Danone considers ditching organic dairy business in US as Horizon Organic and Wallaby fall out of favor

27 Jan 2023 --- Danone is considering a sale of its US organic yogurt business Wallaby and its organic milk one Horizon Organic as part of an on-going review strategy for the French dairy giant.

CEO Antoine de Saint-Affrique underscores that the two brands are not part of the French business main growth plans and are now under strategic review as part of his overhaul of Danone since taking the helm in 2021.

“Both Horizon Organic and Wallaby are strong, much-loved brands with compelling growth opportunities,” he says.

“That said, seen through the lens of our Renew Strategy, which requires us to stay disciplined in how we allocate our resources, they fall outside our priority growth areas of focus,” he continues.

A sale will be the most probable outcome as Saint-Affrique declared in his first months as CEO that 10% of Danone’s portfolio was up for “rotation.”

“We are confident that exploring strategic options for these brands will enable them to get the focus and resources they need and therefore allow them to maximize their potential and unlock further growth,” notes Saint-Affrique.

Underperforming assets?
Danone insists that Horizon Organic and Wallaby are strong brands in the US organic dairy category, with a portfolio of organic dairy products, including milk, creamers & whiteners, yogurt, cheese and butter. 

But it admits they represent approximately 3% of Danone’s global revenues and “had a dilutive impact on Danone’s like-for-like sales growth and recurring operating margin in 2022.”

Streamlining operations
In its Q3 financial results, the French company revealed that it was working on having “fewer, sharper and complementary brands,” eliminating “overlaps and cannibalization.” 

In Region Americas, the bigger brands of Danone showcased double-digit growth, leading to a Q3 sales growth of 11.3%. In comparison, the sales volume was up 1% as the company increased prices to offset inflationary pressures and drive growth. 

In Danone’s recent third-quarter earnings call, Juergen Esser, chief financial, technology and data officer, highlighted that the French dairy giant only transferred two-thirds of its inflation to the retail channel. 

In 2022 as a whole, commodity dairy prices went up 19.6% from 2021, registering the highest annual prices average on record since 1990, according to the UN FAO. 

By Marc Cervera