Danone's Cheap Trick

By Barbara Kiviat Monday, Aug. 23, 2010
    • Tom Haley / Sipa / Danone Communities

    Snack time Grameen Danone's nutrient-rich yogurt is aimed at Bangladeshi kids

    Groupe Danone is the world's largest yogurtmaker and one of the biggest companies in France, with some $21 billion in sales annually. Yet a tiny factory in Bangladesh from which Danone never expects to earn any money is giving the company a profitable lesson in manufacturing for the developing world — and even some tips for business in the West.

    The factory, which sits in the northern city of Bogra and makes a nutrient-rich kids' yogurt called Shakti Doi ("energy" in Bengali), got its start in 2005, when Danone CEO Franck Riboud met Muhammad Yunus, the Bangladeshi microfinance pioneer and founder of Grameen Bank. Yunus has a habit of finding ways to use corporate infrastructure to reach ultra-poor consumers, as his worldwide following can tell you.

    The result is Grameen Danone and a factory that produces one-hundredth of what a typical Danone plant does, churning out a low-cost yogurt fortified with four vitamins and minerals generally lacking in the diets of the area's poorer children. Danone expects the enterprise — one of its "social businesses" — to eventually run at breakeven or better, but any profit will be reinvested in similar projects.

    What Danone didn't expect is that selling yogurt to the bottom of the pyramid would teach so much, in realms from product development to factory design. "Two years ago, I was pushing to have people from the Western world interested in what we're doing," says Philippe Pages, Danone's director of nutrition for emerging markets. "Now I'm bombarded with requests."

    Consider what Danone has done with food fortification. In Bangladesh the company set out to put enough vitamin A, iron, zinc and iodine into a 60 g or 80 g cup of yogurt to meet 30% of a child's daily needs. That proportion was beyond anything Danone had ever attempted. It took a year and dozens of tries to figure out how to do it without the nutrients reacting to one another and souring the yogurt.

    Part of the answer lay in a new, less reactive iron that Danone had learned about from an NGO — not the sort of partner a global corporation tends to come across in its normal line of business. Now Danone is using that iron in products for the developed world, where the company sells fortified yogurt targeting things like bone strength in older women (the Densia brand) and better digestion (Activia).

    The Bogra operation has also proved a template for how Danone might push deeper into the developing world. The company already makes about 40% of its sales in emerging markets, but almost all of that is to the richest 5% to 10% of consumers in those areas. One lesson Danone picked up in Bangladesh: how to help farmers keep the milk they bring to market fresh by using enzymes, since refrigeration isn't always possible. Someday that could help Danone expand in Africa.

    Danone is also figuring out how to produce yogurt less expensively. To make Shakti Doi affordable, the company built a far simpler, lower-cost, 600-sq-m factory, even using one less tank thanks to an innovation in the fermentation process. The plant can't make complicated recipes, and it relies on cheap labor (at local wages). But it has given Danone new insights about economies of scale. "The day we engineered that factory, a mental barrier was broken," says Danone co-COO Emmanuel Faber. What the factory lacks in size, it makes up for in ease of use; workers simply don't have to be as skilled.

    On the other side of the coin, the experience has underscored the fact that there's no point in reinventing the wheel. Danone originally thought that marketing in Bogra would be completely different, just as manufacturing was. There are indeed novel elements; you don't often find nurses traveling to small U.S. towns to explain the nutritional benefits of yogurt. Yet Danone has discovered that one of the best ways to sell its wares in Bangladesh is on television, where it runs a traditional advertising campaign — featuring Muhammad Yunus. A mass-media celebrity endorsement, it seems, has value no matter where you are in the world.