Searching for a way to play the global trend toward a healthier, more balanced diet? Look no further than shares of Groupe Danone (NYSE:DA), the Paris-based food and beverage company that provides tasty dairy, scrumptious biscuits, and delicious bottled water the world over. Every time you grab a bottle of Evian from the neighborhood deli or delve into a cup of StonyField Farm yogurt, you're buying one of Danone's products, products that allowed this packaged foods giant to record sales of more than $18.4 billion in fiscal 2006 and net income of roughly $1.6 billion.

Now, while these types of numbers pale in comparison with the annual results of some of its larger competitors, such as Unilever (NYSE:UN), Nestle, and Kraft Foods (NYSE:KFT), I believe that shares of Danone will continue to outperform their rivals because of the company's focus on just three core categories, its leadership positions in those categories, and the fact that the company holds first-mover advantages in some key emerging markets.

Let's take a look and make sure that all that yogurt hasn't softened my brain, shall we?

How it sets itself apart
The company is somewhat unique among the world's large food groups in that it divested itself of low-margin businesses like sauces, beer, and pasta earlier this decade and now concentrates on only three categories: fresh dairy (65% of 2006 sales), beverages (30% of revenue), and biscuits (15% of sales). This laser-like focus has enabled Danone to quickly introduce higher-margin, innovative products like its wildly successful Activia and Actimel brands of probiotic yogurt (yogurts that contain bacteria that help balance the body), which in turn has led to a gradual improvement in operating margin from 10.8% back in 2000 to 13.6% in the year ended Dec. 31.

Now, while I like the company's concentration on its core categories (not to mention the margin improvement), I'm even more excited by the fact that Danone holds a leadership position in each of these categories. The company is the world's largest producer of fresh dairy products, holding a 30% market share (when subsidiaries are included); in biscuits it ranks No. 2 globally and is the market leader in Western Europe; and in beverages (i.e., bottled water), Danone is the world's largest producer by volume, with a market share of roughly 12%.

The strength of the company's brands is important as it continues to push into fast-growing, emerging markets, because this is an area where the company holds a first-mover advantage, especially in bottled water. Danone holds roughly a 20% share of the bottled water market in Asia (including a 25% share of the Chinese market and a 50% share of the Indonesian market), is the market leader in Latin America (including a 36% share of the Mexican market), and is making inroads in the Middle East and Africa. This type of positioning bodes well for growth, because Danone now derives the majority of sales (61%) from the more mature market of Europe, while Asia contributes only 17% of revenue and the rest of the world chips in the remaining 22%.

Hmmm ... a company that is focused on healthy products, holds leadership positions in these categories, and has ample room for growth in emerging markets. I don't know about you, folks, but that sounds pretty tasty to me, especially because management recently increased its dividend payout by 18% and forecasts organic revenue growth of 6% to 8% in 2007, along with a further increase in operating margins and underlying earnings growth of at least 10%.

All in all, I believe that Danone is one of the best-positioned companies in the packaged foods industry and that investors looking for above-average returns in a historically defensive sector should considering adding shares to their investment diet.

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Fool contributor Will Frankenhoff is enjoying his time writing for The Fool more than reading The Financial Times, rooting for the Jints, or taking a nap. He welcomes your feedback. He does not own shares in any of the companies mentioned. Kraft Foods is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.