The group's so-called blockbuster brands - Activia probiotic yoghurts and Actimel functional dairy drinks - increased sales by 30 and 15 per cent respectively in the third quarter.
Danone increased total sales by 6.7 per cent to €9.85bn for the first nine months of 2005 as consistent growth of around seven and 10 per cent in fresh dairy and beverages helped to offset a slow-down in biscuits.
The group said that value had risen faster in beverages, mainly thanks to flavoured waters and increasing sales of functional drinks.
New product launches have served the company well, such as the lightly carbonated fruit drink, Taillefine Fiz, and Volvic Thé in France. Volvic Thé is now France's number two ready-made tea brand.
Danone also made big sales gains in its emerging markets, particularly China, Indonesia, Russia and Mexico. Sales in Asia rose 12 per cent on average for the first nine months of the year, while dairy and beverages were boosted in Eastern Europe by new flavoured waters in Poland and new launches of Activia and Actimel in several countries.
It is France, the country that considers Danone a 'national treasure', where problems have persisted and changes are needed. The group's nine-month sales fell three per cent on last year, with a slight loss in market share across the board.
The group said French household consumption as a whole was very soft and that it had become "more and more difficult to understand the consumer" in France.
Chairman Franck Riboud said more money was needed for a greater focus on innovation in order to beat off private labels. "We are starting to be really more aggressive when somebody is copying us," he said, adding that the group would work to develop better scientific illustrations of its products' health benefits.
Danone has already invested heavily in an advertising campaign devised to emphasise the 'uniqueness' of its products. Around two thirds of Danone's fresh dairy is now added value.
Pricing is also an issue in France, especially in light of a new retailing law (the Loi Dutreil) that is expected to cut the price of branded products. Danone said it would pursue a dual policy of high-end and low-end products.
"We need to convince retail that some of our product categories do not need to go down," said Riboud, adding that categories containing more 'standard' products would need to go down in price as part of the group's affordability drive.
Danone said it expected margins to recover slightly in the second half from a damaging rise in raw materials costs, mainly plastic, during the first six months of 2005. The group's beverages operating margin dropped three per cent in the first half to 13.3 per cent.