Danone bets on nutrition business to double India revenue by 2020
Danone is also exploring entering the drinking water market on its own with products from its global portfolio
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New Delhi: Danone SA, Europe’s largest yogurt maker, will focus on its nutrition business, and not dairy, to double its revenue in India by 2020, said Rodrigo Lima, managing director, Danone India Pvt. Ltd, the local unit of the French company.
Besides launching products in the existing infant foods business, the maker of Farex baby food and Protinex supplements will enter the medical nutrition business by June. It is also exploring entering the drinking water market on its own with products from its global portfolio.
“We want to bring the water business to India. But it’s too early to say how soon,” said Lima. Water is Danone’s third largest business globally, generating €4.7 billion in revenue in 2015. The comparatively smaller medical nutrition business contributed €1.5 billion.
Interestingly, this is not the first time the €22.4-billion-firm is trying to tap the drinking water market in India. Danone earlier sold flavoured water B’lue, and mineral water Qua in the country through a joint venture (JV) with the Rahul Narang Group. But the partners called off the JV after they got into a legal battle.
Danone set up its dairy business in India in 2010, and started selling yogurts. But dairy remained a small business, contributing just about 20% of Danone’s revenue in India. Globally, dairy is Danone’s largest business, posting revenue of €11 billion in 2015.
The company declined to disclose its revenue from India but claimed it had a 12% share in the infant foods market with Farex and about 45% share of the protein supplement market with Protinex. The so-called early nutrition or infant foods business generated €4.9 billion in revenue for Danone globally in 2015. About 80% of Danone’s business in India comes from the nutrition segment.
In July 2015, Danone merged its nutrition and dairy businesses. Its business in India includes the Wockhardt Group nutrition business that Danone acquired in 2011.
Danone, which launched Aptamil—an infant formula brand—on Monday in India, plans to launch 10 new products in 2017 to support its target of India doubling revenue by 2020, said Lima.
Next in line is Neocate—a hypoallergenic medical nutrition product for infants and children with diagnosed allergies which will be launched in June. Danone was not able to launch the product earlier due to regulatory hurdles. In August last year, India’s food regulator Food safety and Standards Authority of India (FSSAI) decided to allow imports of special food items meant for children with “inborn errors of metabolism”, which are only manufactured by a few companies such as Danone, Swiss packaged food firm Nestle SA and American healthcare company Abbott Laboratories.
Danone has not been able to make a mark in India’s organised dairy market, which is estimated at Rs 80,000-90,000 crore. While the company has a presence in 20 cities with products available across 200,000 retail outlets, its flagship yogurt is available only in six cities. Interestingly, more than two-thirds of Danone’s business in India comes from chemist shops. Lately, it has started tapping the e-commerce channel to sell nutrition products.
“The challenge with fresh dairy is logistics and supply chain. In any case, we are into the value-added segment. To maintain the quality, we have our own trucks and own supply chain. And, that’s not very easy to manage,” said Lima.
Danone’s India portfolio consists largely of flavoured yoghurt, lassi and mishti doi – which have been developed by its researchers in India. The yoghurt and baby foods segments are growing rapidly. In 2014, yoghurt was a $931 million market in India, with a compound annual growth rate of 34.5% during 2009-14.
Baby foods grew at 14% on an average during the five years between 2009 and 2014 to become a $478 million category, according to an August-2016 report by consulting firm KPMG in India.
For Danone, India is the fastest growing market in south Asia, said Lima. “India is a strategic market for Danone that holds huge potential,” he said. The company also caters to neighbouring Bangladesh, Nepal and Sri Lanka from India. During the past six years, the company has invested Rs 1,800 crore to build manufacturing facilities in Haryana and Punjab.
“Nutrition, fortified food and fortified beverages are growing very fast in India. Every company, essentially the multinationals who have such products in global portfolio, are looking at this segment which is estimated at around $2.1 billion at present and is projected to reach $6 billion in the next few years. It is logical for Danone to give a push here as the market is still at a nascent stage. While they will continue to play a niche game in the dairy segment, nutrition could actually be the growth driver,” said Rajat Wahi, partner and head (consumer markets), at consulting firm KPMG in India.