{"id":23226,"date":"2017-11-15T00:00:33","date_gmt":"2017-11-15T05:00:33","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/danone-russia-5-years-to-collect-digitalization-fruits\/"},"modified":"2017-11-15T00:03:37","modified_gmt":"2017-11-15T05:03:37","slug":"danone-russia-5-years-to-collect-digitalization-fruits","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/danone-russia-5-years-to-collect-digitalization-fruits\/","title":{"rendered":"Danone Russia: 5 years to collect Digitalization fruits"},"content":{"rendered":"

Danone and Danone Russia<\/h2>\n

Danone is a global Consumer Packaged Goods (CPG) company with HQ at Paris. Founded in 1899 it has ~100\u2019000 employees, ~$24B sales, $42B Market capitalization. Operating in 4 divisions (Fresh Dairy Products, Waters, Early life Nutrition, Medical Nutrition) last time Danone was in the Forbes \u201cThe Most Innovative Companies\u201d list at 2014 (#86) worsening 2013 result (#29) [1], [2]. Danone Russia (DR) is a subsidiary of Danone (57,5%) and Unimilk (42,5%) with ~10\u2019000 employees, ~$700M sales, 17 factories [3].<\/p>\n

Industry context and the role of Digitalization for Danone Russia<\/h2>\n

Competitive CPG industry is low marginal and pressure on profitability is increasing annually – CPG is the first step of supply chain and should share margins with Wholesalers, DCs, Retailers. At this crisis period costs continue to rise, while reduced purchasing power limits prices.<\/p>\n

Digitalization opens DR an opportunity to be more profitable using three levers which support traditional \u201coffline\u201d approach and develop direct\u00a0\u201cVendor<->Customer\u201d connection.<\/p>\n

\"\"<\/a><\/p>\n

\u00a0<\/strong><\/p>\n

WEB 2.0:\u00a0<\/strong>\u201cKnow your customer\u201d\u00a0<\/strong><\/h4>\n

Rationale<\/em>: WEB 2.0 is important for demand (e.g. analyze cohorts\u2019 behavior to balance assortment) and supply (e.g. use right channels in right geographies) both for short-term reactions and long-term planning. Report-based analyzes and personalized customer motivation are key for loyalty.<\/p>\n

DR status<\/em>: Current marketing strategy allocates up to 90% of budget to TV. Digital department has no formal KPIs and is mostly responsible for social media which are comparable underdeveloped both in original content and number of followers (Facebook, 1662 followers [4]; Instagram 48 followers [5]). There is also no keyword-based advertising and no potential customers\u2019 digital activities analytics. [6]<\/p>\n

Possible next steps<\/em>: Offline promo-codes with online promo-site (PepsiCo model) will help DR to collect customer data. Further promotions (keywords, display advertising, social media), precise marketing and direct contact with low response time will engage customers in feedback loop what increases loyalty, helps DG to promote their products and to improve assortment (\u201cmums\u201d is one of these categories which is active in internet but ignored by DR). [7]<\/p>\n

Improve production efficiency with digital technologies <\/strong><\/h4>\n

Rationale<\/em>: Digitalization is crucial for effective forecasting and process management\/control what reduce inventory turnover, increases utilization and provides flexibility in unexpected situations.<\/p>\n

DR status: <\/em>DR is strongly depended on outdated Unimilk factories [8]. Current 5 years $700M program is mostly focused on achieving Danone\u2019s quality standards rather than on supply chain effectiveness. High seasonality and weak forecasting makes DR to purchase from short list of milk suppliers at higher prices. New high-tech factories\u2019 robotics technologies and sterile atmosphere lead to necessity of producing big batches with one month upfront planning. Thus, for some products, inventory turnover reaches 6 months.<\/p>\n

Possible next steps<\/em>: IT-transformation of supply-chain will support \u201cjust in time\u201d process. Further automation of warehouses, predictive shipping, smart contracts and transparent for all participants web-connected supply chain tools (e.g. online biding for milk suppliers) are examples of quickly implemented best practices solutions applicable to DR.<\/p>\n

Digital sales channels without middle men<\/strong><\/h4>\n

Rationale<\/em>: Direct sales channel will provide benefits for goods flow (potentially higher margin – no sharing with middle men and optimal design for established internal processes) and information flows (support for WEB 2.0 tools). \u201cNew service\u201d advertising is more attractive and sticky than \u201cnew product\u201d. Subscription model provides additional boost to loyalty.<\/p>\n

DR status<\/em>: Denis Makhanko (HBS MBA 2009) has launched DR internal online startup Milkdirect in May 2017 outside of Marketing department [9]. Milkdirect sells 3 product lines directly to customers [10]. Project is a response to previously discontinued e-channels trade marketing and no usage of existing customer database. Currently key target is to increase average check and decrease operations costs to make Milkdirect profitable without changes in prices. [11]<\/p>\n

Possible next steps<\/em>: Increasing the number of Danone\u2019s brands jointly with cooperation with other non-competitive CPG companies will support higher average basket and attract broader audience what consequently will increase density of deliveries and decrease their cost. Volume will also support more efficient supply chain and decrease necessity to write off goods from too large batches. Additional revenue stream with low acquisition extra-cost will be introduction of subscription model (e.g. new for Russia fresh milk delivery each 2 days) or dash buttons.<\/p>\n

Danone Russia 2022<\/h2>\n

Political crisis and increasing competition (Campina sales director has explicitly highlighted that his key goal is to surpass DR sales [12]) are important challenge as DR performance will influence on Danone\u2019s decision whether to buy or not to buy Unimilk\u2019s share at 2022 [13] what is vital opportunity for further sustainable growth using Danone\u2019s global scale and experience.<\/p>\n

Which of Possible next steps<\/em> should DR implement and how to prioritize them in limited budget? Are 5 years enough to make Milkdirect notable and profitable channel? What will be the competitors\u2019 response as many of them are considered by Forbes as ready for Digital \u201cwar\u201d?<\/p>\n

 <\/p>\n

Word count: 799<\/p>\n

 <\/p>\n

Sources:<\/p>\n

[1] Forbes, Danone profile, www.forbes.com\/companies\/danone\/<\/p>\n

[2] Forbes, The World\u2019s Most Innovative Companies 2017, www.forbes.com\/innovative-companies\/<\/p>\n

[3] Official Danone Russia site, www.danone.ru<\/p>\n

[4] Official Danone Russia Facebook page, www.facebook.com\/www.danone.ru\/<\/p>\n

[5] Official Danone Russia Instagram page, www.instagram.com\/danone_russia\/<\/p>\n

[6] Test has been conducted for top-10 keywords at www.google.ru and www.yandex.ru<\/p>\n

[7] eConsultancy, \u201cDanone: Why social media should drive digital transformation\u201d, www.econsultancy.com\/blog\/68380-danone-why-social-media-should-drive-digital-transformation\/<\/p>\n

[8] RBC, \u201cDanone to close two of its plants in Russia\u201d, http:\/\/www.rbc.ru\/business\/26\/12\/2015\/567dabfd9a7947bfa700b6a6<\/p>\n

[9] Kommersant, \u201cMilk poured into the Internet\u201d, https:\/\/www.kommersant.ru\/doc\/3455472<\/p>\n

[10] Official site of Milkdirect project, www.milkdirect.ru<\/p>\n

[11] Interview with head of Milkdirect Denis Makhanko (by Ted Lisitsyn, Nov 2017)<\/p>\n

[12] Interview with Campina Sales Department (by Ted Lisitsyn, Oct 2017)<\/p>\n

[13] Finmarket, \u201cDanone and Unimilk will \u201cmerge\u201d in milk\u201d, www.finmarket.ru\/main\/article\/1530497<\/p>\n","protected":false},"excerpt":{"rendered":"

France-based Danone owns 57,5% of Danone Russia which have only 5 years in very competitive market to prove their potential and convince global company to buy out the remaining stake. 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