Probiotic yogurt is driving a surge that will double Dannon's production by 2010. Here's how packaging is keeping up.



Dannon CEO Juan Carlos Dalto with some products from Dannon's probiotic lines, which have roared to a big chunk of overall sales within a few years of their introduction.

Dannon's success is based on building a yogurt culture-first literally, then metaphorically. Isaac Carasso, founder of Dannon parent Groupe Danone, developed an industrial process for yogurt production using microbial cultures that had been isolated at France's Pasteur Institute. (He had spent some of his youth in the Balkans, where yogurt was a staple.)

The company then spent much of the 20th century building a culture of consumption for yogurt. When Carasso's son Daniel (for whom the product was named) came to the U.S. to found Dannon Milk Products Inc. in the Bronx during World War II, yogurt was mostly unknown to Americans. For a long time afterward, it was confined to a niche as an ethnic food with a small following among health-food consumers.

But Dannon helped build yogurt into a mainstream powerhouse. Groupe Danone reported $1.7 billion in North American sales in 2006 for its fresh dairy products division, an increase of 10.5% over 2005. U.S. sales for Dannon in 2007 were about $1 billion. Dannon trades back and forth with General Mills, maker of Yoplait, the title of America's leading yogurt producer.

Yogurt now is firmly in the mainstream of American eating habits, with a per-capita average annual consumption of 9.2 pounds. (Although "mainstream" is a relative term; the comparable figure for Sweden is 62.8 pounds.)



A clear film label over a transparent cup provides distinctive shelf presence for Light & Fit 0% Plus.

'Valorizing'

In fact, Dannon executives say, one of their biggest challenges is to keep their products from being thought of as commodities. Juan Carlos Dalto, Dannon’s president and CEO, calls this challenge “valorizing”-an antonym of “commoditizing.”

“You can do business by commoditizing the category. We don’t want to do that,” Dalto says. “[We must] immediately bring value to the consumer. If you do that, we believe there are no limits to the category. It’s the best answer in times of crisis. We believe we are bringing one of the highest value propositions in the dairy industry today.”

The most successful recent example of “valorizing” has come with a new line of products that intensify the healthiness appeal of yogurt. Probiotics are yogurt with certain active cultures that can aid digestion or provide other clinically proven benefits based on the specific strain of culture. (All yogurt has active cultures, but probiotic microorganisms are specifically selected to aid the microflora in the human digestive tract.) Dannon’s probiotic lines include Activia yogurt and DanActive and Danimals drinks.

Activia was introduced in 2006, DanActive and Activia Light in 2007, and DanActive Light in January. Dannon’s probiotic line has been a spectacular success, Dalto says.

“Suddenly, these two brands that didn’t exist 27 months ago are about 40% of our total business,” he says. “These two brands are transforming the way people view the yogurt market. They’re helping us to transform the shelf, which is one of our key obsessions. Clearly, we have been adding value in a tough time for the dairy industry.”

Packaging has an important role to play in Dannon’s “valorizing.” The probiotic and other lines are color-coded: Activia products are packaged in a distinctive green, DanActive in yellow, Light & Fit in purple. It’s a way to get some variety in the yogurt case in general, Dannon executives say.

Activia is the flagship brand of the probiotic line that has given Dannon a big boost.

No more white sea

“Five or 10 years ago, the dairy aisle, and in particular the yogurt section, was like a sea of white,” says Michael Neuwirth, senior director of public relations. “It was not an easy place for the consumer to shop. It was hard to find brands-they all looked alike. So what we’ve done is very consciously color-coded our brands. Many other manufacturers have followed that. It is very effective because the yogurt aisle today is a much easier place to shop. Rather than needing to be within two feet to identify where a preferred brand is, you can now do that from 10 to 15 feet.”

Color-coding comes in a different form with the packaging for Light & Fit 0% Plus, a line extension introduced at the beginning of this year. The polystyrene cup is transparent, and the label has graphics of fruit pieces over clear film. Allowing the product to be seen is an important part of strategy for the brand, which is targeted toward dieters.

“When you’re trying to lose weight, you need to be truthful and transparent about what you eat,” Neuwirth says. “So [the packaging] works on two layers: both visually for the fruit, and also the communication of transparency.”

Dannon uses shape as well as color-coding as a differentiation strategy. DanActive probiotic drink has a tapered shape and foil cap that are reminiscent of old-fashioned milk bottles. Daminals bottles are bulbous with a tapered waist, which is not only distinctive but easier for children to grip.

An ongoing challenge is to come up with distinctive shapes for Dannon’s more than 100 stock-keeping units (SKUs), while keeping things manageable from a production standpoint. That’s done by carefully choosing just which aspects of the container to alter, says Jean-Yves Latour, director of packaging R&D.

“What we try to do is minimize the types of platforms for the different packaging that we have,” Latour says. “If you look at Danactive, if you look at the Danimals drink, both bottles have different shapes, but they have the same overall diameter and the same height. So that allows us to optimize our industrial tools.”

Going global

Another way Dannon optimizes its packaging is to take advantage of its resources as part of a global organization. Groupe Danone markets products in about 40 countries on five continents. There’s a central packaging group in Paris, and subgroups worldwide, including the one that Latour heads for the United States and Canada. Interaction is close and systematic.

“We have a close relationship with the central group, and also with the packaging functions of the other countries,” Latour says. “As an example, every six weeks we have a morning conference call that involves all the major countries, where we all contribute and share our projects. So we get a lot of ideas that are generated in the other countries, as well from us giving back to Groupe Danone with ideas that are generated locally.”

The Light & Fit 0% Plus package is an example of such inter-oceanic cooperation; the transparent cup and label originally were marketed in France. Going the other way, one of Dannon’s recent packaging innovations, the Quick-Grab wraparound paperboard carton, which “dispenses” Danimals bottles one at a time in the refrigerator, is now being considered for Spain.

Luckily, packaging is more internationally adaptable than formulations. Like every international food marketer, Groupe Danone faces the ongoing challenge of how to take local tastes into account. “Food is local. It’s what you eat, what your grandmother cooked for you,” says Marc Jove, vice president of marketing. “When it comes to taste, the U.S. is different.” Jove notes that Americans in general have more of a sweet tooth than others, but adds, “In Argentina, it’s even sweeter. In Europe, it’s not. Food is local, so it’s common sense. You have to adopt to the local palate.”

The local-tastes imperative doesn’t apply to packaging in the same degree, Latour says: “On the packaging, it’s a bit more universal. What we test very often with consumers will be the shape of the packages, but basically the shapes are very transplantable from country to country.”

Danimals is a probiotic children's beverage in a bottle with a distinctive, kid-friendly shape.

Regional plants

Dannon is undertaking another kind of local initiative. The company is reorganizing production at its three major U.S. production plants, located in West Jordan, Utah; Fort Worth, Texas; and Minster, Ohio.

The three locations form an almost perfectly balanced upside-down triangle centered within the continental United States. Dannon wants to take advantage of this geography to speed up delivery of its products, which have an average shelf life of 40 to 50 days. To do that, Dannon is making the three plants into regional plants, with most top SKUs produced at each facility: “You significantly reduce transport miles,” Dalto says. For instance, the Ohio plant started producing DanActive and other beverages about two years ago, taking some of the burden off the Texas plant and giving faster access to the eastern U.S. (See “Dannon plant upgrades its culture").

This “localization” comes as part of a wider initiative toward overall expansion. In 2006, as the scope of the probiotic success started to become clear, Dannon set a goal to double production by 2010; the company is now halfway toward that goal.

“We are doing exactly that,” Dalto says. “Second semester this year, we’ll be in much better shape for capacity.”

To keep up with increased demands on packaging for this expanded capacity, especially for beverages, Dannon has instituted cooperative blow-molding arrangements with Graham Packaging. The Utah and Ohio plants have Graham facilities producing beverage bottles on-site in a “through the wall” arrangement. Graham leases the land and supplies machinery and personnel. This ensures the supply of bottles and spares Dannon the expense and effort of transporting and storing empty containers.

A similar packaging initiative has to do with polypropylene cups, which are Dannon’s packaging mainstay. The company is transitioning away from premade cups to thermoformed ones, where molding machines fashion cups from rollstock. This makes storage and production more efficient, and has the added benefit of using up to 30% less plastic.

Sustaining incentives

Reducing plastic fits nicely into another of Groupe Danone’s major packaging initiatives: sustainability. The company has a big incentive to get out in front of the issue. Two-thirds of its fresh dairy products sales are in Europe, where consumers take sustainability very seriously.

Dannon got a lot of attention for a sustainability initiative three years ago: It eliminated overcaps for its 6-ounce cups, using foil seals as the only protection. The savings of 3 million pounds of plastic a year was touted on the seal.

The transition wasn’t excessively difficult, but it required some work, Latour says: “We had to do several tests-to make sure we would not damage the product during transportation, as an example. We did tests at high and low altitudes to make sure our lidding would not suffer from the removal of the overcap.” The move had the added benefit of allowing Dannon to make their cases a little smaller, saving on corrugated.

Dannon plans to keep moving ahead on sustainability. The company had its first internal sustainability summit a few months ago, and will soon be appointing a senior director of sustainability. “So we embrace this 360 degrees through the company,” Dalto says. “Groupe Danone’s sustainability obsession is upfront in the agenda.”

With a basic product that meets consumers’ desire for healthier eating, and a new line that goes even further in that regard, Dannon and Groupe Danone have bright futures.

“We’re competing in a new world,” Dalto says. “We think we have the right products to do so.” F&BP

James Dudlicek, editor of Dairy Field Reports, a sister publication of Food & Beverage Packaging, contributed to this article.