Overview of the case

A short historical overview

The DANONE Group started its dairy business in Turkey in July 1998, through a joint
venture with the SABANCI Holding, thus acquiring its first local dairy brand : TIKVESLI.
In September 1999, a second local brand was added to the portfolio : BIRTAT. At the same
time, DANONE's own brands were introduced on the Turkish dairy market : DANONE
DOGAL and PETIT DANONE in 1999, DANETTE in September 2000.
Over the years 2001 and 2002 Turkey experienced a severe economic crisis. As a result
DANONE business volumes and profitability declined heavily. The local management team
decided to proceed to several costcutting measures. The organization was downsized by 35
%.
Unprofitable sales regions and platforms were closed (6 out of 9) and tight control measures
were introduced in the distributor network.
The approved industrial investment plan was frozen.

The challenge
In June 2002 a new General Manager was appointed - followed in September 2002 by a
new Marketing Director. Their mission was quite clear : define a strategy and a marketing
plan enabling the company to reignite topline growth and to restore its profitability.
The case study provides the necessary information about the market, competitors and the
performance of the brands.
Students have to gain insight into the reasons for business decline : could it be avoided ?
A new marketing policy has to be recommended. This involves a brand portfolio analysis,
investment, pricing and marketing budget decisions.
All currency and volume data have been changed for confidentiality protection.

Video interview with the General Manager HERE (tip: open in new tab)

Video TRANSCRIPT 1 : Serpil Timuray - Initial situation of the Company

Could you briefly introduce yourself and tell us when were you appointed as the General Manager
of Danone Dairy Turkey?
I'm a Turkish citizen; I was born in the city of Istanbul and most of my education was in Istanbul as well.
And I'm a business graduate. I joined Danone in June 1999 as the Marketing Director of the dairy company in
Turkey, and for a short period of time I also did Sales Director job, as an additional responsibility. I was appointed
as a General Manager of this company as of June 2002, so it's been almost six years now.
How would you describe the situation of Danone Dairy at that time, when you were appointed as the
General Manager?
Turkey has gone through one of its deepest economic crisis during the years 2001 and 2002. The banking
system collapsed in this country, and many people went jobless because of the downsizing of the business
sector. And purchasing power and consumption declined dramatically over this period of time. At that time,
Danone being a very young company,only three years old in this country, and having faced a very strong
competitive market with a lot of players, had an especially tough time during this economic crisis. The company
lost about 35% of its top line sales, and it was bleeding in terms of profitability, and the management team at the
time had to take very strong difficult decisions, such as downsizing the company by 35%.
What was at that time your specific mission as a General Manager?
My first and only mission at that time was to turn around this company,in terms of both driving and revitalizing the
top line growth, as well as achieving a positive profitability.
How did you assess the situation and what were your priorities?
The situation was especially difficult at the time and we had to do important change management throughout the
company. We had to change a lot of things; because coming out of a severe crisis, it required that all of the
company questioned all of its actions. My first and foremost priority was to motivate the people and believe in
their capabilities that they can make happen this turn-around, and secondly to develop a sound business plan
that is aligned throughout the company.
How did you organize your team?
My management team came from promotion from within. So they were here during the crisis, they were
experienced within the company already,including myself. So I think this was our fortune, being here before this

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 period of time. And the management team was very keen on also involving the people beyond this team, and
therefore we introduced several initiatives in the way of working and in the way of planning in the company. The
first one was to create a bottom up business planning approach, which we still use in the company, and this
requires that many people beyond the management team are asked to come up with their own objectives in their
own responsibility areas, propose their own recommendations and business plan, and then we do a workshop all
together which takes around three days with a computer simulation model, which is a bottom up consolidation to
achieve the company objectives. So we create several scenarios and then the whole team decides on the right
scenario to go for. And this is one initiative that we have created during this period of time. Another initiative is the
cross function action teams, which aims at breaking the departmental silos and creating some team objectives,
and this really created a spirit of united company objectives. I think this really created a change spirit in the
company because it's true that we were all a bit down, having gone through this crisis, and we had very very
good people and nobody liked to lose in this environment, but we have to always manage also failure, and this
was a period of some difficulties.
How did you manage to mobilise people in a quite difficult business environment?
It's true that we had a pessimistic mood in the organization especially because we had to implement a 35%
downsizing. People were concerned about retaining their jobs. And risk taking and changing were not really
welcomed in a pessimistic mood. So the key message we gave to the organization was to do a forward looking,
which stimulates the mind to open up, to dream, to start thinking big again, instead of looking to the past which
constrains the mind. We only think about the issues and the failures. So we encouraged a lot of forward looking
and forgetting the past. And the second thing is, as soon as we came up with this business plan, that was aligned
with this broad management team, we made sure that it is cascaded down and aligned by the whole
organization, including our factory employees.

Business Environment

The Republic of Turkey : key events in 2001/2002

Turkey experienced a severe economic crisis during the years 2001 and 2002. The local currency (LC) lost 1/3 of
its value against the dollar, following a sharp devaluation. As a result, 31 banks went bankrupt and total
consumption was reduced by 15 %. Inflation reached 70 % in 2001 and was still at 30 % in 2002.

Consumption patterns
An important shift was noticed in consumer habits. According to a household panel study, consumers restricted
their shopping trips, purchasing less per trip. They started to look for cheaper products, such as private labels
and for bigger sized packages. Consumers also quit using goods felt as non-essential. Finally, they started to
shop from more unconventional channels, i.e. bazaars and discounters.

Competition
An increased competitive pressure became apparent. Producers engaged in aggressive price discounts and
developed a large number of consumer promotions. They also considerably expanded their distribution.

Video interview with the Marketing Director on the economic crisis HERE

APPENDIX 1 - CHARACTERISTICS OF THE REPUBLIC OF TURKEY HERE

Video Transcript 2 : Gökhan Ogüt - The economic crisis and its effects on Danone Dairy
Good afternoon Gökhan. Could you briefly introduce yourself and tell us what was your position
within Danone Turkey at the end of 2002?
Of course. First of all my name is Gökhan OGÜT, I'm a Turkish national, I have a BS degree in industrial
engineering in Turkey and I did my MBA in the US, in Chicago, and I have work experiences both in US and
Turkey. At the end of year 2002, I was in Danone, newly appointed as the Marketing Director after one and a half
years working as Marketing Manager in Danone Dairy Turkey Company.
What was your specific mission?
First of all, the brand portfolio that the company had, needed to be completely changed, from several small weak
brands to a few big high potential brands. And in order to make these high potential brands grow, we really
needed a marketing strategy that would require investment but at the same time deliver the market share and the
volume increases that we were hoping for.

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 The republic of Turkey was shaken by a severe economic crisis in 2001 and 2002. What was the origin of
this crisis?
The country was in both economical and political instability at the end of the years 1990's. The government had a
big deficit and was borrowing heavily through the Turkish banks, at very high interest rates. At the same time, the
local banking industry was not structurally and legally stable. In year 2001, February, the bankruptcy of around 31
banks led to a big economical and political disaster, and the coalition government dissolved, and this was the
result of the more then 100% devaluation overnight in Turkey.
What were the main effects on business in general?
The sudden devaluation, overnight devaluation of more than 100% led to very high cost increases, and the
companies started increasing their prices of the goods that they're selling in order to cover these cost
increases.This fueled inflation. The banking industries fell down and the unemployment that was growing coupled
with the high prices, led to high a drop in purchasing power. In turn this was around 15% decrease in the total
goods and services markets in Turkey. Within this smaller pie, the companies obviously wanted to get their
shares so they started heavy promotion activities. And this further resulted in lower profits for these companies,
which fueled also bankruptcies of companies, not only in the banking sector, but also in services and goods
sectors.
What were the effects on Danone Dairy in particular?
Danone Dairy Turkey was also strongly affected by this economic situation. First of all the costs started
increasing, and since the company was importing Petit Danone and Danette brands from Europe, the high
devaluation more than doubled the costs for these products. So the company decided to take a profit
management strategy, during this crisis, meaning we started increasing the prices of our products even before
the competition did, even higher levels than the competition. We started taking major costcutting actions,
including closing of sales offices and regional offices and decreasing the head count by 35%. And obviously the
marketing and promotional and sales budgets were also cut in order to maintain the profit. But, contrary to what
we were expecting, this led to a very high decrease in our volumes, because our products were no longer
available, were no longer appealing to the consumers, and were out of their reach in terms of affordability and
also physically distribution wise. So global volumes resulted in even higher losses for the company.

Danone Dairy Turkey

Fresh dairy consumption in Turkey

Yoghurt is one of the main consumer products in Turkey, enjoying a 99 % household penetration.
Turkish citizens are heavy consumers of homemade, plain yoghurt. Per capita consumption of
artisanal yoghurt stands at 41 kg.
In comparison, industrially produced yoghurt holds for 3.5 kg per capita, mostly for plain yoghurt. So
far, there have been few developments in flavored and fruit yoghurt.
People eat yoghurt at lunch and dinner. Plain yoghurt accounts for 95 % of total consumption.
In the industrialized market, the best selling SKU (Stock Keeping Unit) is 1.5 kg plain yoghurt.

Danone dairy business trend

Since its creation in 1998, DANONE Turkey has regularly developed its business in sales volumes
and brands. The portfolio started out with local brands, acquired through a joint venture : TIKVESLI,
BIRTAT and CIFTLIK. DANONE's own brands were added over the next few years : DANONE fruit
yoghurt, PETIT DANONE and DANETTE. The economic crisis of 2001/2002 put a halt to sales
volumes, operating profit and market shares. In order to preserve business and profitability, local
management decided to cut costs :
 downsizing of the organisation (- 35 %)
 closing of unprofitable sales regions and platforms (6 out of 9)
 tightening of distributor control

An approved industrial investment plan was also frozen.

Video interview with the Marketing Director on fresh dairy consumption in

Turkey HERE

APPENDIX 2 - FRESH DAIRY INDUSTRIALIZED MARKET AND DANONE BUSINESS

TREND HERE

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 APPENDIX 3 - DANONE DAIRY BRAND PORTFOLIO AND PRICING POLICY HERE

Video Transcript 3 : Gökhan Ogüt - Fresh dairy consumption in Turkey

Danone brand portfolio
How would you characterize fresh dairy consumption in Turkey? Is it an important
item among food products?
Fresh dairy products in Turkey are a staple. They are among the top food categories that the
consumers, the Turkish people, consume regularly. They are like the bread and butter for
Turkish people. It is very high developed in terms of per capita consumption, around 41 kg
per capita annually in Turkey, which puts the Turkish people among the top countries where
dairy consumption is as high as this. At the same time, this consumption is very different
than the rest of the world. Most of the fresh dairy consumption is plain set yogurts, and also
Ayran which is a yogurt drink made of plain yogurt also. So the fruit and flavoured yogurts,
fresh cheeses, ready to eat dairy deserts are very small portions of these 41 kg. So it's
basically yogurt and Ayran, eaten and drank at meal times, lunch and dinner. And among this
high consumption, only 3.5 kg is industrialized and branded, made by the companies like
Danone, or other competitors in the market. The rest is either made by small neighbourhood
shops or by the consumers themselves. There's a big habit of homemade yoghurt. Mothers
prepare yogurt at home, in the quantities 3 to 4 kg each time, from the milk that they buy,
mostly the street milk, open milk. And they prepare this weekly, more than once a week, in
most of the families.
What brands and what products did Danone introduce on the Turkish dairy market?
Danone's history in Turkey starts in 1998 with a joint venture with a local company. And then
this joint venture started operations with two acquisitions of local brands, one in Istanbul and
one in Ankara. After these acquisitions in 1998 and 1999, the company introduced its first
product Petit Danone, a fresh cheese, targeted at kids, imported from Poland. This was
quickly followed by the introduction of Danone Nature, which was a set yogurt made in
Turkey, in the local production facilities. A year after that, in year 2000, the company
introduced fruit yogurts, under the brand name Danone. And at the end of the year 2000, the
launch of ready to eat desert Danette imported from France was done.
How was business before the economic crisis?
Before the economic crisis, between the years 1998 and 2001, the business had two
objectives; number one was to gain a fair share of the existing market, which was basically
plain yogurt and Ayran. And through the two acquisitions that the company did, it already had
two strong brands in Istanbul and Ankara, and with the introduction of Danone Dogal the
company had a very good position behind three brands in the existing market, and was
increasing its share of this big already existing market. But the second objective of the
company was to create new markets and habits, and the launch of Petit Danone, the launch
of fruit yogurt, ready to eat deserts, mainly Danette, was towards this objective. And these
launches were very welcomed by the consumers, and their introductions were slowly but
surely building consumption in Turkey, till the economic crisis of February 2001.

Competition

Main competitors
Five food conglomerates are present on the Turkish dairy market :
 International Dairy Company - IDC
 Local Dairy U
 Local Dairy K

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  Local Dairy A
 Local Dairy S
On top of these, there are approximately 2000 local and regional producers, each handling their own brands.

Brand portfolio of competitors

The five major groups cover most market segments : plain yoghurt, fruit yoghurt, kids fresh dairy, RTE (Ready To
Eat) dairy desserts and Ayran, a salty fermented milk. Media investments are regular and, for some competitors,
quite significant.

Distribution channels
Distribution is dominated by non-organised trade. There are over 200 000 small outlets in Turkey, from which 20
000 are served by DANONE. Modern trade is represented by some large chain stores (e.g. MIGROS), who run
most supermarkets.

Video interview with the Marketing Director on competition HERE

APPENDIX 4 - COMPETITIVE ACTIVITY AND BRAND PORTFOLIO HERE

APPENDIX 5 - MARKET SHARES AND NUMERIC DISTRIBUTION HERE

APPENDIX 6 - MEDIA INVESTMENT AND BRAND AWARENESS HERE

Video Transcript 4 : Gökhan Ogüt - Competition

We understand there are five major competitors in the Turkish dairy market, but there are also
many small producers. How would you characterize competitive behaviour?
The competitive market situation in Turkey was very tough at the time. Yes, there were five major
competitors, nationals. Only one was an international competitor, and the other four were large food
conglomerates in Turkey with many products in many markets. This gave them brand name recognition, very
high brand name recognition in the household, plus a very long history in the Turkish people's lives. So you can
characterize the competition as very local and very high proximity to the Turkish people. After Danone's arrival,
the five major competitors also followed suit and they started investing in their dairy business more than they
used to in the past. Other than this, as you also said, there are many, around 2000, small manufacturers in
Turkey, manufacturers of dairy products. These are small neighbourhood stores that basically produce in the
back of their stores and sell these products to the surrounding neighbourhood. They also have the advantage of
being very proximate to the consumer, having very low costs due to no need for investment, no need for
distribution and not necessarily quality investments. But the consumers at the same time were not really afraid of
the hygiene issues that these products might have. And finally, the consumer herself was also a big competitor,
herself making the yogurt at home. Actually she was the biggest competitor, selling by far the most yogurt in
Turkey.
Do competitors cover most market segments?
As the Turkish market is mainly a white market, plain set yogurt and Ayran, the majority of the competitors were
in these two segments, so they weren't selling fruit yogurt, flavoured, fresh cheese or ready to eat deserts, except
for a couple of the major national and international competitors. Most of the competitors were only in the basic
segments.
Turkey is a quite large country. How do you handle the distribution channels especially when fresh
products are concerned?
You're right, distribution is one of the main issues that prevents the development of fresh dairy industrialized
branded goods in Turkey. Because the country is big, and trade is very fragmented, close to 200 000 stores in the
country, makes it really difficult for a product with a short shelf life to be distributed across the country. This
required investment in a refrigerated cold chain, and none of the competitors were willing to do that. So at the
time, even the national, as we call them, the national competitors, had around 10 to 15% numeric distribution in
the country. So their reach was also only maximum 15% of the total population in the country.

Your mission

The challenge

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 You have been appointed Marketing Director of DANONE DAIRY Turkey, whose headquarters are situated in
Istanbul.
The company produces, sells and distributes fresh dairy products.
Its business has stagnated over the past two years, with sharply decreasing volumes and profitability.

The mission
Your specific task is to develop a new marketing strategy, enabling to recover turnover loss
and to reignite the topline growth of the company.

You will need to conduct a:

Portfolio analysis
Which brands should be prioritized? (Decision 1)
How would you allocate the industrial investment budget? (Decision 2)

Brand decisions
What pricing strategy would you recommend? (Decision 3)
How should the Marketing budget be allocated among brands? (Decision 4)

Explain your strategy and the choices you have made in a separate Word document.

1) You should formalize your decisions in an excel worksheet. Download it HERE.

2) Please also provide a written Word document with an explanation of your strategy. Why did you
choose to invest in some brands and not in others? Why did you choose a particular industrial
investment? Explain also why you went for a particular pricing strategy and explain why you think the
marketing budget should be allocated between the different brands in a certain way.

It is strongly recommended to use the frameworks presented in the readings to motivate your
analyses and decisions.

3) You should upload both the Excel sheet and the accompanying Word document to Canvas. Best
way to do so is by grouping the files together into one zipfile. Make sure the zipfile as well as the
individual word and excel files clearly have your name in the title.

Video interview with the Marketing Director on your mission HERE

Video Transcript 5 : Gökhan Ogüt - Your mission

At the end of the year 2002, I was appointed as the new Marketing Director for the Danone
Dairy Turkey executive committee. As the total executive committee, our mission and
ambition for year 2003 was to reignite top line growth and deliver profit for the company. And
as the Marketing Director, my objective was to agree on the brand portfolio strategy, and this
strategy would definitely drive our decisions on marketing investments, which brands to
invest on, industrial investments, which brands to purchase manufacturing equipment for,
and also the pricing strategies. Now I would like you to be in my shoes and I would like you
to make these decisions yourself. And I wish you good luck and I hope that you will not only
make the right decisions, but at the same time you will learn a lot during the process.
This is the end of the case materials, please only click the 'next' button if you intend to close
the case.

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