Danone to shut down dairy unit in India to focus on nutrition portfolio

By Cheryl Tay

- Last updated on GMT

Danone's dairy business in India accounted for only 10% of its local revenue. ©Getty Images
Danone's dairy business in India accounted for only 10% of its local revenue. ©Getty Images
Danone has announced its intention to bow out of its dairy business in India, where it will then concentrate on enhancing its nutrition portfolio instead.

The French food firm explained that it decided to pull the plug on its dairy business as it has not been contributing significantly to its yearly revenue.

In an official statement, it stated: "Danone has decided to rationalise its product portfolio in India to allow for accelerated investments and a sharper focus on growing its nutrition portfolio, which is more than 90% of the business, and where the company already enjoys leadership position​."

In line with this decision, the company's dairy manufacturing plant near New Delhi has ceased production, although it's still business as usual at its other factory, situated in Punjab.

Three times unlucky

Widely known as Europe's largest yogurt manufacturer, its products in India — namely flavoured yogurt, lassi​, mishti doi​ and milk — ​were available in 200,000 retail outlets in 20 cities. However, its flagship yogurt was sold in only six cities.

Danone first entered the Indian market in the 1990s, as part of a joint venture (JV) with the Wadia Group to develop a biscuit portfolio for Britannia Industries Ltd. This lasted 13 years, and ended when Danone left the biscuit business over a dispute regarding the intellectual property of one of Britannia's biscuit brands.

In the early 2000s, the company entered into a second JV with the Rahul Narang Group, which lasted until 2015, when Danone left India's beverage sector. Under two JVs ​Danone Narang Beverages and Narang Danone Access — ​it had two brands manufactured and distributed in the country.

Before its second JV ended, however, Danone launched a solo re-entry into the Indian dairy segment (said to be worth at least €10.3bn) in 2010. It then acquired its nutrition business from pharmaceutical corporation Wockhardt in 2012, and in 2015, it was consolidated with the company's dairy unit.

Still, dairy continued to account for only 10% of Danone's India revenue, despite being its largest business internationally; in 2016, it made up nearly 50% (€10.7bn) ​of the company's global sales (€21.9 billion), according to the official results statement.

Milking investments

Though Danone is a major industry player internationally, and India is the world's largest producer of milk, local and regional brands rule the roost in the country's greatly fragmented dairy market.

Danone had expressed interest in buying Indore-based Anik Industries' dairy business, but the acquisition was eventually made by another French firm, Groupe Lactalis SA.

This is indicative of big investments from both local and overseas companies in India's dairy market.

Interestingly, while Danone's dairy business contributed minimally to its India revenue despite being the largest component of its global sales, the reverse is true for its nutrition business.

Its infant foods and early nutrition side accounted for just €5bn in global sales last year, but is responsible for 80% of its India revenue.

A spokesperson for Danone India said, "We have great ambitions for our business in India and remain committed to invest and grow in India through well-established brands such as Protinex, Aptamil, Farex, Dexolac and Neocate.

"Our focus is to bring nutritionally superior and relevant products to India and 2017 has been a testimony of that, with 10 new launches, including some from our global portfolio."

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