Danone to cut 2,000 jobs to save $1.2B by 202315 Dec 2020
Danone will cut up to 2,000 jobs from its 100,000-person workforce, including up to 25% of the positions at its global headquarters in France. The company will undertake these reductions in a restructuring effort to save €1 billion ($1.2 billion) by 2023. The French dairy company will also look to reduce its levels of hierarchy to give more control to local managers that are more attuned to regional needs.
After being hit particularly hard by the pandemic – closed foodservice channels curtailed demand for bottled water, retail partners limited the number of Danone SKUs sold and a drop in birth numbers reduced demand for the company’s baby formula products – Danone is looking to revive its profitability. However, the dairy giant was cautious in its outlook for the next 12 months, saying that it does not expect to see the fruits of its labor until the second half of 2021.
“We definitely need to reinvent ourselves,” Emmanuel Faber, Danone's CEO, said in a statement. “Our recent results evidence this.”
Pointing to “brutal” external factors generated by the pandemic, the company is not only going to trim down its workforce to save money that it can then reinvest into improving its margins and supporting future growth, but it is also paring down the bureaucracy by putting control at a more local level.
Faber used the company’s Activia brand in a statement to exemplify how local control will translate to streamlining its business. Currently, the brand has four layers to manage it, but under the company’s new approach, it will only have two.
Other CPG conglomerates like Nestlé and Mondelez have instituted a similar approach, giving control to the heads of regional business segments, and they have seen a measure of success in this approach. Nevertheless, Bernstein analysts speaking to Reuters said that “Danone is doubling down on a strategy that hasn’t worked for the last five years.” Other analysts speaking to Bloomberg echoed this sentiment, urging caution for investors looking to this restructuring as a remedy for the French giant’s financial woes.
Recent months have brought significant change to Danone’s company structure. In October, the company named a new chief financial officer and divided its business into two regions, Danone North America and Danone International. Now it plans to assume a strategy focused on paring down its portfolio in tandem with its workforce. In the next year, the company hopes to drop smaller brands that account for 2% or less of sales, eventually reducing its product portfolio by 10-30%.
Even with these changes that are soon to come, the company also confirmed its 2020 guidance of 14% recurring operating margin and the delivery of €1.8bn free cash flow despite challenging market conditions.
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