CHICAGO (Reuters) - Danone (DANO.PA), the world’s largest yogurt maker, expects double-digit percentage dairy sales growth in the United States over the long-term and aims to double per capita consumption in that market within four years.
Gustavo Valle, chief executive officer of Dannon, the French group’s U.S. $1 billion-plus yogurt business, said the U.S. market is still very underdeveloped with consumption six times lower than in Western Europe.
“For the future, we see double-digit growth on a long-term basis,” Valle said on Monday at the Reuters Food and Agriculture Summit in Chicago. “In four years, we can double the consumption per capita.”
Dannon cut U.S. yogurt prices by 3 percent to 5 percent in mid-2009 as part of a wider group move to reflect the fall in milk prices. That helped boost sales by 15 percent in the second half of 2009 compared to flat sales in the first half of 2009.
Valle added that yogurt sales including its best-selling Activia brand were continuing to grow around 15 percent in the first 2-1/2 months of this year. Activia is made by Dannon.
He expects to keep U.S. yogurt prices flat this year despite the first signs of milk prices starting to rise again.
“We are already seeing milk prices rising, but price rises are not an option,” he said.
Danone’s fresh dairy division worldwide makes up nearly 60 percent of the group’s 2009 total sales of almost 15 billion euros, and the mid-year price cuts helped push up global sales volumes by 4.6 percent.
Four years ago, Dannon made the decision to focus its marketing resources on the launch of Activia, advertising the digestive health benefits of eating yogurt.
At the same time, competitor Yoplait, a unit of General Mills (GIS.N) was promoting its yogurt with large discounts on store shelves.
Last year, Dannon changed its strategy to support all of its brands, such as Like and Fit, Danimals and Dannon, with heavy promotions as it looked to gain shelf space and attention from consumers looking for lower prices.
As Dannon tries to grow the U.S. yogurt market, the company has to deal with American tastes, which are different than those in Dannon’s other markets.
American-style yogurt has a lower fat content than in other countries and a different taste.
“Each time I explain this to my boss (at France’s Danone) ... he tastes the product and says ‘but this is not good,'” Valle added.
He said the annual U.S. yogurt consumption is 11-1/2 pounds per capita compared to six times that level in Western Europe and twice the level in Canada.
There was a huge opportunity to raise consumption as Dannon increased levels of advertising and promotion and consumers started to understand the health benefits. Canadian consumption has doubled in the last five years.
Although there are up to 25 different flavors in the market and Dannon is introducing cheesecake flavored Activia, the market relies on largely on two staple flavors.
“Eighty percent of the volumes are done with strawberry and vanilla. ... We never increase the consumption per capita by increasing the flavors. We increase complexity. It’s a nightmare, it’s a nightmare for the company, it’s a nightmare for the factories, it’s a nightmare for the retailer,” he said.
Reporting by David Jones and Brad Dorfman; Editing by Carol Bishopric and Richard Chang