THE SWEET TASTE OF GRAMEEN DANONE MG437 SUMMATIVE ESSAY EXAM NUMBER: 35998 WORD COUNT: 1,898

THE SWEET TASTE OF GRAMEEN DANONE The significance of an effective business model in an organization is indubitable. It instills authenticity in institutional processes and provides a comprehensive overview of the business by making activities visible. A high-quality business model will always deliver value to the customers, entice the customers to pay for that value and ensure self-sustainability or profit (Teece, 2010). Innovations within these business models have resulted in the structuring of successful enterprises and generation of massive wealth (Johnson, Christensen and Kagermann, 2008). Through this essay I attempt to analyze one such creative business model that has been applied to a low-income market at the base of the pyramid. Focusing on such a market not only generates value for organizations but also offers the poor a chance to access services that improve their livelihood resulting in reduction of global poverty (Karamchandani, Kubzansky and Frandano, 2009). This article is separated into three components. The first briefly explains the ideology and objectives of a social business. In the second part I attempt to investigate the design and implementation of the business model of Grameen Danone Foods Limited, an enterprise that aims at eradicating malnourishment among children living at the base of the pyramid in Bangladesh whilst reducing poverty within their community. Lastly the essay looks at a futuristic perspective for Grameen Danone and why Business Model Innovation at the base of the pyramid will continue to be a critical area of research. A SOCIAL BUSINESS A social business is that which achieves the purpose of creating business models that capture aspects dealing with basic human needs which may be forgotten by other

economic institutions (Seelos and Mair, 2005). Yunus elucidates the concept, significance and the functionality of a social business (Yunus M et al, 2010). He states that the base of a social business model is entrepreneurship, a quality available in abundance within poor people of the world. A social business aims to empower these people by using this inherent quality so that they may elevate themselves out of poverty. Its secondary aim is to recover the money invested in the business only to reinvest it again for the betterment of the society. I will now attempt the study the business model of a social business, Grameen Danone using a combination of frameworks put forth by academics (Chesbrough 2010, Teece 2010). It includes the analysis of the collaboration, market segmentation, customer value proposition, manufacturing, distribution, marketing, results and revenues. This will provide a holistic view about how the organization started, the way it operates and the direction it is heading towards.

Value Proposition and Market Segmentation

Revenues

Collaboration

Manufacturing and Distribution

Marketing

The Collaboration The Grameen group comprises of four sister companies of the Grameen Bank and has a strong presence in Bangladesh. Groupe Danone is a multinational company with an aim of providing health through food products. They realized that using their competencies they could solve the vital social problem in Bangladesh where more than 56% of the children under the age of five suffer from malnutrition (Unicef, 2008). This led to the establishment of Grameen Danone Foods Limited in October 2005 when M. Riboud the chairman of Groupe Danone pledged his allegiance to the Grameen group via a handshake over lunch (Yunus and Weber, 2007).

Market Segmentation and Customer Value Proposition. The Market Segmentation involves selecting the right consumers to serve, around which further operations of the organizations revolve. Grameen Danone targets a mass market of children living at the Base of the Pyramid in Bangladesh. A Customer Value Proposition is a distinct offering that enhances a customers value through attributes such as performance, customization, price, accessibility and convenience (Osterwalder, 2009). Grameen Danone provides a sweet and nutrition rich yogurt as their value proposition. Rich in vitamins, minerals, calcium, iron, zinc and iodine it is a high performing product. Being easily accessible at every doorstep and available at the cheapest prices, their product called Shoktidoi or power yogurt is a hit within the local communities (Grameen Creative Lab, 2011).

Manufacturing and Distribution The manufacturing process of Grameen Danone involves conversion of milk into yogurt in small but well equipped plants located close to the villages that are served. The villagers are involved in the process by hiring them to work in the plant as well as purchasing milk from the residents that own cows (Yunus and Weber, 2007). The design of the initial plant near Bogra is environment friendly. It contains energy saving light bulbs, solar water heaters, rainwater harvesting facilities and an in house biogas system (Yunus and Weber, 2007). The cost of the construction is $1 Million and the capacity of production is approximately 100,000 biodegradable cups of yogurt per day (Sultan, 2007). There are two modes of distribution for Shoktidoi. The yogurt is either delivered to shops in rural as well as urban locations or picked up by Grameen Danone Ladies from collection points (Rangan and Lee, 2010). These ladies who deliver the yogurt to the doorstep of customers are residents of the same village and clientele of the Grameen Bank. They get a certain commission depending on the number of cups of yogurt they sell per day. This makes the manufacturing and distribution system of Grameen Danone unique as it enables the incorporation of contradictory and contemporary views of both Prahalad and Karnani in its business model (Asad Ghalib et al, 2009). Prahalads theory is to treat the poor, as people with the ability to select and purchase a wide range of goods that they think are beneficial (Prahalad, 2005). Grameen Danone provides one such good as explained above. Karnani on the other hand labels this method as romanticizing the poor (Karnani, 2008). He believes that poor cannot make appropriate choices due to information asymmetry and illiteracy. The solution is to provide the poor with steady jobs and a steady income by involving them in the

production process. Grameen Danone has been successful in implementing his opinions by improving working practices of villagers as well as providing a steady income to both support their families and pay off their loans.

Marketing After the establishment of the plant it was necessary to make people aware of the problem of malnutrition and how consumption of Shoktidoi would be a step to solve it. The marketing strategy used by Grameen Danone is campaigning on the ground as well as through electronic medium (Grameen Danone Foods Limited, 2010). They utilize nutrition programs in schools to gain a better access to the students. They conducted 1,270 events in villages to spread brand awareness. An advertizing campaign on television featuring Muhammad Yunus was also launched in 2009.

Results and Revenues Even though Grameen Danone has managed to sell a large quantity of yogurt, which is their source of revenue, they are still not profitable (Rangan and Lee, 2010). Using data provided by Rangan and Lee I have calculated certain financial ratios displayed in the table below for years 2007-2009. These calculations are based on well-known productivity formulas (Wetman, 2003). Comparison of the figures for these years helps to show that the organization is going from strength to strength every year and is showing positive signs for the future.

Year Gross Profit Margins Diluted EPS Debt to Equity ROCE Current ratio ROA

2009 55%

2008 52.90%

2007 51.10%

3.55 1.02 9.6% .752 7.5%

3.86 2.10 7.2% .996 5.9%

12.82 2.05 6.5% .644 4.9%

1. The Gross Profit Margin of an organization indicates how well the revenue generated by the company is utilized. GP Margin is indicative of the proportion of sales, net of returns, that is represented by profit. An increase in GP ratio means that irrespective of the companys other expenses (those not related to the core business), the fundamental profit after costs is increasing. This is the case with Grameen Danone and can be indicative of better operating efficiency, reduction in costs or more market clout. 2. The Diluted EPS indicates the earnings per share of the organization. This has drastically gone down between 2007-2009. But since we know that the Gross Profit Margins have gone up, the decrease in EPS shows that Grameen Danone is reinvesting the money generated through profits for further expansion. 3. The Debt to Equity ratio illustrates the capital structure policies of the firm or how much debt the company uses in order to fund its operations. This ratio has

decreased from 2.05 to 1.02 for Grameen Danone over three years, which shows that more operations are financed using equity (generated via fresh issues of shares or retained profits) rather than through money borrowed. 4. The ROCE is the return obtained on the capital invested by a company. This ratio has gone up from 6.5% to 9.6% in three years, which is a very positive sign. 5. The current ratio specifies the ratio of current assets to the current liabilities and is a key indicator of short-term solvency/liquidity. It is of specific importance to creditors of a business. This ratio has also risen between 20072009 for Grameen Danone. There is a slight decrease between the years 20082009 which is due to the increase in price of milk resulting in an increase in the short-term debt. 6. ROA is the signal of the profitability achieved through assets employed in an organization. It shows, in a way, the level of efficiency at which capital assets of a firm are operating. The growth of this ratio is a sign that Grameen Danone is making lucrative and intelligent investments in terms of its fixed assets. Thus through observing basic financial ratios we can appreciate the fact that Grameen Danone Foods Limited is heading towards self-sustainability and even profitability.

A FUTURISTIC PERSPECTIVE In the near future Grameen Danone Foods Limited will expand its economic activities via increase in infrastructure, manpower and campaigning (Grameen Danone Foods Limited, 2010). The aim is to achieve profitability by setting up a new manufacturing plant and generating revenues of approximately $7,470,000 by 2012, extending the

network of Grameen Ladies to 1500 and conducting around 7000 mini events in villages across Bangladesh (Rangan and Lee, 2010). Via the growing popularity of Grameen Danone, I believe that a major impact within rural communities in Bangladesh will ensue. These will be in the form of capabilities and relationships (London, 2009). Within the communities there will arise a common goal of eradicating malnutrition and increase in knowledge about its benefits. The relationships between the people in the villages will improve, as there will be a sense of respect for one another. The efficient working of the Grameen Danone Ladies will result in gender equity and social cohesion. Overall the future looks extremely bright for Grameen Danone Foods Limited.

Through this essay I illustrated the concept of a social business and utilizing academic frameworks of business model innovation attempted to highlight the foundation, functionality and future of Grameen Danone Foods Limited. Study of such business models at the BOP level is critical as it provides a service to the investors interested in these markets and thus helps taking steps to alleviate global poverty (London, 2009). For investors it is a method of deriving what the best practice is and where it works. There is hope that by observing Grameen Danones progress many fruitful collaborations will be formed leading to the empowerment of millions more at the Base of the Pyramid. This will definitely sweeten the taste of Grameen Danone Foods Limited even more.

BIBLIOGRAPHY Chesbrough, H. (2010). Business Model Innovation: Opportunities and Barriers. Long Range Planning, 43, pp. 354-363. Christensen, C et al. (2008). Reinventng Your Business Model. Harvard Business Review, pp. 51-59. Division of communication. (2008). The state of the worlds children. United Nations Childrens Fund. (Research Report). New York. Ghalib, A et al. (2009). Social Responsibility, Business Strategy and Development: The Case of Grameen-Danone Foods Limited. Australasian Accounting Business and Finance Journal, 3 (4), pp. 11-14. The Grameen Creative Lab. Grameen Danone Foods Limited. Accesed on 23rd March, 2011, from http://www.grameencreativelab.com/live-examples/grameendanone-foods-ltd.html Grameen Danone Foods Ltd. A Social Business in Bangladesh PowerPoint presentation, June 2010. Imamus Sultan, Grameen Danone Foods Limited: A Unique Model of Social Business Enterprise, presentation to Japan Microfinance Symposium, July 3, 2007. Karamchandani A, Kubzansky M and Frandano P. (2009). Emerging Markets, Emerging Models. Monitor Group. (Research Report). Cambridge. Karnani, A. (2008). Help, Dont Romanticize the Poor. Business Strategy Review, pp. 49-53. London, T. (2009). Making Better Investments at the Base of the Pyramid. Harvard Business Review, pp. 106-113. Osterwalder, A and Pigneur, Y. (2009), Business Model Generation. Amsterdam: Self-Published. Prahalad. C. K. (2005), Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits .New Jersey: Wharton School Publishing.

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Rangan, V and Lee, K. (2010). Grameen Danone Foods Limited., a Social Business. Harvard Business Review, pp. 1-22. Seelos,C and Mair, J. (2005). Social Entrepreneurship: Creating new business models to serve the poor. Business Horizons, 48, pp. 241-246. Teece, D. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43, pp. 172-194. Weetman. P. (2003). Financial Accounting: An Introduction, London: Financial Times/Prentice Hall. Yunus, M et al. (2010) Buliding Social Business Models: Lessons from the Grameen Experience. Long Range Planning, 43, pp. 308-325. Yunus, M and Weber, K. (2007), Creating a World Without Poverty: Social Business and the Future of Capitalism .New York: Public Affairs. . 11

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