As a former windsurfing champion and current CEO of France’s Group Danone (Danone), Franck Riboud has literally and figuratively “ridden the waves” to success. His Group Danone, which he has led as its CEO since 1996, is the number seven food and beverage company in the world. With a refocus on its core businesses, dairy products,beverages, and biscuits, and a divestiture of its sprawling non-related entities, the company’s stock price nearly doubled during his five-year tenure ($16.1 in December 1997 to $26.2 in December 2002, with the high of $31.0 in January 2001). Much of this success is attributed to Riboud, whose casual, laid back style has transformed into a forward-thinking, profit-focused strategy for Danone.With $14.5 billion in net sales and $1.5 billion in after-tax profits, the company has experienced positive sales growth rates under his leadership.
Delivering 27% of the firm’s global sales, Danone’s water products, led by the well-known glacier-source Evian brand, is number two worldwide in packaged water sales. Although declining in recent years (see Exhibit 1), sales growth from Danone’sWater Division in the last five years has been positive.
With all of Danone’s, Riboud was still faced with the challenge of a more even geographic distribution of its customer base, particularly in the U.S. The questions posed to him by investors and his board were – How could giant like Danone only derive 11% of its sales from the U.S.? What opportunities are Danone missing by not beingmajor bottle water player in the U.S.?
“DIVERSIFICATION: Reduce Danone's dependence on Europe, which accounts for 76% of sales. Derive 33% of sales outside the Continent by 2000.” This was one of the three major strategic plans that Riboud wanted to implement during his tenure – and it would prove to be the most difficult. On the whole, a whopping 57% of the company’s sales derived fromEurope, and only 11% came from the U.S. (see Exhibit 2).
Taking away the successful Dannon yogurt line and focusing on water sales in the U.S. and Danone’s presence was even more of a failure. By the end of 2001, Pepsi’s Aquafina and Coke’s Dasani had overtaken Danone in volume of water sold in the U.S. to become the number two and three players, behind Nestlé’s Perrier and PolandSprings brands. Danone is now number four in the U.S. after having the number one brand in the U.S. as recently as 1996, and its market share has plunged in the U.S. in the U.S. bottled water market.
What Danone had failed to realize was that selling bottled water was completely different in the U.S. than selling it in Europe. Danone has maintained a stronghold in Europe, by mastering itscomplicated direct-to-store delivery systems and taken advantage of an educated consumer base that willingly accepts Evian’s premium price and relies less on drinking tap water. Contrarily, success in the U.S. water market means access to a giant cola-run distribution network that includes access to rented store shelves.
When it came to water and the success of Danone’s water sales in the U.S.,the company was struggling. But as recent as the beginning of 2002, Riboud made strong statements refuting the need for Danone to be successful in the U.S. water market. “The Danone business equation is not a U.S. equation, it’s Asia, Latin America, Europe. Water in the United States represents just two percent of our global sales volumes…we have no reason to have an inferiority complex. Ourstrategy lies elsewhere.” These strong statements were contrary to the “DIVERSIFICATION” strategy that Riboud had planned to implement during his tenure.
These statements would also prove to be contrary to the Riboud’s aggressive moves in its U.S. water operations, made within days of his bold statement…
In the first of two dramatic agreements with one of its primary competitors,...