BU491 Lecture Notes - Lecture 5: Merck & Co., Sanofi, Ivey Business School
BEAUTIFIC: SANOFI’S INITIATIVE TO ENTER THE ‘BEAUTY DRINKS’
MARKET WITH COCA-COLA1
Ali Taleb and Jon Capus wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either
effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying
information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com.
Copyright © 2015, Richard Ivey School of Business Foundation Version: 2015-08-31
Sanofi has a hard time admitting its ‘beauty drink’ project with Coca-Cola.
–Astrid Gouzik, French journalist, Usine Nouvelle newspaper, October 18, 2012
Can the “beautific” drinks from Coca-Cola and Sanofi bring any health benefits?
–Steve Walker, British analyst, Medical Specialists News, October 18, 2012
Starting October 2012, front-page titles of many news articles reflected the magnitude and diversity of the
reactions triggered by unconfirmed rumours in the press about an unlikely alliance between Coca-Cola and
Sanofi to develop and commercialize a new line of beauty drinks named Beautific. The new products would
provide health and beauty benefits to consumers. The American firm Coca-Cola was the world leader in
soft drinks and the French firm Sanofi was the European leader in pharmaceuticals. The buzz had been met
with gloom from many of Sanofi’s employees, especially those within the research branch, which had just
started to recover from a major downsizing.2 Thierry Bodin, a researcher and employee representative,3
commented sarcastically: “On one hand, we destroy research [jobs] and on the other we partner with Coca-
Cola, the company that has generated millions of diabetics worldwide. This is quite shocking from an ethical
point of view.”4 For Florence Faure, an employee representative at Sanofi France, the signal was also clear:
“Sanofi was in the process of withdrawing from the drugs market.”5 Similarly, market analysts were
skeptical about the claims that such beauty drinks would “strengthen hair and nails, improve skin AND help
[consumers] lose weight.”6 Underlying the reactions of analysts and employees were more fundamental
questions such as whether it would make sense strategically for Sanofi to proceed with the initiative and, if
yes, why Coca-Cola would be a suitable partner.
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THE EMERGENCE OF THE “BEAUTY DRINKS” INDUSTRY
According to the World Health Organization, citizens of the European Union were taking in increasingly
more energy through the consumption of fat, sweetened beverages and soft drinks. At the same time, the
physical activity supporting their habits and environments — including transportation, work, education and
leisure activities — was declining.7 Concurrently, lawsuits had arisen to remove soft drinks from schools
in the United States8 and to remove vending machines entirely from places of study in the European Union.9
Between 2000 and 2008, the global rate of obesity grew by approximately 3 per cent.10 By 2010, the average
consumption of soft drinks per person per year had grown to 43 litres.11 One study suggested that children
could be 60 per cent more likely to become obese per additional soda consumed per day.12
The beauty drinks (or nutricosmetic) industry had emerged at the intersection of cosmeceuticals and
nutraceuticals by the middle of the 1990s. The use of nutricosmetics was described as the consumption of
food or oral supplements to produce benefits in appearance.13 It had emerged partially as the result of the
beverage industry’s slowing growth and the shift in consumer behaviour towards more health-conscious
choices.
Sixty-five per cent of the world’s beauty drinks market share could be found in the Asia-Pacific market due
to an aging population and an increased appreciation for the role nutrition plays in beauty.14 In 2010, the
global market for beauty drinks was valued at EUR1.1 billion — a 29 per cent increase from 2006.15 Japan,
the main beauty drinks market in the world, viewed foods with nutritional benefits as highly appealing and
had foods for specified health uses approval system that allowed for such health claims of products to be
approved and endorsed by the government much easier than systems in Western nations did.16
The global market for beauty drinks was expected to reach about EUR3.2 billion by 2017 as a result of
increasing awareness, as well as aging populations looking for less invasive beauty treatments.17
These so-called “functional foods” could be expensive to develop and market, primarily because of the
necessary research, development and scientific processes required in creating and improving the products.
Skepticism could lead to a lack of appeal, consumption or adoption. Factors behind skepticism could include
the struggle to gain scientific backing, as well as the perception that the products were “less natural than
conventional products.”18 The most efficient way to encourage consumers to try new products was through
a “categorization cue” by which a new product already fit into an existing category of products in the
market.19
In response to the trends that had emerged from aging populations and growing interest in healthy eating,
several major companies had formed strategic alliances to take advantage of the market potential. However,
the outcomes were rather mixed (see Exhibit 1). For instance, Coca-Cola had teamed up with Nestlé to
produce a tea-based beverage called enviga, which claimed to burn more calories than it contained. Lawsuits
resulted in “diet and exercise” disclaimers being forced onto the labelling of the drinks, putting any and all
nutritional benefits of the drink into question in the eyes of consumers.20 CocaCola had also worked with
the French company L’Oréal on the development of another tea-based drink called Lumaé. The goal was to
market the item as a beauty product more than a drink. The intended distribution channels were upscale
department stores, rather than convenience stores and gas stations.21 However, the product was never
released for public consumption.
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Similarly, Nestlé had introduced a beauty drink, Glowelle, to the market in 2009 with limited success. As
of 2011, it had taken the product off the shelves and put it back into research and development (R&D).22
According to market analysis, major downfalls of the product were that the benefits were unfamiliar to
consumers and that it had an extremely high price tag compared to regular beverages.23
For relatively similar strategic reasons, Starbucks had partnered with PepsiCo to develop its bottled
Frappuccino beverages in 1995. It benefited from PepsiCo’s extensive background in product development,
retail sales and distribution channels, and access to critical bottling plants specifically suited to dairy-based
products.24
SANOFI: A GLOBAL LEADER IN PHARMACEUTICALS
Sanofi was one of the world’s largest pharmaceutical companies in 2012. Its net sales that year were
EUR34.9 billion,25 an increase of 4.7 per cent from the prior year.26 By comparison, Sanofi was in third
place worldwide in terms of sales. Major competitors included Pfizer with approximately EUR45.9 billion
in revenue,27 Merck & Co., Inc. with EUR36.8 billion,28 and GlaxoSmithKline with EUR32.5 billion29 for
the same year.
Sanofi was globally involved in prescription drugs, vaccines, animal health and consumer healthcare, which
encompassed cosmetics (see Exhibit 2). It had a commercial presence in approximately 100 countries, as
well as having products available in more than 170 different countries.30 The company had also become
increasingly active in emerging markets.
In 2008, analysts estimated that Sanofi would witness decreasing revenue and earnings by 2012 due
essentially to expiring patents on major products. At the end of 2008, Sanofi hired Chris Viehbacher — a
Chartered Professional Accountant with extensive international experience in the pharmaceutical industry
— as its new chief executive officer in replacement of the retiring chief executive officer and co-founder of
the company, Jean-François Dehecq. Prior to joining Sanofi, Viehbacher had worked for GlaxoSmithKline
for 20 years in a variety of positions, including the president of pharmaceutical operations for North
America.
Viehbacher brought to Sanofi a new leadership style and a new vision to deeply restructure the company’s
business. The mission quickly began to revolve around region-specific patients’ needs as well as the creation
of four growth platforms in vaccines, consumer healthcare, branded generics and medical devices.31
By the end of 2012, the relative contribution of Sanofi’s various lines of business to the bottom line of the
company had started to shift from vaccines, prescription drugs and animal health products to consumer
health and generics (see Exhibit 2). Viehbacher estimated that the seven total new growth platforms,
including emerging markets, diabetes, vaccines, consumer healthcare, animal health, new genzyme (activity
centered on products for the treatment of rare diseases and multiple sclerosis), and other innovative
products, would account for 80 per cent of company sales by 2015.32
Sanofi Pasteur, one of its strategic business units, was one of the world’s largest suppliers of flu vaccines,
with EUR884 million in sales in 2012. Compared to other drugs, flu vaccines made up a significant amount
of sales due to sheer volume. Historically, the lack of cheaper or generic substitutes for vaccines, coupled
with scientific advances, had allowed for prices of vaccines to be scaled upwards every year.
Document Summary
Beautific: sanofi"s initiative to enter the beauty drinks". Ali taleb and jon capus wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact ivey publishing, ivey business school, western. University, london, ontario, canada, n6g 0n1; (t) 519. 661. 3208; (e) cases@ivey. ca; www. iveycases. com. Copyright 2015, richard ivey school of business foundation. Sanofi has a hard time admitting its beauty drink" project with coca-cola. Astrid gouzik, french journalist, usine nouvelle newspaper, october 18, 2012. Steve walker, british analyst, medical specialists news, october 18, 2012.
