Danone Hits Its Stride
In a 39-year-old photo of a Riboud family gathering, four-year-old Franck is screaming in protest. He has just discovered that the chocolate box in which his hand is fishing is empty. As the youngest son in a family of overachievers, Riboud "was always last to get his hand in the pie," recalls Barbara Chase Riboud, Franck's aunt. Few family members were aware of Franck's secret determination to equal the best among them.
Now chief executive of French food Giant Danone Group, Riboud no longer comes in last. The son of legendary industrialist Antoine Riboud, Franck did not start out on the fast track. When he got the CEO job in May, 1996, the company's shares sank. His earlier championships in skiing and windsurfing gave him a reputation as a lightweight, even though he later logged 15 years with Danone. Many assumed Antoine had maneuvered his youngest son into the top slot. And investors feared he couldn't follow his dad's impressive act. "There isn't anything worse than that," Riboud says now, shuddering at the memory. "I had no legitimacy."
EARLY LAPS. Riboud has proved the skeptics wrong. He has refocused the sprawling, $15.8 billion company on its core products and reversed Danone's profit slide. He has successfully pushed into new markets around the world despite frightening volatility in the emerging economies. His performance has rivals on guard and investors applauding. Danone shares have nearly doubled, to $193, since he took over.
But Riboud is in the early laps of his marathon. Danone still depends on Europe for 76% of its sales, with roughly 39% coming from France. His challenge is to transform the world's No. 7 food company from a European champion into a global front-runner with a big slice of emerging markets in Asia and Latin America. To do that, Danone must battle brand-name giants such as Nestle, RJR Nabisco, and Coca-Cola without the home-field advantage it enjoys in Europe. "We need to be a truly worldwide company. That's not the case today," admits Chief Financial Officer Christian Laubie.
Riboud has been racing to narrow the gap with the global goliaths. Over the past two years, he has sold off an estimated $1.2 billion in noncore assets and made about the same amount's worth of acquisitions, primarily in Asia, Latin America, Eastern Europe, and the U.S. He has narrowed Danone's portfolio to three areas where it can dominate in global markets: dairy products, bottled water, and cookies and crackers. Analysts say Riboud is likely to meet his target of boosting revenue outside Europe to 33% of total sales by 2000, from 5% in 1992 when he took charge of international development.
Riboud can't afford to slacken his pace. The Danone brand ranks among the global top 10, and the company owns other premium brands, such as Evian mineral water and Kronenbourg beer. But the world's largest food groups are all trying to remake themselves from regional stars with diverse products into global leaders in a few businesses. And with Western markets largely saturated, the battle for growth will be in emerging markets, where such companies as Nestle and Unilever have a substantial lead over Danone.
Riboud's career at Danone has groomed him well for the global food wars. As a sales manager in the early 1980s, he walked the aisles of French supermarkets that sold Danone yogurt, making sure shelf placement was favorable. After taking charge of the Evian business in 1990, he helped engineer the $2.5 billion takeover of Nabisco's European cookie and cracker operations in 1992. As head of international development from 1992 to 1996, he more than tripled sales outside Western Europe, to $2.7 billion. And in the U.S., he raised advertising budgets and launched Dannon Water, currently No. 1 in American supermarket sales of bottled water.
Now, Riboud needs to boost margins and keep growth going. Take dairy products, which power 42% of Danone's total sales. Danone ranks No. 1 worldwide, with a 15% market share. But 72% of those sales come from Europe, whose citizens eat more packaged yogurt than people anywhere else in the world. Although untapped markets offer growth opportunities, Danone has a tough marketing job ahead in most of Asia and Latin America, where yogurt is not part of the traditional diet.
And in mineral water, Danone faces bruising competition. The French group ranks No. 2 worldwide after Nestle and boasts powerful brands such as Evian, Volvic, and Badoit. Riboud is acquiring local water companies around the world. He recently snapped up water companies Aqua in Indonesia, Health in China, and Aquapenn in the U.S. And to further his assault on the American market, Riboud priced Dannon Water at 89 cents for a 1.5-liter bottle, vs. $1.89 for a same size bottle of premium-brand Evian.
But Coca-Cola Corp. and PepsiCo Inc. have their eye on the market for bottled water, too. In December, 1995, Pepsi introduced a "purified water"--filtered tap water--called Aquafina that is now the No. 1 seller in U.S. convenience stores and gas stations. Industry sources say Coke aims to launch a purified water injected with minerals, called Dasani, in May or June. Low-cost filtered tap water will allow Coke and Pepsi to escalate price battles. Already, the Dannon Water launch in the U.S. led to losses of $17.8 million for Danone in 1998, putting pressure on the group's water margins.
To offset the difficulty of building brand presence in the mature markets, Riboud is raising Danone's profile in Asia. Danone Asia manager Simon Isreal has spent more than $500 million on acquisitions over the past 18 months and more than doubled the company's business in the region, to roughly $1.7 billion, while raising margins by one percentage point a year. Financial-market turmoil has only whetted Riboud's appetite for Asian companies. "It's the chance of a lifetime. I won't change my strategy," he insists.
Despite the growing pains, Morgan Stanley Dean Witter analyst Sylvain Massot forecasts that Danone's overall profits will jump by 8% in 1999 and as much as 12.7% in 2000. And even under pressure, Riboud maintains a laid-back attitude. He strolls through headquarters in a pullover, and addresses most people with the familiar "tu." In the streets of Paris, he prefers a motor scooter to a chauffeured limousine, chooses casual wear over elegant suits, and favors McDonald's over temples of cuisine.
OVERACHIEVERS. Riboud's individualism was bred in the bone. Three generations of his Lyons-born family are packed with extraordinary people. Father Antoine turned a French glassmaker into the Danone Group empire. Uncle Marc Riboud is an internationally renowned photographer whose work in China, Europe, the U.S., and Africa has won numerous prizes. Another uncle, Jean, fought in the French Resistance during World War II, spent two years in Buchenwald, and became chairman of global oil-services giant Schlumberger Ltd.
Family members downplay their own and one another's talents. Marc was stunned to see his nephew Franck making headlines in the U.S. business press last year. "I said to myself, `Who does this kid think he is?' Then I read the story and I thought, `He has really accomplished something."' Franck Riboud has a lot to live up to. But if he can keep up the momentum at Danone, he will have proved that the youngest of a famous family need not come in last.
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