Danone is a multinational food company formed in 1919 in Barcelona, Spain. The group is headquartered in Paris, France. The company’s main focus on four food product lines, essential dairy and plant-based products, waters, early life nutrition, and medical nutrition. The company has a presence in over 130 countries and 5 continents in the world (Danone, 2020). The group operates through its brand. This includes but not limited to Activia, Actimel, Alpro, Danette, Danonino, Danio, Evian, Silk, and Aqua (Danone, 2020). Danone is one of the most valuable food brands in the world. Porter’s five forces model is a useful tool to identify threats and opportunities faced by Danone in the food industry in Europe and worldwide.
Competitive Rivalry in the Market
The food industry all over the world is very competitive. The food industry is predominated by food conglomerate with their presence all over the world. The biggest competitors of Danone are Nestle, Mondelez, and Unilever (Business Insider, 2016). All these multinational companies have strong foothold all over the world. Danone dominates the market in Europe. It is a world leader in plant-based dairy products, and it is a European leader in advance medical nutrition. The revenue of Nestle and Mondelez is $93.512 Billion (Fortune, 2019) and $25.868 Billion (Statista, 2019), respectively. In comparison, the annual revenue of Danone was $29.092 Billion (Fortune, 2019). Danone holds a slight edge in marker over its competitors due to its diversified products and presence in the majority of the world. It had made it difficult for their rivals to compete with them.
Threat of Substitutes
The food industry in the entire world is extremely competitive. The clientele always has multiple options to choose from. Different brands are offering similar products. So to keep up with them, they must not compromise on their products while keeping the prices in control. Danone holds higher ground in plant-based dairy products and medical nutrition. The rise of eco-economy in the 21st century is creating pressure on the water industry all over the world. The polyethylene terephthalate (PET) use to pack water in single-use plastic, and it doesn’t decompose (World Economic Forum, 2015). The climate activist is pressuring against packed water. The diversified portfolio which caters to different demographics provides them an upper hand. Those products cater to huge masses in society. Therefore the threat level is medium for Danone. The main reasons are the competition in the market & the industrial revolution due to climate change.
The Threat of New Entrants
A startup requires a lot of capital to enter the food industry. It has a complex supply chain system. You have to invest in high capital and provide financial incentives to be able to enter the market. It is quite difficult to compete with Danone. It is because of its brand credibility and history. This took it around a century to reach where it is. The majority of the products are similar in the food industry. The market is already saturated with so many companies. You will have to bring something new to compete with. Danone has a staff of around 500 people in 40 countries (Danone, 2020). The research and development department requires a huge initial investment and time. The threat of new entrants is very low.
Bargaining Power of Buyers
The main clientele of these manufacturers is retail giants such as The Metro, Carrefour, Tesco, and Wal-Mart. These buyers expect higher power due to the demand for products. There is a complex supply chain system in the food industry. They run the chain store all over the region and need a continuous supply of products. The market is saturated, and they have other available options. When there are multiple brands in the market with the same products. They can switch to other manufacture due to an increase in cost and better quality. It provides them higher negotiating power with manufacturers. The retail giants need to work with environmentally friendly manufacturers. Retail giants can exercise higher bargaining power.
Bargaining Power of Supplier
Suppliers hold higher power if the industry is dominated by a few suppliers, it provides more products in the market, and it is future integrated. The raw products except the material can be produced by giants like Danone. Danone produces the majority of its packaging and retail items, which saves it’s from a major threat. The raw material supply, which is directly linked to your products, can impact them. The rise in the price of raw materials can impact the cost of the products. It can impact it in the market due to the saturation of the products. They can switch to other manufacture for better rates. The supplier can impact the company. So they hold medium level bargain power against the company.
References
Business Insider. (2016). These 10 companies control everything you buy. Available at: https://www.businessinsider.com/10-companies-control-the-food-industry-2016-9
Danone. (2020). About us. Available at: https://www.danone.com/about-danone.html
Danone. (2020). Staying ahead with innovations. Available at: https://www.danone.com/brands/dairy-plant-based-products/research-and-innovation.html
Fortune. (2019). Global 500. Available at: https://fortune.com/global500/2019/nestle/
Fortune. (2019). Global 500. Available at: https://www.statista.com/statistics/268889/net-profit-of-the-nestle-group-worldwide/
Statista. (2019). Net revenue of Mondelez International worldwide from 2011 to 2019. Available at: https://www.statista.com/statistics/260298/net-revenue-of-mondelez-international-worldwide/
World Economic Forum. (2015). Should we drink bottled water? Available at: https://www.weforum.org/agenda/2015/09/should-we-drink-bottled-water/