Just nine months into his tenure as CEO of Danone North America, Shane Grant is feeling good about the company's position.
Grant, who joined Danone in May after nearly two decades at Coca-Cola, said the maker of Activia yogurt and Silk plant-based milks has not yet tapped its "huge potential" as consumers gravitate toward better-for-you foods.
"We've got a big runway ahead," he said. "We are ... in execution mode going after those growth opportunities we see."
To capture those markets, Danone has prioritized its expansion into faster-growing categories popular with consumers, including plant-based, probiotics and protein — a move that has helped offset slower growth in its core dairy business.
It more than doubled its North American business with its $12.5 billion purchase of WhiteWave in 2017, which added Stok ready-to-drink coffee, Horizon Organic milk and plant-based options such as So Delicious and Silk to its brand portfolio. Danone is the market leader in yogurt and plant-based offerings, with 32% and 41% market share in each category respectively through the third quarter of 2020, according to IRI data.
Grant said Danone is not only focusing on innovating its offerings but also finding new occasions in which consumers can enjoy them, such as comfort, nutrition or energy. This is at a time when more than half of consumption times for dairy are between 6 a.m. and 9 a.m., he estimated.
"We've got a big runway ahead. We are ... in execution mode going after those growth opportunities we see."
CEO, Danone North America
Danone expanded the reach of its Oikos Greek yogurt from a brand viewed primarily as an indulgent breakfast treat to one with a wellness-centric perception with its Oikos Triple Zero, which has no sugar, artificial flavors or fat. It pushed into the afternoon daypart with its protein-rich Oikos Pro. Last year, it also rolled out a drinkable Oikos yogurt to capture the on-the-go consumer.
"What we are doing ... as we build our growth strategy is opening the aperture of growth spaces for our portfolio," Grant said. "We can position the portfolio to compete in a broad range of different occasions."
The company also is looking to cross-promote its plant-based and traditional dairy beverages to households where individuals dabble in both categories, such as Horizon Growing Years Milk for kids, or Silk Almond for parents to put in their morning coffee, he said.
In January, Danone's plant-based So Delicious dairy brand expanded into shredded and sliced cheeses, as well as creamy spreads. The expansion for So Delicious, which already makes ice creams, milks, creamers and yogurts, gives Danone a way to capitalize on the growing demand for plant-based options. Danone also is considering branching out its plant-based offerings into other categories, including eggs and mayonnaise.
Still, Danone has plenty of company in the food and beverage space. While it has a dominant position in yogurt and plant-based, competition is growing from General Mills' Yoplait, Greek yogurt maker Chobani, as well as countless startups. The RTD coffee space has attracted industry giants such as Nestlé, Coca-Cola and Chobani in recent years. And although Danone has a large presence in bottled water through Evian, the category is incredibly competitive with scores of big-name and private-label brands. Nestlé announced last summer it was considering the sale of the majority of its North American waters business unit after a prolonged period of underperformance.
Danone also is facing pressure of a different type: an activist investor questioning its leadership and business strategy.
In January, a letter from Bluebell Capital Partners was released criticizing the company's "disappointing" stock price and calling for the board to start searching for a new CEO to replace its current chairman and chief executive, Emmanuel Faber. It also said Danone has focused too much on its environmental and sustainability efforts at the expense of its financial performance.
Danone doubled down on that commitment last year, vowing to place a greater focus on its environmental, social and governance goals and create an independent committee to monitor and report on its progress. And three years ago, its North America operations achieved B Corp certification two years ahead of schedule. B Corp status is given to companies "using business as a force for good through their commitment to social and environmental performance, accountability and transparency."
“The underperformance of Danone’s share price has been driven, in our view, by a combination of poor operational track record and questionable capital allocation choices,” Bluebell wrote in the letter. The activist investor went on to note that, since Faber took over in 2014, Danone has delivered total shareholder returns of 21%, compared with 56% for the Stoxx Europe 600 Food & Beverage, 97% for Nestlé and 101% for Unilever.
When asked about Bluebell's complaints, Grant spoke generally on Danone's focus going forward.
"We certainly listen and engage in the dialogue and we're here to create value for our shareholders, and we're staying focused on the mission of growth," Grant said.
Ioannis Pontikis, a Morningstar analyst based in Amsterdam, said in an email to Food Dive that Bluebell's involvement "might shake things a bit in the corporate governance side of things (separation of chairman and CEO roles) and ignite a renewed focus on shareholder returns (more so than sustainability initiatives)."
Before the activist investor's letter was made public, Faber had already announced a series of steps Danone was taking to better position it for a post-COVID world. In November, the dairy giant said it was cutting as many as 2,000 jobs, or roughly 2% of its global workforce.
Danone also is conducting a strategic review of its portfolio of brands, SKUs and assets, starting with its plant-based protein powders brand Vega and its assets in Argentina, to allow it to achieve its 3% to 5% revenue growth target. And it shook up its management ranks, appointing a new CFO and organizing into two macro-regions: Danone North America, headed by Grant, and Danone International.
"The new restructuring efforts (reducing the overall number of SKUs available globally and cutting back investments) as well as the announced organizational changes ... are in the right direction, but after a number of years of underperformance, Danone’s equity story is in the show-me camp," Pontikis said.
Grant is optimistic about Danone's long-term potential because he believes it has only begun to tap into the synergies that came with combining the largely plant-based business of WhiteWave with its own dairy-centric operations. And, Danone sports a diverse portfolio that has experienced an uptick in sales during the pandemic — proving the company is present in areas where consumers are shopping, he said.
Danone has also focused on having each of its yogurt brands define a specific subcategory, such as probiotics with Activia, Oikos for Greek yogurt and Danimals for kids. In 2019, to boost its presence in the low-sugar space, the company introduced a Greek low-fat yogurt with two grams of sugar called Two Good that has proven successful. Sales more than doubled in 2020, and the brand posted $111 million in revenue during its first 16 months on the market, according to Danone.
"We reserve the right to launch new propositions when and if we think we need it," Grant said. "But we also think we already have today a pretty powerful portfolio that can both be enhanced with continuous renovations to the core but also stretched and innovated upon."