Danone's Strategic Approach: Balancing Volume Growth with Selective Price Increases

Danone is continuing to make “selective price increases” on products where it can provide a “differentiated” offering, even as it returns to volume growth.

Danone's FMCG business, which includes popular brands like Evian, Alpro, and Activa, had a good start to the year with a 1.2% increase in volume and mix in the first quarter.

This marks Danone's second consecutive quarter of volume growth, following a period of negative volumes due to price increases driven by inflation. In the previous financial year, Danone saw a decrease of 0.4% in volume sales.

This quarter, sales increased to €6.8m (£5.8m), showing a 4.1% growth compared to the same period last year. The rise in volume sales, coupled with a 2.9% increase in pricing, contributed to the overall sales boost for the quarter.

During a meeting with investors on 18 April, chief financial officer Jurgen Esser highlighted that the company is no longer implementing widespread price hikes across its brands, as it did during times of high inflation. Instead, the focus is on strategically identifying opportunities to raise prices on brands that offer superior value in comparison to competitors.

Esser explained that the company has been implementing selective price increases, particularly on product ranges that have unique features compared to competitors.

During a period of increasing inflation, many FMCG companies relied heavily on adjusting prices to drive sales growth. However, this year, the emphasis for many businesses has shifted back to increasing sales volume.

Pricing should not be overlooked by FMCG businesses, as highlighted by Helen Edwards, director at brand consultancy Passionbrand and columnist for Our Website. She emphasizes the importance of having a justification for higher prices, as it provides a basis for increasing prices in the future.

Danone mentioned that they have been holding their ground in price discussions with retailers. Esser also mentioned that the strong start to the year has allowed them to maintain this stance.

The company's leadership highlighted their progress towards achieving their 'Renew Danone' goals. This strategy was introduced by CEO Antoine de Saint-Affrique when he joined the company. The main focus of this initiative is to enhance competitiveness by emphasizing core products and implementing more relevant innovations.

Esser said the company’s focus on premium and “more differentiated” ranges was paying off and contributing to its positive mix (higher margin products being sold).

Editor's P/S:

Danone's recent financial performance demonstrates the company's ability to navigate challenging economic conditions by strategically implementing price increases and focusing on volume growth. Despite inflationary pressures, Danone has maintained its competitive edge by selectively raising prices on products that offer unique value propositions. This approach has allowed the company to increase sales without sacrificing profitability.

However, the article also highlights the importance of justifying price increases to consumers. As inflation continues to impact consumer spending, FMCG companies must provide a compelling reason for higher prices. By emphasizing the value and differentiation of their products, Danone has been able to hold its ground in price discussions with retailers and maintain its market position. The company's focus on innovation and core products is also contributing to its success, as consumers seek products that meet their evolving needs and preferences.