Danone cuts its range of products and shows the direction of multinationals in the face of inflation and white label

It is one of the first large European food groups to assume a change of strategy to respond to inflation. The dairy products manufacturer Danone has acknowledged that it is rethinking the breadth of the range of products it sells to distribution -stores, 'supermarkets' and hypermarkets- as a mechanism to reduce its costs and also avoid losing its position on the shelves compared to other cheaper alternatives, such as white label.

"The inflation is dynamicespecially in Europe, and we must begin to get used to it," he assured the agency Reuters the global sales manager of the multinational, Ayla Ziz. The directive thus points to a reduction in the number of references (Stock Keeping Unit or SKU in English), which will mean that, in some establishments, there will be fewer flavors and sizes of packaging. What it does not indicate is which countries will be affected by this decision. "It is not a global cut," Ziz clarifies in the aforementioned information. At the moment, Danone Spain does not clarify to elDiario.es to what extent this change of direction affects them.

With this reduction in references, the French multinational would lower production and distribution costs; and it would also facilitate the management of inventories at points of sale, in a context where, in addition, the private label is growing, with sale prices that are often more competitive.

It is not the only large company that acknowledges that it is taking steps to 'slim down' its product portfolio. The soft drink giant Coca-Cola announced a few days ago that it will stop marketing the honest tea brand. "Ongoing challenges in the supply chain mean that we have to prioritize the production and distribution of certain SKUs," he says of his number of references. Coca-Cola bought Honest Tea in 2008, right at the start of the previous financial crisis. A brand valued at about 100 million dollars, with which it sought to shift its offer towards non-sugar products.

The US distribution group Target has also assured the market that it is going to rethink the structure of its inventory for the remainder of the year, which will entail cancellation of orders and a review of its prices and offers, in response to growing pressure from the inflation, which in the United States reaches 8.6%, the highest level in 40 years, in a scenario where recession drums sound in sight. And the British group Tesco perceives that its customers are changing purchasing habits and opting for its white label.

The idea behind Danone's message is that the distribution giants have to change their pace, modify their offer to respond to the new demands of demand, where the price factor is essential. "Consumers react differently depending on the category, but given the growing feeling of recession they are even more sensitive to price," says Marco Caldarelli, a partner at the Bain & Company consultancy, in an analysis of the situation in which it is the great consumption.

Consequently, "distributors take their offer towards cheaper products, to respond to demand, which is turning towards private labels", points out the partner of the same firm, Richard Pelz. There, the balance of the companies is how to combine the need to place high-rotation products on the shelves, alternatives to the private label; with rising raw material costs; and at the same time, not to transfer that cost all at once so as not to lose customers and damage margins.

"For food distribution chains, inflation has two main effects: the increase in costs and the fall in disposable income of consumers," summarizes the consulting firm McKinsey, in a report on food distribution in 2022. And companies are aware of the derivatives of inflation.

"From 2007 to 2008, food inflation had little effect on company profitability, because distributors were able to pass on part of their suppliers' price increases to consumers. "By contrast, inflation between 2011 and 2012, led to a small margin squeeze," McKinsey & Company notes. price rise". In Spain, the basic shopping basket of online supermarkets It has become 10% more expensive since December.

In the coming weeks, the large consumer multinationals will begin to break down, as long as they are listed, how their business has been in the first half of the year, what they expect for the second half and how they see the effect of the rise in raw materials, the inflation and supply chain problems. Also, what effect is this pressure on prices having on the increase in private label? In Spain, this increase is already being perceived.

In the first quarter of the year, these products have reached a global market share of 40.7%; according to data published by Kantar Worldpanel. A figure that is above the 38.4% that it registered in 2021 and the 37.2% that it reached in 2020 of confinement. It is above the share reached in the previous crisis, for example, in 2012 it reached close to 34%. It should also be borne in mind that, in some supermarkets, that fee is significantly higher. According to Kantar, in Mercadona, Aldi and Lidl, the products of their brands account for more than 70% of sales. In the latter German company, they account for almost 80%.

Not everything is private label, in the aforementioned analysis, McKinsey & Company points out that it is increasingly relevant for distributors to adapt their offer to the different needs of their different types of customers, be it through their pricing policy, their private labels or the personalization of commercial promotions.

In this adaptation of costs and products, another of the levers used by large consumption companies is 'shrinkflation' or 'reduction'. A concept that took hold in the 70s of the last century and is based on selling less quantity of product for the same price. This spring, in the United Kingdom, Cadbury has been criticized for reducing the content of its Dairy Milk chocolates by 10% without touching the price, which it justified by the increase in costs. The consumer organization OCU also indicates that this practice is carried out in Spain. For example, it indicates weight reductions in products from brands such as Cola-Cao, Gallo, Danone or Campofrío, among others.

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