Groupe Danone: Selling curds to Indians

The world's largest branded yoghurt maker is eager to enter the world's largest market

The 'kulhad' Jacques Vincent is carrying is more than 12 years old. It's cracked and has been painstakingly put together with lashings of Superglue. But Vincent is not willing to let go of the earthen vessel he picked up from Kolkata, where the earthen pot used to store curds. For the deputy chairman and chief operating officer, Groupe Danone, the kulhad represents the French dairy product major's struggle to launch its yoghurt range in India. "We will break this pot when we launch in India later this year," says the 61-year-old.

The world's largest branded yoghurt maker has been trying to enter India, the world's largest yoghurt consuming market for many years now. If in the past, the market was not ready for a shift to branded yoghurt, at present Danone's Indian partner, the Mumbai-based Wadia group is applying the brakes. Last month, the Indian government told Groupe Danone that it cannot go ahead with a stand-alone operation in India without getting a no-objection certificate from the Wadias.

The two partners have been in discussions for the the last couple of months to amicably sort out issues that range from guarding intellectual property rights to acquiring strategic stakes in Indian companies by Groupe Danone. In November 2006, the Wadias dragged Groupe Danone to court over the French company picking up a minority stake in a Bangalore based bio-nutritional foods company Avestha Gengraine Technologies, through its subsidiary Daninvest.com SA.

Earlier last year biscuit maker Britannia Industries stopped sharing its financial details with Groupe Danone citing royalty payment issues between Groupe Danone and the biscuits maker. Groupe Danone and the Wadia group hold a majority stake through a holding company, Associated Biscuits Holding International in Britannia.

Last week Groupe Danone indicated that in order to resolve its dispute with the Wadia Group, the French major might even consider an exit from Britannia Industries and sign a non-compete agreement to stay away from the biscuits segment in India. That would leave Danone with just beverages and fresh dairy (yoghurt), when it eventually moves into India later this year.

Analysts say that an exit from Britannia is like giving "an arm and a leg to be in India" for Danone. But Philippe-Loic Jacob, corporate secretary, Groupe Danone says, "We have sold biscuit companies before in Latin America and in the UK." He adds that Groupe Danone has a lot more to offer in India that goes beyond just biscuits. "India could be a hub in the future for Groupe Danone's activities in Asia," he says.

The first plank for Danone's strategy in India is affordability. The company will soon roll out its first probiotic range of yoghurt through a joint venture with Japanese yoghurt maker, Yakult Honsha Co. For this initiative Danone had obtained a NOC from the Wadias in November 2005. Jacob points out that the company could look at a low per unit cost strategy by pricing a small pack of yakult (Japanese probiotic yoghurt) for less than 20 cents (around Rs 10).

When its independent venture, Danone Foods and Beverages gets government clearance in India the company could roll out its range of yoghurt that transcend the plain and fruit Activia, the probiotic Actimel that increases immunity, or the skin nourishment Essensis that has taken European markets by storm after a launch this year. The company also has a range of desserts under the Danette brand.

The company claims that it has a huge product pipeline even on the probiotic bacteria front. Only 50 strains of bacteria have been used when the company has a bank of 3500 strains, says a company executive.

On the beverages front, the company is also bullish on its water brand Evian, for which Danone has a distribution arrangement in India since 2003 with Narang Hospitality Services. This year the company claims to have shipped 1.5 million bottles of Evian water to India. But the company has not yet managed to get economies of scale. Because even with a sticker price of Rs 100 per bottle of Evian, the company makes only Rs 15 crore in India from its water business. That's a pittance compared to Danone's beverage sales of Euro 3.94 billion (roughly Rs 21,000 crore). But Danone has more to beverages than Evian. Company executives do not comment on specifics, but concede that they are actively scouting for acqisitons in India.

While Groupe Danone had been chasing the Mount Everest Beverages deal (Himalayan brand) that eventually went to Tata Tea, the French company is still in the hunt. Will Danone talk to India's foremost bottled water brand, Bisleri? "I would expect our people to talk to most dominant brands in the Indian market," says Jacob.

Beyond mineral water Danone has also moved into fruit based beverages, flavoured water, iced tea and energy drinks. Will Danone compete only with Nestle and Amul the major dairy market players in India? Or will it lock heads with Coca-Cola, Pepsi and Tata Tea? The answer is most likely to be a bit of both.