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Danone's Recipe for Sustainable Innovation

<p>An in-depth look at Danone's programs and practices for bringing more&nbsp; sustainability to its business operations.</p>

Despite economic turbulence, political abdication and consumer apathy, the corporate sustainable agenda is still alive & kicking.

According to a recent McKinsey survey on "The Business of Sustainability":

"More companies are managing sustainability to improve processes, pursue growth, and add value to their companies rather than focusing on reputation alone."

Clearly, some companies are doing a better job than others. Near the top of my list is Danone -- a publicly traded company that, in my opinion, is a model for best practice in sustainable innovation.

As with many successful sustainable companies, the vision within Danone comes from the top. It started with the founder Antoine Riboud who declared back in 1972:

"A company's responsibility does not end at the door to the factory or the office. The jobs it provides shape whole lives. It consumes energy and raw materials, and in so doing, it alters the face of our planet. The public will remind us of our responsibilities in this industrial society."

Franck Riboud, Antoine's son and Danone's current CEO, has remained true to -- and expanded -- this vision. He has understood, in a way so many business leaders do not, the interconnectedness between his consumers, his suppliers, his employees and his investors across the world. Danone's visionary approach to business combines a sincere social ethic with recognition of several fundamental truths:

1. Billions of people globally are malnourished or suffer from lack of clean drinking water.
2. Environmental impacts and consumer preferences are making local options more attractive.
3. Local suppliers often do not have the funds or the expertise needed to realize their potential.

Danone believes that these truths represent both a responsibility and a business opportunity. They have put in place several strategic programs to respond to these challenges:

Danone Communities

This social business incubator's mission is to fund and develop local business while reducing poverty and malnutrition. Danone acts as an active partner, providing funding and technical support to social entrepreneurs.

The founding project, Danone's Grameen Factory, is a joint-enterprise with Mohamed Yunus, Nobel Peace prize winner. The factory produces 23,000 fortified yogurts a day that are sold for 10 cents each in Bogra Bangladesh. Enriched with micronutrients, Shokti yogurts provide 30 percent of a child's daily nutritional requirements. The milk used to create the yogurt is produced on small farms and the products are distributed by members of the Grameen Bank collective.

While Danone is yet to make a profit on this project, they have confidently launched 4 other social business ventures and expect to have another 5 up and running over the next 2 years. It is no coincidence that these ventures focus on Danone corporate competencies in water purification (Evian and Volvic are also Danone brands) and dairy farming. By helping locals to purify water, or collect and process milk, Danone is not only delivering on their social responsibility, they are investing in future businesses with immense potential.

The Danone Ecosystem Fund

Launched in 2009 with a 100M€ endowment voted by 98 percent of investors, the fund's goal is to strengthen and develop the activities of the partners who make up what Danone calls their ecosystem. This includes farmers, suppliers, subcontractors, transport and logistics operators, distributors and local community authorities.

The Ecosystem Fund's three areas of focus are employment, competency building and micro-entrepreneurship. Projects are identified by local market subsidiaries to ensure that the chosen activities are in line with Danone's businesses.

Though no project can be called "typical," the Turkish "milk parlor" project is representative. Eighty-five percent of milk in Turkey is produced by small farmers and is relatively poor in quality. Since 2008, Danone has invested in 18 central milk parlors (CMP's) which serve just under 1,000 farmers.

The cows at these parlors are milked in a centralized hygienic unit and their owners benefit from competency training and guaranteed purchase of their milk. In return, Danone gets traceable, higher quality milk. Plans are in place to double the size of the project over the next five years. The fund will receive further annual contributions of up to 1 percent of net profits over the next five years for new projects.

Danone's Dairy Business

Danone's sustainable commitments are positively impacting their consumer-facing business as well. In 2003, Danone bought an 85 percent stake in Stonyfield Farms Organic, the third largest yogurt brand in the US and a model for socially and environmentally responsible business.

Stonyfield's methods have had a significant influence on the way Danone does business around the world. In France, for example, the dairy team has worked hard to measure their social and environmental impacts and deepen their commitments. Danone France's "Nature" program, launched in 2008, includes four key objectives:

1. Help farmers to compete. Danone Dairy France has exclusivity contracts with over 3,000 farmers. Danone conducts diagnostic audits to identify areas of opportunity for improvement in quality and productivity for the farmers. In return, the farmers obtain long term contracts giving them the stability they need to make necessary investments.

2. Reduce environmental impacts. Danone is also working with farmers to understand and improve their impacts on biodiversity and global warming. Methane, the gas that cows burp, is the second most significant cause of global warming after carbon dioxide. Danone is researching alternative feed for cows that can reduce methane emissions by up to 10 percent.

3. Improve milk quality. As humans become more sedentary, their dietary needs are changing. Danone is researching the nutritional needs of tomorrow's milk consuming population.

4. Make farmers proud.  This last objective may sound a bit soft; the results are anything but. A study conducted by Danone among farmers showed that the latter were worried about their future and felt unrecognized for their hard work. In 2011, Danone launched a campaign to celebrate their partnership and acknowledge their gratitude towards farmers. The multimedia campaign included new packaging for the core Danone yogurt brand Nature with a farmer shown next to the tagline Danone: milk from our farmers.

Was Danone just being "nice" to their farmers? Hardly. Their targeted campaign achieved 17 percent awareness amongst Danone consumers and boosted image perceptions of the brand by 20 percent amongst those who remembered the campaign. And consumers weren't just liking what they saw, they were buying it. The product Nature went from negative year on year sales to double-digit growth following the campaign. Danone plans to reinforce this communication in 2012; one planned initiative is the construction signage at the entrance to their 3,500 supplier farms to showcase the successful partnerships.

Making Sustainability a Requirement for Professional Success

So why do Danone managers take their sustainable commitments so seriously?  Encouragement from the top has been a key factor, as has a bonus plan that includes social targets for 1,500 top managers across all subsidiaries. This is Danone's way of underlining that when they talk about their corporate mission, they mean business.

Danone is far from perfect. The company still has plenty of room for improvement in the marketing tactics employed by its functional foods branch. These "blockbuster brands" like Activia and Actimel have come under the scrutiny of the European Food Safety authority for making unsubstantiated claims to boost the immune system and promote digestive health. Danone has since withdrawn the claims and is currently repositioning the brands.

In spite of these missteps, Danone's commitment to social innovation places it above the crowd in my opinion. By responsibly entering markets decade away from maturity, by building trust with key stakeholders, by working to reduce negative environmental  impacts, and by offering economic opportunities to potential partners, Danone is helping to define a new business model of sustainable market growth for the future. The world could use a few more companies that see the world the "Danone Way."

Image Credits -- Photos of yogurt and cow via Photos of Danone logo, Shokti and Activa courtesy of Danone Group.

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