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Grameen Danone Food Ltd - Overview 210609


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Grameen Danone Food Ltd - Overview 210609

  1. 1. Grameen Danone Foods Ltd, a Social Business in Bangladesh “ This is a unique opportunity to create a business totally dedicated to social objectives, a company whose ambition is not to generate profits for its investors, but committed to serve the interests of people without incurring losses.” Professor Muhammad Yunus, President of the Grameen Group “ I am utterly convinced that our future depends on our ability to explore and invent new businesses and new types of enterprise” … “a great opportunity to make progress in that direction and take another huge step towards fulfilling our mission: to bring health through food to as many people as possible.” Franck Riboud, CEO of Groupe Danone “ Reducing poverty by means of a new business model that will provide the least well off with a healthy diet, every day. With this initiative, the need to maximize profits for the investors is re[placed by social impact on local community. Profits go to the local communities in terms of benefits brought to them. Emmanuel Faber, Groupe Danone, Executive Vice-President T
  2. 2. A social business joint venture The Grameen Group and Groupe DANONE joined forces since march 2006 to create Grameen Danone Foods Ltd, a social business based in Bangladesh. Grameen Danone Foods Ltd’s mission is to reduce poverty by a unique proximity business model that will provide daily healthy nutrition to the poor of Bangladesh. Grameen Danone Foods Ltd is the first investment supported by ‘danone.communities’, an investment fund, created to support businesses that aim to be sustainable, but make social and societal goals their objective. T
  3. 3. Bangladesh, one of the world ’ s poorest countries Total population in Bangladesh is 150 million. 80% of population is rural. 41% is aged below 14. Average family size is 4,9. GDP / cap is 600$ a year (Indonesia : 1,200$) 60% of Bangladeshi households live on less than 2 € /day. 40% of Bangladeshi population is living under poverty level. Density is extremely high : 1000 people / km2 Life expectation in Bangladesh is 63 years (vs 80 years in France, for example). Bangladesh is ranked 140th by the UNDP in terms of human development (2005). T 11% 16% 22% 14% 37% € 2.9-4.1 a day (233-333Tk) € 2-2.9 a day (167-232Tk) > €4.1 a day (>333Tk) € 1-2 a day (83-166Tk) Grameen Danone Project Sources : 2004 statistical yearbook of Bangladesh, 2005 estimates on total population, household income per day
  4. 4. Nutritional situation in Bangladesh One child out of two in Bangladesh is suffering from malnutrition, especially in rural areas. Lack in micronutrients can impair mental development, alter the functioning of immune system, compromise proper eye sight, etc. Malnurished children are more often sick and less attending school. Malnutrition in Bangladesh is a vicious circle : it is not only a question of public health but also of economic development. O Health Concerns <ul><li>Stunting (41% of young children) </li></ul><ul><li>Diarrhea </li></ul><ul><li>Polluted water (arsenic, bacteria) </li></ul>Source: Grameen/local NGOs Macro Nutrition Issues <ul><li>87% of protein source is vegetal (lentils and beans), deficiency in essential amino-acids likely </li></ul><ul><li>Overall energy deficiency, particularly among young children (between 24% and 40% gap vs RDA) </li></ul><ul><li>Protein deficiency </li></ul>Micro Nutrition Issues <ul><li>Iron (49% among young children) </li></ul><ul><li>Vitamin B2 </li></ul><ul><li>Calcium </li></ul><ul><li>Vitamin C </li></ul><ul><li>Vitamin A </li></ul><ul><li>Iodine and zinc likely </li></ul>
  5. 5. Grameen Danone Foods’ objectives 1/ To bring health through nutrition at very affordable price for all Bangladeshi children 2/ To improve living conditions of the poorest of the community by involving them in all stages of the business model (supply, production, sales), creating jobs and improving local competencies 3/ To preserve non-renewable resources as much as possible 4/ To be profitable to ensure economic sustainability. T
  6. 6. Shokti +, a fortified yoghurt to meet nutritional needs of Bangladeshi children Shokti literally means ‘ yogurt to give strength ’ Shokti + has been specifically developed by Danone ’ s experts in R&D, with technical help of the NGO ‘ Global Ailiance for Improved Nutrition ’ , to fulfil the nutritional needs of children in Bangladesh and to contribute to their healthy growth by bringing them the benefits of milk, live cultures and other micronutrients they lack. Shokti+ is a yogurt made with cow's milk, date molasses and sugar. It is a natural source of calcium and protein, which are essential for healthy growth and bones. It also contains live fermenting cultures that help to reduce the severity and duration of diarrhoea. Shokti+ is also enriched with micronutrients. A single 60g cup provides 30% of a child's daily requirements of vitamin A, iron, zinc and iodine. Price per cup of Shokti+ has been designed for the poorest families to be able to afford it regularly. Price is 6 BDT for 60g. Shokti+ is produced by Grameen Danone Foods Ltd in a small modern factory in Bogra, built with the Danone know-how on quality and food safety. S
  7. 7. A local supply business model Grameen Danone Foods Ltd tries to use locally available ingredients in order to: - reduce raw materials costs (no import tariffs, simplified logistics), - minimize consumption of fossil fuels (less transport), - promote development of local communities Let ’ s consider the main ingredient in Shokti + : milk. Since 90% of the Bangladeshi milk market operates on an informal basis, organizing milk supply is a big challenge. Grameen Danone has chosen to buy its milk from a milk cooperative of micro-farms : Grameen Livestock Foundation, founded in 2000 and located 30km from the factory. Grameen Livestock Foundation is an original holistic model of agriculture, including fisheries and cow raising for small farmers. It is providing micro-credit, animal insurance, hygiene, feeding and veterinary advice, organizing milk collection and cooling. In less than 10 years, the cooperative has got 2000 cows, with a level of productivity twice superior to Bangladesh average. 7000 families are involved, 70% of them were below poverty line in 1989, now they earn about 10- 20000 tk / year. The Foundation is carrying a study to measure its social impact. At the same time, Grameen Danone Foods Ltd is starting to collect milk from local micro-farms around the plant. G
  8. 8. A job creating and environmentally friendly mini factory The Grameen Danone Bogra factory’s yearly capacity is 3000 tons. Only 25% of the capacity of the plant is used at this time (May, 2009). Priority is to reach plant capacity through proximity sales in a radius of 50km. This is in order to maximize penetration and level of consumption among local communities. And also to allow proximity transportation with rickskaw vans and small motorised vehicles with natural gaz (CNG). Nevertheless in order to reach this capacity quicker, decision was made to sell in Dakha from november 08. Twice a week a refridgerated truck carries the products to town. The Grameen Danone plant in Bogra has been designed to rely on local labour rather than sophisticated machinery. This avoids expensive maintenance problems, enables to create 40 jobs and develops local competencies. The factory has been designed in an environmentally friendly way, to minimize use of non-renewable resources. It is partially sourced with solar energy, it is collecting rain water, it is provided with a biodigester that produces natural gas. This gas is reused to produce light for the factory. In the future, as factory volumes will increase, it should be able to provide the surrounding houses with natural gas. T
  9. 9. “ 2 legs ” distribution model D <ul><li>Distribution is based on two channels : </li></ul><ul><li>Shops : Except in Dhaka, where some modern trade takes place, shops are small proximity stores, located in urban areas as well as in rural villages. They are generally provided with a fridge or an insulated box. </li></ul><ul><li>Shops represent almost 80% of current Grameen Danone sales. </li></ul><ul><li>Door-to-door sales in rural areas through a network of sales ladies : These “Grameen Danone ladies” are micro-entrepreneurs. They are supplied with yogurts, trained and coached by Grameen Danone staff. They get one-day sales credit, reimburse the cost of cups through their sales and keep a margin on each sold cup. </li></ul><ul><li>End of March 2009, number of active ladies in Bogra district is almost 200 and 2009 objective is at least 500. By regularly selling 50 cups per day, their income will be 85 to 100 tk in a day. For these ladies that are often among the poorest in their community, this activity is a source of empowerment and valuable additional income for their family. </li></ul><ul><li>Door-to-door sales through ladies are slightly more than 20% of Grameen Danone sales. </li></ul>
  10. 10. Birth of the project Grameen Danone story developed extraordinarily fast ! October 2005 : Franck Riboud, Chairman and CEO of Groupe DANONE and Muhammad Yunus, father of Microcredit, met in Paris. Following their meeting, they decided to explore the possibility of establishing a partnership in Bangladesh. An initial workshop was organized in Dhaka in November 2005, attended by a team from Danone and a team from Grameen. Just a few months later, in March 2006, Franck and Yunus announced in Dhaka the creation of Grameen Danone Foods Ltd. In mid-July 2006, Grameen Danone acquired a plot of land in Bogra on which to build its first plant. February 2007: The plant in Bogra produced its first yogurts. Step 0 Sept 05 – Nov 06 Step 2 Apr 08 – Dec 08 Step 3 Jan 09 - T Step 1 Feb 07- March 08
  11. 11. First steps In its 1st phase from February to September 2007, after having overcome some production issues, Grameen Danone sales started to increase around the factory. Distribution was mainly done through small shops in Bogra town and rural sales ladies that sold door-to-door. Promotion was done through visits to Grameen Bank centers. Sales through retail also start. In September 2007, a full time Executive Director, Mr Wahidun Nabi, joined the team. Number of sales ladies went from 29 to 270 (in march 08). Sales expanded quickly to reach 350 000 cups sold in a month. Since beginning 2008, Grameen Bank helped sales in some Bogra areas to prepare the market for Grameen Danone’s teams. The selling area remained exclusively in a radius of 30km around Bogra. Some first Key Learnings : - Regarding product: Initial Shokti Doi recipe was not sweet enough for Bangladeshi taste. Therefore decision was made to upgrade the level of sweetness, but it still remained lower than local yogurt product. - Regarding sales ladies recruitment: Husband’s or son’s approval was key to have ladies selling door-to-door. I Step 0 Sept 05 – Nov 06 Step 2 Apr 08 – Dec 08 Step 3 Jan 09 - Step 1 Feb 07- March 08
  12. 12. Crisis and new start April 08, Raw material costs rose sharply. Milk price jumped by 100 percent. Grameen Danone board made a tough decision to remain economically sustainable. It increased the price by 60% raising the price of 80g cup from 5tk to 8tk. Consumer demand immediately collapsed. In the process sales ladies ’ network disintegrated completely. June 08 : Grameen Danone Foods Ltd (GDFL) launched a new formula maintaining 30% RDA in micronutrients in a smaller 60g cup, bringing down price to 6tk. With mini-promotional events and school nutrition programs in the villages, GDFL started to recover the market. A small effective professional ladies ’ network (35 ladies working 17 days /month and selling 50 cups / day) was built up. After fixing the retail distribution model in Bogra town, GDFL expanded its sales, through retail shops, to Rajshahi and Pabna, 50km from Bogra. A Step 0 Sept 05 – Nov 06 Step 2 Apr 08 – Dec 08 Step 3 Jan 09 - Step 1 Feb 07- March 08
  13. 13. Expansion Then GDFL went for accelerated expansion. Having consolidated the rural distribution GDFL board decided to expand its market to Dakha to utilise the excess capacity of the plant. Increase in production was necessary to decrease the per unit fixed cost. Dhaka price was set to get a margin to offset the loss in rural market. 80gr cup was priced at 12 tk for Dhaka. Company launched new products : A valorized mango Shokti + (7tk for 60g and 12 tk for 80g) and an affordable flavored drink (5tk for 50ml and 7tk for 70ml)went to the market. First TV advertising campaign was launched in March 09. Ladies network was set to expand to 500 ladies by the end of 2009. I Step 0 Sept 05 – Nov 06 Step 2 Apr 08 – Dec 08 Step 3 Jan 09 - Step 1 Feb 07- March 08
  14. 14. What about Grameen Danone ’ s impact on health ? The John Hopkins University, USA, is currently carrying an efficacy study in order to measure the impact of Shokti+ on the health of Bangladeshi children. The study will evaluate the impact of the consumption of a fortified yogurt vs. a non fortified yogurt and the impact of a fortified yogurt vs. no yogurt consumption at all over a period of 6 months and one year, based on following criteria : morbidity, growth, cognitive development and status indicators. This study is being financed by GAIN (Global Alliance For Improved Nutrition), a global NGO. The study started in September 2008. Results should be available by end of 2009. T
  15. 15. And in terms of social impact ? Based on the 10 indicators used by Grameen Bank to evaluate its borrowers progress towards moving out of poverty, in February 09, the Company started to track its ladies, year after year, to measure the social impact on them. B
  16. 16. Plans for the future T Company has decided to build a second factory near Dhaka in 2010. Land will be procured in the year 2009. 2020 vision: Company looks forward to replicate the Bogra model all over Bangladesh. By 2020, 50 mini plants, with an annual capacity of 3,000 tons each, would be set up to cover the needs of the 150 million people of Bangladesh. Company will welcome partners to invest in this social business and take responsibility of various clusters of these mini plants to extend healthy nutrition over the rest of the country.
  17. 17. Sales evolution : a bumpy learning curve June 2009 844 412 cups, ie +836% vs June 2008 32477 cups/day Active ladies : 267 Active shops : 2373 Range : 4 skus - 60g-6tk plain, 60g-7tk mango, 80g-10tk plain, 80g-12tk mango 2007 2008 2009 Sales in kg 78 107 149 643 500 000 Sales in Mio tk 4,88 12,7 57,4 Cups sold / day 3 414 6 532 22 894
  18. 18. Financial results A As can be expected from a Social Business Model aiming at the lowest price possible for its products, the economics of GDFL are based on low margins with profitability depending highly on volume. GDFL has invested around 90 million takas so far into the plant, start-up costs and operating losses. 2008 was a very difficult year in terms of financials as GDFL was hurt by the food crisis in Bangladesh. But 2009 started better. According to the volume acceleration since October 2008, GDFL management estimates it will reach profitability of the Bogra plant in the course of 2010. Second plant will be built by 2010 with sales starting in 2011.