Danone: Marketing the Glacier in the U.S.*

Introduction

As a former windsurfing champion and current CEO of France’s Group Danone (Danone),

Franck Riboud has literally and figuratively “ridden the waves” to success. His Group

Danone, which he has led as its CEO since 1996, is the number seven food and beverage

company in the world. With a refocus on its core businesses, dairy products, beverages, and

biscuits, and a divestiture of its sprawling non-related entities, the company’s stock price

nearly doubled during his five-year tenure ($16.1 in December 1997 to $26.2 in December

2002, with the high of $31.0 in January 2001). Much of this success is attributed to Riboud,

whose casual, laid back style has transformed into a forward-thinking, profit-focused strategy

for Danone. With $14.5 billion in net sales and $1.5 billion in after-tax profits, the company

has experienced positive sales growth rates under his leadership.

Delivering 27% of the firm’s global sales, Danone’s water products, led by the well-

known glacier-source Evian brand, is number two worldwide in packaged water sales.

Although declining in recent years (see Exhibit 1), sales growth from Danone’s Water

Division in the last five years has been positive.

* This case was prepared by Michael Pendleton and Aaron Tennant of the Fox School of Business and Management at Temple University under the supervision of Professor Masaaki Kotabe for class discussion rather than to illustrate either effective or ineffective management of a situation described (2003).

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With all of Danone’s, Riboud was still faced with the challenge of a more even

geographic distribution of its customer base, particularly in the U.S. The questions posed to

him by investors and his board were – How could giant like Danone only derive 11% of its

sales from the U.S.? What opportunities are Danone missing by not being major bottle water

player in the U.S.?

“DIVERSIFICATION: Reduce Danone's dependence on Europe, which accounts for

76% of sales. Derive 33% of sales outside the Continent by 2000.” This was one of the three

major strategic plans that Riboud wanted to implement during his tenure – and it would prove

to be the most difficult. On the whole, a whopping 57% of the company’s sales derived from

Europe, and only 11% came from the U.S. (see Exhibit 2).

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Taking away the successful Dannon yogurt line and focusing on water sales in the

U.S. and Danone’s presence was even more of a failure. By the end of 2001, Pepsi’s

Aquafina and Coke’s Dasani had overtaken Danone in volume of water sold in the U.S. to

become the number two and three players, behind Nestlé’s Perrier and Poland Springs brands.

Danone is now number four in the U.S. after having the number one brand in the U.S. as

recently as 1996, and its market share has plunged in the U.S. in the U.S. bottled water

market.

What Danone had failed to realize was that selling bottled water was completely

different in the U.S. than selling it in Europe. Danone has maintained a stronghold in Europe,

by mastering its complicated direct-to-store delivery systems and taken advantage of an

educated consumer base that willingly accepts Evian’s premium price and relies less on

drinking tap water. Contrarily, success in the U.S. water market means access to a giant cola-

run distribution network that includes access to rented store shelves.

When it came to water and the success of Danone’s water sales in the U.S., the

company was struggling. But as recent as the beginning of 2002, Riboud made strong

statements refuting the need for Danone to be successful in the U.S. water market. “The

Danone business equation is not a U.S. equation, it’s Asia, Latin America, Europe. Water in

the United States represents just two percent of our global sales volumes…we have no reason

to have an inferiority complex. Our strategy lies elsewhere.” These strong statements were

contrary to the “DIVERSIFICATION” strategy that Riboud had planned to implement during

his tenure.

These statements would also prove to be contrary to the Riboud’s aggressive moves in

its U.S. water operations, made within days of his bold statement…

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In the first of two dramatic agreements with one of its primary competitors, Coca-

Cola, Danone announced in April 2002, for the cola giant to take over management of the

Evian brand in North America. According to analysts at J.P. Morgan, under this agreement

Coca-Cola will have master distribution rights to Evian, and will handle all promotional and

customer marketing, in-store merchandising, bottler sales, and food service sales. Danone will

still manage sourcing, retain control of Evian’s brand image and advertising strategy.

The agreement includes incentives for Coke’s efforts to boost demand, based on a

target of five percent to ten percent annual sales growth. This is estimated to translate into a

potential return of $8.5 to $17 million annually given that Evian accounted for about twenty-

two percent of Danone’s U.S. water sales of approximately $780 million in 2001. If the

incentives produce an average increase in sales of $12 million, it would represent an increase

of less than one percent of total sales for Danone.

Danone’s second major agreement came in June 2002, when Danone and Coca-Cola

announced a joint venture for the production, marketing and distribution of Danone’s local

and regional branded retail bottled spring and sourced water from within the U.S. (For

example, Danone’s Dannon brand spring water is sourced in the U.S.). The terms of the

complex agreement are as follows:

Danone contributes the assets of its retail bottled spring and source water business in

the U.S., including five production facilities, a license for the use of the Dannon and

Sparkletts brands as well as ownership of several value brands.

Coca-Cola pays Danone $128 million cash for a 51% ownership interest and will

provide marketing, distribution and brand management. Most importantly, the

agreement contains volume and profit guarantees from Coca-Cola requiring sales

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volumes to grow in line with the large brands in the market (currently 20% annually)

to maintain a stable market share while achieving a guaranteed level of profitability.

However, it is unclear what penalty Coca-Cola will face if it fails to secure this level

of growth. According to J.P. Morgan, the amount of volume involved is 135 million

cases and they estimate that revenues for the joint venture could be in the $200 million

dollar range.

Quick to defend his statements of disconcern for the U.S. market just a few months

prior, Riboud was quick to say, “the market is totally different from five years ago…the

agreement with Coca-Cola will help us find a strong growth pattern again.” It has been

debated by Wall Street analysts whether these moves represent an alliance that will translate

into growth for Danone and Evian or whether these agreements mark Danone’s unofficial

withdrawal from the U.S. bottled water market.

Certainly the Coke joint venture, though completed, remained an uncertain guarantee

in Evian’s gain for market share in the U.S. So many questions remained for Riboud to

ponder. How does a CEO disclaim the need for the U.S. market and then complete a mega-

deal in the same market a few months later? Will the joint venture with Coke assure success

for Danone and Evian? Was this deal a desperate move – could Danone have invested in a

U.S. market strategy on its own? How does a CEO deal with the rumors of future mergers

with U.S. food giants, suck as Kraft, to create a truly global food services company? For

Riboud, the biggest waves were yet to come.

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Danone: A Brief History

Group Danone today has very little in common with its original operations, except that the

Riboud family has been in charge for over four decades. Danone’s humble beginnings are

traced back to Lyon, France where the original firm was a glass container manufacturer

named Souchon-Neuvesel. The following information briefly chronicles the history and

genesis of Danone. Danone’s history reflects three common themes, the company achieving a

leadership position in its markets, the firm’s (or the Riboud family’s) willingness to exit

successful businesses in order to redefine itself in the pursuit of growth, and the company’s

successful use of strategic mergers and acquisitions to perpetuate growth.

1965- Antoine Riboud replaced his uncle as chairman of the family-run Souchon-Neuvesel, a

Lyons, France-based maker of glass bottles

1966- Souchon-Neuvesel merged with Glaces de Boussois, a major French plate glass

manufacturer (windows for buildings & autos), creating BSN. The companies came to

together for two primary goals, 1. to cope with the changing market trend toward “no-deposit,

no-return bottles, and 2. to create a company that would be large and competitive enough for

the expanding European Common Market.

Using acquisitions, by the end of the 1960’s BSN had become one of the largest glass

manufacturers in all of Europe. However, the container industry was changing as the

demand for paper and plastic containers was spelling doom for glass bottle makers. BSN

recognized this threat and because it did not have operations or ties in the petrochemicals,

forestry or steel industries, the company believed a good solution would be to start making

the contents for its containers. This strategy marked another redefining moment for the

company and once again they would use acquisitions to create scale and generate growth. D-6

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In 1970, BSN took control of Evian, Kronenbourg and the European Breweries Company

and became the leading French manufacturer of beer, and mineral waters.

In 1973 BSN and Gervais Danone merged companies and created the biggest food group

in France. For BSN, the merger represented a major opportunity to move forward and

enter new markets, with a decisive shift toward food products.

With escalating energy costs hitting the glass-making business hard and convinced growth

would not return to this business for some time, BSN Gervais Danone began to exit from

plate glass manufacturing, which did not fit in with the food side of its business. It pulled

out of the plate glass sector completely in 1981, selling off Boussois and focused firmly

on food from then on.

·1980’s - In a series of acquisitions, BSN began a conquest of Europe by taking over

many local companies in various food categories to become Europe’s third-biggest food

group.

1982- Purchased Dannon, leading US yogurt maker (co-founded by Gervais Danone’s

Daniel Carasso).

Entered the biscuit industry in 1986 by buying General Biscuit and in 1989 they added to

its portfolio of biscuit brands by acquiring Nabisco's European subsidiaries.

1988- Begins aggressive push into global market with over 40 acquisitions in Asia, Latin

America, Central Europe, Africa, and the Middle East.

1994- Company changes name to Group Danone, symbolized by a little boy gazing up at a

star, to take advantage of the success of its leading brand, which was famous the world

over.

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1996- Franck Riboud succeeded his father as chairman and restructured the company to

focus on three core businesses: dairy, beverages (specifically water), and biscuits.

1999- Sold off its container business and breweries.

Danone’s Bottled Water Business

In 2001, Danone’s water division became number one in the world water market based on

volume sales with 12.5% of the global market. As a portion of total firm revenues, bottled

water comprised 27% or approximately $3.4 billion of total revenues for Danone in 2001.

Danone has accomplished its leadership position by using a two-tier strategy, first by

extending Evian as a global brand and by using acquisitions to acquire top regional and local

brands. Danone reports its company financials using the broad segment classifications of

France, Rest of Europe, and Rest of the World. A look at Danone’s water sales by region for

2001 was: 64% Rest of the World, 19% Rest of Europe, and 17%

France. Clearly Danone is a favorite in its home country and Europe, where Danone has

enjoyed continued growth through innovation. The firm has experienced high growth in

Europe with flavored waters and has even introduced diet waters in France and Italy.

European growth has even been derived from offering certain sized containers and enviro-

friendly containers that easily collapse to encourage popular recycling campaigns. Danone has

not introduced these innovative products in the U.S. water market. However, the company has

built a very strong presence globally, where it is typically ranked among the top three

companies in the countries in which it operates. Danone’s leadership position in water sales

in various countries is illustrated in Exhibit 3. While the data from the table shows how

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successful Danone’s water operations are globally, the U.S. market clearly stands out as one

of disappointing performance.

Exhibit 3

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Evian: Danone’s Glacier Brand

Driving Danone’s global water sales is the successful extension of Evian as a global brand.

Evian is the number two water brand in the world by volume and it is shipped to over 120

countries on five continents each day. Evian distinguishes itself as pristine, natural spring

water, bottled at one source, Cachat Spring in Evian-Les-Bains, France. The magnificent

French and Swiss Alps converge around the Mont Blanc, which towers above the lakeside

town of Evian-Les- Bains. The spring waters from Cachat Springs are world renown and

Evian-Les-Bain is famous in Europe for its spa resorts.

Untouched by Man. Perfect by Nature is a trademark of Evian Natural Spring Water

and it is used to infer unique pristine water and it is priced at a premium. Evian Natural Spring

Water begins as rain and snow falling high in the French Alps. It is said that the water then

spends at least 15 years slowly filtering down through a vast, protected aquifer deep within

the mountains. This wonder of nature as it is known was created by nature over several

millennia by the advance and retreat of the Rhone Glacier, which ground loose boulders into

an ultra-fine sand. As the water passes through this purifying filter and over mineral-rich rock,

the water is insulated by all external contamination by dense layers of protective clay and

emerges at Cachat Spring from a tunnel in the mountains at 52.88° F. Bottled and sealed at its

source as Evian Natural Spring Water, the water is not artificially altered in any way. Evian

Natural Spring Water has a unique history as is shown below.

Evian History:

30,000 BC Aquifer in the French Alps through which Evian travels formed

1789 The Marquis de Lessert discovers the Cachat Spring

1826 The Duke of Savoy grants authorization to bottle Evian

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1878 French Academy of Medicine recommends Ministry of Health to renew

the bottling authorization for the water

1906 Responding to a water shortage caused by the great San Francisco

earthquake & fire, Evian is donated to support relief efforts

1960 Sold exclusively in pharmacies until 1960

1970 Evian brand is acquired by Danone

Evian is presently ranked fourth in the U.S. bottled market behind Nestlé, Pepsi’s

Aquafina, and Coke’s Dasani. Prior to the entry of the cola giants into the U.S. bottled water,

Evian enjoyed a number one ranking as recently as 1996. In the past five years, Evian’s U.S.

market share has been halved from 7.2% to 3.6%.

The U.S. Bottled Water Market

Beginning in the 1980’s, bottled water has become the beverage of choice for a more healthy

fitness-oriented society. Vending machines stocking water and soft drinks are normally first

emptied of their water supply, even if a water fountain is nearby. Aside from the fitness

attributes of bottled water, consumers are also drawn to the purity that bottled water provides.

During the 1990’s, the billions of gallons of water sold in the U.S. have increased from two

billion in 1990 to 5 billion in 1999 (see Exhibit 4).

Exhibit 4: Bottled Water Consumption in the United States

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Molecularly speaking, water is a compound consisting of two molecules of hydrogen

and one of oxygen. But from a marketing standpoint, water represents the largest opportunity

in consumer beverage market. A free resource, covering nearly 75% of the world, is now a

marketed as a premium to an ever-increasing health conscious society. Perhaps a back-to-

basics approach is necessary to explain the phenomenon that is bottled water.

Water is classified as "bottled water" if it meets all applicable federal and state

standards, is sealed in a sanitary container and is sold for human consumption (see

http://www.bottledwater.org/public/BWFactsHome_main.htm). There are several different

varieties of bottled water. The Food and Drug Administration's (www.fda.org) product

definitions for bottled water are:

Well Water: Bottled water from a well that taps a confined aquifer in which the water

level stands at some height above the top of the aquifer.

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Mineral Water. Bottled water containing not less than 250 parts per million total

dissolved solids may be labeled as mineral water. Mineral water is distinguished

from other types of bottled water by its constant level and relative proportions of

mineral and trace elements at the point of emergence from the source.

Purified Water: Water that has been produced by distillation, deionization, reverse

osmosis or other suitable processes. (Both Pepsi’s Aquafina and Coke’s Dasani

are purified waters.)

Sparkling Water: Water that after treatment and possible replacement with carbon

dioxide contains the same amount of carbon dioxide that it had at emergence from

the source. (Nestlé’s Perrier brand would be considered a sparkling water.)

Spring Water: Bottled water derived from an underground formation from which

water flows naturally to the surface of the earth. Spring water must be collected

only at the spring or through a borehole tapping the underground formation finding

the spring. (Evian is spring water.)

Bottle water trade organizations, manufacturers, and (more recently) consumers

concur that the two favoring differences of bottled water over tap water are consistent quality

and taste. The belief (with varying degrees of substantiated proof) is that bottled water is

consistent because it is inspected and monitored by governmental and private laboratories.

While it is true that bottled water originates from protected sources (75% from underground

aquifers and springs) and tap water comes mostly from rivers and lakes, it is the guaranteed

consistency of taste that has drawn consumers to plucking down a dollar or more for a bottle

of water (even if that drinking water fountain is a few steps away).

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The classifications of bottled water have had little impact on the U.S. consumer. In

fact, the result of these classifications has created a murky bottled water market in which little

distinction is made in the advantages of one type of bottle water over another. For Evian, this

customer indifference has been a substantial disadvantage in gaining market hare in the U.S.

The additional handling and transportation costs of bottling from one glacier source in the

French/Swiss Alps force Danone to market Evian at a premium price. Evian’s average cost

per case is about 80% higher than that of Aquafina or Dasani. In the U.S., customers place

little value on this premium and simply choose the less expensive bottled water. In Europe,

consumers are more knowledgeable of the types of bottled water and accept the premium on

the Evian brand.

Competing Products in the U.S. Market

The primary bottled water competitors in the U.S. market are:

Perrier and Poland Springs (Nestlé) – Nestlé has formidable midrange and high-end

bottled water brands in the U.S. with Perrier and Poland Springs. Perrier has been imported

into the U.S. since the turn of the century. It was first bottled in 1863 and is available in more

than 100 countries. Every bottle of Perrier sold around the world is bottled at the source in

Vergeze, France. Perrier is the best-selling imported sparkling water in the U.S. The source

of Poland Springs water is located in a pine forest and protected by 350 acres of preserved

land in rural Maine. Poland Spring is a leading brand of bottled water in America, benefiting

from Nestlé’s formidable distribution network onto U.S. supermarket shelves.

Aquafina (PepsiCo) – Aquafina is also created from tap water, though the company is

hesitant to use the description “local water supply” on its website. “Aquafina uses state-of-

the-art purification systems, including reverse osmosis and carbon filtration. These processes

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are what allow us to guarantee Aquafina’s consistent purity and great taste.”

(www.aquafina.com)

Dasani (Coca-Cola) -- “To create Dasani, Coca-Cola bottlers start with the local water

supply, which is then filtered for purity using a state-of-the-art process called reverse osmosis.

The purified water is then enhanced with a special blend of minerals for a pure, fresh taste.”

(www.dasani.com)

Options for Marketing Evian in the U.S.

Unlike most bottled water markets in the world, the U.S. market poses unique competitive

pressures for Danone and its Evian brand. It is evident that the firm never saw the cola giants’

entry into the bottled water market coming or if they had done so, they must have

underestimated the impact to their market share and long-term sales growth. Danone’s recent

agreements with Coke may be too little, too late to preserve Danone’s presence as a top

selling firm in the U.S. water market.

Should the alliances with Coke fail, three alternative strategies could be considered for

Danone and its Evian U.S. water operations.

Go It Alone – For Evian to go at it alone in the U.S. market would mean that Danone

would have to accept the brand as a niche product rather than a leading product in the U.S.

water market. Leadership in the U.S. bottled water market that is being determined by price

and logistics alone locks Evian into being priced at a premium and therefore not competitive

for market share. By marketing Evian’s unique pristine qualities, and positioning the brand as

a niche, high-end premium beverage with a ‘healthy’ edge, Evian may be able to provide

Danone a higher-margin product, albeit with smaller volumes.

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A second-part to Danone’s U.S. water market strategy would be to position its Dannon

Spring water, a locally-sourced spring water, to compete against Nestlé and the cola’s for

market share in the high volume, price-driven retail market. However, the Dannon line’s

production and distribution would have to be built out with acquisitions. The strategy to go

alone would require high investment from Danone and the return on that investment would be

very long in coming.

Get out of the U.S. Market – Another option presented to Franck Riboud is to leave

the U.S. altogether, keeping the Evian brand in the U.S. only as a niche player. Perhaps

management needs to realize that the water drinkers in the U.S., with their lack of

differentiation among bottled water varieties, are not within the scope of Danone’s global

marketing strategies. Because the marketing successes that Evian has experienced in other

countries cannot translate to the U.S. market, a no-entry strategy would eliminate costly entry

expenditures and allow Danone to shift focus to gaining share in countries where the “glacier

premium” is recognized. This option could be referred to as the “LU Biscuit strategy” – while

Danone’s biscuit brand is number two in the world, it is non-existent in the U.S.

Merger/Acquisition – Among the possible acquisition suitors for Danone, including

Nestlé, Unilever, even the cola giants, it is Kraft Foods that appears to be the company best

positioned to capitalize on the merged synergies. Kraft is the largest branded food and

beverage company in North America and the second largest worldwide, based on 2001

revenue (Nestlé is number one). Kraft's brands are sold in more than 145 countries.

According to A.C. Nielsen statistics, they are found in more than 99% of all households in

the U.S. Nearly three times the size of Danone, Kraft derives 70% of its revenues from

North America and has extensive brand portfolio that includes a variety of food products

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except for bottled water. Acquiring Danone would allow for an entry into the growing

bottled water market, as well as increase the consumer base into Europe and Asia. One of

Kraft’s core strategic goals is to increase its global economies of scale and expand its brands

geographically. Acquiring Danone would be in alignment with this strategy – its 90%

revenue base outside of the U.S. and owner of the number two water brand in the world

could make a Kraft/Danone combination a true synergy fit.

Perhaps one of the most important factors stopping an acquisition of Danone is

nationalistic, historical and family pride of the company. Franck Riboud’s family, his

allegiance to his French culture, and his sense of individual ownership of the Danone brands

are formidable blockades to allowing the company to be acquired.

Franck Riboud contemplates Danone’s U.S. bottled water market strategy as he

windsurfs the calm waters of Lake Geneva. He muses, "Five years from now, could the

decision I will make be the subject of numerous business school case studies as the correct

way to maintain market presence in the U.S. or a wrong way?" Of course, only time will

tell…

Questions

1. Why has Evian’s U.S. market share continually decreased since the emergence of the cola

giants’ bottled water brands in the late 1990’s?

2. In evaluating Danone’s strategy for gaining U.S. market share, present the positives and

negatives for remaining a single enterprise entity and “going it alone”.

3. Given Evian’s lack of success in the U.S. market, what would be the ramifications of

Danone’s’ exiting the U.S. bottled water market altogether?

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4. Are the joint ventures the Coca-Cola the right decision? Why or why not?

Danone: Marketing the Glacier in the U.S.Case Overview and Discussion Questions

Temple University – Marketing 514Dr. Masaaki Kotabe

Michael PendletonAaron Tennant

Case OverviewAlthough widely considered a global success, sales growth and market share have

been dwindling in the U.S. for Danone’s popular Evian bottled water brand. With the

emergence of cola giants Coke and Pepsi’s bottled water brands, Dasani and Aquafina, the

U.S. market share of Danone’s Evian brand has decreased by 50%. With only a 3.5% market

share in 2001, CEO Franck Riboud was faced with making the strategic decisions for boosting

the market presence on Evian in the U.S. In implementing a strategy for Evian’s future in the

U.S., Riboud looked at one of its most formidable opponents in the unique U.S. bottled water

market – Coca-Cola.

In the first of two dramatic agreements with one of its primary competitors, Danone

announced an agreement in April 2002, for the cola giant to take over the Evian brand in

North America. According to analysts at J.P. Morgan, under this agreement Coke will have a

master distribution rights to Evian, and will handle all promotional and customer marketing,

in-store merchandising, bottler sales, and food service sales. Danone will still manage

sourcing, retain control of Evian’s brand image and advertising strategy. Although financial

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details of the agreement were not disclosed, Bloomberg reported that there the agreement

includes incentives for Coke’s efforts to boost demand and is based on a target of five percent

to ten percent annual sales growth. (We estimate that this translates into a potential return of

$8.5 to $17 million annually given that Evian accounted for about twenty-two percent of

Danone’s U.S. water sales of approximately $780 million in 2001.) If the incentives produce

an average increase in sales of $12 million, it would represent an increase of less than one

percent of total sales for Danone.

Danone’s second major agreement came in June 2002, again with Coke. Danone and

Coke announced a joint venture for the production, marketing and distribution of Danone’s

local and regional branded retail bottled spring and sourced water from within the U.S. (for

example, Danone’s Dannon brand spring water is sourced in the U.S.) The terms of the

complex agreement are as follows:

Danone contributes the assets of its retail bottled spring and source water business

in the U.S., including five production facilities, a license for the use of the Dannon

and Sparkletts brands as well as ownership of several value brands.

Coke paid Danone $128 million cash 51% ownership interest and will provide

marketing, distribution and brand management. Most importantly, the agreement

contains volume and profit guarantees from Coke requiring sales volumes to grow

in line with the large brands in the market (currently 20% annually) to maintain a

stable market share while achieving a guaranteed level of profitability. However, it

is unclear what penalty Coke faces if it fails to secure this level of growth.

According to J.P. Morgan, the amount of volume involved is 135 million cases and

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they estimate that revenues for the joint venture could be in the $200 million dollar

range.

The indifference in the types of water that a U.S. consumer drinks, the difficulties in

entering the cola-controlled distribution systems and the extreme price-sensitivity to bottled

water have the three biggest obstacles facing Danone in its quest to gain market share in the

U.S. In Europe, consumers are more knowledgeable of the types of bottled water and accept

the premium on the Evian brand. (This premium, of course, is required due to the costly

transportation costs of bringing water from the French Alps to the states.) According to

equity analyst estimates, Evian’s average price per case is about 80% higher than that of

Aquafina or Dasani. In the U.S., customers place little value on this premium and simply

choose the less expensive bottled water.

It has been debated by Wall Street analysts that the deals with Coke represent either an

alliance that will translate into growth for Danone and Evian or these agreements mark

Danone’s unofficial withdrawal from the U.S. bottled water market. Certainly the Coke joint

venture, though completed, remained an uncertain guarantee in Evian’s gain for market share

in the U.S. So many questions remained for Riboud to ponder. How does a CEO disclaim the

need for the U.S. market and then complete a mega-deal in the same market a few months

later? Will the joint venture with Coke assure success for Danone and Evian? Was this deal a

desperate move – could Danone have invested in a U.S. market strategy on its own? How

does a CEO deal with the rumors of future mergers with U.S. food giants, suck as Kraft, to

create a truly global food services company?

The following questions present the primary debatable points for this case study, as

well as our viewpoints gained from our research:

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Questions

Why has Evian’s market share continually decreased since the emergence of the cola

giants’ bottled water brands in the late 1990’s?

Evian’s market share has continually decreased due to:

Lack of premium association of glacier-sources water – Unlike Europe, where consumers

seek out and gladly pay a premium for the glacier-sourced Evian, U.S. customers

demonstrate extreme price-sensitivity. More often than not, the cheapest water is the

water first selected of store shelves.

Distribution deficiencies – When compared to the distribution capabilities of Coke, Pepsi,

and Nestlé’s water brands, Danone is inferior. Considering the points of sale for bottled

water (grocery stores, convenience outlets, street vendors, and vending machines), and

Evian is rarely the prominent brand.

Lack of advertising – Danone has never attempted to sway the U.S. market to embrace the

“glacier premium” with a comprehensive advertising campaign.

In evaluating Danone’s strategy for gaining U.S. market share, present the positives and

negatives for remaining a single enterprise entity and “going it alone”.

For Evian to go at it alone in the U.S. market would mean that Danone would have to

accept the brand as a niche product rather than a market leader in the U.S. Leadership in the

U.S. bottled water market is being determined by price and logistics alone lock Evian into

being priced at a premium and therefore not competitive for market share. By marketing

Evian’s unique pristine qualities, and positioning brand as a niche, high-end premium

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beverage with a ‘healthy’ edge, Evian may be able to provide Danone a higher-margin

product, albeit with smaller volumes.

A second-part to Danone’s “go-it-alone” U.S. water market strategy would be to

position its Dannon Spring water, a locally-sourced spring water, to compete against Nestlé

and the colas for market share in the high volume, price-driven retail market. However, the

Dannon line’s production and distribution would have to be built-out with acquisitions. The

strategy to go alone would require high investment from Danone and the return on that

investment would be very long in coming.

Given Evian’s lack of success in the U.S. market, what would be the ramifications of

Danone’s’ exiting the U.S. bottled water market altogether?

Another option presented to Franck Riboud is to leave the U.S. altogether, keeping the

Evian brand in the U.S. only as a niche competitor. Perhaps management needs to realize that

the water drinkers in the U.S., with their lack of differentiation between bottled water

varieties, are not within the scope of Danone’s global marketing strategies. Because the

marketing successes that Evian has experienced in other countries cannot translate to the U.S.

market, a no-entry strategy would eliminate costly entry expenditures and allow Danone to

shift focus to gaining share in countries where the “glacier premium” is recognized. This

option could be referred to as the “LU Biscuit strategy” – while Danone’s biscuit brand is

number two in the world, it is non-existent in the U.S.

Were the joint ventures the Coca-Cola the right decision? Why or why not?

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Considering the costs of distribution, marketing and advertising the premium attributes

of the Evian brand, we consider the Coke/Danone joint ventures to be the most ideal business

set-up for building a competitive premium brand in the U.S. The Coke deal is advantageous

for the following reasons:

The deal allows for a shifting of management and resources to other country

markets that have been historically successful.

The guarantee of an increased return on a product line during economic

decline is a financially sound strategy.

Shifting marketing and distribution decision-making is prudent given the

U.S. bottled water market is has not successfully understood by Danone

management.

The deal, which will market Dasani as a “mid-priced” water and Evian as a

“high-end” water, maintains the premium status associated with the brand

that the rest of the world market recognizes.

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