A company logo of the French food group Danone on a truck in Mexico City, Mexico. Picture: REUTERS/EDGARD GARRIDO
A company logo of the French food group Danone on a truck in Mexico City, Mexico. Picture: REUTERS/EDGARD GARRIDO

Danone chair and CEO Emmanuel Faber finds himself under growing pressure as activist shareholders push for change at the world’s largest yoghurt maker. The big problem is there may be no quick solution.

The Evian maker is expected to report its first drop in comparable sales in at least three decades on Friday. That contrasts with Nestle and Unilever, which had growth despite the pandemic. Danone’s exposure to bottled water means it is suffering more from Covid-19 restrictions on restaurants, and the company’s baby-food business is facing weakness amid lower birth rates.

A growing chorus of shareholders, including Artisan Partners Asset Management and Bluebell Capital Partners, have demanded Faber’s removal as CEO to pave the way for a greater overhaul. Others, such as Causeway Capital Management, are asking that the company split the roles of chair and CEO.

Danone’s board did not discuss separating the positions in October when it discussed organisational changes, Faber said at the time. The only time the roles were separate at the company was from 2014 to 2017, when Faber was CEO under former chair Franck Riboud. Faber signalled last month that he did not have a dogmatic view on the matter.

“Like an alcoholic, you have to admit you have a problem before you can get better,” said Duncan Fox, an analyst at Bloomberg Intelligence. “Perhaps just as important as splitting the CEO and chairman roles is gaining back investor trust. Admitting their mistakes and making a few tweaks with an external appointment for CEO would go a long way.”

However, a new boss might not be enough. Analysts such as Bruno Monteyne at Sanford C Bernstein say the issues holding back products such as yoghurt and bottled water are so deep there is no easy fix. He expects Danone will lower its profit outlook so that it can invest more and regain market share, which will probably weigh on the stock and take time. Danone shares plunged 27% last year, and have gained 3.7% so far this year.

Investors’ discontent has grown over the past decade as Danone struggled to revive its yoghurt business sales as consumers embraced new trends such as Greek and non-dairy. The company later still lagged peers even after shelling out more than $10bn for oat milk maker WhiteWave in 2017. Questions about leadership became louder this year as Danone underperformed rivals.

“No new management team has a magic bullet to change fortunes quickly,” Monteyne wrote in a note last week. “A new CEO will give a burst of hope and optimism, but continuous decline seems the most likely path.”

There is nothing Danone can do about birth rates, and it is difficult to bring in innovative new products when managers are concerned about job losses in a restructuring, Monteyne wrote.

Another problem is that two of Danone’s product categories — yoghurt and bottled water — are divided into two segments, one which is fast-growing and another that is lagging. That makes it complicated to use M&A as a solution, especially when private label competition is increasing.

Faber has made small steps so far. In October, the company announced a strategic review and plans to cut as many as 2,000 jobs, which is less than 2% of its total staff. He also said Danone will sell smaller businesses such as the Vega protein-powder brand and Argentinian operations.

The most likely scenario is that Danone will try to “muddle through” and only go through with those divestments, said Alain Oberhuber, an analyst at Stifel in Zurich.

One of the shareholders that is pushing for a new CEO — Artisan Partners — is devising a long-term growth plan for the company, which it says does not involve a sale of the company or divesting entire business units. To advise on the strategy, the fund has hired Jan Bennink, a veteran of the consumer-goods industry. The Dutchman has worked at Procter & Gamble and served as CEO of Royal Numico, which Danone bought in 2007 to become a world leader in baby food and medical nutrition.

Bennink previously helped advise Dan Loeb when the hedge-fund billionaire took a stake in Nestle in 2017 and pushed for changes at the Swiss company.

While Bennink mentioned small divestments Danone could make in an interview with Le Figaro — such as exiting milk and butter — Artisan said it wants to first discuss the plan with Danone, so details are scarce.

Credit Suisse analyst Alan Erskine summed up the analyst consensus in a note last week.

“None of this can be fixed overnight,” he wrote.


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