Morocco boycott slows sales growth at Danone

A man shops in a supermarket where Danone yogurts are displayed in Shanghai. (AFP)
Updated 17 October 2018

Morocco boycott slows sales growth at Danone

  • Seeks to rebuild consumer trust in Morocco
  • Sales growth shows slowdown

PARIS: Slacker demand for baby food in China and a consumer boycott in Morocco slowed third-quarter sales growth at Danone, although the French food group said it was sticking to its earnings growth targets.
Danone said it was banking on cost savings and a push into lucrative, healthy eating trends to meet those goals, despite lower sales of infant formula in China and the broad boycott in Morocco launched earlier this year on social media against what protesters said were unfair prices set by large companies.
Chief Financial Officer Cecile Cabanis cautioned the slowdown in China would last several quarters while the Moroccan boycott would weigh on the second half of the year.
Danone, the world’s largest yoghurt maker with brands including Actimel and Activia, said third-quarter sales reached $7.1 billion, a like-for-like increase of 1.4 percent — slightly above analysts’ forecasts for 1.2 percent growth.
Nevertheless, this marked a slowdown from 3.3 percent growth in the second quarter and 4.9 percent in the first quarter, and Danone shares fell 2.8 percent in early trading.
“The main miss is on Specialized Nutrition where infant milk formula is down 20 percent in China in Q3 ... We were not expecting such a drop” said Oddo analyst Pierre Tegner.
Danone, however, kept its annual financial targets.
Growth had accelerated at its dairy and plant-based business in North America, where Danone is integrating organic food group WhiteWave, and its European dairy division was on the road toward stabilization, it said.
Danone, which is targeting an operating margin above 16 percent and like-for-like sales growth of 4-5 percent by 2020, reiterated its expectation for a double-digit rise in 2018 underlying earnings per share (EPS), excluding the impact of the sale of a stake in Japan’s Yakult.
Sales of Danone’s ‘Early Life Nutrition’ products in China fell 20 percent in the third quarter following a period of strong growth and amid signs of changes in market dynamics.
The sales of the China-focused infant formula products had grown by around 30 percent in the second quarter of 2018 and by over 50 percent in the third-quarter 2017.
In China, where Danone competes in the baby food market with Nestle and Reckitt Benckiser, there has been strong demand for baby formula products thanks to a sharp rise in birth rates tied to the end of China’s one-child policy, and the emergence of new cities and an affluent middle class.
The peak in birth rates, however, happened in 2016 and started slowing down in late 2017, leading Danone to caution that the Chinese market will progressively show more normal trends from the second half of 2018 onwards.
Danone’s indirect E-commerce infant formula sales had also benefited last year from China’s decision to delay regulation of cross-border e-commerce, which led to stocking up by traders.
Cabanis said that although there were fewer births in China, Danone continued to benefit from demand for its ultra-premium infant formula products such as Nutrilon and Aptamil.
Morocco, which counts for 2 percent of group sales, was another weak spot as a result of the consumer boycott.
In September, Danone announced measures in Morocco to regain consumers’ trust, including price cuts, but sales in Morocco were still down 35 percent in the third quarter.


Japan’s households tighten purse strings as sales tax and typhoon hit

Updated 06 December 2019

Japan’s households tighten purse strings as sales tax and typhoon hit

  • Falls in factory output, jobs and retail add to fears of worsening slowdown after Tokyo unveils $122bn stimulus package

TOKYO: Japanese households cut their spending for the first time in almost a year in October as a sales tax hike prompted consumers to rein in expenses and natural disasters disrupted business.

Household spending dropped 5.1 percent in October from a year earlier, government data showed on Friday.

It is the first fall in household spending in 11 months and the biggest fall since March 2016 when spending fell by 5.3 percent. It was also weaker than the median forecast for a 3 percent decline.

That marked a sharp reversal from the 9.5 percent jump in September, the fastest growth on record as consumers rushed to buy goods before the Oct. 1 sales tax hike from 8 percent to 10 percent.

“Not only is the sales tax hike hurting consumer spending but impacts from the typhoon also accelerated the decline in the spending,” said Taro Saito, executive research fellow at NLI Research Institute.

“We expect the economy overall and consumer spending will contract in the current quarter and then moderately pick up January-March, but such recovery won't be strong enough.”

Household spending fell by 4.6 percent in April 2014 when Japan last raised the sales tax to 8 percent from 5 percent. It took more than a year for the sector to return to growth.

Compared with the previous month, household spending fell 11.5 percent in October, the fastest drop since April 2014, a faster decline than the median 9.8 percent forecast.

Analysts said a powerful typhoon in October, which lashed swathes of Japan with heavy rain, also played a factor in the downbeat data. Some shops and restaurants closed during the storm and consumers stayed home.

Separate data also showed the weak state of the economy.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, fell a preliminary 5.6 points to 94.8 in October from the previous month, the lowest reading since February 2013, the Cabinet Office said on Friday.

It was also the fastest pace of decline since March 2011, according to the data.

Real wages adjusted for inflation, meanwhile, edged up for a second straight month in October, but the higher levy and weak global economy raise worries about the prospect for consumer spending and the overall economy.

While the government has sought to offset the hit to consumers through vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Japan unveiled a $122 billion fiscal package on Thursday to support stalling growth and as policymakers look to sustain activity beyond the 2020 Tokyo Olympics.

A recent spate of weak data, such as exports and factory output, have raised worries about the risk of a sharper-than-expected slowdown. The economy grew by an annualized 0.2 percent in the third quarter, the weakest pace in a year.

Analysts expect the economy to shrink in the current quarter due to the sales tax hike.