Danone is exploring options, including a sale, for its US organic dairy business

Brief description of the dive:

  • Danone said in a statement that it is exploring strategic options, including a potential sale, for its U.S. organic dairy business. The segment consists of the Horizon Organic and Wallaby brands.
  • Horizon Organic and Wallaby, which offer organic dairy products including milk, cream, yogurt, cheese and butter, account for about 3% of Danone’s global revenue.
  • Antoine De Saint-Affrique, Danone’s chief executive, promised last March that he would improve performance in troubled propositions including Horizon Organic and traditional dairy products, invest more in profitable products and create value by selling existing brands or buying new ones.

Dive Insight:

Before De Saint-Affrique’s arrival, Danone, whose brands include Activia yogurt, plant-based silk and Evian water, was struggling with a stagnant share price and pressure on many of its key businesses.

In the time since taking the helm, the former Barry Callebaut boss has wasted little time in making changes and pushing for growth at the France-based food and drink giant. Earlier this month, Danone appointed three deputy CEOs to improve decision-making, execution and growth.

Danone also promotes innovation in many of its key brands. This includes two plant-based dairy-like alternatives, Silk Nextmilk and So Delicious Wondermilk, which the company says are more similar to their animal-based counterparts. Danone also accelerated the launch of Two Good smoothies, bringing the fast-growing yogurt brand into the portable space while building on its low-sugar, high-protein popularity.

But even with a strong portfolio built around plant-based milk and yogurt, traditional dairy products, water and specialty nutrition, De Saint-Affrique has publicly announced it will not commit to any one brand.

In announcing the company’s 2022 portfolio review, he said there were “no sacred cows” and that the dairy giant would “continue to trim” its portfolio as it seeks to drive growth and distance itself from its recent underperformance .

In a statement announcing the review of Horizon Organic and Wallaby, De Saint-Affrique said they were strong brands with “compelling growth opportunities”.

But Danone must “remain disciplined in how we allocate our resources, [with Horizon Organic and Wallaby falling] outside of our priority growth areas,” he said. “Exploring strategic options for these brands will allow them to get the focus and resources they need and therefore allow them to maximize their potential and unlock further growth.”

It’s not hard to see why Danone can sell the brands. They represent a small portion of Danone’s global revenue and had little effect on Danone’s comparable sales growth and recurring operating margin in 2022. For a company looking to increase growth and shift resources to its most promising brands, Horizon Organic and Wallaby are logical targets to try to sell.

While it’s not certain what will happen to the brands or whether Danone will even sell them once the review is complete, it could find a handful of willing partners if it decides to offload them. A private equity firm can invest more time and resources behind brands in a way that is more difficult for a large CPG.

Lactalis, which has rapidly grown its US business through a series of deals, including the addition of the natural cheese businesses of Siggi’s and Kraft Heinz, could be another buyer. Parmalat’s owner is no stranger to its relationship with Danone, having bought Stonyfield for $875m in 2017, giving it a strong foothold in organics – the same category in which Horizon Organic and Wallaby operate.

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