a simple observation: half This approach results from the Chinese biscuit market. number-one place on ago—in winning the China ten years in eastern of the company—founded driver for the success nutrition has been a main nutritional benefits, and sales with products offering achieved 85% of its 2004 Danone Biscuits China China’s National Disease Sandwich—approved by iron-enriched Prince and vitamin supplements; re combining slow energy Sunshine breakfast biscuits calcium and vitamin D; Milk Biscuits with added Innovations include Danone since 1998. a top development priority made added nutritional value Danone Biscuits China has such deficiencies entail, anemia. To meet the needs lease with calcium, iron Survey 2002. * among nutritionists. concern and diets, leading to rapid changes in lifestyles that have emerged with to problems of obesity crackers. This is in response 30% lower than for standard vitamins with fat content added fiber, calcium and of crackers combining Another is the Wei Zi line soda crackers. Center—and Hi Calcium Source: 4th China Nutritional Development ) (Research and R&D > LOW-SUGAR BISCUITS LU PETIT DÉJEUNER expectations. bearing out management proven a quick success, the two new offerings have launch just a few months ago, minerals similar. Since their and that of vitamins and fiber content is higher, breakfast biscuits, while grain is 25% lower than for other and sweetness. Sugar content r while at the same time enhancing nutritional benefits know-how to good use, at Danone Vitapole put their the product, scientific teams chocolat. In developing Céréales et Pépites de Chocolat et Céréales and low-sugar breakfast biscuits, thus brought out the first with a 75% market share, LU, number one in the field is sugar content, and in 2004 demand in this segment The main obstacle to increased biscuits at least once a year. households buys breakfast educing sugar content One in four French

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