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Danone injects more capital into ‘receptive’ Russia

By Kacey Culliney , 28-Mar-2012

Eyes on Russia's receptive market: Danone
Eyes on Russia's receptive market: Danone

Following its merger with local dairy player Unimilk in 2010, Danone will invest a further US$700m in Russia over the next five to seven years, aimed at driving capacity and growth.

The capital injection will underpin the French dairy giant’s strategy to drive activities in the “receptive market” of Russia by upgrading current facilities and driving further capacity as well as set up an educational programme for local farmers, Danone said.

Russia now accounts for 11% of the yoghurt manufacture’s sales – on a par with France – and it represents one of the group’s largest markets.

Pierre-André Terisse, Danone’s CFO, said in autumn last year that focus in the Russian market would be firmly on innovation and portfolio expansion to build “strong value brands”.

Merging with local force

In 2010, Danone merged its Russian operations with local dairy player Unimilk to form a new business arm Danone-Unimilk, of which it owns a controlling share of 57.5%.

At the time of the merger deal, Franck Riboud, chairman and CEO of Danone, said that new business arm represented a strategic move in a region “which is offering a promise of growth in the years ahead, and where we will be pursuing ambitious goals for the future.”

The merger is considered highly complementary as it combines Danone’s global trade position and expertise with Unimilk’s strong local brands and knowledge along with its well-established distribution network in the region.

Priorities for this merger are on increasing profitability and segmenting its brand portfolio, according to Danone.

Joint operations have been underway since January 2012, with operations across Russia, Ukraine, Kazakhstan and Belarus.

The integration however has proved costly for Danone, impacting on overall 2011 figures, the group revealed in its 2011 full-year results.  The dairy player reported a fall in profits; a decline it said was largely attributed to the continued integration costs related to Unimilk however it added that costs were now “largely complete”.

Tailored to Russia

The Prostokvashino range, especially tailored to Russian tastes, has now positioned itself as a core brand for Danone.

The range includes milk, kefir, sour cream and granular curd products, including a development of its flagship Activia brand; Activia Kefir which is based on a traditional drink derived from fermented milk and kefir grains. R&D teams in the country worked on developing the brand for several months.

Danone was unavailable for comment prior to publication.

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