Yoghurt maker’s recipe for funding social businesses
By Sarah Murray
Published: July 6 2008 15:25 | Last updated: July 6 2008 15:25
When it launched a nutrient-rich yoghurt for poor consumers in Bangladesh, Groupe Danone, the French food company, hit an unexpected obstacle. It had trained a large sales and distribution team of women, but only a handful were still working after a week.
The problem, Danone found after talking to a local charity, was that people there did not like women conducting door-to-door sales.
With its partner Grameen, the microfinance institution, Danone decided to talk to community representatives. “We’ve learned something about managing sales forces of door-to-door saleswomen that are very poor,” says Emmanuel Marchant, chief executive of Danone Communities. “It’s about understanding the cultural context in which we operate.”
Danone is not alone in its discovery. Many companies have to learn fast when they embark on projects that attempt to address poverty or disease through commerce. But while some companies have found innovative operational ways of entering these poor markets, financing social businesses remains hard.
In this respect, Danone has lessons to offer. It has devised a financing model in which 90 per cent of investors’ money will be ploughed into low-risk investments, weighted towards socially responsible investments. The other 10 per cent
will go directly to the yoghurt project.
The model is a Sicav (société d’investissement à capital variable), an open-ended collective investment fund common in France.
Anyone, from Danone staff to shareholders and institutional investors, can invest in the Danone Communities fund, which launched in December 2007 and is managed and marketed by Crédit Agricole. So far the fund has raised about €60m (£47)($94): €20m from Danone, €24m from Credit Agricole, and the rest from other institutions and Groupe Danone’s employees.
“We wanted to have a very wide-open public financial tool that is easy to understand for retail banks and for the consumer in France,” Mr Marchant says.
In recent years, many groups have warmed to the idea of serving the world’s poorest people while turning a profit. But the heavy investment in time and money and the unstable operating conditions concerned mean most of these activities remain far from profitable.
“Many of our clients are discussing these social investment opportunities,” says Marc Pfitzer, managing director of FSG Social Impact Advisors. “And they end up defaulting back either to pure value chain activities that have less impact or to philanthropic initiatives. Finding that really interesting social investment avenue is difficult when they are under pressure to give a certain return.”
The response from Danone employees suggests that its funding mechanism could help solve this problem. After a trial launch, more than 30 per cent of staff at its headquarters and in its research centre invested some of their profit-sharing in the fund. This year the fund was opened up to all Danone employees in France, and 15 per cent of them have invested an average €1,500.
Supported by the fund, Danone will consider a variety of ways of delivering health and nutrition to poor communities. The group will add an annual contribution towards the operating costs.
Mr Marchant says the Danone Communities fund will grow with the number of projects it supports, which will give investors a better balance of risk. More of the fund can then be invested directly.
Jay Naidoo, chairman of the Development Bank of Southern Africa and a member of the Danone Communities board, says the approach recognises that “base of the pyramid” models “require patient capital to be tested, developed and later on scaled up”.
For now, the Danone Communities fund is helping finance a tiny factory, which opened early last year in Bogra, Bangladesh. The idea is to expand through a number of micro-factories producing 3,000 tons of yogurt a year. Each factory employs 1,000 women in local distribution.
Copyright The Financial Times Limited 2008
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