French Multinational Corporation The Danone Group - Case Study Example

Case in Marketing INTRODUCTION Groupe Danone S.A. or The Danone Group is French-based multinational corporation engaged in offering food products. Ithad been established in the year 1919. Over the years, it has offered high quality natural food products to its consumers. It has specifically focused on three key factors such as health, economics and social environment. Through health consciousness, it has established its brand image in the global market. Danone has operated its business in dairy products around the last century. Since last five years, it has been diversifying its business in different segments such as baby nutrition, medical nutrition and mineral waters (Danone,”Our Mission”). Over the years, it has extended its business in each and every subcontinent. It has been observed that Danone has around 90,000 employees throughout the world and it has operated its business in 120 countries in three core segments. Apart from dairy products, it has biscuits and beverages amid its offerings of globally renowned products (Danone,”Our Mission”). According to research, it has been found that the organisation has used a few pertinent strategies to ensure a significant command on the global market. Throughout the last century, it has operated its marketing activities in a competitive global marketplace. Apart from core segment including food and beverages, Danone has found competition from Nestle, Pepsi and Coca-Cola among others. In order to compete with the concurrent leading players, it has upheld quality as a prime factor in its offerings. With these considerations, the study intends to critically evaluate a key issue faced by the Danone Company in its operations in the past few years. Subsequently, in keeping with the analysis made regarding the issue faced by the company certain prudent recommendations or solution will be offered to ensure that the issue does not linger on and create even severe hurdles for the company in the near future. AN OVERVIEW OF THE ISSUE FACED BY DANONE COMPANY During the phase of 1990s, Danone had emerged as one of the world’s leading and renowned food companies. It had taken 40 years of time to achieve that peak in the global market. However, before that phase Danone had failed to capture the China market during the initial entrance. It had faced several difficulties during that stage. In this regard, it is determined that Danone has been significantly reliant on the supply of baby milk from the New Zealand exporter of wholesale daily products namely Fonterra. Unfortunately, during 2013, a warning related to bacterial infection was provided by New Zealand’s Fonterra organisation regarding a few of the ingredients of infant milk formula. As a result, Danone had decided to recall its products from different nations which brought about a decline in sales volume due to loss of sales. Consequently, all around the global market baby food’s sales fell rapidly. It had caused a massive loss of 350 million Euros during that financial period of 2013-14. Subsequently, Danone took legal action and terminated its contract with Fonterra (BBC, “Danone to Sue New Zealands Fonterra over Recalls”). In this regard, it has been observed that Danone has extended its business to the Chinese market through contributing more currency in building factories. Based on a recent observation, it is found that around seventy factories of the company are located in in China. It has been related with the four topmost renowned brands among the globe. All of those brands are established by the Danone Group. Those are illustrated below: A) Danone: This is the world’s famous and largest diary manufacturing brand. It has operated its functions in around 40 countries throughout the world. B) Evian: It is the best-selling mineral water brand of Danone. It has been marketed in 125 countries across the world. C) Lu: It is the second biggest biscuit manufacturing brand of Danone Group around the world. It is mainly operated in Western Europe. D) Wahaha: It is a food and beverages brand, which mainly belongs to China. Danone has jointly operated with Hangzhou Wahaha Group. Source: (Danone, “Danone in Brief”) During the recent times, it has been observed that the relation of the company with the suppliers has deteriorated. Moreover, during the last year i.e. 2013, there had been critical issues such as supplier of milk scenario witnessed by the company. ANALYSIS OF THE ISSUE RELATED TO DANONE COMPANY With reference to the documented issue, it is apparently observed that French food products corporation Danone had deliberated to charge legal action against its primary dairy supplier New Zealand’s Fonterra after the bacteria infection was found on the dairy product. It has become a serious issue in the mind of the consumers across multiple Asian countries, including China. Apart from this, in another major concern affecting the operations of the company in China, a BBC news report based on an unidentified source highlighted that Danone had given bribe to about 100 doctors of 14 hospitals in Beijing for referring their baby food product. It was quite disappointing news from the Danone’s standpoint. The most undesirable fact is that such scenario had occurred for the second time in quick succession. After the incident, a part of Danone’s concerned authority started investigation in this matter. In relation to the previous incident, it is determined that for boosting up sales approximately 10,000 Yuan had been bribed to hospital staff. However, due to couple of alarms regarding the same matter the government of China had taken concern about the aspect of corruption in the health care sector (BBC, “Danone Unit Investigates Fresh China Bribery Claims”). At the same time, it has been found that New Zealand’s government had stepped forward to support the giant dairy product supplier Fonterra. Fonterra has been regarded as one of the world’s biggest supplier of diary food materials. It controls almost one third of the dairy exports in global market. However, due to the bacterial infection, a rare kind of paralytic illness has been seen in China. And, the effect has been witnessed in several countries in Asia. Owing to this raised concern, it was determined that Danone directly wanted to terminate the contract with Fonterra. Subsequently, within a short period of time an emergency investigation had been arranged. After the investigation, it was found that components supplied by Fonterra did not contain fatal bacteria and that the recall was based on a false alarm. Unfortunately, Fonterra’s issue of warning has not only affected Danone but also it has affected around eight more multinationals. Responsively, it is determined that Danone had extended its agreement for the next 10 years as it was compensated for its losses (Wyatt, “Danone to Sue Fonterra over Baby Milk Formula Scare”). The agreement had been done in the end of 2013, when Danone identified that the baby food is the key product for the Chinese market as it has the potentiality of ensuring around 20% profit from this segment. From a different perspective, it has also been observed that Fonterra has also recognised the importance of Chinese market as a result it has cut down the forecasted dividend amount and is also endeavouring to keep the price of milk at $8.30/kg instead of $9.00/kg. Thus, after the negotiation with Danone it has been seen that a consistency is maintained in case of quality control and healthy testing (Wyatt, “Danone to Sue Fonterra over Baby Milk Formula Scare”). Moreover, Danone has faced few other difficulties in milk supplying related issue. These issues can be identified based on Political, Environmental, Social and Technological (PEST) factors. As Danone’s food and beverage industry exist in the entire global market thus it has a direct relation with the corporate, government, labour and environmental constituents of the entire world. In order to maintain its command, Danone has immediately responded vigorously to the supply related issues. It has been determined earlier also in different circumstances. On the other hand, in case of environmental cause, it can be seen in both ways such as internal and external. With regard to internal factors, it can be affirmed that Chinese people generally prefer to have their own food product. At the same time, they also have a preference for high branded food products. Consequently, after the identification of quality problem related with baby food, most of the people of China were afraid to buy products from Danone as a result it had faced a lack of sales during that phase (Monczka, Handfield, Giunipero, and Patterson 206-208). According to the overall analysis it has been ascertained that, Danone does not have any short of problems related with the existing food ingredient supplier Fonterra as it was already operating in a competitive environment. However, its milk supplier’s quality became a prior issue and as a result of the fact it had to face decline in its prevailing competitive advantages. Relating with Porter’s five forces model, it can be asserted that the threat of substitutes has not been as high in China as it can be observed in European and American markets. However, the power of buyers has been a critical issue because due to the bacteria infection the buyers’ got scared and as an immediate reaction they started to opt out of the baby food product of Danone. Moreover, consequently during this phase couple of existing competitors of Danone such as Yili and Mengniu has taken the benefit of the prevailing situation. Accordingly, Danone has also faced problem regarding supply due to the external causes. As it was mentioned earlier, Danone has faced several difficulties at the initial phase when it had tried to enter into the Chinese market. At that stage, Danone had operated with Chinese local brand and used its own brand name. During that period, it was observed that most of the Chinese people like have food with chopsticks. Consequently, it has been clearly observed that people of China generally prefer local food brands. Danone in the subsequent period has invested more in production of dairy products to maintain a benchmark for its quality control purpose in the demanding Chinese market. From the social point of view, it has been identified that many multinationals have failed to capture Chinese market primarily because the people generally prefer local brands instead of foreign brands. Thus, Danone has concentrated on child segment specifically regarding nutrition products and it has emphasised its advertisement which has been aimed directly at the children. Furthermore, in terms of technological aspect, Danone has responded efficiently. In case of packaging, advertising and research and development, it has used technology significantly. RECOMMENDATIONS OR SOLUTION FOR THE SITUATION OF DANONE COMPANY From the overall analysis, it has been identified that, the product quality of the offerings of Danone has been remarkable over the years. It has extended its business all over the globe primarily with the aid of consistency in quality control. With regard to the core market of Danone Group, it has been found that it has extended its business in the United States, Russia, Indonesia, France and Spain among others. Thus, it can be asserted that ideal strategic planning and prudent execution have been the key reasons behind the success of Danone. In case of Chinese market, it has operated sincerely. Nevertheless, it has not able to ensure the expected success until now. In order to ascertain such prospect, Danone should aim to use the local brand name in order to expand its prominence in Chinese market, when it jointly operates with a local brand. It can be affirmed that this strategy can work for Danone, in order to protect its own brand image from the negative scenario that can occur such as the issue related to its supplier’s quality concern. From a different perspective, it can be asserted that relying on Fonterra for the supply of crucial ingredients was a prudent choice by Danone, but unfortunately a false alarm regarding the quality issue has become an essential factor causing a downfall of Danone’s reputation especially in the Chinese market. It has directly affected the sales of its dairy product for children segment. Correspondingly, it can be recommended that Danone should intend to maintain its products’ quality without any compromise and it should be more careful about the existing players of the Chinese market. In order to reduce the environmental effect directly and indirectly, Danone can use a local brand name in case of running a joint venture with the local firm. It might be able to facilitate to attract the attention of traditional Chinese people. Besides, it can be also recommended that Danone should use a multiple supplier strategy for its key ingredients such as baby food formula. This could facilitate to sustain its operation in crisis period without the scenario of instant product recalls and stoppage of production. CONCLUSION From the foregoing discussion, it has been evaluated that Danone’s failure in the Chinese market materialised due to the quality issue of its supplier. One of the leading global supplier New Zealand’s Fonterra had failed to retain quality of a few of the ingredients that were used by Danone in its infant milk based formula. Subsequently, there company had to make product recalls. It has been determined that the issue related to product recall based on the information gathered from Fonterra was ultimately a false alarm. However, this aspect resulted in seeking of compensation by Danone based of the losses incurred by it. Conclusively, it can be asserted that, Danone needs to focus strongly on ensuring that no compromise is made regarding its product quality as the company reputation is built on that. It can also focus on multiple supplier strategy for especially the Chinese market where the incident had a major impact. Moreover, it has to integrate its supplier within its business activities even more by ensuring that they are accountable for the products or ingredients they offer to the company. These crucial steps can play a paramount role to ensure that such critical issues do not crop up in future. Works Cited “Danone Unit Investigates Fresh China Bribery Claims.” BBC. 2014. Web. 20 Apr. 2014. “Danone to Sue New Zealands Fonterra over Recalls.” BBC. 2014. Web. 20 Apr. 2014. ”Our Mission.” Danone. n.d. Web. 20 Apr. 2014. “Danone in Brief.” Danone. n.d. Web. 20 Apr. 2014. Monczka, Robert, Robert Handfield, Larry Giunipero, and James Patterson. Purchasing and Supply Chain Management. United States: Cengage Learning, 2008. Print. Wyatt, Joss. Danone to Sue Fonterra Over Baby Milk Formula Scare. 2014. Web. 20 Apr. 2014. Read More