Blog: Chris Brook-CarterWater, water everywhere but not a drop for Danone

Chris Brook-Carter | 22 February 2005

The plethora of bottled water stories that graced the pages of just-drinks yesterday are testament to the continued excitement the growth of this sector generates. But the timing of so many initiatives by its rivals will also rub salt into the wounds of the French giant Danone as it struggles to find direction for its embattled water operations.

Danone announced earlier this year that it was to incur a charge of approximately €450m in its 2004 accounts in relation to its holding in DS Waters, LLP, the US Home Office Delivery (HOD) joint-venture that it formed with Suntory Ltd in late-2003.

Now it appears the company may be close to ending its joint venture in bottled water in the US with Coca-Cola. An article in the French newspaper Le Monde last week said that Coke will buy out its French partner.

It is an accusation Danone has so far denied, admitting only that renegotiations with Coca-Cola are under way and that it was not putting an end to the collaboration.

However, a radical reworking of the arrangement looks likely. Danone started strongly when it first entered the US. However, unlike its European competitor Nestle, which concentrated on local markets in the US, Danone went after a national share. Once the giants Coke and Pepsi took an interest in the market, the French player struggled to compete with their powerful national distribution networks and marketing muscle.

It was thought Coke would announce an agreement after a board meeting last Thursday. That they haven’t seems to suggest there are still some hurdles to cross before a deal is reached. The largest of these may well be the Dannon brand. The other Danone brands, Sparkletts and Evian, sit nicely around Coke’s own Dasani in the giant's soft drink portfolio. Dannon, by contrast, competes directly with Coke’s own brand.

The financial impact of Danone’s withdrawal from the US will be minimal and would allow the company to focus on operations closer to home. But the uncertainty in the US is unlikely to end there, as a painless deal will no doubt raise questions about the company’s future in its US HOD joint-venture.


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