eastern europe • poland danone poland: affordable milk porridge …€¦ · ·...

Eastern Europe • Poland

Danone Poland: Affordable Milk Porridge for Low-Income Families Prepared by • Boleslaw Rok (Poland) Sector • Food Enterprise Class • Northern MNC

Introduction Groupe Danone is a world leader in the food industry. The Groupe focuses on three worldwide business lines: fresh dairy products, beverages and biscuits and cereal products. Groupe Danone is the world leader in fresh dairy products and bottled water (in volume terms), and is number two in the biscuit market worldwide. In 2005, this dynamic Paris-based company employed 88,184 people, reported sales of €13 billion around the world (see Figure 1) and had an organic growth rate of 6.7 percent. Approximately 36 percent of Danone’s employees are in Western and Eastern Europe, 47 percent are in Asia, and the remaining 17 percent are located throughout the rest of the world.

Figure 1: Danone: Geographical Breakdown of Sales (%)1

History and Strategy The Company's origins date back to 1966, when the French glass manufacturers Glaces de Boussois and Verrerie Souchon Neuvesel merged to form Boussois Souchon Neuvesel (BSN). In 1970, BSN began a programme of diversification in the food industry. As a result of several acquisitions, BSN became France's market leader in beer and bottled water, as well as infant food. In 1973, BSN merged with Gervais Danone, a French dairy products and pasta group, thereby becoming France's largest food and beverage group, with consolidated sales in 1973 of approximately €1.4 billion.

Throughout the 1970s and the 1980s, BSN focused on expansion in the food and beverage industry, primarily in Western Europe. As a result, with consolidated sales of €7.4 billion in 1989, BSN became Europe's third largest diversified food group, ranking first in France, Italy and Spain. Beginning in the early 1990s, BSN pursued a strategy of consolidating its main

1 Source: Danone Groupe Annual Report 2005

Case Study • Danone Poland: Affordable Milk Porridge for Low-Income Families 2

business lines, developing synergies in Western Europe and expanding into growing markets in the Asia-Pacific region, Latin America and Eastern Europe, as well as in selected markets such as South Africa and the Middle East. In 1994, BSN changed its name to Groupe Danone, adopting the name of the Groupe's best known international brand.

Since 1998, Groupe Danone has been organized around three core product lines:

• Fresh dairy products, including yogurts, dairy desserts and infant foods, representing approximately 55 percent of consolidated net sales

• Beverages, representing 27 percent of net sales

• Biscuits and cereal products, representing approximately 18 percent of consolidated net sales

These core business lines enabled Danone to concentrate its financial and human resources on products with strong commercial potential. It also helped the Groupe focus its expansion outside Western Europe through internal growth and strategic acquisitions.

In line with Danone's strategy of focusing on its three core business lines, between 1997 and 2005 the Groupe sold nearly all of its grocery activities, glass containers business, cheese and cured meat business, beer businesses in Europe and sauce businesses. At the same time, the Groupe continued to strengthen its position in its strategic segments while following a policy of increasing the profitability of its businesses.

Danone Poland In Eastern Europe, Groupe Danone had sales of €1.2 billion in 2005, with strong positions in Russia, (number one in fresh dairy products and biscuits), Poland (number one in fresh dairy products and bottled water), Czech Republic, Hungary, Romania, Bulgaria and recently in Ukraine. Danone established a successful dairy business in Poland in 1992. Total sales of Danone Poland (Danone Sp. z o.o.) in 2006 amounted to €297 million, and Danone Poland employed 1,237 people in 2006.

The Challenge of Children’s Malnutrition in Poland In analyses of poverty in Poland, many measures have been applied. The traditionally well-known measure in Poland is the “social minimum.” This term is used in reference to being “threatened with poverty” and, as such, being at the thresholds of falling into poverty. The social minimum describes the indispensable level of consumption determining social participation and social integration, which demands satisfying not only basic needs but also certain other necessities. This is reflected in the contents of the basket of goods and services indicated as 'basic' for satisfying needs at a social minimum level. Given this measure, almost 58 percent of the Polish population lives below the social minimum level.2

2 In 1981, under the pressure of the just created independent trade union, Solidarity, this category was recognized by the government as an official measure for monitoring living conditions. The basket of


The extreme poverty line is defined by a “minimum subsistence level” or level of expenditures required for the fulfilment of needs, which cannot be postponed. According to the Household Income Survey conducted by the Central Statistical Office in Poland, 11.7 percent of the population in 2003 had incomes below the minimum subsistence level.3 During the period between 1996 and 2003, the percentage of persons below the minimum subsistence level more than doubled (see Figure 2). According to this research study, deep poverty in Poland is caused by long-term unemployment correlated with low qualifications of the head of the household, having four or more children and living in small towns or rural areas.

Figure 2: Percentage of People Living Below the Minimum Subsistence Level in Poland, 1994-2003

Source: Institute of Labour and Social Studies

According to UNICEF, 12.7 percent of children in Poland live in relative poverty, defined as households with income below 50 percent of the national median income.4 Thirty percent of children in Poland are undernourished, and their everyday food intake is commonly deprived of many necessary ingredients. These numbers are continuing to grow each year. The problem of malnutrition among children is often related to families' poor financial situations. Malnutrition seriously affects children’s health and may have a negative effect on their physical, intellectual, and emotional growth, as well as their ability to learn.

goods and services was recognized by specialists: doctors, diet experts, social workers, statisticians, consumption researchers as indispensable for the normal functioning of a human being in society. The social minimum indicator has been estimated by Institute of Labour and Social Studies and since the beginning of the 1990s published in the journal Social Policy. For the end of 2005, it was estimated on a level of €162.5 monthly per person, living in a 4-person household. Source: www.ipiss.com.pl. 3 Minimum subsistence level is estimated on the basis of a basket of goods and services which ensures meeting of only the most basic needs: needs which must be met immediately and cannot be deferred, and for which consumption below the specified level leads to biological deterioration. The minimum subsistence level has been accepted as the line of extreme poverty. See: M. Beblo, S. Golinowska, C. Lauer, K. Pietka, A. Sowa, Poverty Dynamics in Poland. Selected quantitative analyses, Center for Social and Economic Research, Warsaw 2002; and data from Central Statistical Office, http://www.stat.gov.pl/. 4 UNICEF, "Child Poverty in Rich Countries", 2005, Innocenti Report Card No.6, UNICEF Innocenti Research Centre, Florence.


http://www.ipiss.com.pl/

http://www.stat.gov.pl/

Danone’s Efforts at Improving Health through Nutrition A core belief throughout Groupe Danone is that food plays a major role in promoting well-being and health. Danone Poland has built a strong leadership and brand equity position in its categories, with the issues of nutrition and health central to its business strategy. According to Groupe Danone’s mission, Danone is encouraging better health through food to the greatest number of people. Danone continually strives to enhance the nutritional quality of their products, invest in research, and develop information and educational projects aimed at promoting the virtue of a balanced diet. Central to Danone’s business success in Poland has been its commitment of resources and innovative capacity to find solutions to problems such as children’s malnutrition. An early effort at addressing this problem was launched by Danone Poland in 2003. The programme was called the “Share Your Meal” campaign, and Danone Poland joined forces with several Polish NGOs to fund hot meals for children at schools, day-care centers and after-school clubs. Ramin Khabirpour, General Manager at Danone Poland, commented on this early effort: “We wanted to back a cause that the public clearly perceives as a major concern and which is fully aligned with Danone’s mission to provide health through nutrition”. By consuming Danone’s products with the “Share Your Meal” logo, consumers enabled Danone to donate over €650,000 as a part of the profit from the sale of those products for meals for children between 2003 and 2005. It was supplemented in 2004 and 2005 by a nationwide collection of food (including flour, sugar, juices, jams, cornflakes) during a two-day campaign coordinated by the Federation of Polish Food Banks and Danone. In these two years, over 400 tons of food was collected with the participation of 26,000 volunteers, including half of Danone’s employees in Poland. This food was delivered to children through cooperation with more than 700 NGOs. As part of this programme, Danone also financed special grants for NGO educational projects aimed at reducing the problem of malnutrition. About ten thousand children permanently benefited during the whole period of this nutrition programme, which means that more than two million meals have been distributed. The initiative had a significant impact, both in Polish society (raising awareness of the scope of the problem) and for Danone as a company as it strove to provide practical and sustainable solutions to real social issues. However, Danone’s managers realized that in order to reduce the consequences of malnutrition in Poland, charitable activities and community involvement carried out by the company would be important but not sufficient. Other, innovative business actions would be needed in order to create lasting social value.


INTERNATIONAL INITIATIVES AND LEARNING

As managers at Danone Poland considered their next steps over the next few years, they also took time to look at other projects with “affordability-nutrition” double objectives that had been launched by Groupe Danone in several other countries:

• Biskuat Susu, a biscuit fortified with calcium and vitamins, was launched in 1999 by Groupe Danone in Indonesia. Sold in two sizes and priced at €0.05 and €0.12, Biskuat is a nutritious product that low income consumers can afford.

• In 2004, the Groupe expanded its Indonesian offerings with Milkuat, a dairy drink that can be stored at room temperature.

• In Morocco, in 2004, the Groupe also launched Moufid, a children’s yogurt packed with iron, zinc and vitamins.

• In 2005, Chinese consumers were introduced to a new version of calcium-enriched Danone Milk Biscuits, priced at €0.15 per 100g packet.

By 2005, several other pilot programmes were underway to develop products with enhanced nutritional value at an affordable price without compromising high standards for quality and food safety.

Przemek Pohrybieniuk, External Relations Director for Danone Poland, claimed, “a cheaper product may not mean a worse one for consumers. A product’s low price can not adversely affect its quality. Such an approach would be in conflict with Danone’s mission and values that assume provision of healthy and valuable food to everybody. By supplying products at an affordable price and of good quality, Danone fulfils its mission and at the same time takes into account the financial capabilities of the Base of the Pyramid5 consumers.” But to make this strategy financially sustainable, the products must also be profitable for Danone or at minimum cover the costs of product development, manufacturing and distribution.

Danone Poland’s Affordable Nutrition Solution: Milk Start Experience gathered by Groupe Danone’s other “affordability-nutrition” projects worldwide as well as lessons learned from the “Share Your Meal” programme encouraged Danone’s Polish team to undertake an effort aimed at development of a special product to meet needs of Polish children from low-income families. Following analysis of data obtained from numerous marketing and research projects concerning Poles’ nutritional habits and social expectations, the team at Danone Poland, together with a committed group of partners, developed Milk Start: a “milk porridge” product based on semolina and milk powder enriched with specially selected vitamins and minerals. The Milk Start porridge comes in 60 gram single serving sachets and is easy to prepare: pour the sachet content into boiled water and stir. Milk Start was developed with two different

5 The ‘Base of the Pyramid’ refers to individuals at the lowest level of socio-economic status and income.


flavors (raspberry and banana) is nutritious and can be recommended for children’s everyday diet. One bowl of Milk Start contains 25 percent of the recommended daily intake of vitamins and minerals including vitamin D (responsible for building bones); iron and vitamin C (prevents anemia); zinc and vitamin E (supports immunity); and magnesium and vitamin B6 (necessary for concentration).

This choice of a porridge as an inexpensive and healthy meal was not accidental. Agata Stafiej-Bartosik, Corporate Social Responsibility Manager from the Polish team at Danone, recalls that, “since the beginning we were thinking about a socially useful project that would be an answer to the problem of inappropriate nutrition and economic barriers, and would have the highest quality and have a price as affordable as possible. The milk porridge idea originated from one of our colleague’s warm, family memories of his grand mom’s breakfasts. Consultations with NGOs that we work with were also helpful. Yet the most difficult part was to persuade everybody that this might work! Luckily they got to believe in it!”

Milk Start

One of the most important features of the development of Milk Start was to make it affordable for low-income households. According to Danone’s research based on official statistics, 64 percent of families with children in Poland spend less than €3.2 per person per day on all expenditures (see Figure 3). After in-depth analysis, the price per sachet was therefore set at approximately €0.15.

Figure 3: Affordability Level in Poland

Population in Poland by income, 2004

Source: GfK, HH panel, 2005

less than €73

€74-122

€123-171

€172-244

€245+

monthly income per capita

9%

20%

24%

27%

20%

47%

5.1 m households->21.8 m people

Population with kids by income, 2004

58% of Polishpopulation are families with kids

1,5%

10,5%

23%

35%

29%

64%

64% of families with kids disposeONLY up to €3.2 per capita for all expenses

€9.8

daily income per capita

€4.7

€6.5

€3.2

€1.5

Source: Danone Poland


In the course of marketing research, Danone Poland found that 97 percent of low-income consumers liked the Milk Start product concept, and 74 percent of consumers thought that the price represented a good value. The product itself had a high level of acceptance; 57 percent of children aged six to ten eat milk porridge at least three times per week, and semolina is appreciated for its healthfulness and satiating features. The product is an instant formula, which does not have the storage issues prevalent among dairy products and beverages and is, therefore, a good nutrition carrier. Overall, surveyed consumers liked the Milk Start concept, and many of them declared their willingness to buy it. INNOVATIVE PARTNERSHIP

Bringing daily, healthy nutrition to populations with low purchasing power is one of the biggest challenges for the international food and beverage industry. To work towards this goal, Danone’s business strategy would need to go beyond the usual business models. Several factors made the success of Milk Start in Poland possible, but the greatest factor, and one of the most innovative aspects of the initiative, was the successful partnership that Danone led to manufacture, package, distribute and market Milk Start.

After Danone Poland’s individual efforts in creating and promoting its earlier “Share Your Meal” programme, the Danone Poland team decided to establish a market and social partnership for Milk Start under the name of The Partnership for Health. What Danone was proposing had never been seen before in Poland. In this arrangement, three partners also committed to Danone’s goal of affordable nutrition and joined forces to combat the problem of child malnutrition in Poland. These partners were the Institute of Mother and Child, Lubella S.A. (owned by the Maspex Group) and Biedronka (Jeronimo Martins Distribution brand). Each organization’s mandate and contribution is described below.

The Institute of Mother and Child The Institute of Mother and Child (IMC) is a renowned state child healthcare and nutrition organization in Poland. IMC supported the project partnership with their expertise in nutrition and advised on nutritional recommendations to be met by the product. They also advised on the appropriate preparation of the Milk Start recipe. Once the product was developed, IMC gave it their full endorsement.

Lubella Lubella S.A. is owned by Maspex Wadowice Group, the largest manufacturer of instant products in Central and Eastern Europe with over 5,000 employees. Its sales revenues amounted to over €520 million in 2006, which places the company among the leading Polish companies in the food industry. Lubella contributed their experience in children’s food manufacturing to the project and ultimately took on the responsibility of producing Milk Start.

Biedronka Biedronka is the largest food retailer in Poland, owned and managed by the Portuguese group Jeronimo Martins. Biedronka operates over 905 stores in 450 towns across Poland and has more than one million daily visits to its stores. Biedronka has over 14,000 employees and had


€1.72 billion in net sales in 2006. Biedronka contributed their experience in food distribution to the project and was responsible for distribution and in-store sales.

Danone Poland Danone Poland was the main driver of the partnership as well as the leader of the development of the Milk Start concept and business model. Danone takes care of the marketing, public relations and partnership coordination activities. Danone Poland owns the concept of Milk Start and shares ownership with its partners.

ECONOMICAL PACKAGING

Milk Start Packaging

For Danone Poland, one of the other important innovations, which came out of this project, was the idea of economical packaging:small single serving sized sachets. The single serving sachet model benefited from a narrow product range (only a few various flavours) and very large production runs. The high volumes resulted in across-the-board cost

reductions.Packaging is one of the most important success factors in the food market today. The daily dose packaging format has transformed the fate of the food sector and has become the package format of choice in Europe, as it has been in Asia and South America, for products that want to signal health. Danone Poland used Groupe Danone’s experience from the market worldwide to help bring the “single serving” concept to Poland in a product that could have high nutritional value and be manufactured locally in very large volumes.

COMMITMENT AND COLLABORATION

For the implementation of the project, the partnership approach was crucial. The business principles of engagement were agreed by all the partners with a primary goal to create social value that could be sustained through a business partnership. According to Krzysztof Pawinski, Chairman of the Supervisory Board of Lubella S.A., “All the partners made every effort to make sure the product contributes to equalizing chances for a healthy childhood for all the children in Poland. Milk Start is the first product with a mission on the Polish market.”

Partners were committed to offer the lowest price possible, to accept minimum margins and to have an open profit-and-loss approach with each other. The mechanism of cooperation was transparent for all partners. Lubella produces Milk Start and sells it to Biedronka. The partners agreed that Biedronka would sell Milk Start exclusively in return for full distribution in all its outlets. From Lubella’s sales to Biedronka, Lubella pays royalties for the brand and concept to Danone Poland, the concept owner. The net margins for each corporate partner are


calculated at €0.0125 per sachet of Milk Start, which is about nine percent of the net price. IMC receives an annual fee from Danone at a level of one percent of total sales.

The launch of Milk Start in Poland was in the middle of September 2006 after market tests in the summer. By the end of 2006, Milk Start reached sales of almost 1.7 million sachets. According to company’s sources, about seven percent of the target group bought the product, which represents almost 33,000 households with children under the age of 15. OVERCOMING CHALLENGES AND SHARED LEARNING

At Danone Poland, the development of the Milk Start product and partnership was the result of an exceptional learning process. Danone Poland drew from its own past experience and from the insights of the Groupe’s experiments around the world. Danone’s Polish team created a tremendous melting pot for the exchange of ideas and sharing of experience to meet its objectives. They had to take a fresh look at costs, manufacturing, distribution and marketing.

Ramin Khabirpour, Danone’s General Manager in Poland, decided to deal with the challenge of creating an innovative new product and partnership by engaging a group of young, local managers and building local management capabilities through a combination of discovery, dialogue and learning-through-implementation. The dialogue at the team level was of great importance. According to Joanna Jablonska, Project Leader, “It was not an easy task. For the first time we decided to develop a product with an affordable price for the consumers that were never targeted by Danone in Poland before. Marketing mix development was also a real challenge. It was possible thanks to the fact that the team was cross-functional and everybody was always involved in all steps of the project. Without that team it would have not be possible!” MARKETING AND AWARENESS

In order to keep the price of the product as low as possible, Milk Start was marketed without classical advertising, but with an innovative awareness raising and public relations campaign shared by the partners.

Milk Start was supported by different social activities to drive awareness and trust for the product. The main communication objective was to inform mothers from low income households about the nutritional value and reasonable price of the product. As part of this effort, the Partnership developed a set of 12 principles for healthy nutrition that presented the most important rules for proper nutrition in a clear and simple way. Different channels such as media, communication leaders and intermediaries were used as helpers to reach the final target groups, and to initiate public debate on children’s proper nutrition. Some examples of this public outreach have included the following:

• A competition for readers of the monthly Metropol and weekly Kropka TV magazines at the end of 2006 focused on recipes for a healthy breakfast for children and healthy lifestyles for young children. The competition included prizes such as domestic appliances.


• Posters of the 12 principles of healthy nutrition and information on the Partnership for Health and Milk Start were sent to 338 City Social Care Centres, 1,858 NGOs and 10,123 schools across Poland.

• Articles on affordable nutrition for low-income households were published in newspapers that included Milk Start and the Partnership for Health initiative.

• Information on the Partnership for Health initiative, its goals and actions were sent to 267 public opinion leaders, among them the Ministry of Health, parliamentarians from the Health Committee, the National Health Fund and the National Food and Nutrition Institute. This communication sought to publicize the scale of the problem of children’s malnutrition in Poland and educate decision makers about innovative partnership solutions like Milk Start.

• The Office of the Governor of Swietokrzyskie region has incorporated these twelve principles for healthy nutrition in their We are Growing Up Healthy programme. As part of this programme, special educational packs were used by teachers in the Swietokrzyskie region during meetings with parents and children.

As a result of its achievements and commitment, Danone Poland and the Partnership for Health received declarations of support from the National Paediatric Nursing Consultant and the Office of the Ombudsman for Children in Poland.

Opportunities for Replication & Scaling Up Many other national business units of Groupe Danone are motivated to follow the company mission and work on local affordability solutions. In order to make it easier to benefit from the experience of other business units, several intranet sites have been set up by the Groupe. The most interesting one is called "the hub". This is an information platform with videos, documents and teleconference options where people from different countries can exchange ideas, business models, results and lessons learned of “nutrition-affordability” solutions. Through this method of information exchange, a Danone group from Germany used learning from Poland and South Africa for a new project with UNICEF.

Milk Start was prepared for the Polish market in response to the particular local social context and food habits. The affordable price was tailored to fit with the purchasing power of low-income Polish households. Milk Start was well received in the Polish domestic market, but in order to introduce this kind of product in other markets, it would be necessary to do research into the needs and expectations of the particular local market context. However, both within Groupe Danone and beyond, the basic Milk Start business model and partnership approach


could provide inspiration to other companies operating in the food sector in Poland and abroad.

Some lessons from the already implemented Danone “Dream” projects, like inter alia, Danone Poland’s Milk Start partnership and Indonesia’s Milkuat initiative are being applied to a new initiative launched in 2006 called Grameen Danone Foods: a social business enterprise in Bangladesh. Based on a partnership approach, Grameen Danone Foods will bring daily healthy nutrition to low income nutritionally deprived populations and alleviate poverty through the implementation of a unique community based business model.

The initial focus of Grameen Danone is the launch of an easily affordable dairy product, Shakti Doi yogurt. It has been specifically developed in collaboration with Global Alliance for Improved Nutrition to fulfill the nutritional needs of children in Bangladesh and to contribute to their growth by bringing them the benefits of milk and other micronutrients they lack. Grameen Danone will also be highly committed to protecting the environment of its communities by helping develop solar and biogas energy. It will also develop innovative and environmentally friendly packaging for its products. The distribution will be organized in a radius of 25km of the production plant, through a network of women associated with Grameen. The project is expected to raise the daily income of more than 1,500 women near the plant by 50 percent.

In order to maximize the social impact, Grameen and Danone are developing low capital intensity manufacturing options and intend to reinvest the profits of Grameen Danone Foods in the expansion of this model throughout the country. The first factory will be built in Bogra, 230km north of Dhaka, and is expected to start operations in 2007, with a plan of setting up 50 plants within the next ten years.

Learning for the Future: The Way Forward Although the socio-economic status of the poorest households in Poland is better than similar groups in other parts of the world, Poland is still challenged with the problems of poverty, high unemployment and malnourished children. Milk Start, a nutritious and very low cost milk porridge for children, and the innovative partnership that created it, is an important contribution to this significant social issue in Poland. The lessons learned from this partnership are also helping to develop similar partnerships in other areas of the world, such as Bangladesh.

Danone Poland’s goal in leading this project, according to Franck Riboud, Chairman and CEO of Groupe Danone, “is to contribute, as far as we are able and as effectively as possible, to experimentation with new economic models that offer new hope and may become the models of the future. In this, we also want to rally others, both individuals and institutions, to form a community based on a shared vision.”


References Personal interviews with representatives from Danone Poland, 2006 Beblo, M., S. Golinowska, C. Lauer, K. Pietka, A. Sowa. 2002. “Poverty Dynamics in Poland,” Selected quantitative analyses. Center for Social and Economic Research. Warsaw. Danone. 2006. “How focus on health and nutrition can become a competitive advantage.” JPMorgan Minutes, European Equity Research, 24 October 2006. Danone. 2005. “Social and Environmental Responsibility Report.” Groupe Danone. 2005. “Health Commitment and Fact Book.” 10 March 2005. Managers. “The Internal Groupe Danone Magazine.” Przeglad CSR. DanonePL (CSR Report of Danone Poland). Only available in Polish. UNICEF. 2005. “Child Poverty in Rich Countries.”Innocenti Report Card No.6. UNICEF Innocenti Research Centre. Florence. Zycie Danone’a (internal gazette for Danone Poland employees). 2006. Special edition, 28 September 2006.


September 2007 The information presented in this case study has been reviewed and signed-off by the company to ensure its accuracy. The views expressed in the case study are the ones of the author and do not necessarily reflect those of the UN, UNDP or their Member States. Copyright @ 2007 United Nations Development Programme All rights reserved. No part of this document may be reproduced, stored in a retrieval system or transmitted, in any form by any means, electronic, mechanical, photocopying or otherwise, without prior permission of UNDP. Design: Suazion, Inc. (N, USA) For more information on Growing Inclusive Markets: www.growinginclusivemarkets.org or [email protected] United Nations Development Programme Private Sector Division, Partnerships Bureau One United Nations Plaza, 23rd floor New York, NY 10017, USA


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