What's going on?
On Wednesday, Danone, producer of Activia yogurt and Evian water, reported its fastest first-quarter sales growth in five years. The refreshing result pleased investors – they sent the stock up 2%.
What does this mean?
Paris-based Danone grew its “like-for-like” sales (which exclude the impact of currency swings and new acquisitions) by 4.9% compared to last year – ahead of expectations. In addition, the company reported that sales volumes had grown by 1.1% – meaning Danone isn’t just selling more expensive products, but that customers are actually buying more of their yogurts, baby milks and waters.
Danone’s infant formula business in China was a big contributor: sales grew by 50% in the period, driven by a rising birth rate (following relaxation of the one-child policy in 2016) and the continued urbanization of China’s growing middle class, who’re increasingly shopping for well-known international brands. In Europe, where Danone had been struggling in its core dairy business, Activia’s recent revamp helped the region improve its own growth trajectory, although it still shrunk slightly.
Why should I care?
For markets: Delicious growth from Danone puts the spotlight on Unilever and Nestlé.
Packaged food companies have had a tough time growing amidst weak global price inflation. Activist investors have amassed stakes in the likes of Danone and Nestlé, and put pressure on them to deliver better sales and profit growth. These and other investors will keep a close eye on the results of its peers to see whether Danone’s results are a company-specific splash or a rising tide that’ll lift all boats.
The bigger picture: Baby milk is the formula for Danone’s success in China [tweet this].
Following a 2008 scandal related to domestic producers, consumers are understandably keen to ensure their babies receive only safe, approved milk formula. Danone is likely to benefit as an “international” brand – its products are likely to be seen as safer by a rising middle class of shoppers who increasingly use the internet to research and buy perceived high-quality products.