China Food

Danone and yangleduo finally broke up. What’s the inside story?


Last week, Danone, the French food giant, announced that it would pay nearly 500 million euros to clear all of its shares in Yakult, thus ceasing to be a shareholder of the Japanese peer, and thus put an end to the 20-year “capital marriage”. This means that Yakult is finally completely “independent”.


The Japanese media quoted Yakult executives yesterday as saying that Danone and Yakult ended the capital alliance because “the cooperation failed to produce the desired synergy effect”, and pointed out that the market sales of both sides’ cooperation and Yakult’s “working alone” had a big gap.


In fact, by sorting out the positions of both sides, the end of the “marriage” is indeed a good thing for both sides.


No synergy?


Let’s take a look at the latest news of the end of capital cooperation between the two sides.


The investment relationship between the two companies began in 2000 when Danone acquired 5% of Yakult shares. At that time, Danone was optimistic about Yakult’s Lactobacillus casei strain shirota, hoping that the alliance would bring benefits to its business. Later, Danone became the largest shareholder of Yakult by increasing its holdings, holding nearly 21%. In addition to capital links, the two sides also signed business cooperation agreements.


However, the performance of business cooperation between the two sides is not satisfactory. According to Nikkei Asia, Yakult has made considerable profits in its own market. Last year, the average daily sales of probiotic drinks in Indonesia and Mainland China reached 6.36 million bottles and 8.12 million bottles respectively.


Meanwhile, its Indian joint venture with Danone sells only 238000 bottles a day. “It seems that this has little effect on the cooperation of partners in South Asian countries.” According to the above report, for Yakult, the 20-year cooperation with Danone has not achieved the expected results.


In Japan’s view, one of the reasons behind this is that the “business philosophy” of both sides has not reached an agreement. A source told Nikkei Asia that Danone did not have a good understanding of Yakult’s traditional business model, which originated in Japan.


“We can’t give Danone a full understanding of our expertise, including selling through Yakult ladies, our unique home delivery network.” A source from Yakult said. In addition, a Yakult executive said the company’s partnership with Danone had “little synergy.”.


As a matter of fact, before the change, the difference of ideas also brought about twists and turns for Danone and Yakult’s “marriage”.


As early as 2013, Yakult announced the termination of strategic cooperation with Danone. At that time, the then chairman of yangleduo stressed at a press conference: “we can never narrow down our differences with Danone in terms of corporate culture and market operation. Yakult will take this opportunity to further consolidate the independence of its operation. ” He said that he would rely on his own strength to promote the development strategy. However, the two companies have retained their existing overseas business cooperation. In 2018, Danone sold most of its shares in Yakult to streamline its business, but remained the largest shareholder.


This time, although Danone no longer owns Yakult, the two companies have chosen to retain their existing business cooperation, including joint ventures in India and Vietnam. In addition, the two sides reconfirmed their long-term strategic cooperation commitment to the promotion of probiotics.


Analysts quoted by Nikkei Asia yesterday believe that Danone’s exit will not have too much impact on Yakult. “The cooperation between Yakult and Danone had little synergy at first. Therefore, even if Danone is no longer a shareholder, it will only have a little impact on the management of Yakult. ” The analyst added that it was important for Yakult to expand its business in China and other Asian countries.

However, from the perspective of France, saying goodbye to Yakult has little to do with “concept”. According to the French newspaper Figaro last week, Danone hopes to increase its holding further to gain more control after holding nearly 28% of Yakult, but Japan wants to maintain its independence at this time. This allowed Danone to begin selling its shares in 2018.


New ideas from both sides


Although the overseas expansion with Danone is not smooth, Yakult may continue to find small partners to explore overseas markets.


“We want to sell Yakult probiotics with the same name as the company in China, Europe and the United States.” Nikkei Asia quoted takashige Negishi, President of Japan’s Yakult Corporation, as saying it hinted that Yakult might also cooperate with companies outside Danone to strengthen its overseas business.


According to the above report, in the fiscal year ending March 2020, the proportion of overseas sales of Yakult has jumped from about 10% in the fiscal year to March 2001 to 40%. At present, 70% of the company’s operating profit comes from overseas business.


Although gen’an Xiaocheng did not disclose what kind of cooperation he is looking for in which overseas markets he is considering, and how he will expand his overseas business in the future. But to be sure, China is one of the most important sectors when Yakult expands its overseas territory.


According to the daily average number of bottles sold of dairy products, China was the overseas market with the highest sales volume last year. Among them, the mainland sold 7.609 million bottles of Yakult a day, an increase of 1.1% year-on-year. In the first quarter of this year, affected by the epidemic, the average daily sales of Yakult in the mainland market fell to 6.038 million bottles.


Fastfood noted that after the above results were released, Yakult Japan’s top management also answered a number of questions about the Chinese market at the analyst meeting.


Talking about the sales volume in the first three months of this year in China, the company’s top management said that the sales volume in January and February decreased by 2.3% and 12.2% respectively year-on-year. The growth in March has turned positive, and the sales volume has increased by 14.9% year-on-year.


With the epidemic situation under control, Yakult’s business in China is also gradually recovering.


“When the Yakult mom project was not operational, the sales volume of (China family distribution service, or Yakult mom project) decreased by 97.5% in February, but sales resumed in March,” the company’s top management said at the meeting


However, this business does not account for a large proportion of Yakult’s sales in China. According to official website of Yakult (China) Investment Limited, there are about 3000 mothers in China’s mainland, covering the Shanghai, Beijing, Tianjin, Xiamen, Fuzhou and Guangdong provinces. (Note: Yakult is called Yakult in Guangdong and Hainan, which is called “Yakult” in Guangdong market).


“We believe that sales in China will gradually recover in the peak season of August and September.” The company’s top executives are optimistic that sales in China this year will surpass the previous year.


“The Chinese government’s advocacy of (intake) dairy products will bring more attention to the lactobacillus beverage market. We believe that by comprehensively controlling the quality of refrigerated products and promoting the value of probiotics, we can increase the number of customers. ” Yangleduo preached at a high level.


In the Chinese market, Yakult is trying to expand its sales base by opening new bases and increasing the number of Yakult mothers, according to the company’s senior executives at the meeting.


According to the introduction of snack generation, the lack of production capacity has hindered the growth of yangleduo in China. In order to solve this problem, Yakult announced this year that it will build the second plant in Wuxi, which is planned to be completed and put into operation in 2022-2023. According to the Wuxi daily at that time, after the completion of the new plant, Yakult Wuxi company will become the largest production base of lactobacillus milk beverage with live bacteria in the world.


In addition, Yakult, which has two products in China’s lactic acid bacteria market, wants to expand its product portfolio.


An analyst asked at the above meeting: “you have disclosed that you are considering introducing high value-added Yakult to China. When will it be launched and what products will be introduced?” “The introduction time and product have not been determined. As China has a lot of wealthy consumers and is increasingly pursuing health, we are considering introducing it as soon as possible. “

For Danone, although the stock price (as shown in the figure below) is not the highest in the year, it is still a good time to clear the position of yangleduo in the current epidemic situation.

Last week, Reuters quoted industry analysts at Barclays as saying the sale would help Danone focus on developing plant-based businesses in Europe and the US, such as the alpro and silk brands, and would help de leverage its balance sheet. In addition, the analyst also said Danone should conduct a strategic review of its bottled water business, as Nestle did, as the new crown epidemic has affected sales of an already underperforming business. Danone declined to comment.

According to fan Yimou, CEO of Danone, Danone collectively referred to protein, plant-based and probiotics as “3P”, and regarded it as a growth point, and arranged in four ranks.

To this end, the food giant has set a rather radical goal – by 2025, Danone plans to sell about 5 billion euros (39.2 billion yuan) of plant-based food, three times the sales of 1.7 billion euros (13.3 billion yuan) in 2018.


Nearly 50 billion market


Finally, let’s talk about probiotics that both giants are betting on. In the post epidemic period, the growing demand for healthy diet is attracting more food enterprises to join the Bureau.


For example, Weiquan recently launched two upgraded versions of Lactobacillus drinks. Changyi 100% and meiyitian, Yili’s lactobacillus beverage brands, have signed Wu Lei and Bai Jingting as new spokesmen respectively this year.


It is worth noting that the capital market has also invested “olive branch” for lactic acid bacteria enterprises. In August this year, Junyao health, known as “the first share of lactic acid bacteria”, was successfully listed on the market. However, different from Yakult and Weiquan, the company’s products are mainly lactic acid bacteria at room temperature, with brands such as “weidyna” and “qimengxing”.


According to the pre disclosure document of Junyao health, which was searched by snack agents, China’s lactic acid bacteria drinks can be divided into low temperature lactic acid bacteria and normal temperature lactic acid bacteria, and the former still occupies the main market position.


According to the European Union international data cited in the above documents, the market of lactic acid bacteria in mainland China in 2019 amounted to 36 billion 480 million yuan. Among them, the scale of low temperature lactic acid bacteria is 21.6 billion yuan, and that of normal temperature lactic acid bacteria is 14.88 billion yuan.  


However, due to the fact that it is not restricted by cold chain transportation and easy to store, the growth rate of normal temperature lactic acid bacteria is higher than that of low temperature lactic acid bacteria in the past few years. According to Euromonitor International data, during 2015-2019, the compound growth rate of domestic low-temperature lactic acid bacteria is 7.6%, and that of normal temperature lactic acid bacteria is 17.8%.


However, according to the above documents, in the next five years, with the slowdown of macroeconomic growth and the gradual saturation of the normal temperature lactobacillus beverage market, the growth rate of the normal temperature lactobacillus beverage market will slow down.


The international market expects that the Chinese mainland lactic acid bacteria market will continue to develop steadily, and it is expected to reach 49 billion 240 million in 2024.


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