Danone Learns New Lessons in PandemicBy Jan Hogewoning | Fri, 11/20/2020 - 09:42
Q: How did the pandemic reshape your product offering to retail partners?
A: A great deal has changed since the pandemic started. We had a pipeline of initiatives, but many needed to be put on hold. We had to be very creative and fast with new ideas. We have to be mindful of a shift in consumer behavior but also of changes in sales channels. Proximity stores, such as mini stores and convenience stores, saw their sales shift. Products that fit in the lunchbox category saw a steep drop in consumption. The same happened to on-the-go products. Many started to be returned to us as we are responsible for the products that they do not sell. We reacted by providing these stores with more family-sized, larger products. These are now more important because customers are looking for products to consume in the household. Previously, OXXO never offered a 1kg product from Danone but now it does. We also focused on products that boost the immune system. In the case of Mexico, products that contain local fruits, more protein and plant-based ingredients have become more relevant. We visit more than 300,000 stores on a weekly basis, which allows us to be more agile in adjusting our product portfolio. Another area that has grown is e-commerce. We have worked hard to support partnerships, which include Walmart, Cornershop and Rappi, in growing their operations.
Q: What has been Danone Dairy’s experience with the product labeling reform that went into effect on Oct. 1?
We are very proud of our products. Around seventy percent of our portfolio has no octagons because we are transparent regarding ingredients when designing our products. If the customer wants indulgent options because they are looking for a certain flavor profile, we offer that. If you do not want added sugar, you can choose for example our Danone Junior, Activia no added sugar or Danone Natural unsweetened.
Our commitment to Mexicans will always be to provide them with increasingly healthy food from the origin, helping them at the same time to better understand our product portfolio through clear, transparent and closer information so that they can make healthier decisions regarding their nutrition and hydration.
Q: Many companies have filed legal procedures against aspects of the label reform. Does Danone consider a similar move?
A: Rather than fighting this kind of labeling, however, we must make sure consumers understand nutritional content and product benefits. The challenge is really to help consumers make educated choices and to make these labels part of that process. We know the war is not against sugar, fat or sodium. It is the quantity in combination with a lack of activity. In the end, it is about your calory balance. The government and the industry really need to reinforce the message about balance. Danone Dairy is lucky because, generally, our product portfolio offers healthy products.
Q: How do your products reflect regional flavors?
A: We have many local flavors. For example, Activia Nopal (cactus) and Pineapple or Papaya. When we launched Danone Mexico, we really focused on offering products that were not only liked by consumers but that also reflected the region. Now, we offer flavors such as banana, fig, guava or a combination of coconut with lime. We are very transparent in showing that those products have few ingredients. The milk that we produce comes from local and small producers. We use regional fruit, a fermenting agent and regional agave as a sweetener. Products from the Mexican range were voted in “Dairy Awards” as the best yoghurt in the world at the beginning of this year.
Q: What is your process for sourcing from local producers?
For milk producers, we have a project named Margarita (Daisy), after the flower. The petals of the flower represent all the different stakeholders involved in this ecosystem. The project has been going on for 10 years and today we work with close to 500 small Mexican milk producers who now have a viable business model. Many players have helped us create this ecosystem, including the Interamerican Development Bank (BID), UNAM, Union Ganadera de Jalisco, Technoserve, NUUP, FIRA, INAES and the government of Jalisco. Investments of several millions of dollars have gone into infrastructure for milk collection, training of farmers and microcredits that help them make their business profitable. Twenty percent of our milk comes from these farmers. Now, we want to expand to more than 500 producers. There are challenges to making their businesses viable because many small producers are located in remote places. Because we are collecting milk from the cows, you need to be there twice a day. After all, cows do not stop once they have started giving milk.
We have grown our relationship with local small-scale producers through another program called Madre Tierra (Mother Earth). This involves Mexican strawberry growers, from whom we want to buy strawberries for our US business. This is something we are still working on.
Q: With a drop in consumption during the pandemic in some product catagories, what have you done with the surplus of milk?
A: This is a very interesting point. You cannot turn off a cow. We also have a commitment to our milk producers. We break milk into components with a technology called milk cracking. Some of these components are used in our formulations. A lot of it is fat, which we resell in the market. We have strong partners that require a lot of fat. We have also resold milk that we cannot use. Lastly, we started to sell some of our milk in ready-to-drink tetra pack products. This is an experiment we call Danone Milk. As you can see, the pandemic has led to interesting new commercial projects.
Q: Who are your main competitors in Mexico and Latin America?
A: We mainly compete with other dairy products, as well as nondairy substitutes like juices and sodas. The biggest challenge is the low per capita consumption of yoghurt in the region, which is 8kg per year in México, while in France it is 30kg. There is a great deal of growth potential. Of course, we have very good and innovative competitors in the dairy area. All of them tend to be milk producers who own their cows. Not being in control of our whole value chain puts some pressure on Danone. However, we market milk in a different way.
Q: In which areas are you innovating?
A: We launched several products recently in Latin America. We launched Yopro, which is a high-protein product. The pandemic has impacted its performance because of the limitations on gym attendance. We continue to innovate in Silk in terms of flavors, types and sizes. With Oikos, we relaunched a zero fat, zero sugar and zero lactose product. With Danup, we have typical Danup and then a Danup with little sweet treats in the shape of little balls. For DanMix, we created a collaboration with M&M’s that is performing well. We are not planning to launch a new brand for the time being.
Q: Apart from sourcing locally, what other corporate responsibility initiatives do you have?
A: One of the projects that took time to implement was for our factories in Mexico to run completely on renewable energy. This was delayed a little bit following the change in government administration. Our plant in Irapuato now runs completely on renewables and we will do the same with our other dairy plant in San Luis Potosi. We also have a strong global commitment regarding water, which affects how we clean it, reuse it and put it back into the environment with drinking quality. We are also focused on protecting water access for vulnerable communities.
We also have one project related to education. We signed an alliance with HeforShe through the Bonafont water brand. This started after the earthquake in 2017. Under the leadership of Bonafont, we are training entrepreneurs in vulnerable areas to make them financially independent.
Q: What are your priorities for the Latin America region?
A: As the pandemic evolves, we continue to be challenged in the region. A country that really performed ideally was Uruguay. The pandemic was not very strong there and the government reacted very quickly. This translated to a smaller impact on our operations. I wish the whole region had behaved like Uruguay. However, we learned to be agile and to better allocate our resources. Protecting people will remain key. We have a lot of people working with Danone, either directly or through a related entity.
Danone is a European multinational food-product corporation with headquarters in Paris. As of 2018, the company sold products in 120 markets, with 52 percent of total product sales in the dairy and plant-based category