Danone initiated single-digit pricing in the first quarter across all geographic zones but met with opposition in Europe where volumes were impacted.
The impact was felt in the France-based dairy giant’s largest business area – essential dairy and plant-based products (EDP) – as price negotiations with retailers hit obstacles.
Finance chief Juergen Esser suggested this morning (18 April) that business had been lost in the opening quarter as a result of the failed price talks, although he did not mention any specific retailer names.
“The good underlying performance is not entirely reflected in our net sales numbers as we got exposed over the last weeks of the quarter to some shipment disruption in the frame of our price negotiations in retail,” Esser explained with respect to EDP as he discussed the results with analysts.
“It is important for us to stay firm in those conversations to build a sales base for the remainder of the year even if it has cost us a few basis points of market share in March. Negotiations are mostly done, and we are, as we speak, going back to business as usual.”
While Danone posted 2.8% like-for-like sales growth in Europe for the three months to €2.3bn ($2.4bn), the pace was slower than the same quarter of last year (6.2%) and the final semester of fiscal 2023 (6%).
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Volume/mix for Europe was a positive 0.1% based on price of 2.8%.
Esser said Danone had been “selective” in its price increases in Europe but experienced “market share pressure” in March and April. Normality should return in May, he added.
“There is no broad-based pricing. As inflation has really come down very much compared to last year, what we have been doing is to do selective price increases, especially on those product ranges which offer more differentiated elements versus competition,” Esser explained.
Danone’s EDP business for the company as a whole posted LFL growth of 3% with sales of €3.47bn. Volume/mix was a positive 0.8%.
However, the pace in Europe EDP slowed considerably.
Esser said the performance was “supported by another resilient delivery of our North American platform, increasingly good competitive performance in Europe and a solid delivery of our businesses in emerging markets”.
He added that “progress” had been made in “rebuilding the competitiveness of our EDP category”.
Europe, however, still remains demanding, particularly amid the Renew SKU rationalisation strategy to eliminate underperforming product units.
“In an environment that remains challenging, we have managed to deliver not only a resilient performance across categories but also continuously improve our competitive position,” Esser said.
“This starts with EDP, where the portfolio transformation initiative continues to deliver results. We see many fundamental KPIs going in the right direction, which is translating into several months of our market share expanding.”
Danone delivered first-quarter group sales of €6.79bn, registering like-for-like growth of 4.1%, outpacing the full-year outlook of 3-5%. Volume/mix was 1.2% based on pricing of 2.9%.
However, the fiscal 2024 organic growth guidance, or like-for-like, was maintained.
“The second consecutive quarter of positive volume/mix is fundamental to our objective to deliver a more balanced growth algorithm from this year 2024 onwards,” Esser said.
Nevertheless, Danone also saw slowing sales growth in the Alpro owner’s other geographical business zones – North America; China, North Asia and Oceania; Latin America; and the rest of the world, which includes Asia, the Middle East and Africa.
North America grew 2.5%, down from 11.8% in the same quarter of last year, while China, North Asia and Oceania slowed to 8.9% from 16%.
Latin America registered growth of 4.1%, cooling from 12.6% a year earlier. The rest of the world region was 6% versus 11.8%.
While volumes were positive across the geographic segments, Latin America was the exception, where volume/mix dropped 2.6%.
Danone put the decline down to licensing out a milk brand in Brazil.
Announcing the move last July, Danone said the decision was designed to “enable us to focus our resources on the more value-added and profitable part of the portfolio”.
Esser said today: “It’s worth noting that a very large part of the negative volume/mix of this zone this quarter was driven by the impact of the licencing out of our Paulista milk brand in Brazil.
“This is a deliberate choice we made that will impact our volume/mix for most of 2024 but clearly participates our efforts in restoring a resilient and profitable growth model for our Latin American zone.”
He explained the decision amounted to a 1.5% negative impact on Latin America sales for the first quarter.
Looking ahead for the rest of the year for Danone, Esser added: “It’s a volatile external environment – you see what’s happening in some parts of the world.
“Inflation is going to normalise as we will travel through the year so we will have a rebalancing of our growth algorithm between volume/mix and price. And so we are looking with confidence on the three remaining quarters.”
