Managing Risk and Supporting Growth in the E-commerce Era

Treasury and Trade Solutions 6 Danone: Developing a Treasury framework for e-commerce initiatives Danone is a leading global food and beverage company built around three businesses: essential dairy and plant-based products, waters, and specialised nutrition (including early life and medical nutrition). Its e-commerce strategy varies by sector with local initiatives and decision making, reflecting the decentralised nature of Danone’s business. To date, e-commerce is primarily focused on sales via online distributors (B2B model) although Danone is starting to explore Direct to Consumer (D2C) e-commerce initiatives as well. “With our B2B e-commerce sales, Danone is mainly dealing with a distributor to manage the route to market to our end users,” explains Stephane Chambon, international treasurer at Danone. Billing and other financial flows are also managed by the distributor with collections settled to Danone once a month. While a large scale of Danone’s business continues to be via traditional channels (including online D2B), the company recognises that e-commerce is evolving and it is looking to implement D2C models in some markets. “The intention is that we will have a direct route to market, with products going straight from us to the consumer” says Chambon . “We will collect cash through an acquirer or payment service provider depending on the market.” With its current B2B strategy, the impact of e-commerce sales on treasury is limited — essentially treasury (at a local level) just has to ensure that cash is transferred to Danone’s bank account at the appropriate time. However, as Danone implements D2C models within the group, these initiatives would have significant implications for treasury. To that end, treasury is currently analysing the live e-commerce initiatives within the group to better understand how these online businesses work and the financial risks in the current models. “We aim to define rules to guide the business and protect Danone’s online businesses” says Chambon. Chambon’s background — he became international treasurer in July 2018 after many years in business control and a few in audit at Danone — has been a major driver for treasury’s decision to investigate the broader implications of e-commerce. “When I took over this position, I realised that while treasury is centralised with clear rules for the business, there was nothing comparable for online activity.” Chambon expects the new guidelines to be complete for the first quarter of 2020. “Beyond this first step, rules will continue to evolve to be well connected with the business evolution. The main objective is to have a common framework that will enable us to work in full compliance with our internal rules and allow efficiency. One important issue is that consumer payments are changing — it’s no longer just about bank providers but also involves payment service providers and collections companies. We are looking at both bank and non-bank models.” Treasury is working closely with Danone’s online sales director to design the new e-commerce rules. “One ongoing challenge is to ensure that we are able to embrace all different models, taking into account local specifics. This means that we need to connect across all the businesses if we want to successfully and effectively protect Danone. It also increases the importance of a rules framework so that treasury people locally can apply consistent policies and bring added value to the business in those locations.” One example of how treasury is seeking to protect new D2C businesses is in the area of financial risk management. “At the moment our distributors are responsible for risk management. In an online D2C model, managing the risk associated with consumers is definitely much more challenging. We need to protect Danone against fraud. For example, being able to clearly identify the origin of the fund is a must (ie: IP address, email tracking). Companies transitioning to D2C e-commerce need to have firm rules in place that address contracts with acquirers and other partners. Responsibilities must be clearly defined.” Another example is in the area of FX risk management. “D2C e-commerce can result in FX management – some online businesses may have purchases in different currencies. Hence the cash flows must be hedged appropriately. It’s essential for treasury to understand the FX flows between Danone and its acquirers, to ensure FX risk is effectively managed and that treasury has visibility and control. This, and related issues such as settlement times, are not necessarily always top of mind for the business: Treasury therefore needs to be involved in the planning stages and be engaged in decisions concerning e-commerce.”