How Danone Turns Bacteria Into Bucks

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It has turned science into an effective promotional tool, detailing research on its Web site and sending data packets to doctors. Rivals such as General Mills' Yoplait have published just a few studies on the probiotic yogurts (those containing healthy bacteria) they sell. Switzerland's Nestlé discontinued a probiotic yogurt it launched in the late 1990s. "If you commercialize your science in the right way, you own the market, and that's what Danone has done," says Julian Mellentin, executive director of London's Centre for Food & Health Studies.

It's no secret why Danone is devoting so much energy to bacteria. Those little bugs command top prices. A standard four-serving pack of Activia, for example, sells in most countries for more than $3, about twice the price of conventional brand-name yogurts. With probiotic yogurts accounting for almost a third of its $20 billion sales, Danone is poised for 8.7% annual growth over the next three years, outpacing larger rivals such as Nestlé (NSRGY), with 5.9% growth, and Unilever, with 4.2% growth, says Andrew Wood, an analyst with Sanford C. Bernstein & Co. (AB)

Many American merchants predicted that Activia would be a failure. Juan Carlos Dalto, who heads Danone's North American division, recalls that an executive at one major U.S. retail chain asked: "Are you really sure you want to put small cups with billions of bacteria on our food shelves?" In a bow to American sensitivities, Activia ads refer only obliquely to intestinal functions, using terms such as "discomfort" and "natural regularity."

The plan worked. Says Michelle Barry, a marketing consultant that advised the company on Activia's U.S. launch: "They got the message across without grossing consumers out."

Matlack is BusinessWeek's Paris bureau chief.