Danone North America's portfolio of dairy and plant-based options that address many trends important to today's consumers has enabled the French giant’s U.S. subsidiary to "navigate some challenging times" in the yogurt and beverage space, a top executive told Food Dive.
Mariano Lozano, CEO of Danone North America, said the company's brands tap into trends like probiotics with Activia, kids' snacks with Danimals, high protein and no added sugar or fat with its Oikos Triple Zero and Horizon organic milk, and plant-based options with products including Vega, So Delicious and Silk — the later four of which were acquired as part of its $12.5-billion acquisition of WhiteWave in 2017.
“Some other companies have maybe one mother brand, and they are willing to accommodate everything behind that mother brand," Lozano said. "Each [of our brands] has a role to play in specific categories. That is what has helped us navigate ... in a challenging time for the yogurt category after a period of time growing in dollars, perhaps not in volume but in dollars. We were able navigate that with right innovation, extreme leveraging the strength of our portfolio of brands, and acting and playing in all the categories.”
To be sure, the U.S. yogurt industry remains in a strong position as the product's perceived health benefits, flavor and format innovation — as well as its appeal as a convenient snack or meal replacement — have been driving growth. The market is worth about $9 billion with sales expected to grow at a steady rate through 2022, with drinkable, vegan and plant-based options as major contributors, according to Packaged Facts.
Last week, Danone said its dairy and plant-based operation in North America posted its fifth consecutive quarter of growth, with sales up 2.7% on a like-for-like basis. Danone said yogurt delivered "solid sales growth and reinforced" the company's position in the fast-growing segment. The company posted strong numbers in emerging segments — notably probiotics, kids and plant-based items, in which Danone benefited from demand for nut-based drinks and successful expansion into adjacent segments, including mousses and ice creams.
Danone is the largest yogurt producer in the U.S. with about 34% of the market across its portfolio of brands, compared to Chobani at 17.5% and Yoplait at 16.5%, according to recent IRI data.
'On trend and underdeveloped'
While Danone, Chobani and others in the yogurt space continue to see growth, General Mills, the owner of Yoplait, is struggling. During its most recent quarter, sales slipped 2%, and while this is an improvement from the 5% decline the business saw last quarter, its lackluster performance reflects growing competition from powerful newcomers. General Mills' French-style Yoplait yogurt called "Oui," which was meant to counter authentic, international-inspired brands such as Chobani and Siggi's, has yet to gain meaningful traction.
Lozano said after a period of early struggles with some of the products acquired as part of the WhiteWave deal, Danone has come "quite a long way" and the premium organic dairy segment remains a bright spot for the company. Globally, Danone is aiming to triple its plant-based business from $1.9 billion in sales to approximately $5.7 billion by 2025 by focusing on new products like non-dairy cheese and yogurt, and growing sales of its existing items, he said. The company also is considering taking flagship brands like Light and Fit, Danimals and Oikos that operate in the traditional dairy space and expanding them into plant-based varieties.
"We are playing in categories that are mainly on trend, but at the same time, underdeveloped," Lozano said.
As evidence, he pointed to plant-based beverages for which growth is in the high single-digits annually but household penetration hovers close to 35%. At the same time, fewer than 10% of Americans consume ice cream or yogurt made with plants.
Across Danone's plant and traditional dairy portfolio, some of its brands, such as International Delight creamer and Silk and Horizon milks, are each closing in on $1 billion in annual sales, while others such as Oikos, Activia and Light and Fit yogurts are around $400 million to $500 million per year. Danone also has a small portfolio of younger brands like Stok cold brew coffee, acquired in the WhiteWave deal, posting less than $100 million in sales each year.
Vulnerability to operational mishaps
Morningstar analyst Ioannis Pontikis said while Danone "commands a narrow moat" advantage over its peers because of the limited number of categories in which it operates, it has a leading position in those areas and benefits from favorable relationships with large retailers that carry its items — key as startups and big food companies battle for limited shelf space.
"Danone's advantaged exposure in categories (yogurt, plant-based products, specialized nutrition, water) that are in sync with the latest consumer trends (health and wellness) gives it a head start on many of its peers that are still striving to optimize their brand portfolio," Pontikis said in a note this week to clients. "Given its entrenched supply chain position, pricing power in specialized nutrition (29% of sales), and a durable cost edge, we believe the firm is poised to meet changing consumer demands while generating healthy returns."
Still, Pontikis cautioned that despite "Danone’s undisputed dominance in certain categories," the removal of health claims from its probiotic yogurt portfolio in the EU in 2013 and an infant formula recall that same year "are indications of the company’s vulnerability to operational mishaps and negative publicity."
"The company’s exposure to a limited range of categories, which are sensitive to such risks or unanticipated consumer preference changes, elevates the probability of permanent value destruction longer term
versus more diversified larger peers with broader multi-category brand portfolios," he said.
“Everybody is seeking for growth. That's the reality. Sometimes people are jumping in M&A because of that. But M&A is not only the answer. ... We have a big runway in front of us to generate further growth coming from our existing portfolio of brands."
CEO, Danone North America
The WhiteWave purchase, Danone's largest in a decade, has placed the food and beverage maker in a strong position for future growth, according to Lozano. He indicated another major transaction isn't going to happen anytime soon. Instead, Danone is now focusing on growing its own roster of brands while backing its Danone Manifesto Ventures, which he said plans to invest in start-up companies focusing on everything from organic coconut water to new protein sources.
“Everybody is seeking for growth. That's the reality. Sometimes people are jumping in M&A because of that," Lozano said. "But M&A is not only the answer. We did a big one 18 months ago that brought to the family very strong brands in categories that are on trend and still to be unleashed with the potential of growth. We have a big runway in front of us to generate further growth coming from our existing portfolio of brands."