Instructions:

1. Answer all questions

2. Answer all questions in this document only
3. Give your answer directly below the question

Case questions:
Q1. Analyse Danone's efforts in entering and establishing themselves in the Indian dairy market? (4
marks)

Answer: Danone first came to India through a joint venture with Wadia Group in the 1990s but it did
not work out. It again teamed up with the Rahul Narang Group in the 2000s for a joint venture to
enter the Indian market but it again failed to perform well. Despite this, the company re-entered the
Indian market in 2010 with dairy products and a nutrition portfolio. Furthermore, it also tied up with
Britannia (which was one of the longest-running business partnerships in India) to operate in the
Indian market and understand it better. Based on this, we can say that Danone tried hard to capture
the Indian market every time it entered and made a lot of effort to capitalize on the opportunity.

It definitely saw the growth potential in the Indian dairy market and made a lot of efforts to establish
itself - it brought different yogurt variants to the Indian Market with an intention to increase the per
capita consumption of yogurt. It also tried hard to expand via inorganic means where it was trying to
buy Indore-based ‘Anik Industries’ but lost the acquisition to another French dairy company named
Groupe Lactalis.

Danone also made a lot of effort in making its product more fitting to the Indian market. Danone was
the first mover in the value-added product segment where it introduced sub-categories like flavored
yogurt and ready-to-eat custard. They did this through constant innovation where they introduced
products with better shelf lives - for example their ambient yogurt with a shelf life of up to six
months and other milk products like smoothies, buttermilk, and lassies packed in ultra-high
temperature packs. Meanwhile, in an attempt to capture the Indian dairy market Danone expanded
from 10,000 stores to 50,000 stores across India.

Danone was successful in capturing the health and nutrition market of India - 80% of Danone’s
business in India comes from nutrition and it has 50% market share in the segment which was
growing at a CAGR of 20%. The company was also planning to make efforts in order to double its
revenue by year 2020 by making its products all organic. Danone made strategic efforts into
positioning its nutrition based products for different segments of customers - Neocate for infants
allergic to cow milk, Aptamil for premature/low weight babies, and Protinex for adults. Danone even
had a ‘freebies policy’ (free packs of yogurt) for retailers in addition to competitive margins whereas
its competitors offered 10–12 percent margins to the retailers (which was a concern for those
people who didn’t have much liking for the same category).

With all these facts and examples it becomes clear that Danone understood that India was a great
market to operate in for dairy and it did put in a whole lot of effort. The reason for Danone’s exit from
the dairy market despite putting in so much effort could be that the efforts were not in the right
direction or with the right strategy (for example - the pricing of Danone’s products was higher than
its competitors) which is why it faced losses from the moves that it took. Another factor that
prohibited Danone’s efficient establishment was the strong competition that they faced from other
companies that already operated in India like Amul, Nestle, and the unorganized sector in the dairy
market.

Q2. What are the challenges Danone faced and what mistakes did it make while operating in India (8
marks)

Answer:
The challenges that danone faced where as follows:

● It was the first firm in India to introduce different variants of yogurt. However, other
companies also copied the idea thus increasing the competition for Danone. At the same
time, the product was accepted only by a particular class of people and not by masses which
was the opposite of what Danone wanted as it was said by a Manager at Danone that.

● In attempts to explore the inorganic means of operations, Danone was trying to acquire the
dairy business of a company called ‘Anik Industries’ but was challenged by another french
dairy major Groupe Lactalis to whom Danone lost the acquisition.

● India had a highly localized and fragmented dairy industry where consumers preferred to buy
dairy products from local sellers for freshness and guaranteed quality - which was not
something that Danone had experience working with. It was a company accustomed to the
relatively more consolidated and commoditized dairy industries of France and the US.

● Even in the nutrition market where Danone was performing very well, its top selling product,
Protinex, was competing with products from other big and well-known brands like Milo (from
Nestle), Horlicks (from GSK), Bournvita (form Mondelez), Pediasure (from Abbott) and
Cerelac (from Nestle). Most of them were already known to the Indian customers and had a
huge customer base in India, which was another major challenge to Danone but they
managed to do well in that segment and are still doing well in contrast to the dairy products
segment.

● Another major issue with Danone’s dairy products was that they were priced higher than its
competitors. This posed a great challenge for Danone because the majority of Indian
consumers have always been price sensitive, especially for the segment of dairy products.
An added factor to this challenge was that the lower priced products were of big brands like
Amul and Mother Dairy who had already established a brand image for quality products and
not by companies that were small/unknown. This acted as a great challenge for Danone
because consumers would surely go for a relatively cheap product with equal or even better
perceived quality.

● Another challenge that Danone faced was to connect with Indian customers as a local brand
and not as an outsider. A great example of this can be taken from Amul’s operations in India
as it helped the farmers in India with the cooperative business model, which allowed farmers
to sell their milk at the highest possible price without interference from middlemen. Even
 after trying to enter the market multiple times via Joint Ventures with different Indian
companies, Danone struggled to make a brand of its own that could relate to Indian
customers and can connect with them on a cultural level.

Following are the mistakes that Danone did as can be inferred from the case:

● One of the major mistakes that Danone made was to assume that India would be a great
market for packaged dairy products like milk and yogurt as it was in other western countries
- India, as mentioned earlier, has a highly fragmented dairy market with a strong hold of local
players. This is because India has a majority of rural and semi-rural areas where people like
to consume freshly produced dairy products which is also a cheaper and convenient way of
buying and also suits the general dairy buying traditions.Therefore in order to make a strong
foothold in India, Danone needed to create a strong product offering so that people switch
their preference from local to packaged dairy products (milk and yogurt).

● Danone also had some issues in its supply chain that cost it its business in India - First, it
relied on third party suppliers to procure milk which was something that did not work in a
market like India as it did not ensure a steady supply of milk and companies with direct
procurement systems had a great advantage. Second, Danone sold its products directly to
retailers, completely skipping the distributors who could have brought a lot of business to
Danone as they had a large reach to customers through their connections.

● Another mistake that Danone did in its operations was it did not have local individuals/teams
managing the business in India - people who knew the country and the needs of people living
there. A global team managing the business from overseas was not the most ideal way for
Danone if they wanted to establish themselves in a country like India that had a wide variety
of tastes and preferences for products based on the different geographies and cultures.

Q3. Answer any one option:

Opt1 What would have been your action plan to enter India if you had been the person given the
responsibility for Danone's Indian expansion? Elaborate on the same in significant detail. (8 marks)
OR
Opt 2 What would you do as the head of Danone's Indian operations to reverse your declining
business in India and re-establish yourself in India. Elaborate on the same in significant detail. (8
marks)

Answer Opt2:

There are several things that can be done by Danone to reverse the declining dairy product business
in India and re-establish themselves:

● Changes in supply chain strategy:

As noted earlier, the supply chain strategy that Danone followed had several pain-points. The very
first issue of procurement via third party suppliers needs to be addressed and an alternative mode of
direct procurement should be established. Danone can establish its own milk procurement centers
in order to get a steady and more transparent supply of milk which they can monitor and operate
according to the market trends - this would help in reducing the procurement cost and time required
and would also help in optimizing the supply chain where the purifying and packaging can be done at
the collection centers itself thus further consolidating the manufacturing side.

Secondly, introduction of distributors can be done in the distribution network of Danone so that they
can connect to more customers and establish their business with better reach. The establishment of
distributors could also open up opportunities for repeat clients. This could also help Danone
establish bulk demand fulfillment where Danone can partner with restaurants, government
organizations, companies that use milk as a raw material etc.

● Change in the management structure:

One of the major reasons for Danone’s failure in the Indian dairy market was the absence of
local/indian people in its management and operations team. This needs to be addressed and Indian
specialists can be hired by the company at various levels of the management - from lower
operations managing officials to higher management that makes major decisions for the company's
trajectory in the market. This will help the company get better insights from the market as local
officials will know better how to operate in the domestic market - they would know better what move
can work as a charm and what move will work against the company.

● Restructure the pricing of products to compete better with other brands:

Danone can also restructure its pricing strategy for dairy products as we noticed that it offers similar
products at a higher price which triggers the price sensitivity of Indian consumers. One of the moves
that will help Danone lower its prices would be the establishment of its one milk procurement
centers which would remove the hassle of milk collection and would thus reduce the collection
costs in the long run. Milk production, purification and packaging all happening at the same location
would decrease the cost of production by a significant amount and thus would give the company
some space for price reduction. This way, it will be able to compete with other players in the dairy
market like Amul, Mother Dairy, etc.

● Work on the company’s brand image:

Danone should also work a bit on its brand image as a company working to provide India with
products that will improve their life and add value to their lifestyle rather than operating as an
outsider company who wants to capture the Indian market in order to just earn profits. After
establishing in-house milk production centers the company can leverage this point to portray that
the company is not only providing quality milk-based products to Indians but is also working for the
upliftment of the people as it is giving employment to a large number of people in its production
centers and is thus helping the Indian economy grow. This can help Danone in becoming a company
that apart from making India healthy is also helping in its growth as an economy. Danone can do
more CSR work (a lot can be done for the milk farmers who live in rural areas) which will help it build
the connection required with Indian consumers.
Along with this, a few well curated marketing campaigns can be run by Danone that should be aimed
at creating a perception of “a local company”. These campaigns can be run on different platforms
like Televisions, Social Media, OTT platforms etc.

● Increase the product portfolio to capture more people:

We saw earlier that Danone was the first company to focus one secondary dairy products like yogurt
which was then copied by other companies and was consumed only by a limited number of people.
Danone can expand their product portfolio with the innovative strength that it has - it can introduce
products like ice-creams, ready-to-consume shakes, traditional flavored milk ( kesar, elaichi, haldi
etc.) that will be consumed by a large consumer base and will help Danone get the market attention.
Danone can use the already existing PPE for production of these products as well with a little more
capital expenditure since the nature of the products is very similar, thus can achieve an operational
leverage that can increase the companies profit margins.

● Usage of company app/website and partnership with marketplaces:

With the increasing trend of online purchases and evolution of grocery delivering marketplaces like
amazon fresh, grofers, bigbasket etc., a lot of consumer demand can be catered via online selling
and distribution. Therefore, Danone can collaborate with these marketplaces where it can list its
products to increase its reach and presence and also add another revenue stream to its portfolio.
Meanwhile, Danone can also introduce its own website/app from where people can buy its products
and can also have a subscription plan where Danone will automatically deliver the chosen products
to the consumers doorsteps in the chosen time interval and the chosen quantity. This would help the
company create loyal customers by giving them convenience and would thus increase the switching
cost for its customers.

If Danone is able to decrease its production cost by the above mentioned moves, it can sell products
on the marketplaces at a discounted price in comparison to its competitors which could boost the
sales by a lot as on online marketplaces even a slight difference in price can lead to a big consumer
preference change. Even a Rs.2 discount on milk/yogurt/ice cream can bring in a big amount of
orders for Danone from these streams.