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AgendaHistoryIntroductionProductsCompetitorsMarket sharesCost Reduction and promotion strategiesValue chainCase: Kraft and Cadbury deal

IntroductionCadbury PLC (Cadbury), a British confectionery company, was known as Cadbury Schwepps Plc from 1969 till 2008.It was acquired by Kraft Foodsin 2010 after which it became the largest confectionery company in the world.In India, Cadbury was incorporated in 1948 and it initially imported chocolates before starting cocoa production in 1965.It was present in different food categories like chocolate confectionery, biscuits, beverages, gum, and candy.Cadbury's main business was chocolate confectionery wherein it was the market leader with a market share of around 70% in 2011, which is the highest Cadbury brand share globally.Markets:Australia, Canada, India, Ireland, New Zealand, United Kingdom, Malaysia, PhilippinesIntroduction (contd) The operations of Cadbury India initiated in 1948. It has five manufacturing units all over India at Thane (Maharashtra), Induri (Maharashtra), Malanpur (Madhya Pradesh), Bangalore (Karnataka) and Baddi (Himachal Pradesh). It has one cocoa operations office at Dharapuram (Tamil Nadu)

Cadbury Indias one of the most popular brands, Cadbury Dairy Milk is a benchmark for other chocolates in India and is regarded as the gold standard.

Some of its main chocolate products were Dairy Milk, 5 Star, Perk, Celebrations, Eclairs and Gems. Dairy Milk alone held 30% of the share of the Indian chocolate market. Cadbury Dairy Milk itself had many variants like Fruit and Nut, Crackle, Roast Almond, Dessert, Silk, Shots, Eclairs.

In the medicated category, Halls is a favorite candy while Cadbury India has also entered the biscuits category by launching Worlds no.1 biscuit brand Oreo.

Cadbury has also been the leaders in the development of cocoa cultivation in India since 1965. The research work has been carried out in collaboration with the Kerala Agricultural University. The team from Cadbury also conducts training sessions for the cocoa farmers on cultivation aspects to have an increased cocoa productivity.Cadbury ProductsThe market major of Chocolates offers the following products in the market:- Chocolates like Cadbury dairy milk, perk, celebrations, temptations, five star, clairs, gems, fruit & nut, Cadbury crackle and many more.. Snacks like Cadbury bytesBeverages like Bournvita, Cadbury delightCandy like Cadbury halls Gums like Bubbaloo

Chocolate and coca based beveragesGumCandyOther beveragesThe manufactures of Cadbury India in the chocolates brand are:Cadbury Dairy Milk:Other than the most popular Cadbury Dairy Milk, there were other variants in the brand as Fruit & Nut, Crackle, Roast Almond, Cadbury Dairy Milk Wowie, and Cadbury Dairy Milk 2 in 1.

5 Star:This chocolate bar was launched in 1969. It is the second largest chocolate brand after Cadbury Dairy Milk with a market share of 14%. Cadbury 5 Star Crunchy and Cadbury 5 Star Fruit and Nut are the variants in this brand.

Perk:Cadbury Perk was launched in 1996. The brands launched later are Perk XL and Perk XXL.

Celebrations:Cadbury Celebrations brand was launched with a target of replacing the conventional gift items as sweets etc on occasions like Diwali, Rakhi etc.

clairs:The Cadbury Dairy Milk clairs is one of the most popular brands in the clairs category. One more launched brand in this category is the Cadbury clairs Rich Brownie.

Cadbury Products (contd..)Gems:This brand was launched in 1968 and is one of the most popular brands among the kids.

BeveragesCadbury Bournvita:It was launched in India in 1948. It is one of the oldest brands in the category of Malt Based food. Bournvita Lil Champs: This is an ideal milk additive product for the children launched in 2008 with key ingredients for proper growth as DHA, whey protein etc.

CandyHalls:Halls was included in the Cadbury Brand in the year 2003 as a part of the global unification with Adams Confectionery.

BiscuitsOreo:It was launched globally in the year 1912. It was launched in the Indian market in 2011

GumBubbaloo:This gum with a bubbly taste was launched in India in the year 2007. Cadbury Products (contd..)CompetitorsCadbury's main competitor in India was Nestl. Nestl's products included Kit Kat, Munch, Bar-One, Milky Bar, and Milky Bar. There was an ongoing battle between Cadbury and Nestl, with both of them engaging aggressively in their advertisement campaigns.

Over the years, Cadbury focused on its advertising campaigns for Diary Milk to connect with the people and gained popularity. Earlier, there was a perception that chocolates were meant only for children. Cadbury wanted to change this perception and thus it started various advertisement campaigns meant to influence adults and add them to its consumer segment.SWOTCadbury Market ShareIn 2013 Domestic Chocolate segment in India was Rs. 6,000/-Cadbury at 67% followed by competitor Nestle at 21% and others 12%Increasing Market Share is not easy for CadburyPushing Pricier brand Silk and Lower price Cadbury ShotsWhereas Nestle pushing its Alpino and MunchIn health drinks Cadburys Bournvita facing stiff competition from Heinz Complan.Future market expansion will be E commerce online selling.

Cadbury Market Share

Cadbury Prices

Cadbury Cost Reduction StrategyPrice reduction without affecting quality is the main concern it can be possible by new offers, discounts and implementing new logistic and distribution centreUse of automation process to reduce cost of production- high accuracy and more perfectionUses of innovative delivery that related with fast and time management as per demandCadbury uses following technology like PLC(programmable logic control), SCADA(supervisory control and data acuisation) and DCS(distributed control system)Bad days for CadburyCadburys Position Before the Incident:

Thirty million bars of Cadbury Dairy Milk chocolate bars were bought every month.

In June of 2003, Cadbury was the only multinational to be identified as one of Indias Best Managed Companies by Business Today and Business World ranked Cadbury among the Best Workplaces in India.

Despite a slowdown in the fast-moving consumer goods (FMCG) sector in India, Cadbury was among Indias fastest growing companies. In 2003, the companys cumulative third quarter growth rate in value terms was 15.1%, and its underlying operating profits were up by 15%.

Bad days (The Worm incident)In 2003, Cadbury India faced a media onslaught and plummeting sales brought on by reports of worms in some of its chocolate bars. In October 2003, just a month before Diwali, customers in Mumbai complained about finding worms in Cadbury Dairy Milk the Maharashtra Food and Drug Administration seized the chocolate stocks manufactured at Cadbury's Pune plant.In defense, Cadbury issued a statement that the infestation was not possible at the manufacturing stage and poor storage at the retailers was the most likely cause of the reported case of worms which was not taken by the FDA.- FDA commissioner, Uttam Khobragade told CNBC-TV18, "It was presumed that worms got into it at the storage level, but then what about the packing - packaging was not properor airtight, either ways it's a manufacturing defect with unhygienic conditions or improper packaging."The heat of negative publicity melted Cadbury's sales by 30 per cent, at a time when it sees a festive spike of 15 per cent.For the first time, Cadbury's advertising went off air for a month and a half after Diwali, following the controversyWithin a few weeks of the initial incident, the perfect storm of media, regulators, and political parties had created an impression that each and every bar of Cadburys chocolate was infested.

Steps taken for image Re-buildingCadburys response to the crisis was the implementation of the Project Vishwas (Project Trust) campaign. The goal of Project Vishwas was to win back the confidence of the consumer. Retailers and consumers were reached nationally through the press advertisement, Facts about Cadbury, released in 55 publications in 11 languages. The advertisement presented facts about Cadburys manufacturing and storage facilities and highlighted corrective steps being taken by the company. By investing up toRs15 crore (Rs 150 million) on imported machinery, Cadbury's revamped the packaging of Dairy Milk. The metallic poly-flow, was costlier by 10-15 per cent, but Cadbury didn't hike the pack price. The new production process was implemented in an unprecedented eight weeks (instead of the usual six months).Cadbury also brought in a brand ambassador to reinforce the credibility that the company had demonstrated through its repackaging efforts. Amitabh Bachchan, a legendary Indian film star, was chosen (at a significant cost) because he embodied the values of Cadbury as a brand and connected with all of IndiaRoad shows were conducted across the states of Maharashtra and Kerala.Cadbury also distributed more metal dispensers and coolers to its retailersA response cell with a toll free number and e-mail was put in place to give shopkeepers a means to directly contact the company with any issues they faced. On the response cells first day, the unit received 158 calls and 60 emails.

ResultsThese actions helped reinforce the companys commitment to quality and reaffirm retailers confidence and proper storage practices. Finally, even as Cadbury was in the roes of the crisis, the company believed it was necessary to assure its consumers and retailers that it was business as usual at CadburyAs a result of the actions taken by Cadbury, there was significant upward movement in ratings amongst consumers on parameters like company image, responsiveness of the company, and intention to buy Cadbury chocolatesBy June 2004, intention to consume and gift Cadbury had returned to pre-incident levels.Media perceptions about the company had changed. Cadbury had recovered its reputation. Several enduring changes were made in Cadbury Indias internal and external practices regarding food safety as well.Cadbury learned (the hard way) that being prepared for similar events in the future would be well worth the investment, and the company put in place a permanent media relations and Corporate Affairs Cell.

Brand Value Chain of Dairy Milk The brand value chain consists of four value stages and three multipliers:

Value Stages:Marketing Program Investment Investment in marketing program, targeting actual & potential customersProduct research & development, advertisement, promotion & sponsorshipsCustomer Mind-setBrand awareness, Brand association, Brand attitudeMarket PerformanceCustomer mindset & reactionShareholder Value

Multipliers:Program MultiplierClarity Relevance, Distinctiveness & ConsistencyMarketplace MultiplierCustomers reaction on premium price, market share & cost structureInvestor MultiplierMarket dynamics, Growth potential, Risk profileCommitment to the environmentMigratory birds stop over at Bangalore factory

Water is a precious resources. As part of Cadbury India's effort to continuously increase water conservation Bangalore factory has constructed a check dam to store the rainwater. This dam not only acts as a major ground water replenishing source for the bore wells in the factories and surrounding community, but is also a stopover location for some of the migratory birds.

Commitment to the environmentNon-formal school set up by Cadbury for children of migrant workers in BaddiThe efforts of the Baddi factory team over 50 children of migrant workers living in and around Cadbury Baddi factory will now have daily access to non-formal education. Cadbury has set up a non formal school as part of Cadbury commitment to create prosperous, inclusive and healthy communities.

This is the first phase of project SAHYOG an 18 month project which commenced in January this year in partnership with an NGO RUCHI. the project reaches out to over 400 poor & marginalised families in sandholi village near Cadbury Baddi factory and apart from education .

Commitment to the environmentPioneering cocoa cultivation in IndiaSince 1974 Cadbury has pioneered the development of cocoa cultivation in India. Cadbury India Ltd announced Cocoa Research Project with Tamil Nadu Agricultural university to undertake cocoa research to help promote cocoa cultivation in India.Cadbury efforts have increased cocoa productivity and touched the lives of thousands of farmers.

Kraft Foods INC. is a United State corporations established in 1923 by Thomas H. Mclnnerney.Ranking: Worlds second largest food company.Brands available in 150 countries.Headquarter: Chicago, Illinois.Employees Approximately 100,0002008 Revenues $42 Billion.The firm has two main operating units-Kraft Foods North America and Kraft Foods International.A large proportion of Krafts worldwide revenues came from just 11, well-known, well-established brands each brand drawing in over 1 billion US dollars in revenue each year. coffee, cookies, crackers, cream cheese, dessert mixes, dry packaged dinners, lunch combinations, powdered soft drinks, process cheese, salad dressings, and snack nuts.

23Kraft & Cadbury Merger in Jan2010Reasons for the Deal25Major ProblemsInadequate Evaluation of Target: 500p in cash and 0.1874 Kraft shares for each Cadbury share. According to Buffet which was a pretty full price i.e. much higher than actual & Kraft shares undervalued.Large Debt: Debt of $ 9.5 billion. Recoverable within 13 years at the then income level (3.25, 6, 10, 30 year bonds through DB, HSBC, RBS, BNP Paribus)Kraft's takeover of Cadbury was also criticized by British trade unions who felt that the merger would destabilize the company and affect future returns to shareholders. Cultural differences: Sir Dominic and Sir Adrian Cadbury said: considerably increased if the bidder fails to win the loyalty and support of the employees on whom the continuing fortunes of the enterprise depend."Fears at Cadbury: Kraft's bureaucratic work structures, Working relationship: Irene Rosenfeld's remote management style, etc.

Major ProblemsTurnover of Key Personnel - Exodus of experienced Cadbury management HR Integration - Job Redundancies and Changes to compensation packageNon-resolution of Uncertainty - Lack of clear communication with acquired employeesCadbury failing to meet Krafts top line objectives.Unreliable precedents: Closed the Terry's factory in York after buying it in 1993, despite promising to keep it open. Habit of taking over great national institutions DANONE, Cadbury Did not close biscuit manufacturing facilities in France for at least three years and increased investments also

Implications of Cultural Change

KraftCadburyStrengthened BrandDamaged HeritageDrives higher performance leading to better revenuesLower Moral and PerformanceBetter Control of organizationStaff BurnoutBetter ReputationRisk of losing benefit schemesEfficiencies through alignment of processesTrust IssuesAlignment of goalsChanged Brand Personality28SummaryThe final offer marked a 14% increase from initial offer which is the worlds largest deal for confectioner.

Recommended offer represents an attractive offer for Cadbury share holdersCombination of cash and upside as continuing share holders (i.e.500p in cash and 0.1874 Kraft stock for each share they own)Transforms the portfolio and enhances the long term growth prospects

Kraft generates a strong near term economic return 9%-11% increase in long term; Access to an iconic brand with a strong penetration in growth markets; Access to a strong marketing and distribution channel in developing market

SummaryThe initial results have been very pleasing to Kraft since they had been able to continue moving forward with their long-term strategic goals.

Successfully been able to move into high growth emerging markets and at the same time they have been able to promote Cadbury sales from within their established distribution networks.

Over one third of the global Kraft Executive Management team is from Cadbury and they have been critical in the attempts to move into new markets.

Improvements in Kraft business since the takeover. Great increases in both share price and revenues, whilst at the same time reducing our long-term debt obligations by almost 50%. 30SummaryKraft commanded 14.8% of the global candy and gum market;Kraft's net profit for the fourth quarter fells by 24%;Kraft has to spend $1.3 billion for integration costs to achieve $675 million in recurring annual synergy savings;Kraft forced to raise price in North America and Europe to offset high commodity cost;Overall 30% knocked off EPS after deal;Had to sold Somerdale Factory based in UK plant for 50mLabor outreach;Keep Cadbury a British co. protestThank you