Oct. 15 (Bloomberg) -- Danone’s Dumex baby nutrition unit said it will take disciplinary measures and strengthen governance in China after a government body and state media accused it of paying doctors to drum up infant-formula sales.
The Danone unit paid medical workers in China’s northern city of Tianjin to promote its infant formula, the local government said yesterday. Dumex takes “full accountability” and plans to appoint new management while suspending a health- education program for Chinese mothers, it said in a statement.
The allegations are another setback for the brand in China, where it was fined in a separate price-fixing probe and recalled some products on contamination concern earlier this year. The Asian nation has sought to crack down on corruption in its $350 billion health-care market, probing multiple drug companies amid claims of doctors’ involvement in malfeasance.
The bribery report “certainly doesn’t help the brand equity of Dumex,” said Warren Ackerman, an analyst at Societe Generale in London. “Consumers seem to be sensitive to things like this.”
State-run China Central Television in September claimed that Dumex paid hospital staff in several Chinese provinces to sell its products amid fierce competition among baby-formula makers. An official investigation found that 116 employees in 85 medical institutions had broken rules since 2011 and accepted payments from the French formula maker, according to a post on Tianjin’s official microblog.
The World Health Organization recommends breastfeeding babies exclusively for the first six months and says promoting formula can undermine young children’s health by misleading mothers into thinking it’s the healthier alternative.
“Dumex policies include support for maternal breastfeeding, as well as compliance with all local and national regulations in China,” the company said. “The educational program was not appropriately managed in some cases. This resulted in some practices that contradicted the purpose of the program.”
Dumex will implement a three-month mandatory training program in marketing responsibility for all employees to ensure “full compliance” with internal policies as well as local and national regulations, it said in the statement.
Dumex did not elaborate on those practices or confirm the details of the government’s allegations. A Danone spokeswoman did not return a call and an e-mail seeking comment.
The Tianjin allegations reflect the increased government scrutiny that local and international companies are facing in China.
China in July detained four senior GlaxoSmithKline Plc executives on suspicion of economic crimes involving 3 billion yuan ($491 million) of spurious travel and meeting expenses and receiving sexual favors. Baby formula companies from Danone to Nestle have have also been probed on pricing in the country.
Danone was fined 172 million yuan by China’s top economic planning body in August for fixing milk-powder prices. That prompted the Paris-based company to reduce prices for its products there by as much as 20 percent. It also issued a precautionary recall of some formula in eight markets that month after a supplier said the items might have been affected by a contaminated whey-protein ingredient.
Danone’s baby-nutrition sales will fall in the third quarter because the recalls had a “significant” impact on sales in Asia, the company said in August. Danone ranks as the third-largest formula maker in China, with a 9.2 percent market share last year, according to Euromonitor International.
The company, which also bottles Evian water and makes Dannon yogurts, is scheduled to report third-quarter sales on Oct. 16.
--Liza Lin. Editors: Celeste Perri, Paul Jarvis, Marthe Fourcade