Comprehensive SPACE analysis.

Read the article. For each dimension, (environmental stability) you should discuss and rate at least two factors. Mention your thoughts about the rating with external research. Compare your strategies with the one that is used by the company. Clarify which quadrant Danone is in. Describe the situation in that quadrant. Propose strategies for that situation. Be specific about the details of your strategy and provide examples as many as you can.

Factors: Technological changes, rate of Inflation, demand variability, entry barriers, price elasticity of demand. (Pick 2) best suited.

Case study Food group shifts strategy to volume growth Actims ME Actime! Actime! Actime Franck Riboud is famously impatient with the stock market's short-termism. So when the executive chairman of Danone in November disappointed ana- lysts by downgrading growth forecasts, he reacted in typical style. 'The crisis is not our main concern; our main con- cern is to construct the next 15 years for this group,' he said. With that in mind, Mr Riboud has shifted strategy to volume growth rather than sales growth. His view appears to be that setting a high sales target in the current economic environment would put undue pres- sure on managers, risking mistakes and shortcuts to achieve the growth. Much better to cut prices and increase volumes than to shut factories, he has said. Instead the group prefers to reinvest cost savings as it expands and deepen sales in new markets rather than pledge to boost continually profit margins. timel fetime! Actime! Actimel Actimel Snecial offers The company sells its products - including Activia yoghurt and Actimel yoghurt drink, as well as Evian, Badoit and baby food, including Milupa, to 700m people worldwide. It aims to achieve its mission to 'bring health through food to the largest number of CASE STUDY 87 people' by selling to 1bn people by the end of 2011. stock can return to a premium valuation,' wrote ana- Although its international sales are expanding, it still lysts at Royal Bank of Scotland. relies on Western Europe for 48 per cent of its sales. Mr Molloy said: 'The debate now is whether this After 12 years at the helm of Europe's third-larg- crisis has washed out the trend for the great sales est food group after Nestl and Unilever, Mr Riboud growth there was between 1997-2007. Only time will has transformed Danone from a conglomerate into a tell but we are positive because people like healthy streamlined business that his father, Antoine Riboud, and convenient food.' whom he replaced, would not have been able to For Danone, the shift towards volume rather than recognise. Now focused on three main sectors - sales growth means targeting and expanding sales yoghurt, spring water, and baby food along with a in emerging markets. But because people in these small clinical nutrition business - he jettisoned beer, countries are less wealthy than in more prosperous biscuits, cheese and other 'unhealthy food and countries, the company cannot expect to gener- drink on the way. ate the same profit margins. Its cheapest yoghurt is Selling low-growth businesses helped Danone sold in Bangladesh at 6 euro cents in an 80g cup. In achieve one of the best organic growth rates in the France, plain Activia yoghurt sells for 26 euro cents sector, making it a stock market darling - its com- for 125g. pound annual growth rate was 8.9 per cent between Danone is experimenting with selling its Activia 2001 and 2007. yoghurt in powdered form, which would allow it to While there is no argument about the company's bypass expensive cold storage costs. ability to drive sales growth, its commitment to share- Source: from 'Food group shifts strategy to volume growth', Financial holder value is more debatable, according to Alex Times, 10/01/10 (Daneshkhu, S. and Wiggins, J.). Molloy, analyst at Credit Suisse, citing Danone's c12.3bn takeover of Numico, the Dutch baby food business in 2007 and this past year's c3bn rights Discussion questions issue: 'Strategically the Numico acquisition was great 1 What environmental factors is Danone but they paid so much for it that it has not created responding to by shifting strategy to volume shareholder value.' growth rather than sales growth? In November Danone cut its sales target over the 2 Explain why Danone is focusing on only three medium-term to 'at least 5 per cent from 8-10 per main sectors. Why these sectors? cent previously, citing changes in consumer behav- 3 What rationale can you give for the fact that iour. It also abandoned guidance on profit margins Danone has retained its water brands (such and earnings per share growth but said that annual as Evian, Volvic and Badoit) in view of recent free cash flow would reach 2bn by 2012. criticisms of bottled water? Use the Advan- Analysts were disappointed. 'Without a premium tage Matrix to help you build your argument. growth rate against its peers, we do not see how the