Sustainability & FMCG sales

“We do not consider the purpose of this company to be returning money to shareholders. There is a broader purpose.” – Emmanuel Faber, former CEO & Chairman, Danone

It is hard to miss the news that Emmanuel Faber has stepped down as Danone’s CEO & Chairman. Leading shareholders argue that Danone has underperformed in recent years.

Faber became CEO of Danone in 2014 and has overseen a strategy of diversifying into high growing segments such as plant based foods. Under his stewardship, Danone started the process of getting every part of its nearly $30bn business B-Corp certified – not an easy task. According to their website, nearly 50% of Danone’s global sales are now B-Corp certified and aim to be 100% certified by 2025.

An excerpt from B-Corporation.net reads:
‘Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy.’

Essentially, business as a force for good

But does this have to come at the cost of shareholder returns? After all, aren’t consumers looking for more sustainable brands to buy? We live in times when past choices are impacting how we live going forward and this has given rise to a new generation of consumers for whom sustainability is key – in every aspect of their life.

They seek brands and choices that fight climate change, plastic pollution and inequalities in the world. Gone are the days when ‘value for money’ and ‘does what it says on the tin’ were primary consumer requirements.

A study published by Harvard Business Review established that 50% of the growth in the CPG industry came from products that were marketed as sustainable.

So why did Danone’s sales NOT benefit from their initiatives?

One of the key reasons for Faber’s departure was that Danone’s financial performance was not consistent with its asset base.

In 2020, lockdowns impacted sales (6.6% decline vs prior year), primarily since its bottled water brands (down $1bn vs PY) have a significance presence in the on-trade (restaurants, pubs, clubs, bars, cafés etc), which suffered during 2020 lockdowns. But even before 2020, Danone revenues were declining YoY since 2018 (2.78% decline in 2018 vs 2017 and 4.73% decline in 2019 vs 2018).

Why did Danone’s purpose led mission not drive better sales? Is this not what consumers wanted?

To answer this question, we need to ask how many consumers knew that Danone was a purpose led business? Most people I checked this with were unaware of this. The ones who did know, are those of us in this industry.

Communication to shareholders AND to CONSUMERS is key

There is a lot of material on Danone’s website targeting investors to convince them of the value a B-corp certification brings to the business. Several corporate and trade articles that talk about their certification and focus on business as a force for good.

Till very recently, the primary purpose of companies was to create shareholder value. So unless shareholders are convinced of the long term value generated by these actions – a business/industry that lives on for generations to come, and building communities and businesses which drive future economic value – they are likely to vote with their feet.

But equally key is to communicate this to consumers.

Unless consumers know that Danone’s brands are from a purpose led company, how can they factor this into their decision making when they do their grocery runs? Danone did this right on retailer e-commerce websites.

Activia with Oats & Walnut on Tesco

But we now know that Millennials & Gen Z prefer grocery shopping at stores. And there is nothing on-shelf, in store, currently.

There is no doubt that companies should walk the talk when it comes to sustainability and not just issue press releases or social media posts around this, without taking actual actions. However, when companies are doing this right, they should shout out loud about it. There are very few key differentiating factors these days and very few topics which generate as much consumer passion as sustainability does.

By ensuring that these initiatives are communicated to consumers regularly, there is no reason why purpose led businesses cannot outperform competition in the short and long term.

We’ve used Danone as an example to illustrate how larger & more established FMCG companies fail to communicate key initiatives, (positively) impacting consumer decision making, with their consumer base. Most large and established FMCG companies are guilty of this.

They communicate these initiatives via back of pack labelling. While this works for brands like Ben & Jerry’s (now Unilever) as they’ve always been mission driven, when brands adopt a purpose driven approach after years of not being purpose driven, they need to communicate this to consumers via on-shelf messaging. Else, how will they know at the point of purchase?

They usually just compare brands on shelf and if there is no communication on shelf, this is a missed opportunity.

If you have any questions on how corporate or company initiatives can be used to drive sales, email me on veena@salesbeat.co

Published by Veena Giridhar Gopal

After more than 20 years working in the FMCG/retail sector, Veena is now co-founder & CEO of salesBeat. salesBeat has an AI driven platform that uses micro and macro factors to model consumer buying behaviour and makes predictive recommendations of optimal stock levels to FMCG sales people who sell into supermarkets, distributors & wholesalers, eliminating lost sales due to out of stock.

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