1994 was an inauspicious beginning for Franck Riboud, 38, when he was named as his father’s successor as the head of Danone, France’s biggest food company. There were easy swipes: Riboud – pronounced Ree-boo – had only got the job because of père. Franck, the youngest of four, had originally trained as an engineer, not a manager. His real passion was reserved for skiing and windsurving, not sitting in an expensively upholstered designer boardroom chair making decisions about the lives of thousands of employees. But it didn’t take long for Danone’s nervous shareholders to change their minds. Focus on what you’re good at and trash the rest was the loose maxim Riboud rapidly adopted. And it has worked, more or less, beautifully, supplying Danone with real global eminence and clout. This European powerhouse now controls some of the world’s most successful and innovative brands.
Why then has Franck Riboud been such an exceptional choice? When Riboud came onboard Danone was in dire need of fresh blood that would inject genuine change, and pronto. Riboud had long forsaken the idea a job with ski manufacturer Rossignol due to, inconveniently, a lack of snow; he subsequently trained as an accountant, working his way up the Danone management ladder.
But by the early 1990s, the French conglomerate was nearly on its knees with contracting revenues and dangerously exposed margins. Taking charge, Riboud promptly dumped soup, sauces and pasta and re-focused the company on beverages and dairy products. He also brought in new blood, such as P&G exec ace Jan Bennink and, from Sara Lee, he persuaded Simon Israel to join him who bought much emerging markets experience. Riboud had his team.
Recently Riboud has fine-tuned the company portfolio further, shedding its biscuit and snack division to Kraft Foods for £3.56bn and swallowing baby and hospital foods maker Royal Numico for the best part of £10bn, a Dutch operation. Royal Numico also incorporates SHS International, an advanced medical nutrition player. Danone’s emphasis – much of it – is on healthy living and healthy products. It’s not an ageing conglomerate lumbered with sugary, time-expired high-fat shelf filler. No wonder the world’s biggest yoghurt maker is highly attractive to investors, not to mention consumers. Volvic, Evian, Badoit are a few of the mineral water brands that Danone also own. All, despite differing marketing niches, fizz with popularity thanks to skilful marketing and strong customer loyalty. And rivals like Nestlé, Unilever and Kraft must eye Danone with longing.
State protection for wholesome goodness
What Danone has that many of its international rivals don’t have is state protection. It’s not called state protection of course but the French are hugely guarded about domestic companies – especially successful ones – threatened with any risk of takeover. The issue was brought to a head in mid 2005 when rumours of a bid by PepsiCo saw Danone’s share price soar by 20 percent in a matter of weeks. Soon after a patriotic French government mobilised with a new law to protect domestic companies in ‘strategic industries’ from takeover. The legislation effectively saw off PepsiCo’s ambitions. But the move to give domestic French companies drew huge flak. “Defending national champions in the short-term, usually ends up relegating them to the second division in the long-term,” warned José Manuel Barroso, president of the European Commission at the time in a speech to the European Parliament, also serving as a thinly veiled attack on Jacques Chirac, France’s former president. Privately Danone may have been grateful for the move. But Riboud has distanced himself from the new-found closeness to the state’s bosom, claiming his company is quite capable of standing on its own two feet. “Sanctuaries are for relics,” he is reported as saying, “whereas Danone thrives on the competition it faces in all its markets.” What is less well publicised is that much of Danone is owned by institutions, many of which are not based in France.
Milking emerging markets
Despite the credit bubble, Danone appears to be thriving thanks to heavyweight advertising and inevitable promotions. Recently it posted a six percent rise in first-half net profits – rising to €932m compared to €879m the year before – though these results were also inflated by asset sales and the welcome impact of lower raw prices. Operating margins are also slightly up. “We intend,” says Riboud, “to accelerate our market expansion, with a view to further strengthen our positions and seize new growth opportunities. Thanks to these adjustments, Danone is increasingly well-equipped to deliver strong and sustainable growth and to focus on its mission ‘to bring health through food to the largest number of people’.”
Indeed. Particularly in emerging markets. Although dairy sales in Russia are down, Riboud is working hard in China, and Danone already claims it now has a five percent market share after just a few months presence in the People’s Republic – an extraordinary result considering the size of the territory it is penetrating. The presence of a new name in China is all to Riboud’s advantage; last year China’s dairy industry was effectively wrecked following its melamine scandal when it was disclosed that industrial chemicals had been used to increase the protein content of milk. It wasn’t so much the facts that shocked but the scale: more than 20 Chinese milk companies were thought to have colluded in the scandal that the World Health Organisation dubbed as one of the major food scares it had ever had to deal with. So Chinese Danone yoghurt may cost a bit more, but many upwardly mobile Chinese probably think it’s a price worth paying.
Riboud predicted sales will rise this year. The only canker in the ointment is bottled water – once a staple, now more of a luxury for many – which is currently under pressure. But that’s a cyclical issue. Danone’s dairy and nutrition divisions are in fine shape. And how many people really, truly, hate yoghurt?