Danone may exit biscuits on low margins

Groupe Danone is contemplating an exit from the biscuits category in India, due to low margins and a plethora of small manufacturers.

The Danone executives indicated, last week, that they would explore all options to bring an amicable end to the dispute with their partners, the Mumbai-based Wadia group.

With the exception of Europe, the share of biscuits in the company's global portfolio has been dwindling. Europe accounts for 80 per cent of the company's biscuit sales.

When, in 2006, Groupe Danone started operations and consolidated its holdings in 10 countries , it had focused on biscuits only in the Algerian market. This is because of its proximity to France where Danone leads the category with its Lu brand.

The company executives did not deny the possibility of an exit from Britannia, where Groupe Danone holds a 25.5 per cent stake through a holding company, Associated Biscuits International Holdings.

Executives said that in the event of an exit, Groupe Danone would sign a non-compete agreement with its Indian partner and stay out of biscuits in the country.

Danone's biscuits portfolio has not been contributing much to its global sales. In 1996, nine categories, including pastas and glass containers, contributed to the company's turnover, but biscuits contributed a mere 20 per cent.

However, a refocused portfolio in 2006 included only three categories-beverages, fresh dairy products and biscuits.

The biscuits portfolio contributes only 15 per cent to the total sales. In 2000, biscuits contributed ¤2.3 billion to the group's global sales, while in 2006, the contribution of biscuits was ¤2.1 billion, even as the company's biscuits portfolio grew by three per cent last year.

The company executives told Business Standard that biscuits as a category was not growing as fast as beverages and fresh dairy products, where Danone is a leading player across the world. In 2006, the beverages portfolio of Danone which includes renowned brands such as Evian and Volvic grew at nearly 15 per cent, while the yogurt business grew in excess of 30 per cent.

In the last three years, Groupe Danone has exited the biscuits category in some parts of Latin America and Europe, said company executives. The Wadias and Danone hold 50 per cent equity each in Associated Biscuits International, which holds a controlling stake in Britannia, the leader in India's biscuit market.

Danone invested in Britannia Industries in 1990.