AuthorRupert Sutton

New CEO, new strategy? How can Danone fulfill its promise of One Planet, One Health, You?

A new CEO started work at Danone this week.

Antoine de Saint-Affrique was previously at Barry Callebaut, a specialist (and hugely successful) chocolatier and before that Unilever.

Danone’s share price has not shown any positive momentum this year and the previous CEO was forced out in March. There were multiple reports of a boardroom power struggle over a strategic reorganisation, not to mention an activist hedge fund stirring the pot.

Danone has four core businesses segments, ‘Essential Dairy’ (yogurts and other fermented products), ‘Plant based products’ (Soy Milks), ‘Waters’ and ‘Specialised nutrition’ (infant and adult formulas).

Conventional wisdom amongst investors and other commentators is that whilst dairy, plant and specialised nutrition have strong USPs, leverage health technology and are categories with strong momentum, waters is the outlier.

Back in the 1990s when I was a Nestlé executive, ‘waters’ was designated as ‘strategic’ and huge sums were spent acquiring brands like Perrier, San Pellegrino and a plethora of local marks. The times have changed and recently its US water business was divested.

The knives are out for Danone’s water business. Partially because it’s lower margin but also environmentally questionable. 

In France, where Danone is listed, the company enjoys the status entreprise à mission, meaning purpose driven, where enterprises pursue set social and environmental goals. 

According to a study by Harvard and summarised in this French newspaper, 86% of bottled water packaging headed for the US ends up as waste.

The challenge for Danone is perhaps less about divesting lower profit and environmentally questionable businesses, but more about where to reinvest the proceeds?

I expect the CEO to double down on Dairy, Plant and Specialised Nutrition. How can those categories be broadened and stretched? There is mileage in plant dairy yogurts, functional foods and healthy ageing for sure. Danone’s brands enjoy strong awareness.

He will also be tempted to acquire. Plant cheese may be one area. A business like Mom’s meals may be another.

Possibly Danone’s scale and global reach can propel these businesses to far greater heights?

Let’s not forget, 5 years ago Alpro was nowhere.

©Mom's Meals
©Mom’s Meals

The challenge will be not over paying; Private equity and others will be more than happy to sell, providing the price is right.

Danone’s debt has fallen slightly in recent years and with its core businesses providing strong cash flow, funding acquisitions is not an issue.

Ajinomoto stock soars far above rivals. But is it due to MSG or the lesser known ABF?

Although the Nikkei has danced to new highs recently (+30% at time of writing), not everyone has been doing so well.

That’s especially the case for food & beverage stocks.

Yakult and Morinaga’s share price has not grown whilst Ezaki Glico, Nissin Foods and Calbee are down (-7%, -8% & -14% respectively). Alcohol giants Asahi and Suntory are doing somewhat better (+45%, +19%), though Kirin is treading water (+4%).

Ajinomoto, maker of flavour enhancer MSG, mono sodiumglutamate is up 76% far ahead of its peers.

Photo by Indivar Kaushik

There’s been no big restructuring and to my knowledge no rumours of any takeover.

In fact conventional wisdom would suggest a business with a heavy foodservice and industrial bias would be suffering headaches from the Coronavirus shutdown.

It’s not widely known, but besides MSG Ajinomoto has a chemical division. One of its star products is ABF, Ajinomoto Buildup Film. ABF is a thin membrane used in computer boards, satellites and electric vehicles.

And there’s a supply shortage of ABF which has a knock on effect limiting CPU and GPU supply.

Shareholders and industry analysts in Japan are encouraging Ajinomoto and other Japanese food producers to refocus.

“Every company needs to review its business portfolio regularly, that’s especially the case for Japanese food makers, which face a shrinking population in their home market.” 

DAIWA SECURITIES ANALYST

ABF films are reportedly used by Intel and Advanced Micro Devices.

The (legal) marijuana business: a future hidden in clouds of smoke, hype and red tape?

Barclays Investment bank held its annual jamboree for the great and the good in the consumer products industry last week.

On the roster were many familiar names: P&G, J&J, Kraft Heinz, Nestlé, Coca Cola and more. All the usual suspects.

However one name intrigued me, Canopy Growth. I hadn’t heard of it.

Founded in 2013, Canopy Growth markets medical and recreational marijuana in the Canadian market. Besides Canada it’s also focused on the US, where its betting there’ll be legislative reform in favour of marketing marijuana, and Germany.

Photo: Richard T Yovh, Unplash

It’s listed on both the Toronto and NYSE exchanges and has annual revenue C$607m and over 3,200 employees.

The company’s website boasts an array of marijuana brands including Tweed, 7 Acres, Blissco, Hiway; Dog Treats; flavoured waters; a sleep solution branded ‘Dream Gummies’ and if that wasn’t enough they also do vapes.

What surprised me was how little money the company makes. In fact it’s heavily in the red, and losses have increased despite a rise in revenue.

The issue starts with their gross margin which averages just 15%. Compare that to Philip Morris who make 68% or BAT who make 83%

Canopy Growth’s stock price once traded at over C$60 but in recent days it’s down at C$19. 

At the Barclay’s conference the CEO talked about the importance of consumer insights but perhaps the issue is a lack of focus, too many brands. There were apparently over 100 innovation projects on the go, but it seems many have been shelved as cash burn accelerated. 

Perhaps the market isn’t as big as they imagined? Penetration of legal marijuana in Canada is rising but it’s still below 10% of the population.

Investors who hang on will be betting legislators in America and Germany vote in their favour.

I’ll end with a few disclaimers: I’m not an investor in Canopy Growth, nor am I doing any work the company. Oh, and I don’t smoke either.

Is cheese the latest category to be disrupted by start-ups?

Nobell foods make a strong claim on their website: “Animals are an inefficient and unsustainable technology for making dairy and feeding people.”

Founded by an engineer, Nobell’s founder goes on explaining, “you need about 3kg of food and up to 4,500 litres of water to make 4 litres of milk.”

Nobell’s sales pitch, at least to the tech savvy folk in Silicon valley seems to be working. The company has raised over $100m to date from a red carpet list of investors.

What’s far less clear is what Nobell will sell. That is kept tightly under wraps on their web site at least. However, one news report I read last weekend, claimed Nobell will launch a plant based cheddar and mozzarella some time late in 2022.

On the surface this does not sound so innovative compared to what’s already out there.

Given the investment I’m wondering if there’s more cooking so to speak?

Photo by Roam In Color

Plant cheese is not a new category. Daiya claim to be industry leader in the US, along with Violife in Europe. They are not alone, other players include Parmela Creamery and Miyoko creamery.

However none of these have raised anything like the amount of Nobell.

Most plant based cheese brands target vegans.

Vegans today are still a niche demographic, however they are growing rapidly. In the US just under 10 million follow a vegan diet. India has one of the largest vegan populations.

Waitrose reaches for the Wasabi, slices up the Sushi and hey presto!

By all accounts Waitrose had a good Olympics.

Sales of sushi soared on the back of the Sushi Daily partnership, a shop-in-shop concept available in larger stores; and heavy coverage of the Tokyo Olympics on BBC TV.

According to the Grocer, a UK trade magazine, Waitrose saw much heavier online shopper traffic to its ‘entertainment’ section where sushi was promoted.

The partnership with Sushi Daily is interesting, I have no inside details but it seems:-

  1. Sushi Daily are not exclusive to Waitrose. Asda also have some concessions as do several other retailers in Europe
  2. The founder has a long history in Japanese food – outside of Japan
  3. Given the wide range of Sushi on display, challenges of stock management and so on, it makes better business sense to outsource
  4. Are there any Japanese suppliers involved? Highly unlikely.

Trade show anybody? All’s quiet in the exhibition industry

Trade shows were a regular feature of corporate marketing pre-Covid. They served as a reminder to key customers of a company’s stature, staff members loved the travel and socialising; and Government agencies, anxious to please, found them a great way to promote a large number of SMEs all at once.

Exhibitions and events were big money makers for firms like Informa (listed in London) and Reed exhibitions (a division of Relx group). Until Covid.

Last year the vast majority of trade shows were cancelled.

This year organisers hoped the vaccine roll out would provide a welcome boost, however that optimism seems misplaced. 

In the last two weeks Fancy Food, one of North America’s largest snack food shows has been pulled, as has In-Cosmetic Europe. Anuga, a popular food show, bravely proclaims 2021 is business as usual, but I suspect that is wishful thinking (and look carefully at Anuga’s site and you’ll see they’re hedging their bets with a real & virtual hybrid.)

Photo by David Nicolai 

Informa’s revenue plunged a whopping £1.3b last year and Reed’s £362m. Hardly chicken feed.

A greater concern for event organisers is the switch to digital. For example Grohe X a subsidiary of Lixil is spending its entire exhibition budget on a virtual platform which will be open throughout the year. 

Grohe are not alone.

I have always been sceptical about the value of trade shows. In entering new markets are they a good way to meet serious business partners? Are the visitors bones fide? It’s also very hard to measure a Trade show’s effectiveness.

Informa, Reed and others should be concerned as digital is an existential threat.

Facing strong headwinds, Shiseido offloads three business to private equity – at a significant loss.

Shiseido is one of the oldest cosmetic companies in the world. Listed on the Tokyo stock exchange it has over 33,000 employees and sales of US$8.6b. However last year Shiseido produced a loss, a sharp contrast to the previous 4 years. The reason: higher than expected sales and general expenses.

The company has always had global ambitions and several years ago appointed the ex-head of Coca Cola Japan as its President. 

Last week it announced the sale of three North American businesses, bareMInerals, Buxom and Laura Mercier for approximately 65% of what the company originally paid. In the last 12 months Shiseido divested another personal care business to private equity.

Photo: Laura Mercier

According to news reports Shiseido’s revenues have been negatively impacted by Covid – fewer people going to the office and entertaining; operating losses in North American surged three-fold.

Shiseido was a fund manager’s favourite (Lindsell Train, Vanguard and BlackRock all own significant stakes). It’s long established with strong domestic sales, had big growth potential with tourism and a globally minded CEO. However times have changed and certainly the foreign funds will not have been watched nonchalantly.

Shiseido are not withdrawing from the US, it maintains brands like Nars and Drunk Elephant, but clearly this is a significant set back.

It is also another example of a large Japanese corporate over-paying for acquisitions and failing to integrate them.

Hamayuu is the first authentic Japanese restaurant to open in Chester, and it’s booming!

Last weekend I visited old friends in Chester, England.

Chester is one of the country’s historical gems, originally settled by the Romans; an old city wall which still encircles the city, a stunning cathedral and an eclectic range of shops.

This year the city welcomed its first Japanese restaurant. It’s called Hamayuu.

It was impossible to book a table, instead we had to opt for take out.

I do not claim to be a sushi connoisseur but in my opinion this was some of the best sushi I’ve had in the UK.

Also Hamayuu is receiving very high ratings on Just-Eat.

I hope Japanese firms who are looking to expand in the UK and Europe will pay Hamayuu a visit. The restaurant’s approach is unpretentious and everyday. I can see why there are many repeat customers. It is a great role model for how to expand Japanese food outside capital cities. Jetro should take note!

Vodka burners are go; private equity takes a full swig of Stock Spirits

Last week UK-listed Stock Spirits accepted a take over from private equity’s CVC who agreed to pay a 44% premium.

Over 50% of Stock Spirits business is in Poland, other key markets include Italy, Slovenia & Croatia. Its core brands are Eastern European Vodka, Vodka based liqueurs and Limoncello.

Photo: 1906

The company has been under pressure from an activist shareholder; on-premise volumes suffered in the pandemic; Italy underperformed; and there’s upside to sell more brands through its third party networks.

I’d also suggest that its portfolio of Slavic, hard to pronounce brands is not straightforward for western fund managers to comprehend, easily.

Replace some directors, refocus management and combine other businesses  will no doubt be high on CVC’s agenda; assuming there’s no counter bid.

It’s been a hot summer of private equity takeovers in the UK, prime serving on the BBQ has been retailer Morrison’s. So enticing was the offer that other predators  entered the bidding. 

Will CVC get to down Stock Spirits in one?

Is Peleton pedalling fast enough on exports to boost its share price?

It’s a brand that has yet reach its 10th birthday but has revenue over $1.8b. No mean achievement especially in a niche category: high end exercise bikes and treadmills.

Photo Andrew “Donovan” Valdiva

Peleton’s bikes sell for between $1900 and $4300, it has 5.4m members, and sells monthly memberships between $13 and $39.

Peleton, listed on the Nasdaq, was one of the stock market’s pandemic favourites. Revenue growth has been stellar, and in January the stock price reached an all time high.

Since then, the company stumbled. One reason was a recall on its Tread and Tread+ products. 

The gradual return-to-office trend provides another unwelcome headwind; gyms are reopening and enticing new punters constrained by WFH.

At the time of writing, Peleton’s stock price is down more than 20% from its peak.

Peleton’s focus has been the US and other big western markets like the UK, Germany, Canada and recently Australia. The brand clearly resonates not just with cyclists but serious road racers.

There’s a ton of those in Italy, France, Spain and Belgium, a huge number of untapped new users for it to target.

© 2021 Let's go global!

Theme by Anders NorénUp ↑