In China, its most profitable market, food giant Danone is constantly seeking changes to better manage its business.
Let’s have a look.
According to a recent release, China ranked the second largest market with about 10% of sales last year, and it is the market that contributes the most to profits. According to this rough calculation, the sales volume of Danone China last year was about 2.428 billion euros.
In the “strategy” of “released by Sheng Ruian, it once classified 25% of Danone’s business as” challenging and underperforming “, including pulsation.
He said in the above forum that there are different definitions of underperformance. “Some businesses are very profitable, but they are losing their share, and the growth rate has not kept up with the market level. Some businesses are actually growing, but their profitability has not reached the level acceptable to the company.”.
The pulsation of “carrying the banner” for Danone beverage in China belongs to the former. “Take pulsation for example. I know it has always been a topic. Pulsation is a highly profitable business. It is an exciting beverage category in China and has a great brand.” Sheng Ruian said, however, the brand has the problem of “excessive innovation”. There are more new products in the freezer, but the inventory of core products is insufficient.
Sheng Ruian believes that pulsating excessive innovation will first lead to share loss, because it cannot meet the core consumer demand. Secondly, it affects the dealers’ willingness to invest. “The dealers see that many products cannot be sold and will not continue to invest or increase investment. Many funds are accumulated in the freezer.”. In addition, it is difficult to further expand distribution.
After locking the problem, he said that pulsation needs to start cleaning up the product portfolio, make “difficult decisions” on removing some products, and build public praise in front of dealers.
Data show that since entering China in 2003, pulsation has been regarded as a representative brand of vitamin drinks, and has maintained a fairly good growth rate for a long time.
After more than ten years of continuous glory, pulsation entered the adjustment period from 2015. Looking through the financial reports of Danone over the years, the snack generation found that in 2015, Danone announced a pulsating transformation plan and began to adjust the inventory of dealers, with a view to maintaining the development potential in the case of slower growth of categories. Affected by this, pulsation’s sales declined in 2016.
According to the public data of snack generation, since 2015, pulse has launched many new products every year. In addition to the new taste and specifications of the core products, we have also tried to launch new product lines, such as the “fiber series” for women, the gas containing vitamin beverage “Xiqi”, and the lemon juice beverage “lemonade”. However, compared with pulsation, these innovations do not seem to get much support, and are mostly ephemeral.
In the past few years, the pulsation performance has been quite repeated. In order to “pulse back” this brand, in April 2020, Danone launched the largest brand upgrade of pulse in recent years, including formula upgrade and taste innovation. In 2021, the pulse fluctuated due to the impact of the epidemic, but it has recovered in the fourth quarter.
Sheng Ruian said in May this year that the pulse recovery is progressing well, but it is still far from the level in his mind
Sheng Ruian said that so far, some people have left Danone because of this strategy, and many people’s jobs or roles have changed. However, he also stressed that “local priority” does not delegate all work to the local market.
“One thing I said on the first day of joining Danone is that local priority does not mean only looking at the local market. Some things will be better promoted at different levels.” He stressed that local priority and globalization are not “either or, but both”.
Taking the professional special nutrition business of milk powder as an example, he said that the implementation of this business must undoubtedly be localized, and R & D innovation is more suitable for centralized management globally.
“Why should the execution focus on local? Because when you talk about investment, you talk with the local government, and research, development and accumulation are global.” Sheng Ruian said, “the reason why I say local priority does not mean that I only look at local areas, because some things will be better in the world.”
“Therefore, a decision I made after taking office was to divide (again) the content created under the local priority strategy, and integrate R & D, operation quality, food safety and procurement (conduct global management).” He said that he had made some adjustments to “local priority” after joining Danone.
At the same time, Sheng Ruian also proposed that work such as logistics, distribution, customer development and management should still seek greater synergy from the local level.
“When you manage distribution, it is absolutely meaningless to put drinking water on one truck and plant drinks on another truck. They obviously have synergistic effects. Back office work is also meaningless. It is absolutely meaningless to have two accounting departments reporting to the CFO. Therefore, in many things, local priority brings us benefits such as cost saving.” Sheng Ruian said.
He said that Danone plans to reinvest the funds saved from “local priority”, of which about 300 million euros will be used for brand promotion, about 200 million euros will be used for creating high-quality products, and about 200 million euros will be invested in core capabilities such as R & D and system data management.
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The CEO of Danone said “pulse”