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Danone: Marketing the Glacier in the U.S.*
Introduction
As a former windsurfing champion and current CEO of France’s Group Danone (Danone),
Franck Riboud has literally and figuratively “ridden the waves” to success. His Group
Danone, which he has led as its CEO since 1996, is the number seven food and beverage
company in the world. With a refocus on its core businesses, dairy products, beverages, and
biscuits, and a divestiture of its sprawling non-related entities, the company’s stock price
nearly doubled during his five-year tenure ($16.1 in December 1997 to $26.2 in December
2002, with the high of $31.0 in January 2001). Much of this success is attributed to Riboud,
whose casual, laid back style has transformed into a forward-thinking, profit-focused strategy
for Danone. With $14.5 billion in net sales and $1.5 billion in after-tax profits, the company
has experienced positive sales growth rates under his leadership.
Delivering 27% of the firm’s global sales, Danone’s water products, led by the wellknown glacier-source Evian brand, is number two worldwide in packaged water sales.
Although declining in recent years (see Exhibit 1), sales growth from Danone’s Water
Division in the last five years has been positive.
*
This case was prepared by Michael Pendleton and Aaron Tennant of the Fox School of Business
and Management at Temple University under the supervision of Professor Masaaki Kotabe for class
discussion rather than to illustrate either effective or ineffective management of a situation described
(2003).
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Exhibit 1
Sales Growth for Danone's Water Division
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1998
1999
2000
2001
2002
With all of Danone’s, Riboud was still faced with the challenge of a more even
geographic distribution of its customer base, particularly in the U.S. The questions posed to
him by investors and his board were – How could giant like Danone only derive 11% of its
sales from the U.S.? What opportunities are Danone missing by not being major bottle water
player in the U.S.?
“DIVERSIFICATION: Reduce Danone's dependence on Europe, which accounts for
76% of sales. Derive 33% of sales outside the Continent by 2000.” This was one of the three
major strategic plans that Riboud wanted to implement during his tenure – and it would prove
to be the most difficult. On the whole, a whopping 57% of the company’s sales derived from
Europe, and only 11% came from the U.S. (see Exhibit 2).
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Exhibit 2
Danone Sales by Region - 2001
France
23%
USA
11%
Rest of
Europe
34%
Rest of world
32%
Taking away the successful Dannon yogurt line and focusing on water sales in the
U.S. and Danone’s presence was even more of a failure. By the end of 2001, Pepsi’s
Aquafina and Coke’s Dasani had overtaken Danone in volume of water sold in the U.S. to
become the number two and three players, behind Nestlé’s Perrier and Poland Springs brands.
Danone is now number four in the U.S. after having the number one brand in the U.S. as
recently as 1996, and its market share has plunged in the U.S. in the U.S. bottled water
market.
What Danone had failed to realize was that selling bottled water was completely
different in the U.S. than selling it in Europe. Danone has maintained a stronghold in Europe,
by mastering its complicated direct-to-store delivery systems and taken advantage of an
educated consumer base that willingly accepts Evian’s premium price and relies less on
drinking tap water. Contrarily, success in the U.S. water market means access to a giant colarun distribution network that includes access to rented store shelves.
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When it came to water and the success of Danone’s water sales in the U.S., the
company was struggling. But as recent as the beginning of 2002, Riboud made strong
statements refuting the need for Danone to be successful in the U.S. water market. “The
Danone business equation is not a U.S. equation, it’s Asia, Latin America, Europe. Water in
the United States represents just two percent of our global sales volumes…we have no reason
to have an inferiority complex. Our strategy lies elsewhere.” These strong statements were
contrary to the “DIVERSIFICATION” strategy that Riboud had planned to implement during
his tenure.
These statements would also prove to be contrary to the Riboud’s aggressive moves in
its U.S. water operations, made within days of his bold statement…
In the first of two dramatic agreements with one of its primary competitors, CocaCola, Danone announced in April 2002, for the cola giant to take over management of the
Evian brand in North America. According to analysts at J.P. Morgan, under this agreement
Coca-Cola will have master distribution rights to Evian, and will handle all promotional and
customer marketing, in-store merchandising, bottler sales, and food service sales. Danone will
still manage sourcing, retain control of Evian’s brand image and advertising strategy.
The agreement includes incentives for Coke’s efforts to boost demand, based on a
target of five percent to ten percent annual sales growth. This is estimated to translate into a
potential return of $8.5 to $17 million annually given that Evian accounted for about twentytwo percent of Danone’s U.S. water sales of approximately $780 million in 2001. If the
incentives produce an average increase in sales of $12 million, it would represent an increase
of less than one percent of total sales for Danone.
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Danone’s second major agreement came in June 2002, when Danone and Coca-Cola
announced a joint venture for the production, marketing and distribution of Danone’s local
and regional branded retail bottled spring and sourced water from within the U.S. (For
example, Danone’s Dannon brand spring water is sourced in the U.S.). The terms of the
complex agreement are as follows:

Danone contributes the assets of its retail bottled spring and source water business in
the U.S., including five production facilities, a license for the use of the Dannon and
Sparkletts brands as well as ownership of several value brands.

Coca-Cola pays Danone $128 million cash for a 51% ownership interest and will
provide marketing, distribution and brand management. Most importantly, the
agreement contains volume and profit guarantees from Coca-Cola requiring sales
volumes to grow in line with the large brands in the market (currently 20% annually)
to maintain a stable market share while achieving a guaranteed level of profitability.
However, it is unclear what penalty Coca-Cola will face if it fails to secure this level
of growth. According to J.P. Morgan, the amount of volume involved is 135 million
cases and they estimate that revenues for the joint venture could be in the $200 million
dollar range.
Quick to defend his statements of disconcern for the U.S. market just a few months
prior, Riboud was quick to say, “the market is totally different from five years ago…the
agreement with Coca-Cola will help us find a strong growth pattern again.” It has been
debated by Wall Street analysts whether these moves represent an alliance that will translate
into growth for Danone and Evian or whether these agreements mark Danone’s unofficial
withdrawal from the U.S. bottled water market.
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Certainly the Coke joint venture, though completed, remained an uncertain guarantee
in Evian’s gain for market share in the U.S. So many questions remained for Riboud to
ponder. How does a CEO disclaim the need for the U.S. market and then complete a megadeal in the same market a few months later? Will the joint venture with Coke assure success
for Danone and Evian? Was this deal a desperate move – could Danone have invested in a
U.S. market strategy on its own? How does a CEO deal with the rumors of future mergers
with U.S. food giants, suck as Kraft, to create a truly global food services company? For
Riboud, the biggest waves were yet to come.
Danone: A Brief History
Group Danone today has very little in common with its original operations, except that the
Riboud family has been in charge for over four decades.
Danone’s humble beginnings are
traced back to Lyon, France where the original firm was a glass container manufacturer
named Souchon-Neuvesel. The following information briefly chronicles the history and
genesis of Danone. Danone’s history reflects three common themes, the company achieving a
leadership position in its markets, the firm’s (or the Riboud family’s) willingness to exit
successful businesses in order to redefine itself in the pursuit of growth, and the company’s
successful use of strategic mergers and acquisitions to perpetuate growth.

1965- Antoine Riboud replaced his uncle as chairman of the family-run SouchonNeuvesel, a Lyons, France-based maker of glass bottles

1966- Souchon-Neuvesel merged with Glaces de Boussois, a major French plate glass
manufacturer (windows for buildings & autos), creating BSN. The companies came to
together for two primary goals, 1. to cope with the changing market trend toward “noD-6
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deposit, no-return bottles, and 2. to create a company that would be large and competitive
enough for the expanding European Common Market.

Using acquisitions, by the end of the 1960’s BSN had become one of the largest glass
manufacturers in all of Europe. However, the container industry was changing as the
demand for paper and plastic containers was spelling doom for glass bottle makers. BSN
recognized this threat and because it did not have operations or ties in the petrochemicals,
forestry or steel industries, the company believed a good solution would be to start making
the contents for its containers. This strategy marked another redefining moment for the
company and once again they would use acquisitions to create scale and generate growth.

In 1970, BSN took control of Evian, Kronenbourg and the European Breweries Company
and became the leading French manufacturer of beer, and mineral waters.

In 1973 BSN and Gervais Danone merged companies and created the biggest food group
in France. For BSN, the merger represented a major opportunity to move forward and
enter new markets, with a decisive shift toward food products.

With escalating energy costs hitting the glass-making business hard and convinced growth
would not return to this business for some time, BSN Gervais Danone began to exit from
plate glass manufacturing, which did not fit in with the food side of its business. It pulled
out of the plate glass sector completely in 1981, selling off Boussois and focused firmly
on food from then on.

·1980’s - In a series of acquisitions, BSN began a conquest of Europe by taking over
many local companies in various food categories to become Europe’s third-biggest food
group.
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
1982- Purchased Dannon, leading US yogurt maker (co-founded by Gervais Danone’s
Daniel Carasso).

Entered the biscuit industry in 1986 by buying General Biscuit and in 1989 they added to
its portfolio of biscuit brands by acquiring Nabisco's European subsidiaries.

1988- Begins aggressive push into global market with over 40 acquisitions in Asia, Latin
America, Central Europe, Africa, and the Middle East.

1994- Company changes name to Group Danone, symbolized by a little boy gazing up at a
star, to take advantage of the success of its leading brand, which was famous the world
over.

1996- Franck Riboud succeeded his father as chairman and restructured the company to
focus on three core businesses: dairy, beverages (specifically water), and biscuits.

1999- Sold off its container business and breweries.
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Danone’s Bottled Water Business
In 2001, Danone’s water division became number one in the world water market based on
volume sales with 12.5% of the global market. As a portion of total firm revenues, bottled
water comprised 27% or approximately $3.4 billion of total revenues for Danone in 2001.
Danone has accomplished its leadership position by using a two-tier strategy, first by
extending Evian as a global brand and by using acquisitions to acquire top regional and local
brands. Danone reports its company financials using the broad segment classifications of
France, Rest of Europe, and Rest of the World. A look at Danone’s water sales by region for
2001 was: 64% Rest of the World, 19% Rest of Europe, and 17%
France. Clearly Danone is a favorite in its home country and Europe, where Danone has
enjoyed continued growth through innovation. The firm has experienced high growth in
Europe with flavored waters and has even introduced diet waters in France and Italy.
European growth has even been derived from offering certain sized containers and envirofriendly containers that easily collapse to encourage popular recycling campaigns. Danone has
not introduced these innovative products in the U.S. water market. However, the company has
built a very strong presence globally, where it is typically ranked among the top three
companies in the countries in which it operates. Danone’s leadership position in water sales
in various countries is illustrated in Exhibit 3. While the data from the table shows how
successful Danone’s water operations are globally, the U.S. market clearly stands out as one
of disappointing performance.
Exhibit 3
Water Sales By Region
France
17%
Rest of
World
Rest of
Europe
19%
Water Position By Country
Local Ranking
France
No. 2
Spain
No. 1
Italy
No. 3
U.S.
No. 4
Canada
No. 2
Mexico
No. 1
Argentina
No. 1
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Evian: Danone’s Glacier Brand
Driving Danone’s global water sales is the successful extension of Evian as a global brand.
Evian is the number two water brand in the world by volume and it is shipped to over 120
countries on five continents each day. Evian distinguishes itself as pristine, natural spring
water, bottled at one source, Cachat Spring in Evian-Les-Bains, France. The magnificent
French and Swiss Alps converge around the Mont Blanc, which towers above the lakeside
town of Evian-Les- Bains. The spring waters from Cachat Springs are world renown and
Evian-Les-Bain is famous in Europe for its spa resorts.
Untouched by Man. Perfect by Nature is a trademark of Evian Natural Spring Water
and it is used to infer unique pristine water and it is priced at a premium. Evian Natural Spring
Water begins as rain and snow falling high in the French Alps. It is said that the water then
spends at least 15 years slowly filtering down through a vast, protected aquifer deep within
the mountains. This wonder of nature as it is known was created by nature over several
millennia by the advance and retreat of the Rhone Glacier, which ground loose boulders into
an ultra-fine sand. As the water passes through this purifying filter and over mineral-rich rock,
the water is insulated by all external contamination by dense layers of protective clay and
emerges at Cachat Spring from a tunnel in the mountains at 52.88° F. Bottled and sealed at its
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source as Evian Natural Spring Water, the water is not artificially altered in any way. Evian
Natural Spring Water has a unique history as is shown below.
Evian History:
30,000 BC
Aquifer in the French Alps through which Evian travels formed
1789
The Marquis de Lessert discovers the Cachat Spring
1826
The Duke of Savoy grants authorization to bottle Evian
1878
French Academy of Medicine recommends Ministry of Health to renew
the bottling authorization for the water
1906
Responding to a water shortage caused by the great San Francisco
earthquake & fire, Evian is donated to support relief efforts
1960
Sold exclusively in pharmacies until 1960
1970
Evian brand is acquired by Danone
Evian is presently ranked fourth in the U.S. bottled market behind Nestlé, Pepsi’s
Aquafina, and Coke’s Dasani. Prior to the entry of the cola giants into the U.S. bottled water,
Evian enjoyed a number one ranking as recently as 1996. In the past five years, Evian’s U.S.
market share has been halved from 7.2% to 3.6%.
The U.S. Bottled Water Market
Beginning in the 1980’s, bottled water has become the beverage of choice for a more healthy
fitness-oriented society. Vending machines stocking water and soft drinks are normally first
emptied of their water supply, even if a water fountain is nearby. Aside from the fitness
attributes of bottled water, consumers are also drawn to the purity that bottled water provides.
During the 1990’s, the billions of gallons of water sold in the U.S. have increased from two
billion in 1990 to 5 billion in 1999 (see Exhibit 4).
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Exhibit 4: Bottled Water Consumption in the United States
Molecularly speaking, water is a compound consisting of two molecules of hydrogen
and one of oxygen. But from a marketing standpoint, water represents the largest opportunity
in consumer beverage market. A free resource, covering nearly 75% of the world, is now a
marketed as a premium to an ever-increasing health conscious society. Perhaps a back-tobasics approach is necessary to explain the phenomenon that is bottled water.
Water is classified as "bottled water" if it meets all applicable federal and state
standards, is sealed in a sanitary container and is sold for human consumption (see
http://www.bottledwater.org/public/BWFactsHome_main.htm). There are several different
varieties of bottled water.
The Food and Drug Administration's (www.fda.org) product
definitions for bottled water are:
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
Well Water: Bottled water from a well that taps a confined aquifer in which the
water level stands at some height above the top of the aquifer.

Mineral Water. Bottled water containing not less than 250 parts per million total
dissolved solids may be labeled as mineral water. Mineral water is distinguished
from other types of bottled water by its constant level and relative proportions of
mineral and trace elements at the point of emergence from the source.

Purified Water: Water that has been produced by distillation, deionization, reverse
osmosis or other suitable processes. (Both Pepsi’s Aquafina and Coke’s Dasani
are purified waters.)

Sparkling Water: Water that after treatment and possible replacement with carbon
dioxide contains the same amount of carbon dioxide that it had at emergence from
the source. (Nestlé’s Perrier brand would be considered a sparkling water.)

Spring Water: Bottled water derived from an underground formation from which
water flows naturally to the surface of the earth. Spring water must be collected
only at the spring or through a borehole tapping the underground formation finding
the spring. (Evian is spring water.)
Bottle water trade organizations, manufacturers, and (more recently) consumers
concur that the two favoring differences of bottled water over tap water are consistent quality
and taste. The belief (with varying degrees of substantiated proof) is that bottled water is
consistent because it is inspected and monitored by governmental and private laboratories.
While it is true that bottled water originates from protected sources (75% from underground
aquifers and springs) and tap water comes mostly from rivers and lakes, it is the guaranteed
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consistency of taste that has drawn consumers to plucking down a dollar or more for a bottle
of water (even if that drinking water fountain is a few steps away).
The classifications of bottled water have had little impact on the U.S. consumer. In
fact, the result of these classifications has created a murky bottled water market in which little
distinction is made in the advantages of one type of bottle water over another. For Evian, this
customer indifference has been a substantial disadvantage in gaining market hare in the U.S.
The additional handling and transportation costs of bottling from one glacier source in the
French/Swiss Alps force Danone to market Evian at a premium price. Evian’s average cost
per case is about 80% higher than that of Aquafina or Dasani. In the U.S., customers place
little value on this premium and simply choose the less expensive bottled water. In Europe,
consumers are more knowledgeable of the types of bottled water and accept the premium on
the Evian brand.
Competing Products in the U.S. Market
The primary bottled water competitors in the U.S. market are:
Perrier and Poland Springs (Nestlé) – Nestlé has formidable midrange and high-end
bottled water brands in the U.S. with Perrier and Poland Springs. Perrier has been imported
into the U.S. since the turn of the century. It was first bottled in 1863 and is available in more
than 100 countries. Every bottle of Perrier sold around the world is bottled at the source in
Vergeze, France. Perrier is the best-selling imported sparkling water in the U.S. The source
of Poland Springs water is located in a pine forest and protected by 350 acres of preserved
land in rural Maine. Poland Spring is a leading brand of bottled water in America, benefiting
from Nestlé’s formidable distribution network onto U.S. supermarket shelves.
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Aquafina (PepsiCo) – Aquafina is also created from tap water, though the company is
hesitant to use the description “local water supply” on its website. “Aquafina uses state-ofthe-art purification systems, including reverse osmosis and carbon filtration. These processes
are what allow us to guarantee Aquafina’s consistent purity and great taste.”
(www.aquafina.com)
Dasani (Coca-Cola) -- “To create Dasani, Coca-Cola bottlers start with the local water
supply, which is then filtered for purity using a state-of-the-art process called reverse osmosis.
The purified water is then enhanced with a special blend of minerals for a pure, fresh taste.”
(www.dasani.com)
Options for Marketing Evian in the U.S.
Unlike most bottled water markets in the world, the U.S. market poses unique competitive
pressures for Danone and its Evian brand. It is evident that the firm never saw the cola giants’
entry into the bottled water market coming or if they had done so, they must have
underestimated the impact to their market share and long-term sales growth. Danone’s recent
agreements with Coke may be too little, too late to preserve Danone’s presence as a top
selling firm in the U.S. water market.
Should the alliances with Coke fail, three alternative strategies could be considered for
Danone and its Evian U.S. water operations.
Go It Alone – For Evian to go at it alone in the U.S. market would mean that Danone
would have to accept the brand as a niche product rather than a leading product in the U.S.
water market. Leadership in the U.S. bottled water market that is being determined by price
and logistics alone locks Evian into being priced at a premium and therefore not competitive
for market share. By marketing Evian’s unique pristine qualities, and positioning the brand as
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a niche, high-end premium beverage with a ‘healthy’ edge, Evian may be able to provide
Danone a higher-margin product, albeit with smaller volumes.
A second-part to Danone’s U.S. water market strategy would be to position its Dannon
Spring water, a locally-sourced spring water, to compete against Nestlé and the cola’s for
market share in the high volume, price-driven retail market. However, the Dannon line’s
production and distribution would have to be built out with acquisitions. The strategy to go
alone would require high investment from Danone and the return on that investment would be
very long in coming.
Get out of the U.S. Market – Another option presented to Franck Riboud is to leave
the U.S. altogether, keeping the Evian brand in the U.S. only as a niche player. Perhaps
management needs to realize that the water drinkers in the U.S., with their lack of
differentiation among bottled water varieties, are not within the scope of Danone’s global
marketing strategies. Because the marketing successes that Evian has experienced in other
countries cannot translate to the U.S. market, a no-entry strategy would eliminate costly entry
expenditures and allow Danone to shift focus to gaining share in countries where the “glacier
premium” is recognized. This option could be referred to as the “LU Biscuit strategy” – while
Danone’s biscuit brand is number two in the world, it is non-existent in the U.S.
Merger/Acquisition – Among the possible acquisition suitors for Danone, including
Nestlé, Unilever, even the cola giants, it is Kraft Foods that appears to be the company best
positioned to capitalize on the merged synergies. Kraft is the largest branded food and
beverage company in North America and the second largest worldwide, based on 2001
revenue (Nestlé is number one).
Kraft's brands are sold in more than 145 countries.
According to A.C. Nielsen statistics, they are found in more than 99% of all households in
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the U.S. Nearly three times the size of Danone, Kraft derives 70% of its revenues from
North America and has extensive brand portfolio that includes a variety of food products
except for bottled water. Acquiring Danone would allow for an entry into the growing
bottled water market, as well as increase the consumer base into Europe and Asia. One of
Kraft’s core strategic goals is to increase its global economies of scale and expand its brands
geographically. Acquiring Danone would be in alignment with this strategy – its 90%
revenue base outside of the U.S. and owner of the number two water brand in the world
could make a Kraft/Danone combination a true synergy fit.
Perhaps one of the most important factors stopping an acquisition of Danone is
nationalistic, historical and family pride of the company.
Franck Riboud’s family, his
allegiance to his French culture, and his sense of individual ownership of the Danone brands
are formidable blockades to allowing the company to be acquired.
Franck Riboud contemplates Danone’s U.S. bottled water market strategy as he
windsurfs the calm waters of Lake Geneva. He muses, "Five years from now, could the
decision I will make be the subject of numerous business school case studies as the correct
way to maintain market presence in the U.S. or a wrong way?" Of course, only time will
tell…
Questions
1. Why has Evian’s U.S. market share continually decreased since the emergence of the cola
giants’ bottled water brands in the late 1990’s?
2. In evaluating Danone’s strategy for gaining U.S. market share, present the positives and
negatives for remaining a single enterprise entity and “going it alone”.
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3. Given Evian’s lack of success in the U.S. market, what would be the ramifications of
Danone’s’ exiting the U.S. bottled water market altogether?
4. Are the joint ventures the Coca-Cola the right decision? Why or why not?
Danone: Marketing the Glacier in the U.S.
Case Overview and Discussion Questions
Temple University – Marketing 514
Dr. Masaaki Kotabe
Michael Pendleton
Aaron Tennant
Case Overview
Although widely considered a global success, sales growth and market share have
been dwindling in the U.S. for Danone’s popular Evian bottled water brand. With the
emergence of cola giants Coke and Pepsi’s bottled water brands, Dasani and Aquafina, the
U.S. market share of Danone’s Evian brand has decreased by 50%. With only a 3.5% market
share in 2001, CEO Franck Riboud was faced with making the strategic decisions for boosting
the market presence on Evian in the U.S. In implementing a strategy for Evian’s future in the
U.S., Riboud looked at one of its most formidable opponents in the unique U.S. bottled water
market – Coca-Cola.
In the first of two dramatic agreements with one of its primary competitors, Danone
announced an agreement in April 2002, for the cola giant to take over the Evian brand in
North America. According to analysts at J.P. Morgan, under this agreement Coke will have a
master distribution rights to Evian, and will handle all promotional and customer marketing,
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in-store merchandising, bottler sales, and food service sales. Danone will still manage
sourcing, retain control of Evian’s brand image and advertising strategy. Although financial
details of the agreement were not disclosed, Bloomberg reported that there the agreement
includes incentives for Coke’s efforts to boost demand and is based on a target of five percent
to ten percent annual sales growth. (We estimate that this translates into a potential return of
$8.5 to $17 million annually given that Evian accounted for about twenty-two percent of
Danone’s U.S. water sales of approximately $780 million in 2001.) If the incentives produce
an average increase in sales of $12 million, it would represent an increase of less than one
percent of total sales for Danone.
Danone’s second major agreement came in June 2002, again with Coke. Danone and
Coke announced a joint venture for the production, marketing and distribution of Danone’s
local and regional branded retail bottled spring and sourced water from within the U.S. (for
example, Danone’s Dannon brand spring water is sourced in the U.S.) The terms of the
complex agreement are as follows:

Danone contributes the assets of its retail bottled spring and source water business
in the U.S., including five production facilities, a license for the use of the Dannon
and Sparkletts brands as well as ownership of several value brands.

Coke paid Danone $128 million cash 51% ownership interest and will provide
marketing, distribution and brand management. Most importantly, the agreement
contains volume and profit guarantees from Coke requiring sales volumes to grow
in line with the large brands in the market (currently 20% annually) to maintain a
stable market share while achieving a guaranteed level of profitability. However, it
is unclear what penalty Coke faces if it fails to secure this level of growth.
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According to J.P. Morgan, the amount of volume involved is 135 million cases and
they estimate that revenues for the joint venture could be in the $200 million dollar
range.
The indifference in the types of water that a U.S. consumer drinks, the difficulties in
entering the cola-controlled distribution systems and the extreme price-sensitivity to bottled
water have the three biggest obstacles facing Danone in its quest to gain market share in the
U.S. In Europe, consumers are more knowledgeable of the types of bottled water and accept
the premium on the Evian brand. (This premium, of course, is required due to the costly
transportation costs of bringing water from the French Alps to the states.)
According to
equity analyst estimates, Evian’s average price per case is about 80% higher than that of
Aquafina or Dasani. In the U.S., customers place little value on this premium and simply
choose the less expensive bottled water.
It has been debated by Wall Street analysts that the deals with Coke represent either an
alliance that will translate into growth for Danone and Evian or these agreements mark
Danone’s unofficial withdrawal from the U.S. bottled water market. Certainly the Coke joint
venture, though completed, remained an uncertain guarantee in Evian’s gain for market share
in the U.S. So many questions remained for Riboud to ponder. How does a CEO disclaim
the need for the U.S. market and then complete a mega-deal in the same market a few months
later? Will the joint venture with Coke assure success for Danone and Evian? Was this deal a
desperate move – could Danone have invested in a U.S. market strategy on its own? How
does a CEO deal with the rumors of future mergers with U.S. food giants, suck as Kraft, to
create a truly global food services company?
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The following questions present the primary debatable points for this case study, as
well as our viewpoints gained from our research:
Questions
Why has Evian’s market share continually decreased since the emergence of the cola
giants’ bottled water brands in the late 1990’s?
Evian’s market share has continually decreased due to:

Lack of premium association of glacier-sources water – Unlike Europe, where consumers
seek out and gladly pay a premium for the glacier-sourced Evian, U.S. customers
demonstrate extreme price-sensitivity. More often than not, the cheapest water is the
water first selected of store shelves.

Distribution deficiencies – When compared to the distribution capabilities of Coke, Pepsi,
and Nestlé’s water brands, Danone is inferior. Considering the points of sale for bottled
water (grocery stores, convenience outlets, street vendors, and vending machines), and
Evian is rarely the prominent brand.

Lack of advertising – Danone has never attempted to sway the U.S. market to embrace the
“glacier premium” with a comprehensive advertising campaign.
In evaluating Danone’s strategy for gaining U.S. market share, present the positives and
negatives for remaining a single enterprise entity and “going it alone”.
For Evian to go at it alone in the U.S. market would mean that Danone would have to
accept the brand as a niche product rather than a market leader in the U.S. Leadership in the
U.S. bottled water market is being determined by price and logistics alone lock Evian into
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being priced at a premium and therefore not competitive for market share. By marketing
Evian’s unique pristine qualities, and positioning brand as a niche, high-end premium
beverage with a ‘healthy’ edge, Evian may be able to provide Danone a higher-margin
product, albeit with smaller volumes.
A second-part to Danone’s “go-it-alone” U.S. water market strategy would be to
position its Dannon Spring water, a locally-sourced spring water, to compete against Nestlé
and the colas for market share in the high volume, price-driven retail market. However, the
Dannon line’s production and distribution would have to be built-out with acquisitions. The
strategy to go alone would require high investment from Danone and the return on that
investment would be very long in coming.
Given Evian’s lack of success in the U.S. market, what would be the ramifications of
Danone’s’ exiting the U.S. bottled water market altogether?
Another option presented to Franck Riboud is to leave the U.S. altogether, keeping the
Evian brand in the U.S. only as a niche competitor. Perhaps management needs to realize that
the water drinkers in the U.S., with their lack of differentiation between bottled water
varieties, are not within the scope of Danone’s global marketing strategies. Because the
marketing successes that Evian has experienced in other countries cannot translate to the U.S.
market, a no-entry strategy would eliminate costly entry expenditures and allow Danone to
shift focus to gaining share in countries where the “glacier premium” is recognized. This
option could be referred to as the “LU Biscuit strategy” – while Danone’s biscuit brand is
number two in the world, it is non-existent in the U.S.
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Were the joint ventures the Coca-Cola the right decision? Why or why not?
Considering the costs of distribution, marketing and advertising the premium attributes
of the Evian brand, we consider the Coke/Danone joint ventures to be the most ideal business
set-up for building a competitive premium brand in the U.S. The Coke deal is advantageous
for the following reasons:

The deal allows for a shifting of management and resources to other country
markets that have been historically successful.

The guarantee of an increased return on a product line during economic
decline is a financially sound strategy.

Shifting marketing and distribution decision-making is prudent given the
U.S. bottled water market is has not successfully understood by Danone
management.

The deal, which will market Dasani as a “mid-priced” water and Evian as a
“high-end” water, maintains the premium status associated with the brand
that the rest of the world market recognizes.
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