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Danone plans cost reductions to regain European 'competitive edge'

By Mark Astley , 13-Dec-2012
Last updated the 13-Dec-2012 at 18:01 GMT

French dairy giant Danone is preparing a two-year cost reduction plan designed to help regain its "competitive edge" in Europe.

The firm announced earlier today that it hopes to generate savings of around €200m in Europe over the next two years by reducing the general and administrative costs of the group and its European subsidiaries.

It hopes that these efforts will help to address the unanticipated “significant” decline in the consumption of its fresh dairy products in parts of Southern Europe.

In June 2012, Danone issued a profits warning – reducing its operating margin target for the year to account for the collapse of dairy consumption in Southern Europe.

Between January and March 2012, consumption of Danone dairy products deteriorated at a steeper rate than anticipated in the region – in particular Spain.

Danone attributed this deterioration to the growing rate on unemployment in the region and the inflated price of raw materials.

Competitive edge

“To address a lasting downturn in the European economy and consumer trends that have led to a significant decline in its sales in the region, Danone is preparing a cost reduction and adaption plan to win back its competitive edge,” said Danone.

“The plan will be developed over two years and is aimed at adjusting costs to this new context and generating savings of around €200m in Europe. It will seek to reduce general and administrative costs for the group and its European subsidiaries, and adapt management organisation in Europe, which was designed for a growth environment.”

“Combined with on-going productivity programs, this plan will free up resources to make Danone products and brands more competitive.”

Growth priorities

Last month, Danone CEO Pierre-André Térisse outlined the group’s current market strategy for ensuring growth – including the planned regeneration of dairy demand in Southern European nations such as Spain.

Térisse also pinpointed maintaining profitable growth in its growth markets such as Russia, the US and China.

Danone adjusted its short-term strategic priorities in accordance with that it calls a recent “geographical transformation.”

In 2007, European sales accounted for 59% of total sales, with growth markets making up the remaining 41%. Five years on, growth markets now account for 58% of the group’s total sales. Europe now accounts for just 42%.

DairyReporter.com approached Danone concerning their plan, but the firm was not available to comment prior to publication.

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