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Danone hopes to regain 'competitive edge' through EU plant closures

By Mark Astley+

11-Jun-2014
Last updated on 11-Jun-2014 at 14:16 GMT

Danone hopes to regain 'competitive edge' through EU plant closures

Danone has announced plans to close factories in Italy, Germany and Hungary, in its latest effort to offset the impact of "flagging" European fresh dairy product sales.

Earlier today, the Paris-based dairy giant outlined its intention to close manufacturing plants in Casale Cremasco, Italy; Hagenow, Germany; and Budapest, Hungary - all countries "particularly hard hit by the fall in sales."

In a statement published on its website, Danone Hungary explained that "domestic capacity utilization has reached a critically low level, which can no longer be sustained in the long term."

Danone Italy stated meanwhile that recently it has experienced "levels of overcapacity for a country with particularly adverse market conditions." 

A loss of 325 jobs - 100 in Italy, 70 in Germany, and 155 in Hungary - will be realized as production is shifted from Casale Cremasco, Hagenow, Budapest to other Danone plants across Europe.

Danone believes the closures, which it expects to complete by mid-2015, will help it regain some of its "competitive edge" in Europe.

“Since 2010, a lasting downturn in the European economy and consumer spending has led to a significant decline in sales in this region. While European sales volumes now show signs of gradual improvement, the group’s Fresh Dairy Products division in Europe has seen overall business fall back, with local cases of surplus capacity," said the Danone statement.

“The planned closure of these three plants and a gradual shift in production volumes to Belgium, Poland, Germany and France should allow the fresh dairy products division to improve its production capacity and competitive edge in Europe.”

"Sluggish trends in Europe"

Last year, Danone's fresh dairy products division reported sales of €11.79bn (US$16bn) - 3.2% year-on-year increase.

Danone attributed this achievement to fresh dairy products sales in the CIS region, North America, and ALMA (Asia Pacific, Latin America, Middle East, Africa), which buoyed "flagging" European revenue. 

In its 2013 result, Danone reported that while its Spanish business had recorded "a sharp improvement" between January and December 2013, "market conditions in Germany and Italy remained difficult for the division." 

Looking ahead, it forecast that consumer demand in 2014 would "remain similar to 2013, with sluggish trends in Europe" and gave its first indication that further structural changes would be made on the continent.

“...Danone will continue to deploy action plans already under way in Europe – updating its product portfolio and sharpening its competitive edge – with a view to stabilizing its performances in the region by the end of 2014," it said.

Consumption decline

Danone began approaching the issue of declining European dairy consumption in 2012.

In June of that year, the firm issued a profits warning - reducing its operating margin target for the year to account for the collapse in demand, which it attributed in-part to the growing rate of unemployment in south Europe.

Within months, in December 2012, Danone revealed that it was preparing a two-year €200m (US$270m) cost reduction plan .

In the first phase of its plan, relayed in February 2013 , Danone cut 900 jobs across 26 European countries - halving its management units across the region.

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