I could follow Nestlé’s lead, but the CEO gets in the way
Danone investors are out of their minds. Artisan Partners, which owns more than 3% of the French food group, wants the € 39 billion yogurt maker to ditch ballast like dairy, plant-based and water, and prioritize businesses with higher margins . A reorganization could spark a revival similar to Nestlé, which has improved its performance under pressure from activist Dan Loeb. But Danone Chairman and CEO Emmanuel Faber stands in the way.
On Friday, the executive warned again that the first quarter would be tough, after comparable sales fell 1.5% in 2020. The pandemic is a partial explanation: the lockdowns caused consumers to drink less Evian bottled water, which contributed to a 17% reduction in comparable sales of the unit.
The decline in travelers from China led to lower baby formula sales, contributing to a 1% drop in sales in the specialty nutrition division.
Investors suspect that the limited information Danone gives, which for example groups dairy products with plant foods, allows it to use successful brands to cover up those that fail. As a result, Artisan is pushing to sell the underperforming lines, which account for about 30% of sales in the water and dairy units.
For example, it makes more sense to focus on yogurt, which has higher gross margins and more room to invest in global brands like Activia, rather than wild-card products like milk. Similarly, focusing on premium waters such as Volvic and Badoit would mimic the reorganization of Nestlé, which this week divested its North American water business and retained fancier beverages such as S. Pellegrino.
There are more similarities to the Swiss giant, which in recent years has focused on health sciences and nutrition. Danone’s medical nutrition business contains some impressive products, such as Souvenaid, which have been shown to delay Alzheimer’s. But Faber has combined the unit with baby food, even though their distribution networks are totally different.
Public pressure from an activist helped Nestlé. Since Loeb made its criticism public in July 2018, shareholders of the maker of KitKat and Nescafé have enjoyed a total return of 37%, almost double the 19% of the Refinitiv Global Consumer Non-Cyclicals specialty index. During the same period, Danone shareholders have lost 4%.
The big difference is that Loeb’s Third Point tried to work with Nestlé CEO Mark Schneider. Artisan seems determined to dethrone Faber. If he stays, hopes of going down the Nestlé path will be dashed.