Danone India eyes cost cuts, double revenue

MUMBAI: Dairy company Danone India Pvt Ltd, which also sells Farex baby food and Protinex supplements that it acquired from Wockhardt Ltd, is looking to cut costs and double its revenue in the next three years. Danone India plans to plough back its cost savings into advertising and marketing, managing director Rodrigo Lima said.

The Indian unit of Danone SA, Europe’s largest yogurt maker, also hopes to reduce production costs and cut the prices of its products over the next three to four years.

“Most of our products are premium today as we are operating at just half the capacity; investments and overheads are high,” said Lima, who plans to achieve his target of doubling revenues over the next three to four years by stepping up product launches and expanding distribution.

“As our volumes increase and we get closer to full capacity utilisation, we would be able to reduce our prices by more than 20%,” added Lima. Currently, the company’s products are available only in urban markets in India.

“Reducing costs requires streamlining various activities such as procurement, logistics and also investments in modern plants and machinery which give higher yield and productivity,” said Dhanraj Bhagat, partner at Grant Thornton India LLP.

In the past six years, Danone has invested ₹1,800 crore in its India operations. The money has been spent on building manufacturing facilities in Haryana and Punjab, setting up the head office in Mumbai and the acquisition of Wockhardt Group’s nutrition business in 2011.

Reworking affordability will help drive penetration. “We are present in 200,000 stores and will increase this by 30,000-50,000 stores by the year end through distributors,” said Lima, adding that Danone also aims to increase the reach of its nutrition portfolio from chemists to groceries.

The firm is also scrutinising procurement and other costs with the aim of channelling savings into expanding its sales force and spending more on advertising and marketing.

“We have identified that we can bring our non-productive costs down by 1-2% (as a percentage of revenues),“said Lima. In the December quarter, Danone saved a few crore rupees by moving its procurement system online.

Globally the company has four lines of operations — dairy, beverages, early life nutrition and advanced medical nutrition. In India, it is focussing on dairy and early life nutrition and will also grow the advanced medical nutrition portfolio in the coming years