Sunday, July 24, 2005

The war of French yoghurt

In case anyone has any doubts on the subject, the food business is very big, indeed. There are very few small kitchens producing hand-made cakes or equally hand-made yoghurts.

And the food trade wars can be quite big. The war of the French yoghurt (suspended for les vacances annuaires) may turn into something big. Or, of course, it may fizzle out like the famous drink (no, the other one, Pepsi) that is involved.

I read the first intimation of this potentially earth-shaking conflict on John Rosenthal’s Transatlantic Intelligencer blog. In a couple of postings he quoted some of the more fatuous comments made by French politicians eager to muscle in on the potential bid that might be made by PepsiCo for Danone, the French producer of yoghurts and other dairy produce, as well as owner of BSN, in itself a huge conglomerate.

It seems, that in a particularly Gallic political way, everyone went slightly ballistic at the rumours (both companies are denying that anything is happening – a sure sign of feverish activity).

Predictably, the egregious Prime Minister, admirer of Napoleon and self-styled poet, Dominique de Villepin jumped in, announcing that Danone is the flower of French industry and his government is going to defend French economic interests.

Jacques Chirac sounded the trumpet of mobilization:
“I don’t want to comment on rumors in the financial markets, but, nonetheless,since it is a matter of a big French firm like Danone, I am, like the government, particularly vigilant and particularly mobilized.”
La patrie est en danger. Les ennemis sont partout.

Patrick Ollier, the chairman of the Economic Committee at the French Assembly, waxed lyrical or, at least, pompous:
“I find it scandalous to see the jewels of French industry going overseas,especially under the banner of Pepsi-Cola, when we are talking about Danone, the symbol of French dairy products and French quality.”
Could have been worse. Could have been Disneyworld setting up in Paris. Woops, that has happened already. Well, never mind. As it happens, nobody is suggesting transporting Danone anywhere and, in any case, nobody quite knows where the actual goods are produced.

Of course, as both Rosenthal and today’s article in the business section of the Sunday Telegraph (the bit that did not have the overdressed police officers in it) point out, all this fluttering in the dovecots is largely the result of heavy-handed lobbying on the part of the Danone management.

The shares, on the other hand, had been shooting up as soon as rumours of the take-over bid started circulating, taking a dip only as a result of some of the apparent political interference.

Danone is that favourite of the French political elite, a national champion. It is a French company, created in France (more or less), grown in France and one that has expanded across the world, particularly once it merged with BSN, the glass, beverage and baby food company that owned Evian.

The geographical and market placing of the two companies – PepsiCo and Danone – would make the merger extemely advantageous, according to various analysts, including French ones.

(When one looks at the French business world one finds a remarkably large number of highly sensible people who say very sensible things. How come none of them go into politics?)

Danone, unlike PepsiCo is also known for producing healthy goods that are popular everywhere. That is mostly true – the sugar content of some of their puddings does not bear too much examination. PepsiCo’s snacks are popular, but do not claim to be healthy.

PepsiCo is big in the US, Mexico and the UK. Danone has a large market in Europe and is spreading aggressively into some of the emerging economies.

Naturally, the bid and the merger may not happen. Danone might decide to protect itself by joining another, European, company like Nestlé; other American companies might try to muscle in.

The French government may well find that they cannot protect the flower of French economy within the EU rules. After all, they do not precisely complain when French companies go on shopping sprees, mostly in the UK.

French analysts shrug their shoulders in a Gallic fashion and point out that the hysteria is already dying down, probably because most of the politicians are on the beach. But who knows what will happen in September?

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