Positioning Danone (ticker: BN.France) as a purposeful business with a remit beyond simply returning money to shareholders has been an unwavering mission for the 56-year-old Frenchman who three years ago was also appointed as chairman of the multinational food and drinks company.
Headquartered in Paris, the company sells a portfolio of well-recognized products, which range from Danone—Dannon in the U.S.—and Activia yogurts to Evian bottled water and baby milk formulas including Cow & Gate to more than 130 countries across Europe, America, Asia and Africa.
Faber predicts that the coronavirus pandemic will increase demand for more healthy, affordable food from millennials and other consumers and has shifted the group’s portfolio into fast-growing areas such as probiotics, plant-based and genetically modified-free products to encourage consumers to adopt healthier and more sustainable eating and drinking habits.
To reflect this commitment, shareholders are set to vote at an annual general meeting on June 26, on whether Danone can legally embed a sharper focus on Danone’s environmental, social and governance goals (ESG) in the company’s bylaws.
In April, Danone joined the growing number of companies withdrawing earnings guidance for 2020 amid the coronavirus pandemic, But it reported higher first-quarter sales boosted by the short-term effects of both a shift to at-home consumption as well as pantry stockpiling in Europe and North America.
The France-based food group said it is confident of delivering its 2030 goals, accelerating topline growth, and continuing to allocate capital with discipline.
Speaking to Barron’s by telephone ahead of the annual meeting, Faber reveals how the company has been coping with the crisis and positioning itself to adapt to rapidly changing consumer tastes as the world gradually emerges from into a post-pandemic world.
Here is an edited version of our conversation.
Barron’s: You’re changing your bylaws to legally embed social and environmental goals at the heart of the company. What does this mean for Danone and its investors?
A number of companies have wanted to create a broader impact than shareholder value. We are the first company in France to go for the “entreprise à mission” status which in essence is going to cover the entire scope of Danone. We are really looking at this as a global initiative.
The AGM will give us an immediate readout as to how relevant shareholders believe this model and approach to be because we will need a 2/3rd majority for it to be passed.
We anticipate that the vote will be successful because we have seen investors, certainly over the last 12-18 months, become even more focused on ESG than before.
What the “entreprise à mission” does is emphasize the G of ESG: how we ensure there is governance and a strategic framework for what we do in this area. We have set up an independent committee to oversee and report on its progress.
We are going to live in a Covid world for some time, so we see it as extremely relevant for a company to design its governance and its articles of association to embed objectives that are going to sustain shareholder value as well focusing on health, the planet, people and inclusiveness.
You are also trying to reach some challenging environmental and social targets by 2025. What will this mean for investors?
We embarked on becoming a B Corp [A certification issued by the nonprofit B Lab for companies that meet certain social and environmental criteria] as one of our 2030 goals as a company.
Earlier this year we announced that we wanted that fast-tracked by 2025 because I thought in the Covid world it would make even more sense for us to be a certified B Corp sooner rather than later.
More and more consumers are interested in seeing [brands certified by B Corp], particularly in the US where the movement is becoming more popular and people want trust in the food chain.
What has been the impact on COVID-19 on Danone?
We have seen a significant drop in orders across many markets during the pandemic within shopping, so supermarkets want simplicity and are going back to the core range being offered by the big brands like Danone which can add scale and support their operations.
We also saw a 6.8% fall in sales at our water division in the first quarter, where demand has been impacted by the closure of restaurants and coffee shops. That doesn’t mean demand won’t return—but this trend could last six months, or three months—we just don’t know and it depends on different countries.
…and on your supply chain?
The pandemic will accelerate the localization of supply chains of food solutions. We might like it, we might not like it and it can be for good reasons, sometimes for bad political reasons, but this is the reality.
At Danone, we have spent 50 years saying everything starts locally when it is about food and we believe that our ability to have substantial local supply chains—with nearly 80-90% of what we produce in any given country being consumed in that country—is a strong way to start.
There is also a question around the food industry overall. For many years, like other sectors it has been running on a “just-in-time” basis so that means super-efficient processes, super-efficient supply chains, but it doesn’t really take into account the risk inherent to this approach.
So now, we will get more and more questions from investors about the “just-in-case,” not the “just-in-time” [approach], which means investing in a broader perspective. This means fixing and having resilient supply chains. For example, one supplier is less costly, but two suppliers are suddenly more secure.
The other aspect of localization is that it requires us to think of the autonomy of our business units. Governments and local authorities quite rightly act differently in relation to the Covid impact and that includes matters affecting the food chain. Our approach is for all our companies around the world to have levels of autonomy so that they can address local topics, tastes and issues.
In North America, for example, we felt we needed an autonomous focus on an area which represents 23% of our local sales. It makes sense because the work of integrating WhiteWave [the U.S. organic-foods producer Danone bought in 2016 for $10.4 billion] is now complete and we need to write a new chapter in that region and look to accelerate growth there.
How has the pandemic changed Danone’s views about its portfolio?
Right after health, food is the second item on people’s minds — we’ve seen that with the panic buying and pantry stockpiling of comfort foods at the start of the pandemic. That’s OK for a few months, but as the lockdown continues and people aren’t exercising and are staying at home, we believe they will move to healthier versions of comfort foods and will have to rebalance their diets.
Health is essentially what has driven Danone’s portfolio and our strategy for the last 20 years so we have a very solid base for the future.
People will also need to have more affordable options. Unfortunately, not everyone will be able to indulge themselves with high-priced food. So we are also developing more affordable yet more nutritionally balanced options.
How is Danone coping with changing consumer tastes and the challenge from niche labels?
Five years ago, we were among the first to recognize what I called a food revolution. People were seeking food sovereignty — looking to take back control of their food and not delegating their choices to a few large brands.
We decided we could either resist that revolution or we could embrace it. Part of that move was the WhiteWave acquisition in the U.S. because it had a collection of smaller, fast-growing brands like its cold-brew coffee brand SToK, the coconut-based protein brand So Delicious and the plant-based nutrition specialist Vega.
We are also reinvigorating some of our larger brands in line with those values, changing the packaging and changing the feel of the brands to reflect this food revolution.
We believe that we now have the right balance of categories and expertise to address the demand for planetary diets—by that I mean diets that are sustainable for the health of people and that release pressure on the natural resources of the planet—which will be accelerated by the Covid crisis.
We already have a plan to triple worldwide plant-based sales to around €5 billion by 2025.
If there is one moment when the large brands can come back, it is now. If we start to behave as brands that are here to really serve a purpose, we can really make a difference and that might be somewhat of a turning point for the next several quarters at least, until we are again a little bit clearer on what’s going to be on the other side of the crisis.