Thursday, July 23, 2009
Danone's yogurt strategy for Bangladesh
When French dairy food firm Danone ventured outside the troubled business climate of Europe and the US, it was not expecting to start a business that deliberately avoids paying dividends to shareholders.
But a meeting between Danone's Franck Riboud and the founder of Grameen Bank, Nobel Peace Prize winner Muhammad Yunus, led to the opening of a small factory in Bangladesh that does just that.
Danone made a profit of more than $1bn in 2008 and expects that to rise by 10% this year, despite a downturn in sales in Europe.
The company has set its sights on South Asia. But to succeed there, it has to learn how to sell to low-income customers, many of whom live in the countryside.
In Bangladesh, Danone has teamed up with local experts to build a yogurt factory with a difference - what Professor Yunus calls a social business.
The factory, which produces nutritional yogurt for poor people, is a joint venture between Grameen and Danone.
Danone's Emmanuel Marchant explains that the enterprise has to make enough money to be sustainable, but it also has a social goal.
"With a social business you ask 'what are the priorities in terms of social needs?'," he says.
He admits that Danone's priorities would usually concentrate on maximising profits and that any social impact would be of secondary importance. But the factory constructed in Bogra, 200km north of the capital Dhaka, is different.
Figures show that about 50% of children suffer from malnutrition in Bangladesh.
In an effort to alleviate the situation, Grameen's Professor Yunus says his first suggestion was baby food.
"We eventually zeroed in on yogurt and agreed that it had to be a very small plant," he says.
He maintains that local children, often poor and malnourished, benefit from the products the factory produces.
The project is further integrated into the rural community through its links with the farmers which serve the factory.
The yogurt company always tries to pay them a little more than they would receive from other customers and a farmer can earn about $60 a week - a considerable sum in rural Bangladesh.
Milk is brought in every day from local villages by a small three-wheeled delivery vehicle and is mixed with locally-grown sugar and other ingredients.
It is then poured into a tank, where it is tested to ensure it does not contain any harmful bacteria.
Nutrients are added to the yogurt, which is designed to keep fresh for up to a week outside a refrigerator, because few people can afford to chill their food.
Some of the yogurt is distributed to shops, but the unique point about this enterprise is a network of women who take bags of the yogurt around local villages.
When visiting villages for the first time, these women are often accompanied by a representative from Danone, who explains the nutritional benefits of the yogurt.
The yogurt brand is called Shoktidoi, which means energy in Bengali. One cup of yogurt provides 30% of the recommended daily intake of nutrition for children.
To drum up extra interest, the yogurt's logo, a lion, also makes an appearance - albeit in costume.
The scheme is not designed to make a profit, but it does have clear benefits for Danone.
It is a good way for the company to learn how to market food in South Asia - a valuable lesson as it considers whether to enter the huge and lucrative market of neighbouring India.
Emmanuel Marchant of Danone is confident the company will keep funding the project, because of the support it has from its investors.
"Building a plant which is 100 times smaller than our others is a less risky way of entering a new territory and shareholders understand our vision," he says.
Prof Yunus believes other companies should start about thinking about how to run a business in a different way.
"The world has only one pair of glasses - profit-maximising glasses. You don't see the poor and malnourished people," he says.
"When you put on the social business glasses, things change," he asserts, "You don't see the money-making aspect, but how you can help people."
He is understandably excited about the project and is currently talking to other companies around the world to start up similar joint ventures in Bangladesh.
Forget yourself for others, and others will never forget you.