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.