Danone Expands Its Pantry to Woo the World’s Poor

Wednesday, June 30, 2010

RICHARD TOLL, Senegal-Twice a week after work, Senegalese webmaster Demba Gueye treats himself to a snack: a 10-cent tube of Dolima drinkable yogurt. It’s a splurge considering his two-dollar-a-day food budget, and the 50-gram sachets are “teeny.”

But the 25 year-old says they’re delicious. “I’m crazy about it,” he says.

The yogurt is an attempt by French food company Danone SA to fill a worrying gap in its business. Danone has become one of the world’s fastest-growing food companies thanks to its high-end healthy products, such as Dannon yogurt, Badoit and Evian water and Bledina baby food. But momentum is slowing in the company’s traditional, rich-world markets in North America and Western Europe.

So, Danone is among a vanguard of Western multinationals staking much of their future on the world’s poor. Last year, 42% of its sales were from emerging markets-up from just 6% 10 years ago. Danone aims to reach one billion customers a month by 2013, up from 700 million today.

Digging deeper, the company is now trying to target customers who live on dollar-a-day food budgets. Dolima, launched last November, sells at a rate of more than 30,000 tubes per month, with sales rising at an average monthly rate of 10%. In Indonesia, Danone is targeting 10-cent drinkable yogurts at the poor; in Mexico, it has 15-cent cups of water.”The objective is to do business, not just with the top of the pyramid,” says chief executive Franck Riboud.

Other giants of consumer goods, from cell phones to shampoo, are pursuing variations of this strategy. German sportswear maker Adidas AG is experimenting with a one-Euro sneaker for barefoot Bangladeshis. L’Oréal SA sells sample-sized sachets of shampoo and face cream in India for a few cents. Unilever developed Cubitos, small cubes of flavoring that cost as little as two cents apiece, for developing markets in particular.

These companies tread on delicate territory. They must grapple with the fact that their potential customers, while legion, have extremely limited budgets. A decision to sell goods that consumers can’t easily afford can yield duds.

“The biggest problem is that prices are too high,” says Aneel Karnani, associate professor at the University of Michigan’s Ross School of Business. “Companies overestimate the size of the market and end up selling to the middle class, not the poor.”

Source: Wall Street Journal (link opens in a new window)