Business

Danone Faces Revenue Growth Challenges in China

By | Oct 19, 2016 11:08 AM EDT
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Europe's largest yogurt maker Danone reported lower than expected revenue for the its third quarter.

The company's sales are expected to be hurt by regulatory changes in China. (Photo : https://pixabay.com/en/shopping-business-retail-1165437/)

Europe's largest yogurt maker Danone reported lower than expected revenue for its third quarter.

Its overall sales were down by 1.8 percent to touch $6.10 billion figure.T Accoridngly, the company's sales are expected to be hurt by regulatory changes in China. 

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China has modified its regulations concerning the sale of infant formula. Earlier this year, the Chinese government closed a tax loophole, which allowed the companies operating outside of China to offer lower prices through their websites.

Danone acknowledged the impact of this particular change in July this year. It even admitted that a decline in indirect demand from Chinese consumers buying infant formula online was observed. The indirect sales constitute 50 percent of the company's infant formula business in China, while the indirect demand fell 25 percent during the quarter.

Danone said it is likely to continue facing the issue until the new regulations are fully enforced.

Apart from baby formula, Danone also reported that its water division in China is also under pressure. In fact, it is currently is looking to thin the inventory of Mizone drink in the country. Floods in China were likewise cited to have an impact on the demand of products.

Cecile Cabanis, chief financial officer of the company said that while China's transition had material impact on the firm's revenues, the remaining markets are likely to keep on providing solid growth. Danone is now looking to review its business practices in China.

Overall, Danone reported its revenue from baby food for the third quarter to grow by 1.7 percent on a like-for-like basis. In the previous quarter, it showed a 7.2 percent growth rate. 

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