Danone will be reducing its workforce by 2,000, cutting up around 2% of the total jobs in an effort to perform efficiently amid the pandemic. According to a source, around 400-500 of the job slashes would be in France. The company will be giving more power to country managers as part of reshaping into a “local-first” company. The jobs cut will include one in four positions at its global headquarters.
The Evian bottled water manufacturer aims to save 1 billion euros by 2023 while reducing costs of goods by 300 million euros and general and administrative costs by 700 million euros, leading to a 20% decline in overhead costs overall. The company also estimates that its recurring operating margin would again increase to the pre-Covid amount of more than 15% by 2022.
The world’s largest yogurt maker also said that it is pondering over moving its global headquarter sites closer to the base of its French operations in Paris. The savings would also be made by more conscious and efficient purchasing.
The decision comes one month post the announcement of an overhaul of the group’s management and the plans to sell off declining businesses and reducing the product portfolio by 10-30% so that it could focus on more profitable products.
Unlike its competitors, Danone was unable to benefit from the pandemic due to the lack of hygiene products in its product portfolio. The multinational giants, Reckitt Benckiser and Procter & Gamble sell sanitary products which have led to a sales boom for the companies since the pandemic began.
As the pandemic led to lockdowns which caused the closure of restaurants and working from home, sales of Danone’s bottled water also declined 17% in the first nine months. Unfortunately, while other brands like Kellogg’s and Kraft-Heinz were able to benefit from the increased demand for packaged foods, Danone wasn’t able to do the same.
With all the losses, Danone’s shares crashed hard by around 30% this year; way worse than the 2% rise for Unilever, 2% decline for Nestle, and the 4% fall in the MSCI Europe consumer staples index. Danone’s share prices have reached 6-year lows leading to a decline in investors’ confidence in Danone’s ability to improve profitability and growth of the business.
The company now aims to focus on geographical areas instead of product categories – like its competitor, Nestle. However, Danone’s product portfolio is not as broad which leads to uncertainty about the success of the new organizational structure.
Danone restated its 2020 full-year guidance for 14% recurring operating margin and a free cash flow of 1.8 billion euros. While analysts have raised the point of selling the water business, CEO Faber made it clear that it is not on the agenda. However, Faber mentioned that a higher rate of selling off businesses could be expected in the next 2-3 years.
Currently, Danone has a presence of global headquarters across Amsterdam and Singapore.
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