A report on

Business policy, ethics and strategy Of

Grameen Danone Food Ltd. (GDFL)

University of Dhaka

Dept. of Finance

Faculty of Business Studies

A report on

Business policy, ethics and strategy Of Grameen Danone Food Ltd. (GDFL)

Course code: F-410

Course name: Business policy, ethics and strategy

Prepared for

Shabnaz Abdullah Aditi

Associate Professor

Dept. of Finance

University of Dhaka

Prepared by

No. Name ID1 Deepangkar Saha 16-0892 Muhammad Shamim Hossain 16-1513 Farhanur Rahman Naim 16-1354 Anowarul Hoque 16-2535 Robin Kumar Saha 16-0396 Omar Faruk 16-262

Submission Date:

11th February, 2014

Table of Contents

Introduction

Grameen Danone Food Ltd.

Internal resources and capabilities of GDFL

Industry analysis

External analysis of GDFL

Introduction

Strategic management analyzes the major initiatives taken by a company's top management on behalf of owners, involving resources and performance in internal and external environments. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. In short, it entails specifying the organization's objectives, developing policies and plans designed to achieve these objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision making and in understanding infinitely complex macro-economic environments. Strategic management is not static in nature; the models often include a feedback loop to monitor execution and inform the next round of planning.

This report focuses on Business policy, ethics and strategy of Grameen Danone Food Ltd, a Grameen Group and Group 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.

Grameen Danone Food Ltd.

During his visit to Paris, France, in 2005, Professor Muhammad Yunus, the founder of Grameen Bank was invited by Franck Riboud, the chief executive officer of Group Danone . On 12 October 2005, they met in La Fontaine Gaillon, a Parisian restaurant. There Yunus proposed to form a joint venture between Grameen and Danone with the objective of supplying nutritious food to poor children of Bangladesh. As proposed by Muhammad Yunus, Franck Riboud agreed to participate in the project to be styled a social business. Accordingly, the Grameen Group and Group Danone entered into an agreement to form a company called Grameen Danone Foods - a social business in Bangladesh. The objective was to bring daily healthy nutrition to low income nutritionally deprived populations in Bangladesh and alleviate poverty through the implementation of a community based business model, where no profit will be appropriated by the investing partners.

The launch of Grameen Danone received considerable attention and was attended by celebrities including French soccer player Zinedine Zidane of France. The plan in 2006 was to build 50 additional dairy plants over the 10 years to 2016 in rural areas of Bangladesh. There is no mention on the organization’s website about how far towards this goal the company has progressed.

Ownership

While Group Danone is represented by

its subsidiary Danone Asia Pte Ltd. (21%) and Danone Communities(29%),

The Grameen Group is represented by four subsidiaries of the Grameen Bank,

Grameen Business Promotion (12.5%) Grameen Welfare (12.5%) Grameen Energy, (12.5%) Grameen Telecom (12.5%)

Products and Services

The collective brand name for the company’s current bundle of products is Shokti+, a Bengali expression for “energy plus.” The + points to the nutritional value of the yoghurt. Shokti Doi (energy yoghurt) consists of pure, full cream cow milk, live fermenting cultures, data molasses (a local sweetener), and sugar. Fortified with a high dose of micronutrients, a 60 gram cup covers 30% of children’s daily needs of vitamin A, zinc, iron, and iodine37. The yoghurt is furthermore a natural source of calcium and protein. Developed by nutrition experts from GAIN and Danone, Shokti Doi is supposed to improve the nutritional status of children aged 3 to 15 years, who eat

the yoghurt on a regular base – at least one cup twice a week. In the absence of a perfect cold chain, the product has a limited shelf-life of around 6 instead of 28 days.

Since production start in February 2007, Grameen Danone has gradually expanded its product portfolio in order to better cater to the requirements of different customer segments. The current product portfolio comprises plain yoghurt, plain with extra protein, and mango flavor for 7 (previously 6) to 12 Taka per cup (i.e., 7 to 13 cents), depending on product formula and container size (60 and 80 gram).

Business Model

Grameen Danone is considered to be the world’s first consciously-designed multinational social business e an international business with a social mission but run as a for-profit organization e so special lessons can be learned from this case. As noted earlier, building social business models relies on some of the same strategic moves as conventional business model innovation. However, the Grameen Danone example also illustrates the specificities of this type of business model: the need to take all stakeholders (not just shareholders) into account and the need to define the social profit expected from the social business.

Thus, a social business is designed and operated just like a ‘regular’ business enterprise, with products, services, customers, markets, expenses and revenues. It is a no-loss, no-dividend, self-

InvestmentDanone invest on the creation of a

company to produce yogurt containing 12 nutrients missing from malnourished children in Bangladesh

Local DevelopmentDecrease the number of malnourished

children in BangladeshProvision of nutrition and cheap food

for poor children

ReinvestmentWith the profits from the sale of yogurts cups, the company can

expand and reach more people in Bangladesh

RefundAll invested monies will be refunded

to Danone

sustaining company that sells goods or services and repays investments to its owners, but whose primary purpose is to serve society and improve the lot of the poor.

Figure 1.The GDFL Social Business Model

Objectives

The company’s mission is to “reduce poverty by a unique proximity business model which brings daily healthy nutrition to the poor”

Business

In terms of profit and loss, the joint venture should be a non-loss operation company. No shareholder should lose money in their participation. The business model should be profitable for each party.

After having made up for previous losses, Grameen Danone should generate enough surpluses to pay back the invested capital to the parties as early as possible.

After the capital amount is paid back, Grameen Danone will pay a 1% dividend annually to the shareholders. The remaining profits will be reinvested in the joint venture company.

Social

Allow low-income, nutritionally deprived populations (especially children) to have access (in terms of affordability and availability) to daily healthy nutrition in order to improve their nutritional status.

Reduce poverty: improve the economic conditions of the local population by involving local suppliers (farmers) and helping them to improve their practices (upstream),

involving the local population via a low-cost / labor-intensive manufacturing model (production), and contributing to the creation of jobs through the distribution model (downstream).

Production capacity

Grameen Danone has planned to set up and launch as many as 50 production plants during the ten years between 2006 and 2016. The first factory has been built in Bogra district which is about 230 km north of, the capital city of Bangladesh. The first factory is a small one built upon an area of 7,000 sq ft (650 m2).Its daily production capacity was 3,000 kg of yogurt when launched in 2006. In 2008, the production capacity has been planned to be enhanced to 10,000 kg and beyond. Several hundred livestock-farming and distribution jobs would be created in the local community as a result of establishment of the first factory.

Analyzing internal resources & capabilities of GDFL

Tangible resources

Plant and Equipment: Packaging automated system (a PLC, programmable logic controller) for the yogurt product. The packaging equipment – the Zhongya – was ordered from an independent Chinese supplier. Once on-site, the Zhongya’s supplier installed the equipment and helped run the first trials. Furthermore, Danone aimed at using biodegradable yoghurt pots in Bangladesh.

Chilling centers:

Transportation vehicles:

Owned retail outlets:

Intangible resources

World’s best partner organization: Present in 52 countries through more than 180 subsidiaries, while being the world’s largest producer of fresh dairy products, Europe’s largest producer of medical nutrition and the world’s second largest producer of baby nutrition and bottled water, it is axiomatic that Danone, a large French MNE has world-leading innovative capabilities across diverse technological functions. Danone enjoys a leading technological position not only in the context of advanced economies, but also worldwide.

Skilled managers: The current management committee in Dhaka is composed of the Managing Director, Finance Manager, Supply Chain, Sourcing and Supplier Development (SSD) Manager, Marketing Manager, Human Resources Manager and Retail Manager. All the recruited managers are university graduates and Bangladeshis. The managers are well trained by the Danone to enable them skilled.

Capabilities of Grameen Danone Food Ltd.

Internal knowledge socialization process: the GDFL is capable of designing and development of production process through an internal knowledge socialization process between GDFL and its Germany-based sister company. GDFL has a culture of sharing and learning from each others regarding any sort of task. The Bangladesh team and Germany team work collaborative way in making decisions.

Environment friendly waste management: In terms of waste management, liquid industrial waste runs to an effluent treatment plant while the solid wastes (mainly plastic) are stored in special dustbins where local vendors can purchase them by the kilo for resale to recycling companies. With regards to market wastage such as market returns of yoghurt, the cups are crushed and the yoghurt is redirected to a biogas chamber which was constructed at the same time as the GDFL.

As for the crushed cups and other plastic waste, they are also sold to local vendors for recycling purposes

Experimentation approach to solve problem: they encountered a yoghurt viscosity problem. For a product to be released on the market its texture should be of a certain thickness. The Quality Control team was faced with yoghurt batches which were liquid and which implied a high reject rate. Through interactions with Guy Gavelle, the Bogra Quality Control team learnt how to standardize milk before starting the process in order to overcome such viscosity problems. Thereafter, the team faced a finished yoghurt foaming problem, whereby 2500 litres of product would foam while in the fermentation tank, leading once again to a high reject rate. They had to destroy several batches. What they did is we tried to define the sources of the problem. They found out the problem came from the one of its two chilling centers where the milk is stored before it arrives to its factory. They took all the milk to its lab and tested it. They were able to pinpoint which supplier was giving them bitter and adulterated milk which led to the foaming issue. This highlights the fact that the quality controllers are capable of adopting an independent problem solving and searching through experimentation approach.

Cold chain creation and management: Shokti+ was for a 4-day shelf life. With the added sales through modern trade shops and large cities located far from Bogra, the 60 grams pots’ shelf-life was extended to 10 days and the 80 grams pots to 20 days. Over a period of a few months, the products, after being packaged, were kept in refrigerators and tested. The GDFL Quality Control team found that if they maintained the cold chain, the products’ shelf life could be extended to 30 days. So today, after packaging, the products are kept in the cold room for 24 hours. Thereafter, the products are released from Quality Control and sent to the supply chain. The supply chain delivers the products through refrigerated vans and to the various GDFL owned cold rooms in all main markets. From these cold rooms, other refrigerated vans deliver the yoghurt to the modern trade shops where the products are kept in fridges.

Value chain of Grameen Danone Food Ltd.

Grameen Danone’s scope of business covers the manufacturing, packaging, marketing, sales, and distribution of fermented fresh dairy products under the brand name Shokti+. Additional core activities are linked to social marketing (i.e., educating consumers about their nutritional needs and health topics) and setting up a rural sales and distribution system.

Core activities

Research and Development Manufacturing and production Marketing and sales

Additional activities

Materials management Human resources setting up a rural sales and distribution system

Manufacturing &

packaging centre

Quality control centre

GDFL owned cold rooms in market

Trade shops

Customers

Raw milk

Data molasses, nutrients

Raw material

Company-Owned Milk Collection Center, Grameen Livestock Foundation, Nandigram Farm, Spot

Market

Kajur gur (date molasses) is processed sap of palm trees, Nutrients sourced in powder form from

Europe

Figure: Comprehensive Supply chain of GDFL

Grameen Danone has adjusted the company’s entire value chain to its social mission and rural business environment. Trying to realize a proximity business model, the company involves local communities in all parts of its value chain: as of spring 2010, around 280 farmers act as suppliers of raw milk, around 30 residents are employed within the factory (in quality control, maintenance, and production), and around 175 local women are engaged as sales ladies in daily rural distribution. In order to maintain the flavor, texture, and acid content of the yoghurt in the absence of a functioning cold chain, Grameen Danone emphasizes a quick turnaround (48 hours) from factory to consumer.

Cost Structure

In line with its social mission, Grameen Danone aims to provide nutrition at a price that is affordable by low-income consumers. In order to keep the initial price point low, the yoghurt business is trying to minimize costs wherever possible. The company’s business model is, thus, strongly cost-driven. Up to now, Grameen Danone’s cost structure has been characterized by a high proportion of indirect costs (34% in 2008 and 36% in 2009). According to the Deputy Managing Director (MD), a proportion of 25% (comprising 10% of commercial fixed costs, 10% marketing spend, and some royalty fees) would be a proper benchmark. Among the direct costs, milk and packaging material have been the company’s most expensive key resources in the past, but high distribution costs add to the company’s direct costs.

Revenue Streams

Grameen Danone’s yoghurt business is confined to so-called transaction revenues. For each cup, customers pay a fixed price. The quantity of yoghurts a customer purchases has no price impact. Reflecting its different customer segments and channels, Grameen Danone has lately generated revenues from the product portfolio displayed in Figure 15 below (GDFL 2009a). Since September 2010, the portfolio has been extended by a new pouch product priced at 5 Taka for 40 gram.

Industry Analysis

Bangladesh is home to over 150 million people or roughly 25 million households. The population is spread across seven divisions, which are sub-divided into 64 zilas (districts). About 70 percent of the population is concentrated in three divisions: Dhaka, Rajshahi, and Chittagong. Bangladesh’s small landmass and large population make the country one of the world’s most densely populated nations with almost 3,000 people per square mile. Over 50 percent of the population lives in more than 8,000 villages or impermanent settlements called chars (riverbanks and sandbars) that are adjacent to Bangladesh’s many rivers. The country’s six official incorporated cities Dhaka, Chittagong, Khulna, Rajshahi, Barisal, and Sylhet are home to over 20 million people. More than 60 percent of these people live in Dhaka with an additional 20 percent in Chittagong. The remainder of urban Bangladeshis lives in over 200 smaller municipalities around the country. While aggregate household expenditures were greater than US$26 billion in 2005, there is great income inequality. About 94 percent of Bangladeshi households earn less than the equivalent of US$3,000 per year. They participate in a market that is characterized by significant unmet needs, dependence on informal or subsistence livelihoods, and high prices for basic products and services (relative to the prices paid by upper income segments. About 45 percent of all households earn less than US$2 a day, and 80 percent live in rural areas. These households account for only 26 percent of total national expenditure (US$6.6 billion). The upper 20 percent of households account for 40 percent ($10.6 billion) of household expenditures, and the upper five percent of households represent 16 percent (US$4.2 billion) Culture, history and geography play an important role in the nature of the market.

The Dairy Market

In 2005, Bangladesh produced about 2.27 billion liters of dairy products. Annual milk production tends to peak in the dry season (October to March) when there is more land available for grazing Liquid milk and milk equivalent products (e.g. powdered milk) represent more than 90 percent of total consumption, and products from processed liquid milk (e.g. yogurt and butter) account for an additional five percent. A 2003 sample of 300 consumers from different geographic areas and economic groups found that roughly 44 percent of poor Bangladeshis had consumed milk in the prior three days compared with 69 percent of middle class consumers, and 88 percent of rich consumers. In villages, about 60 percent of the sample had consumed milk in the past three days versus 43 percent in urban slums, and 73 percent in the char (riverbank areas). When a family purchases milk, it was usually shared among all members. However, when there is a limited supply, children under five are usually given preference. Poor families spent about 3.5 percent of their daily food expenditures on milk, while middle class families spent eight percent, and rich families six percent (Halder and Barua2003) In general, milk sales increase during the forty days of Ramadan and the two annual Eid festivals. Between 2003 04 and 2005-06, total milk production in Bangladesh grew by six percent. With a growing middle class, the trends toward increased milk consumption should continue

Milk and other dairy products are acquired through three primary channels:

Self-production –up to 30 percent of milk-consuming households in villages and 69 percent of families living in chars (riverbank areas) produced their own milk.

Informal market –buying from neighbors, door-to-door salespeople, and street vendors accounted for an additional 50 to 60 percent of consumption in villages, 29 percent in slums, 24 percent in char areas, and about 49 percent for middle class consumers.

Fixed market sales –milk purchased from formal retail outlets represented less than 20 percent of village sales, over 70 percent of slum sales, and over 30 percent for upper and middle class consumers. With more supermarkets in cities around the country, middle and upper class consumers are increasingly purchasing milk through established retail outlets.

The Milk Industry

Raw Milk

Milk is typically purchased from town bazaars where 100 to 150 farmers bring one to five liters of milk to sell directly to local households or small businesses. Sales for household consumption are usually less than one liter, but sales to small businesses can exceed 50 liters per day. The price of raw milk varies greatly depending on location and season.

Traditional Processing

Traditionally, milk is processed into solid butter, liquid butter (ghee), yogurt, and milk-based sweets. Milk-based sweets are popular during festivals and special events such as weddings. Historically, Hindu “Ghose” families operate sweet shops that specialize in producing and selling products like sweet yogurt (mishtee doi) and other milk-based sweets. These sweets are one of the primary uses for processed milk. While the current sweet-making industry is no longer solely dominated by Ghoses, traditional sweet-making processes remain relatively unchanged.

Modern Processing

Bangladesh is also home to a large and growing modern milk processing industry with the top nine processors employing over 80,000 dairy farmers, 1,200 permanent employees, 2,000 collectors and transporters, and 100 distributors. Processors usually have centralized facilities located in rural areas with equipment for large-scale pasteurization, storage, processing, and packaging.

Competitive Landscape

The processed dairy market is dominated by two organizations –Milk Vita and BRAC Aarong. Until 1994, when private competitors began entering the market, Milk Vita had virtually 100 percent of the total market. Milk Vita now controls about 60 percent of the market while BRAC controls 20 percent. BRAC began operating in 1998 as a way to increase incomes for dairy farmers. Approximately seven other enterprises account for the remaining 20 percent of the market. There are 5 government-owned dairy farms in Savar, Bogra, Sylhet, Faridpur, and Barisal that were partially funded by foreign aid. The Savar farm is the flagship dairy farm and is also the largest single-site cow farm in Bangladesh with roughly 400 employees and 1500 cows. The campus includes an artificial insemination program and feed production plant as well as milk processing and packaging facilities. The Bangladesh Livestock Research Center is adjacent to the Savar farm and focuses on new product development, breed research, and contributes to the national livestock strategy. In 2002, the Savar Dairy controlled about 1 percent of the total market for processed milk, but by 2010, it was producing less than 800 liters of milk a day and primarily selling to employees. But mismanagement and corruption have plagued these facilities in recent years; they now produce a negligible share of Bangladesh’s processed milk. A chart about the overall mil-market in Bangladesh is presented below:

External Analysis of Grameen Danone Food Ltd.

Opportunities

Involving local communities in all parts of the company’s value chain is changing poor women and men from aid beneficiaries into suppliers, producers, distributors, and customers: a transformation that involves positive livelihood outcomes going far beyond the economic dimension of poverty.

Grameen Danone plans to expand. Within the next 10 years, more plants will be established and several hundred distribution jobs will be created. The Danone Communities Fund has been created to support this endeavor. In November 2011, the preliminary study results were released saying that the impact of the Grameen Danone yoghurt shows a positive impact on growth and cognitive performance of children.

Several hundred livestock-farming and distribution jobs have been created in the local community as a result of establishment of the first factory. It may take a relatively longer time for Grameen Danone to create an overall impact on the nutritional state of the country but the concept of social business will inspire others to change the present state of poverty in the world.

Company will start a second unit beside the existing factory to extend its capacity in 2014. Company looks forward to replicate the Bogra model all over Bangladesh to be able to cover t he needs of all the kids of the country. 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.

About 589 ladies have been getting an additional income of 50 to 100 taka per day by selling Shokti+ products door-to-door. This is limited but contributes to improve their living conditions. They benefit from having a regular source of income, new social capital related to their formal job, more freedom to move in public space, and an improved self-esteem. About 370 micro-farmers around the plant sell daily to Grameen Danone, getting a regular fixed income, without having to go to the market. Grameen Danone has directly created 264 jobs.

Grameen Danone will be highly committed to protect the environment of its communities developing solar energy and bio gas energies. It will also develop innovative and environmentally friendly packaging.

The initial focus of Grameen Danone will be to launch an easily affordable dairy product to fulfill the nutritional needs of children in Bangladesh and contribute to their strong growth by bringing them the benefits of milk and micronutrients that they lack, including vitamins and minerals such as Iron, Zinc, and Calcium.

Threats

Accounting for around two-thirds of the company’s raw material costs, milk became the main driver of cost explosion, eliminating the small profit margin that had been established when pricing the yoghurt product. At the same time, sourcing costs for packaging material, micronutrients, sugar, and date molasses went up. Grameen Danone’s Board of Directors finally decided to raise the selling price from 5 to 8 Taka, which equals a 60% price increase, in order to cover growing production costs. In consequence, the yoghurt business lost around 80% of sales in its rural market.

Despite early praise, there have been some troubling criticisms of the project.  While Shokti Doi is more affordable than other yogurts on the market, this did not translate into high sales within the Base of the Pyramid (BOP).  This was due to several factors, including the following: 

There are some indications that suggest that yogurt is considered a luxury item and is not regularly consumed by low-income people. 

In South Asia, yogurt is more commonly made in the home rather than purchased from a store. 

Yogurt requires proper storage in order to retain the same level of quality.  Although the Shokti yogurt remains safe without refrigeration for a period of time, the yogurt becomes more liquid in consistency and is less appealing to consumers. 

Grameen sales ladies did not treat yogurt sales as a full-time income generation activity, but rather as a source of supplemental income.  This could be a result of personal preference, a potential overestimation of the demand for yogurt in the BOP/rural markets or a combination of the above. 

Offering nutrition through a fresh dairy product has been a structural weakness in Grameen Danone’s business model from day one. Since then the company has been trying to reduce the milk quantity (smaller cup, cheaper ingredients), and to increase the product’s shelf-life in the absence of a functioning cold chain (pouch product).

Danone invests on the creation of a company to produce yoghurt containing 12 nutrients missing from malnourished children in Bangladesh

Decrease the number of malnourished children in Bangladesh.

Provision of nutrition and cheap food for poor children in Bangladesh.

With the profits from the sale of yoghurt cups the company can expand and reach more people in Bangladesh.

All investment monies will be returned to Danone.

Business level Strategy

Group Danone the world’s largest producer of fresh dairy products takes the initiative to develop a social perspective in its business activities by engaging in a partnership with the Grameen Group to create the Grameen Danone Food Limited. This action seems to reflect Danone’s concern with the implications of its business and its technological innovation for social development. Indeed, GDFL is unique not only to Danone but to the world.

Grameen Danone Foods Ltd. produces a special yogurt called Shakti Doi from pure full cream milk that contains protein, vitamins, iron, calcium, zinc and other micronutrients needed to fulfill the nutritional requirements of children of Bangladesh, thus contributing to improving their health. While ‘Shakti Doi’ which means 'power yogurt' is primarily intended for children, it is also appropriate for adults. The price of each 80 gram cup of yogurt is kept at an affordable rate of BDT 5 that can be bought regularly by even the poorest families.

Grameen Danone and Food Limited’s Social Business Model:

The business structure is designed such that there are no dividends for the shareholders. The profits are reinvested into the company and the market prices are set with the aim to make the enterprise self sustaining. All the distribution is done by local female Grameen Bank beneficiaries, who play a significant role in the sales program.

The aim of this social business, as per Professor Yunus’ seven principles of social business is to create a no loss, no dividend business. Investors get back their investment amount only. No dividend is given beyond investment money. When investment amount is paid back, company profit stays with the company for expansion and improvement.

GDFL was created to supply 3000 tons of yoghurt per year to 3 million inhabitants in Bogra within a radius of 30 to 50 Km. Knowing that there are 150 million people in Bangladesh, the plan is to eventually have 50 factories across the country each supplying within their own 30 to 50 Km radius. Thus, the profits earned by GDFL in Bogra will be used down the line to build the next factory and the process will continue until the other 49 factories are eventually built.

A Door-to-door selling approach has been adapted, where Danone Yoghurt, produced entirely from local milk supplies, are marketed and sold among friends, families and small groceries. The program has thus been able to generate a lot of employment in the rural communities. The social business also focuses on creating independent business and job opportunities in farming, processing, sales and distribution sector. The business also integrates its social objective in every aspect of its business operation. It helps to protect the environment relying on solar and biogas energy and develop innovative, environment friendly packaging solution for its product.

The primary objective of the company was to combat the widespread problem of malnutrition in rural Bangladesh through the production and sale of fortified yogurt called “Shokti Doi” – or strengthening yogurt.  The yogurt was priced well below the market price for unfortified yogurts in Bangladesh, making it more affordable for low-income consumers. In addition to combating rural malnutrition, yogurt production operations would provide numerous jobs to dairy producers, factory workers, and the Grameen sales ladies – women who would operate as local distributors in rural areas.  Since yogurt sales were targeted exclusively for the rural population, the Grameen ladies were the only distributors of Shokti Doi.

Customer Segments

Grameen Danone’s rural and urban customer segments can be distinguished by the following attributes: rural children and their guardians usually live in remote and dispersed settlements. T heir families are short of purchasing power and nutritional awareness. By contrast, urban children and their guardians can be divided in three groups: lower-class consumers living in smaller cities (characterized by limited purchasing power, little nutritional awareness, but accessible through corner stores), middle- and upper-class children and their guardians

(including foreigners) in Dhaka (disposing of sufficient buying power, general health awareness, and accessible through modern trade or cornerstones), and slum dwellers in Dhaka (with little purchasing power and nutritional awareness and best accessible through door-to-door sales). These different customer segments receive slightly different offers and are served through various distribution and marketing channels (see Channels further below).

Competition

So far, the competitive rivalry for Grameen Danone has been low. Findings from the FGDs suggest that due to its different product features in terms of taste, texture, color, packaging, and price, rural consumers perceive Shokti+and Mishti Doi as two completely different offers. Shokti Doi is predominantly regarded as a snack for children (not yoghurt), similar to juice or sweets that are available for 1 to 10 Taka in local stores. Snack-producing companies such as Pran, Unilever, and Nestlé are, thus, Grameen Danone’s indirect competitors in terms of people’s share-of-wallet for children’s sweets and snacks. The FGDs with consumers and sales ladies have also indicated that consumers, who have a concept of nutrition, tend to compare Shokti Doi with pure milk. Other than that no substitute product (promising nutrition at an affordable price) could be traced in Bogra District. In Dhaka however, a growing number of providers are currently entering modern trade stores with packaged yoghurt products that are bigger in size than Grameen Danone’s offer, higher in price, and not fortified.

Cost Structure

In line with its social mission, Grameen Danone aims to provide nutrition at a price that is affordable by low-income consumers. In order to keep the initial price point low, the yoghurt business is trying to minimize costs wherever possible. The company’s business model is, thus, strongly cost-driven. Up to now, Grameen Danone’s cost structure has been characterized by a high proportion of indirect costs. Among the direct costs, milk and packaging material have been the company’s most expensive key resources in the past, but high distribution costs add to the company’s direct costs.

Revenue Streams

Grameen Danone’s yoghurt business is confined to so-called transaction revenues. For each cup, customers pay a fixed price. The quantity of yoghurts a customer purchases has no price impact. Reflecting its different customer segments and channels, Grameen Danone has lately generated revenues from the product portfolio displayed in Figure 15 below (GDFL 2009a). Since September 2010, the portfolio has been extended by a new pouch product priced at 5 Taka for 40 gram

Functional Level Strategy

Functional level Strategies of a business aimed at improving the effectiveness of a company’s operations and thus its ability to attain superior efficiency, quality, innovation and customer responsiveness. There is a strong relationship among functional strategies, distinctive competencies and value creation. Distinctive competencies shape the functional level strategies that a company can pursue and with regard to functional level strategy it can build resources and capabilities that enhance a business’s distinctive competencies.

Grameen Danone’s value proposition comprises quantitative (low price) as well as qualitative elements (high-quality nutrition, professional product design, and brand), the novelty of the product category (packaged child nutrition), and its intangible benefits (improved nutritional status if consumed regularly) are limiting consumer demand in the company’s virtual target market.

Adjusting the Product to Local Preferences

Initially, consumers complained about Shokti Doi’s “bad smell,” “strange color,” and “sour taste.” Grameen Danone reformulated the yoghurt recipe to better adjust the product to local preferences. Some more sugar and date molasses were added to make the yoghurt sweeter.

Professionalization of Sales-Lady Approach

In order to improve their sales ladies’ retention rate, Grameen Danone has started to select women more strategically. Particularly needy women that are confident enough to walk alone in public have become the company’s first choice. Ideally, they bring some experience in selling saris or food items. Other selection criteria are their age and education. The better educated a women is, the better she usually manages product promotion and accounting. Trying to boost daily rotation and the sales ladies’ number of working days, Grameen Danone is now experimenting with new incentive schemes. Since the company’s fixed salary policy in 2009 was not successful in pushing sales, a new policy rewards women that sell more than 66 cups per day and work at least 6 days per.

Price Increase to Cover Production Costs

When the sharp increase in raw material costs eliminated Grameen Danone’s profit margin in the course of 2007 and 2008, the company’s board decided to raise Shokti Doi’s selling price from 5 to 8 Taka for 80 grams. Consequently, the business lost around 80 percent of sales in its rural market and the company’s sales-lady network collapsed. With their customers disappearing, sales ladies also abandoned the business. The company’s management had to accept that a 60% price increase was too much of a shock for the rural market.

Product Diversification and Urban Expansion

In response to the sales collapse, Grameen Danone reformulated the yoghurt product and managed to offer the same amount of micronutrients in a smaller cup without compromising on taste. The new 60 gram cup was introduced for 6 Taka, which was 1 Taka above the company’s initial price point of 5 Taka for 80 gram. Since rural sales volumes remained low, causing high per-unit-costs in production and distribution, Grameen Danone’s board decided to expand the company’s selling area beyond its original boundaries. From November 2008 onwards urban expansion, based on sales through retail stores in new cities such as Pabna and Rajshahi plus sales in Dhaka City, was considered to be the easiest way to quickly boost sales and improve the factory’s capacity utilization. This move achieved the desired sales effect: from 2008 to 2009, the annual sales volume grew from 127 to 707 tons (by 550%). In order to cover the higher delivery costs, the price for an 80 gram cup in Dhaka was set at 12 Taka

Direct Marketing through Rural Mini-events

Meanwhile, Grameen Danone is trying to stimulate rural sales through direct marketing activities. Rural mini events are the company’s major toehold. During these area-based events, a boy, masquerading as a lion puppet, creates curiosity among children in a village and gathers their guardians in a central place. With reference to a ready-made poster, a female student then gives a lecture on health and nutrition. Her key message: if you cannot afford a balanced diet for your children, take Shokti Doi. Going forward, Grameen Danone aims to reshape the format and make the events more interactive by means of a fantasy story about nutrition and health. The total number of mini-events should have increased from 1,000 in 2009 to 10,000 in 2010.

Creating Brand Awareness through TV Ads

Initially, Grameen Danone concentrated on local marketing methods (basically leaflet sand rickshaw announcements) but, in parallel with the company’s urban expansion, the management also decided to go for mass marketing through TV advertisements, sponsored by Danone. Involving Yunus as a brand ambassador, the company took out two ad waves in Bangladesh’s national television. Both waves aimed at raising public awareness about children’s nutritional needs.

Creating a Network of Dedicated Milk Suppliers

In January 2009, Grameen Danone also started to create a network of micro-farmers dedicated to supplying their milk for a fixed price. In this way, Grameen Danone wants to shield the business from further price fluctuations and secure regular milk supply. As of April 2010, the company is collaborating with 280 micro-farmers, organized around two milk collection points. According to the plant manager, this strategy has already has paid off, because the milk sourced from larger suppliers was more costly in terms of price per liter and transportation.

Improving Profit Margin through Product Innovation and New Pricing

The company’s latest strategic initiative is linked to a product innovation. With a non-chilled pouch product called Shokti+ Pocket, Grameen Danone intends to overcome most of Shokti Doi’s unfavorable product features. Although smaller in size (40 gram), the sachet type product offers the same nutritional value as Shokti Doi in a 60 gram cup. The quantity of milk has been reduced but cereals (rice and wheat flour) have been added as protein sources. Live cultures have also been eliminated, raising the product’s shelf-life up to 15 days and facilitating sales through village shops without refrigeration.

The new format also reduces the packaging costs and allows for consumption without a spoon. In order to make the product more affordable, the pouch was introduced at a price of 5 Taka for 40 gram. In return, the price for the 60 gram cup has been increased from 6 to 7 Taka.