Danone Touts Yogurt in Asia as Europe Tightens Ad Rules

The dairy aisles of Chinese and Indian supermarkets and corner stores are a riot of brightly colored fermented milk drinks that promise health benefits.

Alongside local offerings such as Shuang Wai Wai and Amul’s ProLife, shoppers can find Yakult Honsha Co. (2267)’s Yakult and Danone (BN)’s Activia, which the companies say build immunity or improve digestion because they contain probiotics -- bacteria that encourage helpful microbes to flourish in the bowel.

Unlike Europe, where regulators have barred Danone and Yakult from advertising some purported health benefits of their products, dairy companies have broader leeway to make such claims in China, India, and elsewhere in the region.

Asia is increasingly becoming the place to be for probiotics producers,” said Martin Jochum of SAM Sustainable Assets Management AG in Zurich, a unit of Robeco, which has 186 billion euros ($233 billion) under management, including shares of Danone. “The regulatory environment there is a lot more favorable than in Europe and you have a lot of consumers that are demanding better-quality nutrition.”

Yakult, a household name in Japan for more than 50 years, has climbed to No. 3 among probiotic dairy beverages in China, with sales of $174 million in 2010, the most recent data available, according to researcher Euromonitor International. Yakult says it can market its drink in parts of China with the claim that it helps with “immuno-regulation and improving intestinal flora.” In Taiwan the company can say it increases beneficial bacteria.

Bollywood Ambassador

In India, which Yakult entered in 2008 and where it has a joint venture with Danone, the company has hired Bollywood star Kajol Devgan as a brand ambassador. And it employs 250 so-called Yakult Ladies who zoom around cities on grey scooters to tell buyers how the drinks can improve their health. Though its Indian revenues are small -- about $2 million in 2010, according to Euromonitor -- Yakult has increased its sales in the country by at least 60 percent every year.

“It’s growing and it’s catching the attention of all the market players,” said Euromonitor analyst Ewa Hudson. “Companies want stronger exposure to markets where they can make claims and talk about the benefits of probiotics.”

Yakult Balks

Yakult’s growth potential hasn’t gone unnoticed in the Danone boardroom. Danone, which owns 20 percent of Yakult, has for several months been negotiating to raise its stake in the Tokyo-based company, according to Japanese press reports.

An accord between the two companies, signed in 2004 and revised in 2007, allows Danone to increase its holding this year, though it’s prevented from taking “effective majority control” of Yakult until 2017. The two companies also have a joint venture in Vietnam.

“The more we work with Yakult, the more we appreciate working with them,” Danone Chief Financial Officer Pierre-Andre Terisse said on an April conference call. “We need to keep developing and increasing these cooperations.”

The Japanese company is resisting the embrace. “We don’t want Danone to increase their stake,” Deputy President Yoshihiro Kawabata told reporters in May. Both companies declined to comment on talks.

Marketing Claims

Danone in 2010 withdrew marketing claims in Europe that its Actimel fermented drink could boost the immune system. The same year, the European Food Safety Authority rejected the Paris- based company’s claim that Actimel reduced the chances of developing diarrhea. It also ruled Yakult couldn’t say its drink wards off respiratory tract infections.

“There are some hints” that probiotics can help prevent colds and flus, but confirming that with a clinical study could be expensive and take years, said Eamonn Quigley, professor of medicine at University College Cork in Ireland.

The global market for foods containing probiotics will probably grow 51 percent to $42 billion by 2016, according to Euromonitor. For fortified drinks like Actimel and Yakult, the Asia-Pacific region is the No. 2 market after North America, generating about $18 billion in sales last year, Euromonitor says. Western Europe ranks third at $11 billion.

Yakult says that it hasn’t targeted any particular country due to its ability to make health claims about its products. The most important criteria are “whether the market has the population size where many people will drink Yakult and whether there is room for acceptance for the concept,” spokesman Hisataka Omori wrote in an email. Danone said that it sees opportunities to expand sales of probiotics in Asia.

Yakult Ladies

In India, which has strong growth potential due to a tradition of yogurt drinks like lassi, companies can make general claims such as “improves digestion” or “bolsters immunity,” as long as they steer clear of suggesting their products can heal specific diseases.

“The regulatory system governing health claims is at a very nascent stage compared to the West,” said Deepak Kaushik, an assistant professor of pharmaceutical science at Maharshi Dayanand University in Rohtak, in northern India.

Meenakshi, one of the Yakult ladies who zips around the dusty streets of south Delhi to promote the dairy drink, says health is her best sales pitch.

The 22-year-old student knocks on doors two days a week to tell stay-at-home mothers, washing ladies and others living in makeshift shacks how Yakult’s bacteria can help cultivate their intestinal flora.

She has a short rehearsed speech -- the products’ 6.5 billion friendly bacteria help build immunity and protect against constipation, diarrhea, and infections -- and passes out corporate leaflets to back up her assertions.

“Customers do say their digestive systems have improved,” says Meenakshi, who goes by one name only. “Regular customers rarely get infections.”

To contact the reporters on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net; Malavika Sharma in New Delhi at msharma52@bloomberg.net; Adi Narayan in Mumbai at anarayan8@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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Photographer: Prashanth Vishwanathan/Bloomberg

A supervisor takes a stock count of Yakult Honsha Co. probiotic drinks stored in a freezer at a Yakult Danone India Private Ltd. Yakult center in New Delhi, India.

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Photographer: Prashanth Vishwanathan/Bloomberg

A supervisor takes a stock count of Yakult Honsha Co. probiotic drinks stored in a freezer at a Yakult Danone India Private Ltd. Yakult center in New Delhi, India. Close

A supervisor takes a stock count of Yakult Honsha Co. probiotic drinks stored in a freezer at a Yakult Danone India... Read More

Photographer: Prashanth Vishwanathan/Bloomberg

Meenakshi Sagar, a Yakult Danone India Private Ltd. "Yakult Lady", rides her scooter while taking her daily supply of Yakult Honsha Co. probiotic drinks to customers in New Delhi, India. Close

Meenakshi Sagar, a Yakult Danone India Private Ltd. "Yakult Lady", rides her scooter while taking her daily supply of... Read More

Photographer: Prashanth Vishwanathan/Bloomberg

Meenakshi Sagar, a Yakult Danone India Private Ltd. "Yakult Lady", brings Yakult Honsha Co. probiotic drinks to a regular customer in New Delhi, India. Close

Meenakshi Sagar, a Yakult Danone India Private Ltd. "Yakult Lady", brings Yakult Honsha Co. probiotic drinks to a... Read More

Photographer: Prashanth Vishwanathan/Bloomberg

Yakult Danone India Private Ltd. "Yakult Ladies" arrive to stock up their Yakult Honsha Co. probiotic drink supplies at a Yakult center in New Delhi, India. Close

Yakult Danone India Private Ltd. "Yakult Ladies" arrive to stock up their Yakult Honsha Co. probiotic drink supplies... Read More

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