Danone // 2020 Universal Registration Document

2 Overview of activities, risk factors 2.6 Risk factors DANONE UNIVERSAL REGISTRATION DOCUMENT 2020 25 DESCRIPTION MANAGEMENT MEASURES medium Retail shift Several structural forces are coming together to shape today’s rapidly changing retail environment: • consumer demand for immediacy; • consumer demand for healthier eating; • consumer growing needs for specific products & services. As a result, retail is undergoing a growing segmentation of channels. The fastest growing ones (such as hard discount, c-stores, e-bu- siness and Cash & Carry) are capturing the totality of the market’s growth while the big formats (such as hypermarkets) continue to decline. The Covid-19 pandemic has accelerated these trends as shoppers are searching for safer options and can be limited in their movements. For example, in 2020, in some of Danone’s top-coun- tries, e-commerce growth for food and beverages has been double digits, especially in France +21%, in the United States +44% and in China +55% ( Source: Edge ). The Covid-19 pandemic is also bringing high uncertainty on the out-of-home and proximity channels, with further risks of regula- tory and voluntary closures of the latter channels, and limitations of cross-border commerce as Danone experienced in 2020. The Waters business was strongly impacted in 2020, with decrease of 17% in like-for-like sales in 2020. Danone’s customers (retailers) are in the first line of exposure to the pandemic’s effects and risks, and are in particular re-focusing on shorter ranges of SKUs for many reasons namely (i) agility of supply chain in volatile demand times, (ii) cost-effectiveness and (iii) simplification of operations in order to compensate margin losses during the pandemic. They are also acknowledging the trend towards smaller store formats and therefore adapting their products offer. In this context, if Danone is unable to anticipate the market shifts and adapt its sales strategy, go to market, digital and e-commerce capabilities, supply chain model and execution, it could lead to: • slower growth from market share loss and under-performing innovation; • pressure on operating margin; therefore, negatively impacting its financial situation. Danone’s actions to adapt to the retail shift include: • adapting sales playbook to growing channels (route to market/ execution); • dedicating teams and plans to reinforce its presence in e-business; • finding selective partnerships in the right geographies and channels; • re-visiting the supply model to shift from economies of scale to economies of scope; • use co-packing when and where relevant. Also, part of Danone’s accelerated investment plan of around €2 billion announced in February 2020 is dedicated to build agile & digital end- to-end value chain, strengthen execution and better serve consumers’ needs anytime, anywhere (see section 2.2 Strategic priorities ). In addition, Danone has started in 2020 to review its global and cross-category portfolio in order to better answer its customers and consumers needs and to enhance its profitable growth.