Explained: French food giant Danone to exit the Indian dairy business

By Devangi Narang

The Paris-based food producer Danone SA plans to shut down its dairy business in India. The move comes in response to the negligible success it had breaking into India’s dairy industry. Danone plans to modify its portfolio in the country and focus more on its nutritional side in order to maximize growth opportunities. The company will discontinue its dairy shelf keeping units (SKUs), which have been making only a minor contribution to its overall Indian business.

Danone’s dairy portfolio in the India market consisted of flavoured yoghurt, lassi, mishti doi and milk. Along with this, the ultra-high temperature procedure (UHT)–popularly known as ‘tetra pack’—packaging method will also be discontinued. With Danone’s decision to close down its dairy unit, the company’s factory at Rai (Sonipat) near Delhi will stop production.

Sharp focus on growing its nutrition portfolio

Globally, dairy is the largest business for Danone. According to the company’s annual statement, dairy accounts for €10.73 billion of Danone’s €21.9 billion global sales. However, in the Indian context, dairy has remained a small part of the company’s business, accounting for around 10% of the company’s Indian revenue. The company said in a statement that, “Danone has decided to rationalise its product portfolio in India to allow for accelerated investments and a sharper focus on growing its nutrition portfolio which is more than 90% of the business, and where the company already enjoys leadership position.”

The 22-billion-euro company said that it wants to focus more on investing in areas that are rapidly growing and are more profitable for them. The bulk of its revenue in India comes from the nutrition business. The company remains committed to investing and growing its Indian presence through well-established brands such as Protinex, Aptamil, Farex, Dexolac, and Neocate.

Danone’s third failed attempt in the Indian market

While India is the world’s largest producer and consumer of dairy products, Danone’s dairy business could not compete with bigger players like Amul and Mother Dairy. Danone’s exit from the Indian dairy market reflects its third failed attempt to make a mark in the Indian FMCG market.

Danone first entered the Indian market in the 1990s as a joint venture with the Wadia Group, hoping to build a biscuit portfolio for Britannia Industries Pvt Ltd. The venture lasted for 13 years but ended abruptly after a dispute over the intellectual property of Britannia’s Tiger biscuit. The company made its second attempt in the 2000s as an entrant in the beverage market with the Rahul Narang Group. Their association produced two brands—Qua and B’Lue—which were manufactured and distributed by the joint ventures Danone Narang Beverages Pvt. Ltd and Narang Danone Access Pvt. Ltd. This second joint venture came to an end in 2015.

The French company re-entered the market on its own in 2010 with the dairy business and, in 2015 re-organised its operations in order to merge its dairy arm with its nutrition business, which includes the acquired Indian nutrition business Wockhardt.

Future prospects for Danone

Danone announced that it will focus only on its nutrition business with the goal of doubling its revenue by 2020. Accordingly, the company is also taking measures to cut costs by 20%. This nutrition-centred plan is in line with the company’s global mission statement to “bring health through food to as many people as possible” and the future of this approach will be key to the company’s future success in India.

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