Why Danone plans to buy up to 25 food startups

AUTHOR

Patti Zarling

PUBLISHED

June 25, 2018

Dive Brief:

• Danone Manifesto Ventures, an investment fund set up by the French food giant, plans to acquire 20 to 25 start-up companies by 2020, Reuters reports. The New York-based Danone investment arm, started in 2016, has spent nearly half its initial $150 million budget.
• Managing director Laurent Marcel told the news service that the fund is looking at sectors ranging from healthy drinks, snacks and baby food to alternative protein sources.
• The investment fund is also looking at areas throughout the entire agri-food chain for companies to purchase, including those that focus on everything from organic farming to new protein sources. “Finding new protein sources will be a big challenge for the planet in coming year,” Marcel told Reuters. “Many companies are searching for non-animal proteins. This is typically a sector we could invest in.” The fund also hopes to find ways to attract new customers, such as subscription-based business models and home delivery.

Dive Insight:

In its two years, Danone Manifesto Ventures has poured money into companies as diverse as coconut water brand Harmless Harvest, "deep ocean water" brand Kona Deep and organic baby food brand Yooji, among others. And the food company could just be hitting its stride, with plans to buy six or seven new companies a year, as long as these companies value sustainability and healthfulness, or new ways to bring groceries to customers.

Like many food companies, Danone could be finding acquisition more cost effective than starting from scratch with its own research and development. With non-brand-loyal millennials willing to try different products, the larger food company could see some benefit in taking over a smaller business that already as a solid idea but needs help getting to a bigger market.

As Danone’s 2016 acquisition of WhiteWave for $12.5 billion shows, the company is serious about reaching the millennial audience. Emmanuel Faber, chief executive officer of Danone, said at the time that organic foods and beverages and non-GMO plant-based alternatives to milk and yogurt are among the fastest growing categories in the industry.

So far, the company’s strategy seems to be working. Danone's first-quarter revenue was up nearly 5% over the year-ago period to about $7.53 billion. Growth for the quarter was above analyst expectations, Bloomberg reported, and was aided by yogurt and other dairy sales, plus a more than 50% jump in infant formula sales in China. However, overall North American sales dropped 0.2%, mainly due to an oversupply of organic milk.

Danone’s seemingly unrelated purchases could also be a reflection of consumer ambivalence about what consumers want to eat. In general, people seem to favor healthier food options whether they are plant- or animal-based. Danone’s aggressive acquisitions might be a way of hedging its bets about the next big trend, but the company should be strategic about purchases rather than buying for the sake of buying.