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.” 


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

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.

Are sugar concerns the real reason Pepsico strips Tropicana and Naked?

In the West Governments have gone to war against sugar due to concerns about obesity and related life style diseases like diabetes. In the UK, according to the food standards agency, ‘the amount of sugar in food’ is currently the number one consumer concern, ahead of food waste, animal welfare and surprisingly (for me) the use of additives and pesticides.

Photo Omid Armin

But sugar is not the number one concern everywhere. In China, for example, sugar levels in food are not top of consumers’ minds. Instead production dates, shelf life and storage conditions, namely fundamental food quality issues, are much bigger issues.

At first glance, no surprise that last week Pepsico announced it was selling its Tropicana and Naked brands – in North America only. But note carefully, keeping a 39% stake.

Delve further, in North America last year sales of Tropicana actually grew as consumers shifted to in-home consumption, especially breakfast. And in Britain the brand grew too thanks to lower calorie and lower sugar offerings like Lean and Trop 50.

So why the divestment? I suspect the real reason is more to do with profitability. 

Commodity prices are rising; shipping bulky liquids long distances is expensive; and orange juice is a price sensitive category. Let’s not forget retailer brands are strong too. These facts were implicitly recognised in the deal’s low multiple (enterprise value $4.5bn, revenue $3bn). 

The new private equity owner, FAI, also has shown it can work well behemoths like Nestlé in ice cream.  

The divestment is one less distraction as PepsiCo searches for better returns in other categories. 

Personally I still see a lot of upside in fruit. Sugary sweets and cakes is one thing, but natural sugars in fruits, not to mention vitamins and fibre?

Is M&S food at the cutting edge of UK gourmet fare?

M&S food division is one of the brighter stars in the company’s portfolio; its legacy fashion businesses a victim of ageing demographics, a surge in on-line and the Covid pandemic which has seen shoppers shift away from the high street in droves.

At one time, M&S food were in the high street stores only, but that’s changed with a surge in stand alone food outlets (FoodHalls) plus more facilities in petrol retail.

The product portfolio has definitely expanded. The vast majority of it is fresh, salads and ready meals branded ‘dine in’. Recently M&S food has taken to selling 3rd party brands, a strategy it once refused to contemplate.

I visited an M&S FoodHall in Norwich last week about an hour before closure. (The shop shuts at 2100 which for people like me who’re used to living in Asia-Pacific is quite early.) It was pretty empty of shoppers, although well stocked.

I was looking for cheese.

Living in Japan, finding good quality cheese is a perpetual challenge. When you do find it, it’s in miniscule pack sizes and priced exorbitantly.

This was one half of the M&S FoodHall cheese display.

Honestly speaking, space wise it was much smaller than I’ve seen in Sainsbury or Waitrose, for example. The selection wasn’t bad but it didn’t really grab my attention. The varieties are hard to pick out on shelf and there didn’t seem to be any logic in how the shelf was ranged.

By contrast, M&S has put more effort into plant meats. I don’t know what M&S shoppers buy, but I would guess that the basket spend on cheese is much higher than plant meats.

Although M&S has some category signage there’s little other POS material to stimulate or educate the shopper. These days gourmet shoppers want to be tantalised with news and new fare.

I wonder if the M&S team have spent much time looking at retailers like City Super, Seijou Ishii or even Japanese in-store, gourmet brands like RF1? Their bright colours (M&S Foodhall is quite dark and somber), ambiance and above product selection are truly something to savour if you’re a foodie.

Malaysian palm oil exports soar; still early days for biotech alternatives

Malaysia’s palm oil industry is on a roll. It’s the country’s third biggest export worth $9.8b in 2020, up 18% year on year. Significantly ‘processed’ palm oil, which is more valuable than ‘crude’ accounts for over 70% of exports.

palm oil plantation SE Asia

India is Malaysia’s largest export market, followed by China. 

Palm oil is widely used in the cosmetic and food industry for example cooking oil and spreads. Palm oil has several USPs, it’s resistant to oxidisation extending shelf life; it’s also stable at high temperatures giving fried products a crispy texture. And its odourless and colourless.

It’s no surprise that the industry attracts close Government supervision. The Malaysian Palm Oil Board oversees research, regulation and promotion. The MPOB also sets an export tax levy – currently 8% – on crude palm oil.

However, the palm oil industry is not free of controversy. The biggest issue is deforestation and climate change.

In neighbouring Indonesia at least 81% of forested land cleared to produce palm oil is said to be illegal, according to Watchdog Forest trends. Surveys have shown that deforestation has increased across SE Asia during the pandemic.

palm oil deforestation impact

Global stocks of palm oil are tight currently, and a shortage of migrant workers in Malaysia’s plantations linked to Covid-19, has pushed up global prices.

Given concerns, at least in the West, about sustainability, not to mention the scale of palm oil industry – $61b – one would expect to see more alternatives to palm oil emerging. 

There are a few but none close to commercialisation.

C16Bio sciences is one startup researching single cell alternatives based around algae or yeast. However, the company is at early stage funding (series A, $24m) with just 20 employees. Lanzatech is another. 

Perhaps if MPOB is wise, it will take a close interest in such biotechs?

In the meantime palm oil futures are up nearly 100% on the same period last year.

Jabs, Jobs and Tax; the prickly fight for vaccine exports

Brand awareness for Pfizer, Astra-Zeneca, Moderna and BioNTech has reached astronomical levels. Thanks to the crisis, we have all become arm-chair vaccine experts.

covid-19 vaccine

Contrary to perceptions, vaccines are less than 5% of the world-wide pharma industry. Pre-Covid, the most widespread vaccines were for tuberculosis, whooping cough and polio.

Manufacturing vaccines is complicated and can take between 12 to 36 months from raw material inception, active ingredient production, coupling with stabilisers and filling. Quality controls account for around 70% of time. It’s an industry with high R&D, intellectual capital and state of the art manufacturing. 

Once plants are built, they are not easily moved. It’s global and 4 of the top 5 exporters are in Europe. 

Belgium is the undisputed leader. In 2020 it exported over $11b of human vaccines, followed by Ireland. There is no doubt Belgium’s 2021 exports will soar dramatically thanks to Pfizer’s plant in Puurs.

There are over 270 Biotech companies in Belgium. It’s a cluster that supports over 38,000 jobs, not to mention tax revenue. There are generous tax breaks on researchers’ salaries and only 20% of patent income is recognised as taxable revenue. 

Across in Ireland, the world’s no 2 vaccine exporter, there are over 25,000 employed in medical technology and another 25,000 in servicing the sector. Like Belgium, Ireland has not been slow in offering generous incentives to investors. The headline corporation tax rate is 12.5%.

Last year Dublin came up with a ‘knowledge development box’ sweetener which can further reduce the rate of corporation tax to 6.25% for profits derived from certain IP assets.

No surprise then that the EU has given a more cautious response to President Biden’s proposal to temporarily waiver intellectual property rights for Covid-19 vaccines. 

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