French food giant Danone announced on Tuesday (October 28th) its third-quarter sales performance, with a 4.8% increase in like-for-like sales amounting to 68.76 billion euros (80.2 billion US dollars), surpassing analysts’ expectations of 4.3%. The company’s sales exceeded market expectations mainly driven by significant growth in its China business, particularly in the demand for infant nutrition and medical nutrition products.
Although the current Chinese economy is facing consumption tightening pressure, Danone’s high-end product line, especially infant formula milk powder, has shown strong “structural consumption resilience” in the Chinese market. Danone’s impressive performance does not necessarily indicate a overall economic recovery in China, but it reflects more on Chinese families’ consumption choices under “essential upgrade” and “trust crisis”.
Danone’s China, North Asia, and Australia regions have been its best-performing areas, with a remarkable 13.8% increase in like-for-like sales. Chief Financial Officer Juergen Esser stated that the company’s China business is “fully engaged”.
Danone’s strong performance, especially in the infant formula milk powder business, is largely attributed to Chinese consumers’ high trust in international brands and food safety. Since the domestic milk powder safety incident in 2008, Chinese families have been very cautious in choosing infant nutrition products, willing to pay a premium for international major brands that are perceived as “safe and reliable”. This has created a “safety essential” trend, making its sales less susceptible to macroeconomic fluctuations.
Esser mentioned that another significant driving force for Danone’s success in China is the continuous growth in demand for medical nutrition products brought about by the aging population. These products fall under the category of essential medical and health needs, are less affected by economic cycles, and represent a relatively stable high-growth sector.
Specifically, Danone achieved strong growth in its infant formula milk powder, medical nutrition products, and Mizone water business in China. Danone’s brands also include Evian mineral water, Aptamil baby formula, Activia yogurt, among others.
In contrast to the strong growth in the Chinese market, the performance in the North American market was sluggish, with a mere 1.5% increase in like-for-like sales. Products like Greek yogurt Oikos and protein products helped offset the weakness in the coffee companion business in the US market. The 0.3% growth in sales in North America was significantly lower than analysts’ expected 1.8%.
Analysts have cautioned that the high dependence on the success of professional nutrition products in China could raise concerns among investors. Jefferies analyst specifically mentioned that as 2024 is the year of the Dragon, birth rates are expected to increase, but by 2026, the Chinese infant formula milk powder business may face a decline in sales, needing growth in other regions to compensate for it.
Danone is increasingly focusing on the health and science field, which helps the company establish business resilience in a turbulent environment.
Danone’s sales growth rate this quarter surpassed that of competitors Unilever (3.9% growth) and Nestle (4.3% growth).
Sales in the European market saw a 2.6% increase, primarily driven by volume, benefiting from the strong performance of brands like Evian water, Activia Kefir, and YoPro high-protein “functional” dairy products.