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Strategic Audit- Danone

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Strategic Audit- Danone Lindsey Hook Capstone Thesis The American University of Rome 11 May 2017 Table of Contents I. Current Situation 1 Danone’s History 1 The Evolution of Strategy 1 Danone’s Performance Today 2 Strategic Posture 3 II. Corporate Governance 5 Board of Directors (Featuring Top Six) 5 Top Management 6 III. External Environments: Opportunities and Threats 7 Political-Legal 7 Economic 8 Sociocultural 10 Technology 10 Task Environment: Focused on the Fresh Dairy Industry in the USA 11 IV. Internal Environment: Strengths and Weaknesses 13 Corporate Structure 13 Corporate Culture 14 Corporate Resources 15 Research and Development (R&D) 20 Operations and Logistics 22 Human Resources Management (HRM) 23 Summary of Internal Factors 24 V. Analysis of Strategic Factors 24 Situational Analysis 24 Review of Mission and Objectives 25 VI. Strategic Alternatives & Recommended Strategy 26 Strategic Alternatives 26 Recommended Strategies 27 VII. Implementation 30 VIII. Evaluation & Control 31 IX. Conclusion 32 Appendices 33 Annotated Bibliography 36 Acknowledgements 42 I. Curent Situation Danone’s History From the beginning, Danone has followed their mission to bring health through food to as many people as possible. This all started in Barcelona, Spain in 1919, when Balkan native Isaac Carasso noted that many Spanish children were suffering from severe intestinal problems. He introduced a product from the Balkans called yogurt, a food produced by the bacterial fermentation of milk with many benefits to the digestive system (Danone). In 1929, the product was introduced in France with the name ‘Danone’, the nickname of Isaac’s son, Daniel. Daniel then established the company as ‘Dannon’ in the United States while fleeing persecution during World War II. The beginning of the company’s major strategic acquisitions began in 1979, with assorted food firms such as La Pie qui Chante, Galbani, and Volvic (Danone). In the early 1990s, Danone made international growth a major priority by penetrating new markets in locations such as China and Eastern Europe by acquiring well known brands in their respective countries such as China’s ‘Amoy’, a producer of soy sauces and frozen foods (Danone). The Evolution of Strategy Initially, Danone was involved in several industries such as beer, frozen food and biscuits. In 2000, in order to realign the company with its healthy nutrition mission, they sold off their brand, Kronenbourg, France’s most popular beer (Capron, 172). From then until 2007, they sold all of their brands such as biscuits, meat and cheese which did not contribute to their company identity as nutrition providers (Capron, 172). Finally, in 2012 they introduced the Danone company manifesto to strengthen their global economic and social impact in order to bring health through food to everyone (Danone). !1 Danone’s Performance Today Today, Danone is a French multinational food products corporation and number 54 out of 100 of the world’s most powerful brands, according to Forbes. The firm consists of four major business lines: Fresh Dairy, Water, Early Life Nutrition, and Medical Nutrition (Danone). The group is present in more than 130 countries across all five continents (Danone). Danone’s main competitors include Nestle, General Mills, Coca Cola and Kraft Heinz. The infographic below shows their relative position in each of their four industries. In terms of shelf space for the fresh dairy sector, as seen by the photo below, Danone occupies roughly 50% of all yogurt shelf space at an average large grocery store in the USA, and has 34% market share of spoonable yogurt in the US (Watson, 2016). The photo below was taken at a Super Stop and Shop near Boston, MA, part of Ahold, Inc. which also owns grocery giants of the American east coast Publix and Giant. !2 Overall, 2016 has been a good year for Danone with profit margins increasing from 5.7% to 8.3% from 2015 to 2016 and a successful acquisition of organic and plant based dairy giant White Wave. This allowed the to double their profits and market share in the US. Earnings per share also increased from 2.10 to 2.79 from 2015 to 2016. Strategic Posture Current Mission “To bring health through fod to as many people as posible.” Current Goals by 2020 (From Danone’s 2016 Annual Report and Shareholder Meeting) • Zero fatal accidents and 50% fewer workplace accidents with medical absence compared to the reference year 2014 • Reduce greenhouse gas emissions, foster “carbon positive” solutions, offer healthy and sustainable products, reinforce the resiliency of its water and food cycles, and eliminate deforestation from its supply chain by 2020. Reduce of carbon intensity by 50% (for the same base year and scope) by 2020 • Increase sales in yogurts “Activia" (which launched under-target in Europe), “Light and Free” and “Danonino” • Increase profit margins for fresh dairy • Cut costs in areas such as employee travel and communications in order to implement growth patterns and enable Danone to manage a balance between sustainable growth and good margins, protecting results with high recurring eps growth • Have the product portfolio in the US be 100% GMO-Free products by 2020 !3 Current Strategies (From Danone’s 2016 Annual Report and Shareholder Meeting) • Fresh Dairy: Developing consumption of the products in all regions around the world and acquiring companies in successful emerging markets such as organic and plant based Dairy in USA with their recent WhiteWave purchase. • Waters: Establish initiatives to promote healthier hydration through partnerships with public health authorities and scientists and by communicating directly with consumers in order to inspire healthier hydration practices. • Early Life Nutrition: Collaborate with healthcare professionals in the sector and perform local surveys to better understand local dietary habits and nutritional needs to fuel successful innovation. • Medical Nutrition: Increase global coverage by establishing products in new countries and develop various distribution channels. Current Policies Danone’s policies are all aligned with their mission of bringing health through food to as many people as possible and their goal to grow the company sustainably. These policies include: • No advertising of early life nutrition products for children under six years old. • ‘RESPECT’ Policy since 2006: Protecting the Sustainable Development Principles across the supply chain, particularly suppliers in all Divisions to ensure compliance with the seven fundamental labor principles formalized by Danone since 2001 based on standards defined by the International Labor Organization. !4 II. Corporate Governance Board of Directors (Featuring Top Six) A complete list of the Board of Directors can be found in Appendix 1. Danone’s board of directors are required to own a minimum of 4,000 shares each which represent "240,800 based on the share closing price on December 31, 2016 (Danone). Chairman Riboud (ex-CEO of Danone and with the company for 25 years) owns the largest amount of shares of almost 320,000, followed by CEO Emmanuel Faber owning almost 68,000 shares. All other 13 members of the board own from 4,000 to 8,000 shares per person (Danone). They boast expert experience in sectors such as politics, big food business and !5 investment management. Each Director is required by the company annually to report the list of board appointments and duties exercised at all companies within the past five years, and to answer the questionnaire provided for European regulation 809/2004 concerning in particular the existence of conflicts of interest (DANONE RULES OF PROCEDURE OF THE BOARD OF DIRECTORS). Board members are also bound by French law to strict confidentiality. There are four permanent committees on the board: • Audit Committee • Nomination and Compensation Committee • Strategic Committee • Social Responsibility Committee Top Management The people who make up Danone’s top management are shown above. It is mainly made up of the heads of each of the firm’s four sectors plus other crucial positions such as Chief Financial Officer. All members have been with the company for 10-15 years by working in several departments, with the exception of Bridgette Heller who joined one year ago. Danone !6 follows a social governance approach that places its social and societal responsibility at the heart of its management and strategic decision making (Danone). The firm’s top management is skilled enough to deal with future issues, as they have extensive experience both with Danone and other important companies, including some competition such as Unilever. CEO Emmanuel Faber has been with Danone since 1997 when he joined as Head of Finance, Strategies and Information Systems. He became a member of the Executive Committee in 2000, and CEO in 2014, replacing Franck Riboud. What makes Faber an especially good fit for the firm is his unique outlook on business through sustainability and good health, directly aligned with Danone’s mission. He is constantly attending various conferences and events around the world, both popular and unpopular, to understand various points of view on business and the external environment in order to eliminate what he calls ‘blind-spots’ (Thomson, 2016). III. External Environments: Opportunities and Threats Political-Legal Threats One recent threat for Danone are Chinese Trade Laws Against Middlemen. According to the firm’s CFO Cecile Cabanis, it is no longer possible to use middlemen to sell in china through Europe. These laws are tightening due to nation wide food safety crisis. In 2008, a baby food scare exploded in China when the world’s largest milk supplier, Fonterra, sold ‘fake’ milk powder in formula, causing kidney damage in 300,000 babies across the mainland after having consumed melamine-tainted milk powder, and six infants died (Yan, 2016). Because Fonterra is also a Danone supplier, the firm’s baby food sales suffered and only rose 1.7% in the third quarter of 2016, a sharp slowdown from second quarter's 7.2% growth (Reuters, !7 2016).
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