Diamonds and deals as Danone struggles for China bounce

Thu Feb 20, 2014 5:30am EST
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By Adam Jourdan

SHANGHAI (Reuters) - In Danone SA's DANO.PA China, diamonds are free, milk powder is forever.

The French dairy giant is handing out the jewels as prizes in promotions to win back consumers it lost last year in claims of high prices, accusations of bribery and food safety scares.

On milk, it's spending big. With investors restless over its inability to grow in China, this month Danone paid $665 million to lift its small stake in the country's number two milk maker, China Mengniu Dairy Co Ltd 2319.HK.

Sealed at a hefty premium, the Mengniu deal and Danone's aggressive online campaign to promote its Dumex milk powder brand show the world's largest yoghurt maker is determined to convince shoppers and investors alike it can make large profits in China after a string of failed tieups there.

A breakthrough remains some way off: Danone has a 0.5 percent share of China's dairy market, according to Euromonitor, and for some customers, its brand remains tarnished. The Paris-based company is just one of a string of foreign firms facing tighter scrutiny as China patrols pricing and product safety more closely, saying it needs to protect consumers in the world's second-biggest economy.

"I don't really trust Dumex," said Pei Qianqian, 29, an office worker in Shanghai with a 17-month-old daughter to feed.

"If it's just one problem then perhaps it's just the side-effect of industry competition, but if there's two and then three in a row, I think this milk powder really has problems."

The home of brands like Evian mineral water and Activia yoghurt reported earnings on Thursday, saying growth will accelerate this year after weakness in Europe and Asia woes weighed on its performance in 2013.   Continued...

Yoghurt produced by French Dairy Group Danone is displayed on a shelf in a supermarket in Lanton, Southwestern France, in this August 30, 2013 file photo. REUTERS/Regis Duvignau/Files