Some time ago, we wrote about how we usually think of innovation can be quite limiting. We made a case for re-imagining existing products and catering to underserved markets as a way to think about growth.
I think the Danone-Grameen partnership is another interesting case to consider with regard to re-imagining existing products and expanding into newer geographies.
But, some context first.
Bangladesh in 2005 had about 50% of children suffering from malnourishment.
Muhammad Yunus, founder of Grameen Bank and a Nobel Prize-winning economist, had an idea of how he would fix childhood malnourishment.
Grameen Bank is a microfinance organization and community development bank operating with the aim of providing collateral-free loans to the rural poor in Bangladesh. In fact, as of January 2011, the total number of borrowers was 8.4 million, and 97% of those were women.
Dr. Yunus had spearheaded other successful interventions tackling rural poverty in Bangladesh. And all his experience had now rightly brought him to a place where he could use it to design an intervention to tackle malnourishment.
In came Danone: a French multinational food-products corporation and an established seller of specialized nutritional preparations, branded bottled water, dairy, and plant-based products.
Danone’s vision to bring “health through nutrition to the largest number of people possible” married with Dr. Yunus’s desire to address malnourishment birthed a unique partnership:
What was unique about the Grameen-Danone partnership?
It was a hybrid community business model.
To tackle malnutrition, Grameen-Danone created a product called — Shokti Doi, a yogurt rich in essential micronutrients. The product was an extension of Danone’s original yogurt formulation, sold widely in other countries.
While creating this new product, Grameen Danone had to operate under the following constraints:
- No capital handouts. They invested minimum capital in technology while paying top prices for labour and raw materials.
- Make the model financially sustainable.
To achieve these ends, a pilot factory was set up in Bogra, Bangladesh, designed to meet the project's specific needs. The number of automatic devices and complex machinery was kept to a minimum in order to increase the need for labour, thereby creating local jobs!
This reduced initial investment costs and limited future maintenance costs.
The first product was a single flavour and single-sized 80gm cup priced at 5 takas (₹3).
Distribution was carried out through ‘yogurt ladies’ who were existing Grameen Bank borrowers. They were inducted and trained in a two-day programme, with each lady assigned a territory to manage.
The reason for prioritizing door-to-door sales was that the target audience was not always literate, conscious of nutrition, or able to travel too far. Doing door-to-door sales helped them educate the consumer about the product in a personalized and targeted way.
However, regardless of the lean execution of the business model, sustainability was a tough nut to crack.
Some problems arose despite the successful initial execution.
Firstly, because yogurt is a perishable product, it was difficult to market within the interiors of the country, which faced electricity shortages.
Although the quality of yogurt doesn’t get affected instantly, consumers were averse to yogurt supplied in a runny state.
Secondly, in spite of doing door-to-door sales, yogurt ladies only made a commission of 1 taka (₹0.78) per cup sold, and the maximum they sold was 48 cups in a day. If it took 10 takas (₹7.83) for a rickshaw commute, the lady only made 38 takas (₹29) per day.
The low earnings dissuaded these women from pursuing the job full-time. They preferred working as yogurt ladies in their free time for an additional source of income.
But this still didn’t change the terms of the partnership between Grameen-Danone because it had interesting second-order effects for Danone.
Grameen-Danone figured out a way to thrive in spite of these challenges.
In order to suffice the constraint of not asking for capital handouts and maintaining sustainability, Danone started selling Shokti Doi in cities. In cities, sales were made in stores by sales assistants.
Operationally, they were forced to figure out a way to retain the consistency of yogurt without refrigeration.
The research they undertook while formulating the product naturally lent itself as the key to unlocking growth in geographies similar to Bangladesh.
A Forbes article commenting on the partnership highlighted the benefits of Danone’s R&D as
“The Bangladesh business also functioned as a testing ground for product innovation. While developing the yogurt, Danone discovered an enzyme that preserves fresh milk, unrefrigerated, for up to four hours. Danone is only using the enzyme in its Bangladesh yogurt, but could eventually use it elsewhere.”
In essence, the major aim of the partnership — providing nutrient-rich yogurt at a lower cost as a way to tackle malnutrition was upheld by the strong support of a business’s desire to grow in a market.
Eventually, Grameen-Danone served Bangladesh in two ways via the traditional and community models. They sold nutritionally functional food to consumers buying at higher prices and lowered prices to the rural audience.
Emmanuel Marchant, Danone’s Deputy Manager, explained the business logic for supporting the intervention in an interview —
“The scheme is not designed to make a profit, but it does have clear benefits for Danone. It is a good way for the company to learn how to market food in South Asia - a valuable lesson as it considers whether to enter neighbouring India's huge and lucrative market. Building a plant which is 100 times smaller than our others is a less risky way of entering new territory, and shareholders understand our vision.”
Overall, a smartly designed win-win if I say so myself.
But is success guaranteed with such initiatives?
No, and definitely not in the short term.
To achieve a semblance of sustainability, it took Grameen-Danone over six years to create a win-win suitable to both aims.
But if you only think of the business model as being useless because it focuses on a social cause, you miss the intangible benefits it had for Danone.
While eventual profitability determines the rationale behind any business undertaking, the ways to get to them don’t have to be one and the same.
By playing this beautiful balancing act between serving the malnourished population of Bangladesh and using the data to inform its product design, Danone as a business achieved long-term success in two ways.
Firstly, it created a desirable brand position for itself as a business that cared about something other than profits. It went out of its way to sustain the non-profit intervention to tackle malnutrition.
Secondly, it could study the market deeply without incurring extra costs.
Both these strategies created long-term sales channels unique to its target market.
The Grameen-Danone partnership proved to me that there are ways multinational corporations and local communities can work together.
The regular debate of social cause and profits being at odds can be viewed from a rather accommodating frame of mind. Only some courage and foresight are needed.
What do you think?
P. S. — We've previously written about similar community-led business models here and here.