Dessert at Ion REPORT on Indian Chocolate Industry
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Transcript of Dessert at Ion REPORT on Indian Chocolate Industry
DESSERTATION REPORT ON
INDIAN CHOCOLATE INDUSTRY
Submitted in the partial fulfillment of the award of the degree of
3C MBA
Submitted by:Ankur arora
(MBA IV SEM)ENROLLMENT NO. A1808707012
AMITY INTERNATIONAL BUSINESS SCHOOL( AMITY UNIVERSITY,NOIDA, Sec-44 .)
ACKNOWLEDGEMENT
I would like to pay my gratitude to Mr. ASHOK CHAUHAN (CHAIRMEN), and also
wish thanks to Dr. GURINDER SINGH, (GENERAL DIRECTOER) AMITY
BUSINNESS SCHOOL International Business programme.
Again, I greatly appreciate the diligent support provided by all my colleagues, both
academic and professional and the faculty members if AMITY for their wholehearted
support and co-operation.
Last but not the least, I would like to thank Mr. D.C CHAOUDHARY, my project guide
for his valuable insight and unending guidance.
Above all, I thank God for giving me courage and wisdom to complete this piece of work
successfully in time.
Ankur arora
Contents
Titles
1. Introduction
2. Objective
3. Research Methodology
4. Chocolate Industry
5. Chocolate in a Bloom
6. Chocolate Industry in India
7. Major Players
8. Amul
9. Nestle
10. Cadbury
11. SWOT analysis of Cadbury
12. Market Segmentation
13. Psychographics and Demographics
14. Product Positioning
15. Product Market Boundary
16. Price Sensitivity
17. Consumer Buying Behavior
14. Industry Structure and Dynamics
15. The Rural Conundrum
16. Key Success Factors
17. Product Life Cycle
18. Positioning
19. Procter's 5 Force Model
18. Rural Market Initiatives
20. Suggestions
21. Conclusion
22. Bibliography
EXECUTIVE SUMMARY
The Cadbury’s India’s number one chocolate is able to share with their market insights
based upon unparalled breath of chocolate experience.
The merge in 1969 with Schweppes and the subsequent development of the business have
led to Cadbury Schweppes taking the led in both, the confectionery and soft drink market
intech UK and becoming a major force in the international market. Cadbury Schweppes
today manufactures product in 60 countries and a trade in staggering 120.
This project is a sincere effort to look for the market potential in chocolate and
confectionery industry. A descriptive research procedure had been applied to come to the
conclusions of the project. The project later concluded in recommending the market
potential of the chocolate and confectioneries.
INTRODUCTION
Chocolates had its beginning in the times of the Mayas and the Aztecs when they beat
cocoa into a pulp and made bitter frothy chocolate out of them. They first became popular
in Europe in a highly unrefined form. Then the Hershey Food Company was the first to
bring out chocolates in the currently popular solid form. The main ingredients of
chocolate is cocoa grown mainly on equatorial zones and of the consumers looks for
variety he goes in for some of that company’s own sugar milk solids and permitted
emulsifiers. Cocoa constitutes nearly 40% of the total raw material cost.
The following report studies the chocolate industry in India and in particular the position
of the chocolate brand - Cadbury. The brand name chosen is the umbrella brand as it
was felt that the corporate name is recognized as brand not so much its individual
products. The study focuses on the marketing and the advertising, employed by Cadbury
in the context of the Indian macro environment and industry structure. The advertising
strategy is studied with respect to Cadburys business and marketing objectives. The
strategies adopted are then analyzed for each product offering. Considering the strategies
of Cadburys major competitor follows the analysis, nestle India ltd. to get an
understanding as to where Cadburys stands.
The report initially focuses on an examination of the industry environment and the
product class. The product then goes on to analyze the corporate, marketing and
advertising strategies adopted by the selected company and its main competitor. It
concludes by looking at the future challenges for the industry and the company
It is also to be noted that the data used for analysis is of 2001-2003. This was the most
recent data available under whose purview the companies marketing and the advertising
strategies are studied.
OBJECTIVE OF THE PROJECT
The major objective is to study the Marketing Segmentation of Chocolate and:
To understand the Consumer Buying Behavior of Chocolate.
And also to study the Industry Structure and Dynamics.
RESEARCH METHODOLOGY
Sample Units: Three of the Number One brands in India namely Cadbury, Nestle and
Amul respectively, were chosen on the basis of their market shares. These three
industries were chosen on the basis of the usage of the products, as the usage of FMCG’s
and is high and noticeable.
Sample Design: Non-probability sampling was resorted to and the methods used is
Convenience sampling and Judgment sampling.
Data Collection: Data was collected from Secondary data. Secondary data was soured
from various published sources which include magazines like Business India and
Business World. Newspapers like Brand Equity, Brand Wagon and The Times of India
were also used. Annual Report of Cadburys and Nestle were also referred
Data was analyzed manually .
Emerging markets drive growth for malt and chocolate drinks
Malt- and chocolate-based drinks are often seen as relatively unsophisticated in
developed markets in the west, but in many countries, in particular in Latin America, they
are big business indeed, marketed mostly as an excellent source of nutrition in countries
where food quality is often poor. But improving sales in other countries will depend on
finding premium positioning.
Global retail volume sales of both malted and chocolate-based hot drinks reached
956,702 tones in 2003, according to a recent report from market analysts Euro monitor,
with Latin America alone accounting for over one third of total sales.
Indeed, Latin America accounts for two of the top three markets for chocolate-based
drinks (Brazil and Mexico, the third being Spain), and manufacturers are increasingly
focusing their marketing efforts on young people in these countries, according to the
report.
This goes hand-in-hand with the widespread introduction of value-added products in
these markets. In recent years, for example, the Mexican market saw the launch of a
number of chocolate-based powders in new packaging, formats and formulas - often with
new flavors. These products generally targeted consumers prepared to pay a premium,
though some were aimed at low-income segments of the population, according to Euro
monitor.
Brazilian manufacturers also met consumer demand by offering premium chocolate-
based products, helped by the fact that Brazilian consumers are more aware of health
issues than many of their Latin American counterparts. Brazilian consumers often
upgrade by purchasing healthier chocolate-based products such as low-calorie and
diabetic-friendly alternatives, Euro monitor said, highlighting the 2003 launch of Toddy
Light by PepsiCo as an example of this trend.
Malt drinks, meanwhile, are most popular in India, which accounts for 22 per cent of the
world’s retail volume sales. They are traditionally consumed as milk substitutes there and
marketed as a nutritious drink, mainly consumed by the old, the young and the sick. Sales
have also been aided by improved retail and distribution in recent years, combined with a
large child and youth consumer base, the report said.
India also recorded the highest growth (53 per cent in US$ terms) during 1998-2003,
again spurred by consumers trading up to value-added products. In 2003, for example,
Glaxo Smith Kline re-launched Horlicks for Kids, specifically targeted at young children,
as well as launching Horlicks in three new flavors.
With its Horlicks brand (often seen as an old-fashioned drink in its home market in the
UK) Glaxo Smith Kline in fact accounts for 70 per cent of malt-based hot drinks, with
India alone contributing nearly 60 per cent of the company’s global sales of the product.
Other major players include Cadbury Schweppes and Nestlé.
But if developing nations have a growing taste for malt- and chocolate-based drinks,
other more sophisticated markets have yet to catch on. Indeed, the report shows that the
performance of malt- and chocolate-based drinks in mature western markets was
characterized by of stagnation and decline during 1998-2003.
The US, for example, has seen a sharp decline in value sales of both malt- and chocolate-
based drinks over the past few years, mainly as these products largely remained outside
the overarching consumer trend for premium and healthy products. In fact, malt-based
drinks have an almost negligible presence in the US, with manufacturers largely failing to
attract the important child and youth consumer groups – a category more interested in
soft drinks.
The performance of malt- and chocolate-based drinks in Western Europe was more
positive than that of the US, but nonetheless there was little in the way of growth during
1998-2003. A relative lack of innovation and marketing activities, allied to demographic
factors such as falling birth rates, saw important western European markets such as
Germany record modest growth, according to Euro monitor.
The warmer winters experienced in Western Europe in recent years also contributed to
the lower demand for chocolate- and malt based drinks. The UK experienced sharp
decline of 13 per cent in retail volume terms in malt-based drinks and only moderate
growth in chocolate drinks during 1998-2003.
Looking forward, the emerging markets will, not surprisingly, continue to provide the
best opportunities for growth in this category, Euro monitor suggests. Market such as
Indonesia and Mexico are expected to see strong growth in both malt- and chocolate-
based drinks by 2008, with large youth populations and a rising number of middle class
consumers as the key driving factors.
Among major markets, China is forecast to be the fastest growing market in both
chocolate-based (up 35 per cent by value) and malt-based (up 29 per cent by value) up to
2008. China’s booming economy along with rising levels of disposable income and
increased availability of quality products will encourage further consumption, the
analysts predict. Following China’s accession to WTO, multinationals are also expected
to penetrate the country further, driving up demand and in turn prompting more local
manufacturers to get involved in production.
Chocolate in a Bloom
Is a white bloom enough to put you off your chocolate? Scientists are hard at work to find
out exactly how this bloom forms and how to stop it, as Emma Davies finds out
Next time you reach out for your favorite chocolate bar you will probably pay little
attention to its fat crystals. However, should you be unfortunate enough to peel back the
wrapping to reveal a chocolate covered in a mouldy-looking white 'bloom', and then
perhaps you might spare a thought for its crystal structure? The chocolate industry
ploughs a lot of money into investigating chocolate crystals and bloom.
The industry takes bloom seriously - not only because it is unsightly, but also because it
can change the texture and the flavor release properties of the chocolate. Manufacturers
are keen to invest in research, using expensive techniques such as X-ray scattering and
atomic force microscopy (AFM), to help understand exactly how bloom forms and how
to stop it forming. With the average person in the UK eating 10kg chocolate each year
(according to Cadbury's confectionery review of 1999), it is easy to see why the industry
wants to create a perfect chocolate bar that stays temptingly glossy with a good 'snap'.
Chocolate bloom develops naturally
with time, but it can be brought on
prematurely. How many of us have left
a chocolate bar on the car dashboard in
the sun and been disappointed to find
that it has been spoilt by a bloom? In
this case, the bloom develops because
the crystals melt and then re-crystallise
in a different form when the
temperature drops again. Chocolate
bloom can also form if the
manufacturing process doesn't include a
tempering step (see Box 1), when the
temperature is carefully raised and
lowered to ensure that fat crystals grow
in the correct form, size, shape and
number.
Chocolate crystals
Cocoa butter, perhaps the most
important ingredient of chocolate, is
composed of a mixture of saturated and
unsaturated fats (triglycerides), the
relative proportions of which depend on
the country of origin. Some of the
unsaturated triglycerides in cocoa butter
have low melting points, making it
partly liquid at room temperature.
Adding milk fat to chocolate raises the
level of unsaturated triglycerides and
Temper, temper
Tempering is a crucial stage of chocolate
manufacture, which ensures that the fat in the
chocolate crystallizes in a thermodynamically
stable crystal form.
The process generally involves cooling the
molten chocolate (held at about 45°C) to a
temperature (about 27°C) that induces
crystallization in both stable and unstable
crystal forms (polymorphs). Raising the
temperature slightly (to about 30°C) then melts
out the unstable crystal forms leaving only the
stable crystals to seed the crystallization of the
bulk chocolate in a stable polymorphic form.
To help crystals to grow, the chocolate is
usually stirred as it is cooled using scraping
and mixing blades.
The temperatures needed to temper a chocolate
depend on the composition of its fat phase.
Manufacturers need to find the right
combination of stirring forces and temperatures
for their ingredients.
increases the proportion of liquid fat, which explains why milk chocolate is so much
softer than its dark counterpart.
The fat crystals in cocoa butter pack together in six different formats (polymorphs). The
chocolate industry labels these polymorphs forms I to VI (form I being the least stable)
and aims to get the cocoa butter to crystallize in a stable form V to give the chocolate a
glossy appearance and a good snap.
Table 1. What goes into a typical milk chocolate?
Ingredient Per cent
Cocoa mass 11.78
Milk powder 19.08
Sugar 48.73
Added cocoa butter 19.98
Lecithin 0.35
Vanillin 0.08
Surface science
The surface of a good quality chocolate contains lots of tiny fat crystals that can reflect
light, giving it a glossy appearance. Any cracks or crevices (or even fingerprints) on the
surface of the chocolate can encourage small, spiky fat crystals to grow. When the
crystals reach a size that can diffuse the reflection of light from the surface they give it a
dull appearance.
Although the exact mechanism of bloom formation remains disputed, most scientists
agree that it involves fat crystals transforming from form V to form VI. Because form VI
crystals are more stable than form V, chocolate should inevitably form a bloom at some
stage, unless preventive measures are taken.
Richard Hartel at the department of food science in the University of Wisconsin, US,
believes that although the form V to form VI transformation always accompanies bloom
formation, it does not necessarily cause it. With John Bricknell at Mars in New Jersey,
US, he has analyzed a 'model' chocolate using X-ray spectroscopy, to identify the types
of fat crystals that develop. Their model chocolate contains amorphous sugar particles -
created by spray drying a mixture of corn syrup and sucrose and sieving the mixture to
ensure that all the particles are the same size. The chocolate is made by blending and
tempering a mixture of cocoa butter, lecithin (an emulsifier), sieved cocoa powder, milk
fat and the amorphous sugar.
Because the model chocolate contains no crystalline sucrose, the researchers were able to
see clearly the changing polymorphic forms of the cocoa butter. They also used a
colorimeter to measure the amount of white bloom that developed on the chocolate
samples, enabling them to link changes in polymorphic form to the onset of visual bloom.
They discovered that the form V to form VI crystal transformation took place not only in
all of the samples that developed a visual bloom but also in some of the samples that
remained bloom-free. Hartel says that 'most people thought they understood bloom
formation in chocolate to be the polymorphic transition of cocoa butter. What our results
show is that the polymorphic transition indeed occurs, but that something else is needed
to create visual bloom'.
Hartel's research team has come up with a theory to explain how visual fat bloom
develops in well-tempered chocolates. They suggest that, first of all, liquid fat must be
able to get to the surface of the chocolate. The 'pumping action' required to do this could
be induced by temperature fluctuations, which cause the fat crystals to melt and then to
re-crystallise. Fat crystals with high melting points 'dissolve' in this liquid fat and are
taken along to the surface where they can re-crystallise as spiky crystals. Any cracks and
crevices can help the liquid fat get to the surface. The way that the spikes grow from the
surface of the chocolate, says Hartel, is 'open for debate' although the 'nature of the sites
available for growth undoubtedly plays a role in their formation'.
An interesting and unexpected result emerged from Hartel's study: the amorphous sugar
used to make the 'model' chocolate seemed to be able to prevent a visual bloom
developing. When the researchers looked at the samples through a microscope, they saw
that the fat crystals on the surface of the model chocolate were smooth, rounded and flat,
causing little more than a slight dulling of the surface. These crystals were markedly
different to the spiky, needle-like crystals of 'real' chocolate that can take away its gloss.
Hartel thinks that, because the smooth, spherical sugar particles pack together more
tightly than the irregular-shaped sugar crystals in commercial chocolate, this reduces both
the rate of liquid fat migration and hence the rate of bloom formation.
Despite the success of the amorphous sugar at inhibiting fat bloom, Hartel says that it
could not be used in commercial chocolate because the sugar 'picks up moisture easily
and gives a gummy texture in the mouth'.
By adding high melting point milk fat fractions to their chocolate mix, Hartel and his
team have been able to delay substantially the transition from form V to form VI. Indeed,
milk fat is commonly used to inhibit fat bloom, and skimmed milk powder is better than
whole milk at preventing bloom formation.
How milk fat reduces bloom formation remains a mystery, but minor lipids in the milk
fat (e.g. mono- and diglycerides) are generally thought to influence the kinetics of cocoa
butter crystallization. The denser crystal structures that form could potentially stop liquid
fat from moving to the surface and re-crystallising. The minor lipids could also affect the
amount and type of high-melting lipids that dissolve in the liquid fat and could even slow
down the transformation of crystals from form V to form VI. Another theory is that
because milk fat can decrease the rate of fat crystallization, the chocolate contracts less
on cooling. Fewer microscopic cracks appear, reducing the likelihood of liquid fat
reaching the surface.
Hartel predicts that 'understanding
how the chocolate microstructure
influences the rate of bloom
formation will ultimately allow the
chocolate manufacturer to produce
high quality chocolates with enhanced
resistance to bloom'.
An even temper
Researchers at the University of
Leeds have been working with
Cadbury to help make its tempering
process more efficient and reduce the
amount of money it spends on heating
and cooling vast quantities of
chocolate during tempering.
Industrial tempering usually involves
applying shear forces (stirring) while
changing the temperature. The shear
rate has to be chosen carefully
because if it is too low then not enough crystals will be generated, and if it's too high the
crystals could melt.
Scott Macmillan and Kevin Roberts, from Leeds' chemical engineering department, have
developed a method that enables them to look at crystal changes during tempering, with
the aim of optimizing the process in order to guarantee the growth of form V fat crystals.
They have designed a temperature-controlled shear 'cell', similar to the cone and plate
system commonly used in rheometers, placing the fat sample on the bottom plate and
rotating the top 'cone'. This set-up allows the researchers to heat and cool fat mixtures
while at the same time varying the shear rate. Using the small angle X-ray scattering
Making chocolate
(SAXS) facility at dares bury, they have been able to monitor changes in crystal structure
in the shear cell during tempering.
When no shear stress was applied to cocoa butter samples, the fat crystals transformed
slowly from form III to form IV. However, on shearing the samples, the crystals
transformed from form III to form V. Macmillan believes that because the results 'give a
strong indication of the inherent mechanisms taking place', they should be able to help
Cadbury determine the optimum shear rate and temperature to ensure that the chocolate
crystallizes in form V.
Soft in the middle
Those of you with sufficient self-restraint to put aside a half-eaten selection box of
chocolates may have noticed, on reopening the box, that the pralines are generally the
first to develop a bloom. The nut-based filling contains fat that is liquid at room
temperature and, as this fat migrates from the filling to the chocolate exterior, some of the
cocoa butter in the chocolate moves in the opposite direction. The appealing texture
contrast between the inside and the outside of the praline can then be lost as the liquid fat
softens the chocolate exterior and the cocoa butter hardens the soft centre. The liquid fat
that moves to the surface of the chocolate can also drag some of the cocoa butter with it,
which can re-crystallise at the surface and form a bloom.
These problems can be solved to a certain extent by adding a layer of a harder fat (more
saturated triglycerides) in between the outer chocolate layer and the soft interior, or
alternatively to the centre where it can act as a sponge for the liquid fat.
Paul Smith and researchers at the Institute for Surface Technology in Stockholm,
Sweden, are working on the problem of fat bloom in soft-centered chocolates and have
developed a technique using radiolabel led (14C) triglycerides to study the fat exchange
process. They use differential scanning calorimetry (DSC) to determine the polymorphic
form of the triglyceride crystals and a 14C radio detector to follow the movement of the
radiolabelled compounds. So far, they have worked mainly on model fat systems, adding
unlabelled fat crystals to an oil saturated with a 14C labelled triglyceride and gently
stirring the mixture. At regular intervals they remove samples and measure how many of
the 14C triglycerides in the liquid oil phase crystallize out. Preliminary results suggest that
the exchange rate between fat crystals and dissolved fat is relatively fast when the
crystals are small but slow when the crystals are large.
Smith is currently using atomic force microscopy (AFM) to study the changes in the
structure of the surface of the chocolate that occur when bloom forms. The diamond tip
of the AFM probe moves over the surface of the chocolate and deflects as it passes over
any undulations. Smith has chosen the technique over the standard methods of scanning
electron microscopy or optical microscopy which can generate artifacts, he says. Optical
microscopy, explains Smith, is difficult to use with chocolate because of its dark Colour.
In addition, the limit of resolution means that only the large crystals can be picked up.
Smith has yet to release the results of the study but hopes to use them to help understand
the methods of bloom formation and to observe the early onset of bloom.
There is clearly more work to be done on bloom but new techniques and R & D
investment should lead the chocolate industry to its holy grail: a long-lasting chocolate
that doesn't lose its gloss with storage.
THE CHOCOLATE INDUSTRY IN INDIA
The chocolate industry in India has a size of 20000 tones and is worth about Rs 400
crores. The chocolate market has been growing by nearly 35 %. However there has been
some slowdown in the last two years.
The chocolate market is predominantly urban with coverage of 95 %. The sales volume
has decreased by 5% in the last year and the chocolate market had declined with the
average consumption coming down by 25% from 16000 tones to the current level of
125000 tones
Chocolate consumption in India is extremely low. Per capita consumption is around
160gms in the urban areas, compared to 8-10kg in the developed countries. In rural areas,
it is even lower. Chocolates in India are consumed as indulgence and not as a snack food.
A strong volume growth was witnessed in the early 90's when Cadbury repositioned
chocolates from children to adult consumption. The biggest opportunity is likely to stem
from increasing the consumer base. Leading players like Cadbury and Nestle have been
attempting to do this by value for money offerings, which are affordable to the masses.
Cadbury, a subsidiary of Cadbury Schweppes is a dominating player in the Indian
chocolate market with strong brands like Dairy Milk, Five Star, Perk, and Gems etc.
Dairy milk is the largest chocolate brand in India. Chocolates & Confectionery contribute
to 75% of Cadbury’s turnover. Cadbury also has a strong brand Bourn vita in the malted
health drink category, which accounts for 24% of turnover. The parent Cadbury
Schweppes during 2001 made an open offer for acquiring the 49% non-promoter holding
in the company. It has already acquired over 90% of the equity and proposes to buy back
the balance equity and delist the stock from Indian bourses.
THE MAJOR PLAYERS
The major national players in the chocolate market in India are:
Cadbury India Ltd.
Nestle India Ltd.
Gujarat Cooperative milk marketing federation limited (Amul)
The combined chocolate and éclair market is dominated by two giants – Cadbury and
nestle together they have 90 % share of the entire market. Amul holds a 5% share and is
present only in the molded chocolate segment of the market
The CHOCLATE CHRONOLOGY
1956 - Cadbury milk chocolate launched
1957 - Cadbury 5 star launched
1970 - Cadbury éclairs launched
1974 - Amul chocolate launched
1986 - Cadbury milk chocolate re-launched as Cadburys dairy milk
1990 - Cadbury launches premium chocolate brand overtures
1991 - Nestle chocolates launched. Cadbury counters nestles entry with all silk and
unfurls huge consumer promotion campaign. Cadbury diary milk revamped. Nestle
launches Milky bar: Cadbury counters creamy bar
1994 - Cadburys real taste of life and 5 star reach for the stars campaign launched éclairs
revamped and renamed diary milk éclairs
1995 - Cadbury launches perk, preempting nestles Kitkat Overtures is withdrawn
1997 - Cadbury launches truffle
1998 - Cadbury launches Gold, Picnic (all these launches took place in the month of
December i.e. Dec 96 and dec-97 to be more precise in keeping with the company policy
of launching new brands at the new year eve. However the hit the market at the month of
January only
AMUL: THE FLIGHT WHICH FAILED TO TAKE OFF
Gujarat cooperative milk marketing federation limited (Amul)
Amul is the third player in the chocolate market in India. The brand doesn’t have any
international lineage and is miniscule in terms of market share in chocolates and
compared to the two other players Cadburys and nestle.
Amul had an extremely focused positioning of a gift
for someone you love albeit not target to a single
group however Amul failed to capitalize on it
seemingly due to the following reasons.
a. Chocolates have never been Amul’s main
products and hence there was lack of
organizational commitment. The company
has never really supported
or pushed its
chocolates. This reflects
on the drastic cutback
on advertisement
expenditure for its
chocolates which has
negatively affected its top of
the mind awareness
level
b. The company has enjoyed a high customer equity and pulls in butter and so it offered
a very low retailer margin of 3.1 % as against the industry average of around 7-8 %
Amul tried the same technique in chocolates too. However since it was neither leader
nor enjoyed a customer pull like in butter the company got very little support for its
chocolates
c. Amul chocolates have shown a very limited product differentiation and have not
really given any important additional benefit to the consumers. The product line also
suffered in comparison to the portfolios of the competitor Cadbury and nestles. Its
only strength was its low price
Following are the major brands of
Amul
Amul premium Milk
Amul badam bar
Amul orange
Amul fruit and nut
Amul crisp
NESTLE: A BRIEF INTRODUCTION
Nestle India limited
Nestle is a strong player in the chocolates world wide but it entered the Indian market
much later in (1991) than one of its global competitor Cadbury. Nestle initial foray into
the Indian market was not very successful. The problem was in the formulation of the
product. They were soft chocolates with high fat content which were unsuitable to the
Indian climate. Also the distribution focus has been on the larger cities and urban areas
which limited their customer base.
It was with the launch of Chitchat that the company’s strategy changed with respect to
both product and distribution. It increased its distribution network to cover small towns
and interiors as well so as to increase the customer base .It also modified the formulation
of Moulded chocolate to suit the Indian condition. The company used three layers of foil
packaging so that Kitkat could survive the summer heat.
Today nestle poses a formidable threat to Cadbury. Kitkat has captured a sizeable chunk
of the market within a short span of launch. Nestle, as in 2002-2003 has around 24 %
market share with Kitkat alone accounting for 12% market share points. Nestle Bar One
is another brand with a market share of 6%. Nestle recently withdrew its Nestle bitter
chocolate brand. The other brands of nestle are nestle milky bar and nestle crunch.
Nestle have also entered the sugar confectionery market in direct Compton with Cadbury
by offering Allen’s splash and Allen’s coffees and Allen’s Butterscotch. Amul has also
entered into another foray of the confectionery team that being ice creams. The
distribution of this has been pretty good with Amul ice-cream being available all around
India.
The advertising for the company in India is being handled by love lint’s. Nestle has been
increasing its adverting figure the latest being in 2002 RS 25 crores.
Major Chocolate Products
Crunch: Crunch Chocolate is one of the best-loved foods everywhere in the world. It is
one of life's little pleasures. The attractive tastes and textures of chocolate and chocolate
products delight
the senses of all
ages.
Introduced in 1938,
today Crunch is
Nestlé’s third largest
confectionary brand sold in about 40 countries worldwide. Nestlé Crunch is available in
the following varieties: Nestlé Crunch, Nestlé White Crunch, Nestlé Crunch Pieces,
Nestlé Bunch Crunch and new products Nestlé Crunch with caramel and Nestlé Crunch
assorted minis.
Launched in 1938 in the USA, Crunch was the first chocolate bar to combine milk
chocolate and crunchy crisps. Crunch is a unique combination of smooth Nestlé
chocolate and crisped rice, which delivers an exciting eating sensory experience of
distinctive taste, texture and sound.
Kitkat: Kitkat Chocolate is one of the best-loved foods everywhere in the world. It is one
of life's little pleasures. The attractive tastes and textures of chocolate and chocolate
products delight the
senses of all ages.
The product,
developed as Wafer
Crisp, was initially
launched in
London, UK in September 1935 as Rowntree's Chocolate Crisp. It became 'Kitkat' in
1937, two years before the Second World War.
Within two years of launch Kitkat was established as Rowntree's leading product, a
position that it has maintained ever since. During the Second World War Rowntree
Kitkat was seen as a valuable wartime food and advertising described the brand as 'What
active people need'.
For most of its life Rowntree Kitkat has appeared in the well-known red and white
wrapper. It did, however, change to a blue wrapper in 1945, when it was produced with a
plain chocolate covering due to a shortage of milk following the war. This blue
packaging was withdrawn in 1947 when the standard milk chocolate Kitkat was
reintroduced.
No one can be absolutely sure where the name Kitkat came from but it is believed to be
from the famous 1920's Kitkat Club in South East London which had some influence. As
the building had very low ceilings, it could only accommodate paintings which were
wide and not very high. In the art world, these paintings were known as 'Kats'. It's
believed that Kitkat derived its name from paintings, which had to be snapped off to fit
into the rooms with the low ceilings.
Reinventing Nestle
A detail analysis by the companies management to turnaround nestle
Top line growth, bottom-line contribution, difficult market situations. Nestle India's
trademark `renovate and innovate' strategy is churning with action. Catalyst finds out
more.
JUST how much can a housewife influence a Rs 1,688-crore company? She's someone
whose needs we anticipate
Take, for example, the exhaustive experimental kitchen and sensory laboratory at the
plush corporate headquarters of Nestle India at Gurgaon. It's obviously a first-of-its-kind
facility and research centre for any food company in India.
The objective? Consistent product development. Also, achieving a preference ratio of
60:40 for every Nestle product as opposed to competition. The kitchen comprises a panel
of application groups and 15 professional tasters checking out new products for
consistency in quality and product evolution on a regular basis.
The exercise, has resulted in the creation of two different flavors of Maggi noodles (curry
and tomato), Fruitips candy, besides new formulations of Nescafe and Bar One chocolate
in recent months. "And this research model isn't a substitute for consumer research, or
regular test-marketing with the real consumer.
Based on an international research and development model proprietary to Nestle SA, the
kitchen is just one component of the Rs 3,000 crore allocated for a centralized research
and development cell for the foods conglomerate worldwide, against Rs 2,500 crore spent
on the same earlier. Another component is the third in a series of multi-cuisine recipe
collections cutting across all Nestle products, in place of the two earlier ones which
centered on Milkmaid and Maggi.
The Nestle `renovate and innovate' mantra, meanwhile, is on in full swing.
Four existing brands - Nescafe, Milo, Bar One chocolates and Maggi super seasonings -
have been re-launched in new tastes, packaging and pack sizes. And another variant of
Kitkat - white chocolate - has just been rolled out.
On the launch block a month from now are 10 new product variants spread across the
culinary and confectionery segments. The restructuring exercise of Excelcia Foods Ltd -
the joint venture company in which Nestle acquired management control following
Dabur India's decision to exit non-core areas - has neared completion. Following that,
Nestle proposes to enter fresh product categories such as biscuits in the forthcoming
months.
Beverage Partners Worldwide (BPW), the joint venture between Nestle SA and the Coca
Cola Company too is looking to tap the Indian market for possible coffee and tea
variants.
But it's the food major's most keenly awaited venture - ice-cream - that's got the FMCG
industry abuzz. They are very much interested in the domestic ice-creams market. Of
course, that requires putting in place a cold chain, besides stabilizing its milk and UHT
businesses first. Meanwhile, though there's no confirmation from Nestle, the industry
grapevine suggests that Nestle has begun negotiations with Vadilal for manufacturing and
marketing ice-cream.
Another category where Nestle could give Hindustan Lever a run for its money is candy.
The company has recently rolled out a candy brand by the name of Fruitips.
On the beverage front, following the introduction of chocolate-and-coffee formulation
Choc Cafe and Frappe under the Nescafe umbrella, Nestle has been setting up slosh-type
vending machines for iced tea in two flavors - peach and lemon. In an economy that's in a
downturn, Nestlé’s performance has been impressive. Net sales for third quarter this year
were Rs 533 crore against Rs 469 crore in the same period last year, recording a growth
of 13.5 per cent. While domestic sales grew at 11.4 per cent in value terms, export sales
for the quarter increased by 24.6 per cent. Sales during the first nine months of the year
improved by 17.4 per cent, with a net profit increase of 28.6 per cent over the same
period last year.
Despite excellent top line and impressive bottom-line contribution, the uncertain and
difficult domestic and international market environment, coupled with seasonality
factors, will affect their performance in the fourth quarter. Market analysts warn that
incremental selling and advertising expenditure on new launches would dampen margins
and that it would take time before the new products begin contributions to turnover or
profitability.
While the success of the new variants is yet to be gauged, Nestlé’s star performers remain
Nescafe, baby food Cerelac, Maggi and Everyday. Nestlé’s biggest strength lies in
creating brands with distinct positioning. Hence, Nescafe is generic to coffee, just the
way Maggi has become generic to instant noodles. Maggi noodles face no direct
competition, with Top Ramen barely managing to hold ground in the instant noodles
category. Another winner has been Maggi ketchup, which, FMCG analysts say, has been
built from scratch to market leadership position, outperforming Kissan.
While Nestle has done exceptionally well in Western food categories such as ketchup,
condensed milk, noodles, coffee and weaning foods, the company hasn't been able to
handle Indian product categories such as pickles and tea too well. No one is really
making money in pickles. Not only is the unorganized and made-at-home sector too well-
entrenched, even the consumer shows no brand loyalty towards pickles. What drives her
purchase pattern is new taste and not brand preference.
The market for ready-to-cook mixes and soups too has been largely fragmented with a
distinct skew towards the unorganized sector.
In chocolates, while Cadbury India continues its stranglehold of the market, Nestlé’s
Kitkat, Bar One, Munch and Classic have been performing reasonably. Two recent
entrants to this category have been ChocoStick and Milky bar Chocolate, the latter soft
chewy fudge in stick format priced at Rs 5.
In the chilled dairy segment, Nestle dahi has recently been extended to Mumbai and
Pune. While the market for this continues to be very small with only Mother Dairy and
Amul giving Nestle competition in the organized sector, milk in cartons is a concept
that's yet to go down well with the Indian consumer. Apart from being expensive, the
Indian consumer is still not ready to consume milk without boiling it. And research has
proved that three-fourths of Indians prefer hot milk. On the pricing front, Nestle
continues to target the premium segment. They make inroads into markets which
represent not only potential for consumption, but also potential for bottom-line. Nestlé’s
premium pricing strategy is a strength that's worked in most categories it operates in.
Fruitips, therefore, occupies price points of 50 paisa and Re 1 per unit against HLL's Max
which attacks the unorganized sector with an extremely aggressive 25 paisa per unit
price.
It's the association with quality that works in Nestlé’s favour in most product categories.
That this hasn't really worked in case of Nestlé’s bottled water brand, Pure Life, is more
distribution-related, feel industry watchers. Pure Life, launched earlier this year at a price
point of Rs 12, has been a lukewarm performer compared to Coca-Cola's Kinley and
Pepsi Aquafina besides, of course, market leader Bisleri. Discounting at the trade level
has been a problem area with bottled water.
And while spends on advertising have been raised at a macro level, brand-wise spends
have been re-allocated accordingly.
According to the A&M Annual survey on India's top 200 ad and marketing spenders,
Nestle was the country's sixth largest advertising spender in 2000-01, recording an ad
spend of Rs 128.46 crore which amounts to a 13.6 per cent growth over the previous
year.
Nestle Business
Nestle has a presence in the following categories - Baby Food, Milk products, Beverages
(Coffee, malted beverage), Chocolates & confectionery and other processed food
products. Category wise turnover breakup and growth
% contribution
to turnover
2001
Rs mn.
2000
Rs mn. % yoy
Milk Products 43 8159 7375 10.6%
Beverages 29 5627 4903 14.8%
Culinary Products 14 2764 2310 19.7%
Chocolate & Confectionery 14 2646 2179 21.5%
Total 19197 16768 14.5%
Beverages
Beverages like coffee, tea and health drinks contribute to about 30% of Nestlé’s turnover.
Beverage sales registered a 15% yoy growth during 2001. While about 14% of sales
come from domestic market, exports contribute to about 16% of sales.
Nestlé’s Nescafe dominates the premium instant coffee segment. Nestlé’s other coffee
brand Sunrise has also been re-launched under the Nescafe franchise to leverage on the
existing equity of the brand. Nestle has focused on expanding the domestic market
through price cuts and product repositioning. However it has been losing share in the
domestic market, where it has a 37% market share. Milo, a brown-malted beverage was
launched in 1996. It has an estimated volume share of about 3% in the malted food drink
segment. Nestle has launched non-carbonated cold beverages such as Nestea Iced Tea
and Nescafe Frappe during 2001.
Nestle is one of the largest coffee exporter in the country. Key export market is Russia,
besides Hungary, Poland and Taiwan. Nestle has received an award for highest export of
instant coffee and highest export of coffee to Russia and CIS for FY00 and FY01.
Turnover contribution from exports registered a 17.5% volume growth in F12/01.
Nescafe sales to Russia accounts for 80% (Rs2.5bn) of Nestlé’s Rs3bn export turnover.
Infant food/ milk products
Milk based products and baby food contributes to 43% of Nestlé’s turnover. For ensuring
regular procurement of good quality milk, Nestle has developed a network around its
Moga factory for collection of fresh milk everyday from the farmers. Nestle has a
dominating 87% market share in the baby weaning foods with its Cerelac and Nestum
brands. Infant milk powder is sold under the Lactogen and Nestogen brands. Brand
loyalties are very high in categories such as infant food and weaning cereals, enabling the
company to command a price premium
Other milk products include dairy whiteners (21% market share) sold under the
EveryDay and Tea Mate brands, sweetened condensed milk and ready to cook mixes for
traditional Indian sweets sold under the Milkmaid brand. The company also markets ghee
(6% market share) under the EveryDay brand. Nestle has expanded its milk product
portfolio with the launch of new dairy products such as UHT milk, Curd and Butter.
Huge investments are being made in building a diversified dairy business and the
distribution infrastructure for the same. Milk products sales registered a 10.6% yoy
growth during 2001.
Chocolates & Confectionery
Nestle forayed into chocolates & confectionery in 1990 and has cornered a fourth share
of the chocolate market in the country. The category contributes 14% to Nestle‘s
turnover. It has expanded its products range to all segments of the market The Kitkat
brand is the largest selling chocolate brand in the world. Other brands include Milky Bar,
Marbles, Crunch, Nestle Rich Dark, Bar-One, Munch etc. The sugar confectionery
portfolio consists of Polo, Soothers, Frootos and Milkybar Éclairs. All sugar
confectionery products are sold under the umbrella brand Allen's. Nestle has also markets
some of its imported brands like Quality Street, Lions and After Eight. New launches
such as Nestle Choco Stick and Milky Bar Choo at attractive price points to woo new
consumers. Chocolate confectionery sales registered a strong 21.5% yoy growth in 2001
aided by good volume growth in Munch, Kitkat and Classic sales. Nestle re-launched
Bar-One during the year
Culinary products
Ready to cook food/ cooking aides are sold under the umbrella brand name Maggie.
Culinary product account for about 14% of Nestlé’s turnover. Maggie is the market
leader in the noodles (45% market share) and the ketchup (43% market share) categories.
Other products, sold under the umbrella brand Maggie, are ready-to -cook gravy/sauces,
soups, seasonings, as well as traditional Indian foods such as pickles and instant snack
mixes. New taste variants are continuously launched to add variety to the product
offerings. Culinary product sales registered a 20% yoy growth during 2001.
Future prospects
Nestle is focused on product expansion and improvement of distribution efficiency. The
Dairy business is being expanded and is expected to drive growth in the long run,
although short-term profitability may be impacted in the investment stage. The
company’s entry into the mineral water segment is a concern, as the segment is already
overcrowded and the company faces stiff competition especially from the Cola
manufacturers. Acquisition of an established brand could catapult Nestlé’s position in the
segment. In categories like beverages, culinary products and chocolate confectionery, the
company is looking at driving growth through launch of smaller SKU’s, thus enabling
affordability to a wide section of the population.
Earnings sensitivity factors
Success of new category launches (Milk and Mineral Water) which involve
considerable investment for promotional schemes and ad-spend and yield returns
only after a few years.
Continued exports to Russia, Nestlé’s main market for coffee exports.
Good monsoon ensures adequate availability of raw materials, which are mainly
agricultural in nature. Raw material prices have significant influence on margins.
Government policies in terms of licensing, duties, movement of agricultural
commodities etc.
Market growth driven by overall economic growth and urbanization.
Rupee depreciation improves export realizations
DIRECTORS' REPORT (7th March, 2001)
1. Operations:
Domestic Sales grew by 7% in value and 15% in volume terms, during the year. Export
Sales grew by 16% in value and 32% in volume. Profit after Tax grew by 20% from
Rs985mn to Rs1186mn.
The market and economic growth continued to be sluggish during 2000. Concerted
efforts of the management to maintain the price of products (in some cases even
reduction of prices), better working capital management, continuous improvement of
supply chain and a focus on flagship brands, contributed significantly towards the above
profitability. The favourable impact of the commodity prices during parts of the year and
the product mix, also contributed significantly towards improvement in profitability.
During the year, the Company retired certain fixed assets from active use at various
locations and the impairment loss on such fixed assets has been charged to the Profit and
Loss Account.
Out of business prudence, the Company supplemented the Contingency Provision with
further amount in 2000 of Rs295mn (net) to provide for various contingencies resulting
from matters mainly relating to issues under litigation, dispute and management
discretion.
Your Company's overall sales and profit progression during 2000 can be considered
satisfactory and in line with the expectations.
The current year has commenced as per plan in the domestic market and your Directors
are hopeful of continued good results. However, with the current level of inflation and
economic indicators pointing towards a sluggish market, it would be difficult for the
Company to maintain the level of earnings unless the Company takes price increase on
finished products which would depend on market conditions and competitor activities.
2. Exports:
Export Sales for the year at Rs2655mn have grown by 32% in volume terms, over the last
year. This has been mainly due to the higher exports of NESCAFE to Russia, buoyant
sales of Instant Tea and good performance of the culinary products. However, depressed
green coffee prices in domestic and international markets kept the export realizations
low. Measures taken for tapping new market and product opportunities have also
contributed to this growth. The export competitiveness of value added instant coffee
manufactured in India continues to be adversely affected by the purchase tax levied on
green coffee. Efforts continue to tap new market and product opportunities.
3. Dividends:
Interim dividend of Rs. 8.00 per equity share, including Rs4.50 per equity share out of
undistributed profits of the previous financial years, was paid during 2000.
Your Directors are pleased to recommend to the Annual General Meeting a final dividend
of Rs6.00 per equity share. The dividend, if approved, shall be payable to the
shareholders registered in the books of the Company and beneficial owners furnished by
the Depositories, determined with reference to the book closure from 16th June, 2001.
4. Business Development:
In line with the Company's objective to provide superior value in every product category
and market sector, efforts were focused to provide quality products to customers at
attractive price points. While the Company continued to generally maintain price points
across all the product categories, the pricing of some products were also reduced to meet
consumer expectations.
MAGGI Noodles re launched in 1999 in response to popular consumer taste preference,
continued to boost sales during 2000 in the culinary segment. New flavour profiles were
introduced in the bouillon business.
The market continued to react positively to the initiatives taken in the recent past to grow
the consumption of instant coffee in the domestic market. The new NESCAFE pricing
and bringing the popular SUNRISE brand under NESCAFE umbrella to benefit from its
association continued to strengthen the category. NESCAFE Frappe a blend of coffee,
mocha and vanilla, which makes a delicious frothy cold coffee, was launched in select
metropolitan cities in the third quarter. This was another strategic launch and seeks to
address consumer with preference for cold drinks. NESCAFE Frappe has received
encouraging response.
In the area of Chocolate and Confectionery NESTLE MUNCH Crisp wafer biscuit with
chocolayer, which was launched in select markets in1999, was rolled out nationally
during 2000 and had good growth. Continuing with the efforts to meet consumer
expectation on price points, the pricing of KITKAT was also reduced during the later half
of the year. Moulded Chocolates and Éclairs also showed satisfactory growths. This has
also helped in improving the infrastructure and distribution reach of the Company in the
Chocolate and Confectionery segment.
In the milk and cereal categories, EVERYDAY Dairy Whitener and cereals had
satisfactory growth. NESTLE Growing up Milk; a new product offering superior
nutrition, launched in 1999 was rolled out nationally during the year.
Your Company has also entered the Chilled Dairy business with the recent launch of
NESTLE Dahi in select cities of the North. The initial response has been very
encouraging and your Company is working on plans to further leverage the international
expertise of Nestle Group, Switzerland in the area of Chilled Dairy.
The performances of other products were generally in line with expectations. A few
products whose performance was not considered satisfactory are under constant review
for corrective action.
Your directors are pleased to report the implementation of the two new projects
undertaken by the Company during 2000 packaged milk and packaged drinking water.
Both the projects seek to leverage the worldwide experience and knowledge of Nestle
Group, Switzerland who are the leaders in these product categories.
In line with its objective of long term growth and entry in significant value added food
segments, the Company forayed into the Ultra Heat Treated (UHT) liquid milk business
in April 2000 by launch in Mumbai. Packaged UHT milk seeks to address growing
consumer concerns on adulteration and product safety and brings with it reliability,
complete hygiene and safety. It offers convenience to the consumer, in terms of a shelf
life without any deterioration in the product quality and easy usage without refrigeration
or boiling. UHT Milk has received encouraging response and has been rolled out in select
cities of the West, South and North.
The project for bottled water was implemented at the Samalkha factory and water
launched in February, 2001 under the brand NESTLE PURE LIFE and is available in
select cities. NESTLE PURE LIFE contains a balance of essential minerals and a light
pleasant taste and is manufactured under stringent quality control. The packaging has
been specially designed to maximize safety for the consumer and protect from possible
tampering.
The new categories like bottled water and liquid milk are lower margin categories and
will require considerable investments. Your Company sees them as strategic and as
requiring support on a sustained basis.
The two new Sales Branches at Bangalore and Chandigarh set up in 1999 to further
strengthen the flexibility of the Sales organization and for speedier response to the market
conditions, have started showing positive results during the year. With a view to expand
distribution and increase penetration in smaller towns, a concerted drive was undertaken
to make products affordable and accessible to consumers. An initiative taken includes
more penetrative pricing and smaller packs covering brands such as EVERYDAY Dairy
Whitener, MAGGI Noodles, MILO Chocolate Energy Drink and NESCAFE Instant
Coffee. The response has been encouraging.
The Alternative Trade Channel unit created in 1999 undertook initiatives to tap the
opportunities for out of home consumption, particularly for instant coffee and chocolate
and confectionery and to extend availability of product to nontraditional outlets. The
outcome of these initiatives has been encouraging and is being consolidated.
Availability of NESCAFE has been enhanced through an expansion of the vending
machine network and new consumption opportunities for Chocolates and Confectionery
were identified and developed in areas like railway platforms, college canteens and major
events.
On the manpower development front, programmes during the year continued to be
focused on the operational front more particularly sales and production.
To support the growth plans and distribution strategy, and simultaneously improve the
operational efficiency, the thrust on strengthening supply chain continued to receive
attention during the year. In addition to consolidating the improvements made over the
last two years, significant progress was recorded in following areas:
a) Reduction in finished goods inventory pipeline to improve freshness of stocks and
reduce working capital.
b) Control of distribution costs through innovative measures, despite steep increases in
cost of fuel.
c) Sustained improvement in customer service level to improve product availability
across all geographies and channels.
d) Reduction in obsolescence of materials.
5. New Head Office:
The Company moved into its new Head Office at Gurgaon. The new Head Office has
been designed to provide the employees with work environment that enhances white
collar productivity. The new Office design seeks to stimulate improved internal
communication and enhance transparency in working. State of the art facilities for
training, tasting, and a fully equipped test kitchen, have been made available that will
facilitate the efforts for innovation and renovation.
6. Technology from Nestle:
The Company being a part of Nestle Group, Switzerland benefits from its access to
proprietary technology, technical and non technical expertise and the fruits of the
extensive centralized Research and Development. The diversified knowledge and
expertise have contributed significantly to the operations of your Company over the
years. Some of the key areas, which have benefited are:
a) Manufacture of products of truly international quality. Product quality, which
encompasses taste, appearance, convenience and overall value for money, is a critical
factor in consumer choice and in a competitive market like India could determine the
very survival of the products. The high quality of products of your Company is borne out
by the position and image the products enjoy in the market and your Company continuing
to be a leading exporter of value added Instant Coffee in the country.
b) Benchmarking of products against competition to achieve an advantage in product
quality, for increasing competitiveness.
c) Access to latest technological developments, such as Spear point Technology for
Cocoa based products implemented during 2000 which would improve product quality
and competitiveness and the MUCH technology for instant coffee manufacture
implemented during 1999, which would enhance the productivity by increased extraction
of coffee solids from coffee beans.
d) Implementation of project for bottled drinking water.
e) Product innovation and renovation some illustrations are MUNCH Crisp wafer biscuit
with chocolayer; Nestle Dahi; Nestle Milk (UHT); Junior Foods; NESCAFE Frappe;
KITKAT Milky; new and improved flavours profiles of bouillons; and re-launch of
MAGGI Noodles.
f) Enhancement of skill and competence of Company personnel due to the training
received.
g) Implementation of environmentally sound business practices.
h) Technical expertise in various forms including Information Technology, which has
enabled the business of your Company to grow and sustain.
I) Providing assistance by way of improved technical and quality standards to local
manufacturers, who have contract manufacturing arrangements with your Company.
Your Directors are pleased to report the signing of the General License Agreement with
the collaborator providing license of all intellectual property rights for the products
manufactured and sold by the Company using such intellectual property. The General
License Agreement which is effective 1st January, 2001 aligns the Company with the
global practice of Nestle Group and would be beneficial to the Company. Undoubtedly,
without the know-how provided and ongoing technical assistance, your Company would
have found it difficult to achieve the progress that has been attained. Your Directors note
with satisfaction that being a part of Nestle Group, the ongoing technology transfer and
access to the fruits of extensive Research and Development and authorization to use
internationally famous brands, would help the Company significantly in its efforts to
remain competitive in the market.
7. Moga Milk District:
Your Company which started milk collection in Moga in 1961 with a daily collection of
510 kg of milk from 180 farmers has expanded its operations to an average daily
collection of 540,000 kg of milk with total yearly collection of around 200 million. Kg of
milk from nearly 81,000 farmers in its milk district. The Company owns no farms or
cattle but through its Agricultural Services world wide initiative of Nestle Group, works
closely with the farmers to obtain the highest quality raw material. Recognized as
"Partners in Progress", Nestle Agricultural Services at Moga factory has contributed its
mite to the up-liftment of the milk district. Some significant steps taken by the Company
in the recent past are:
a) Installation of farm coolers.
b) Milk Collection Centers provided with new and improved equipment to enable on the
spot testing of quality.
c) Initiation of mechanization of large dairy farms.
d) Farmer development programmes.
The Company has over the past decades been providing facilities and support to the dairy
farmers in areas such as veterinary services, breed improvement; balanced cattle feed
mixture, feeding for dairy herds, fodder seeds and training for improved farm
management practices.
The milk district is a reflection of your Company's commitment to nurturing quality,
technology and improved systems in the community and the company's initiatives to
improve living in the region.
9. Information Technology:
Your Company continued to make significant investments in the Information Services of
Technology area to cope with the growing information needs necessary to manage
operations more effectively in a complex supply chain environment.
10. Community Health:
Recognizing its responsibility to the community in which it operates, the Company over
the years has been taking initiatives in the area of community health at locations around
its factories. Some of the initiates taken in the recent past are:
a) Provide Government and village schools with facilities for toilets and hygiene drinking
water including deep bore wells, where necessary.
b) Support to health officials in Pulse Polio programmes.
C) Sponsorship of treatment of TB patients at clinic runs by NGO.
d) Healthcare Programmes with focus being on well being of employees and their
families covering vaccination, awareness programmes and health check up.
CADBURY:
THE LEADER
Cadbury, a subsidiary of Cadbury
Schweppes is a dominating player
in the Indian chocolate
market with strong brands like
Dairy Milk, Five Star, Perk, etc.
Dairy milk is in fact the largest
chocolate brand in India.
Cadbury India now stands only
second to Cadbury UK in sales of Dairy Milk. The company is pushing the gifting
segment, through occasion linked gifts. Chocolates contribute to 64%of Cadbury’s
turnover. Confectionery sales’, accounting for 12% of turnover, is contributed largely by
Éclairs. The company attempted expanding its confectionery product portfolio, with
launch of sugar based confectionery Googly and Frutus, without much success. Cadbury
also has a strong brand Bourn vita in the malted health drink category, which accounts
for 24% of turnover.
Chocolate consumption: in India is extremely low. Per capita consumption is around
160gms in the urban areas, compared to 8-10kg in the developed countries. In rural areas,
it is even lower. Chocolates in India are consumed as indulgence and not as a snack food.
A strong volume growth was witnessed in the early 90's when Cadbury repositioned
chocolates from children to adult consumption. The biggest opportunity is likely to stem
from increasing the consumer base.
Competition: Cadbury continues to dominate the chocolate market with about 69%
market share. Nestle has emerged as a significant competitor with about 20% market
share. Key competition in the chocolate segment is from co-operative owned Amul and
Campco, besides a host of unorganized sector players. There exists an even larger
unorganized market in the confectionery segment. Cadbury holds 4% of the market share
in this segment. Leading national players are Nutrine, Parry's, Ravalgaon, Candico,
Parle’s, Joyco India and Perfetti. The MNC’s such as Joyco and Perfetti have
aggressively expanded their presence in the country in the last few years.
Malted food drinks: Category consists of white drinks and brown drinks. White drinks
account for almost two-thirds of the 82,000 ton market. South and East are large markets
for food drinks,
accounting for the largest
proportion of all India sales.
Cadbury’s Bourn vita is the
leader in the brown drink
(cocoa based) segment.
In the white drink segment,
SmithKline’s Horlicks is the
leader. Other significant players are Heinz (Complan), Nestle (Milo), GCMMF
(Nutramul) and other SmithKline brands (Boost, Maltova, Viva). Cadbury holds 14%
market share in food drinks segment.
Performance: Despite tough market conditions & increased competition Cadbury
managed to record a double digit (11%) top line growth in 2000. The company achieved
a volume growth of 5.2%. This was achieved through innovative marketing strategies and
focused advertising campaigns for flagship brand Dairy Milk... Net profit rose sharply by
41.8% to Rs520mn. Reduced material and energy costs and tighter control over working
capital and capital expenditure enabled the company to improve profitability. Company
added 8mn new consumers and saw its outlets grow to 4.5 lakhs and consumers to 60mn.
Outlook: The Cadbury management has cut down on its growth target by setting a 10%
average volume growth target for the next three years (as against previous growth target
of 12% volume growth and 20% value growth). Coupled with inflationary price
increases, this could translate into a top line growth of 14-15%. This target also appears
difficult to achieve given the consumer slowdown and the fact that the company is
dependent on a single category – Chocolates to drive growth. In the malted food drinks
category the company faces stiff competition from SmithKline Beecham, and market
share has been stagnant at around 14% despite the company’s efforts and investments in
repositioning the brand. Efforts at expanding confectionery portfolio have also not
yielded desired results. The management has declared its intention to focus only on
Éclairs (which form a major portion of its 4% share in the confectionery segment) for the
time being in this category. In chocolates too, the onus remains on the 2-3 key brands
such as CDM, Perk and Éclairs, which have supported growth in the past.
Cadbury’s Ad Campaign
Kuch meetha ho jaye suggests Cadbury India, its brand
ambassador Amitabh Bachchan smiling down the
hoardings lined along Mumbai's Marine Drive right
down to the company's corporate head office at
Mahalakshmi. While the chocolate major is waiting
for Diwali to see a turnaround in its business after the
worms controversy, at the moment it's all about driving
growth for the category which has seen a decline since the
first quarter of this year.
Being the market leader in chocolates with a 70 per cent share, the company has
attempted to stretch the boundaries within chocolate confectionery. It has also been
adventurous in unleashing a brand new category within chocolate early this year.
Introducing the concept of sweet snacking, it launched Cadbury Bytes in the south with
the positioning `Snacking ka meetha funda.' The product is a crunchy wafer pillow with a
choco-cream centre and is being rolled out nationally.
Explaining the need to introduce this new category, Bharat Puri, Managing Director,
Cadbury India, says, "While we were sure of our core competencies, there was need for
innovation to deliver double-digit growth. What we found was that we were under-
represented in the area of snacking on the go and that there was a need for a light crunchy
snack." While entry into salted snacks was ruled out, sweet snacks were the obvious
choice, and Bytes is unique to the chocolate major's Indian portfolio.
Getting the right product and packaging was a challenge for the company. It has sub-
contracted the product to get the volumes and is poised for a national launch. Adds Puri,
"After all this was the first category anywhere in the world that Cadbury was entering and
we did not have the expertise. So the best way was to test-market the product and today
we find that it has already bagged five per cent of the chocolate market."
The company has no apprehensions of cannibalization of its chocolate brands. It believes
that while its chocolates are more of indulgence products, Bytes is about snacking when
one is hungry and can be treated as a snack in between meals.
In the past when Cadbury tried out a biscuit brand, Chocobix, there was fear about some
amount of cannibalization. After all, it was simply a biscuit coated in chocolate, and was
perceived to be another chocolate brand in Cadbury's portfolio.
Stresses Puri, "Cadbury Bytes is adjacent to chocolates and in the markets that we have
launched it, there has been no cannibalization. Chocolates are largely an indulgence
product while Bytes is about between-meals snacking. A product which is consumed
when one is feeling hungry or peckish."
Another thrust area Cadbury has been re-evaluating is confectionery. While growth rates
in this segment are healthier compared to chocolates, it has always been a difficult market
to crack. Cadbury's own experiences have led it to withdraw certain brands but now with
Warner's Lambert's international kitty under its fold, there are chances of reconsidering
the segment once again.
"Through the acquisition of Warner Lambert, there is a great set of brands already
available to us. We are still examining which are the right brands for the Indian market,"
says Puri. Cadbury has already identified Halls as the strongest brand in Warner
Lambert's portfolio and re-launched the brand early this year. Adds Puri, "Halls was not
doing well for a while so we re-launched it this year. When you have the existing assets,
it is necessary to get them right first. Halls is the first brand that we have revived and it is
now doing well."
In April 2003, Cadbury India's foreign parent acquired Pfizer's interests in the
confectionery business for $4.2 billion. That included the Warner-Lambert product
portfolio, known best for Halls, Clorets and Chiclets. The acquisition is now poised to
become a growth area for Cadbury India, whose confectionery brands include Éclairs and
Googly. But instead of selling confectionery through its existing chocolate network,
Cadbury has set up an entirely new network.
While Halls has been revived with new packaging, there has been no change in the status
of its other brands. Chiclets had been discontinued long before it belonged to Cadbury
and Clorets continues to sell with a small franchise. But now Cadbury is looking closely
at Warner Lambert's gums portfolio (it is one of the world's largest gum manufacturers)
and is considering its viability for the Indian market. Sugarless gum brands such as
Dentyne Ice and Trident White have been known for their functional benefits worldwide
but steep pricing may be a deterrent to their entry into the country.
"The gum market has not done well in India. But gum has functional properties and is not
merely a breath freshener. We are now evaluating whether there is a market for them in
India and whether it is going to be worth our while," says Puri.
The confectionery market may be huge in volumes but making money on it remains a
tough task with its low margins. Governed by price points, one can sell at only at a Re 1
or 50 paisa unit price. "The issue is not of garnering volumes but making money out of
those volumes. The offer should be one which can get you both top and bottom lines,"
states Puri. Having shifted focus from Googly, Cadbury had been tasting success with its
age-old Éclairs which continue to bag almost 50 per cent of the market.
"There is scope in the market. Our Éclairs has been growing and this has been evident in
our past numbers," claims Puri. At the same time the sugar confectionery market is
highly competitive and it's all about finding the right consumer proposition and a
business model that can deliver both top line and bottom-line growth.
In spite of the new categories being explored by Cadbury, its star brand remains Cadbury
Dairy Milk (CDM) which continues to corner almost 30 per cent of the chocolate market.
It is followed by brands such as 5-star, Perk and Gems. Each of these has been revamped
over the years to generate excitement for the category. For instance, recently Perk was
rejuvenated as a crunchier wafer while CDM came up as a white-and-brown variant in
the market.
"The chocolates category thrives on excitement. It's all about giving the consumer a
choice and taste which they enjoy," adds Puri. For instance, in beverages, in spite of its
malted food brand Bourn vita, Cadbury decided to introduce a milk additive brand such
as Delite, just to give its consumers the real taste of chocolate. Delite has added flavours
such as strawberry and mango and is not expected to encroach upon Bourn vita’s shares.
According to Puri, "There is still a large section of people who do not add anything to
milk. This will apply to children for whom milk is a problem and having an additive will
make it a pleasurable experience."
Making changes in its distribution network, Cadbury split its sales and marketing team
between its mass (confectionery) and core brands last year. "Chocolates needed to get
retailed at larger and better outlets while all the products below Rs 3 needed a different
distribution network," says Puri. Today Cadbury's distribution network reaches out to six
lakhs outlets each for its confectionery and chocolate brands.
With the worm’s episode behind it, there are other issues bothering the company,
especially which of the rising input costs of cocoa sugar and milk. Although Cadbury has
been able to maintain prices, it is still grappling with the upward trend in prices for its
basic raw materials. But its challenge remains that of growing the chocolate market in
spite of the odds. Posting a turnover of Rs 729 crore last year, Cadbury is waiting for
Diwali to make a turnaround for both itself and the category which has been through
troubled times.
Getting growth should not be an issue, according to analysts tracking the company.
As Nikhil Vora, Senior Vice-President (Research), SSKI Securities, observes,
"Considering the company was getting growth before the infestation episode
occurred, it should not be a tall order to get back to those levels. The company
should be able to record a 15 per cent compounded rate of growth over the next few
years." That would be a sweet recovery indeed for Cadbury.
Cadbury follows small packs strategy
Small has indeed proved to be beautiful for Cadbury. The company, after finding
exceptional success in
the launch of small packs of
Perk chocolate, has now
launched Picnic in small
packs of 26 Gms. priced at
Rs 10. The 43-gm packs are
still available and are priced
at Rs 15.
Cadbury has embarked on a strategy which involves increased consumption of its
products through enhanced reach, affordability and visibility, which it feels can be
attained by creating new markets, widening the depth of its distribution network and
working towards a comprehensive portfolio with brands across all price segments.
On the distribution front, the company aims to increase the number of its distribution
outlets from the present 4 lakhs to 5 lakhs by the year 2000.
To attain the objectives of affordability, over the past two years Cadbury has been
changing its product portfolio from pure chocolate items to confectionery which includes
caramel, nuts, raisins and wafers. The aim is to bring down the price line and enter other
markets than the purely urban ones.
In line with this, it launched Googly in early 1997, and followed it up with products like
Mocka and English Toffee.
The strategy of the company has been to launch one major product and follow it up with
smaller products, for instance, the launch of Picnic was followed by Cadbury Gold and a
couple of sugar confectionery launches.
Intense competition from Nestle is one of the reasons Cadbury has reworked its product
range and made efforts to enter the mass product segment. In 1998, the company moved
into smaller sized versions of Diary Milk and Perk and found to its delight that the
introduction of economy priced models led to more people eating chocolate. In the same
year, small packs increased chocolate volumes of Cadbury by 19 per cent and market
share to 70 per cent from 69 per cent in the previous year.
Cadbury now has a market share of 70 per cent of the chocolates market. It manufactures
chocolates, sugar confectionery and malted drinks. Chocolates constitute 71 per cent of
the total turnover, malted drinks 22 per cent, and sugar confectionery 7 per cent.
Nestle, with a 20 per cent share in the chocolates market, is expected to respond with
Munch, a chocolate brand meant to counter Picnic.
Cadbury’s Business
Cadbury dominates the Indian chocolate market with a 65% market share. Besides, it has
a 4% market share in the organized sugar confectionery market and a 15% market share
in milk/ malted foods segment.
Changing product mix
Contribution to turnover
1994
Contribution to turnover
2001
Chocolate 59% 65%
Sugar Confectionery9% 10%
Food Drinks32% 24%
Current market shares
Chocolate 69.2%
Sugar Confectionery 4.0%
Food Drinks 14.2%
Expanding distribution reach
2100+ distributors
450000 retail outlets
60mn Consumers
Future strategy
Maintain dominance in chocolate confectionery and market leadership in brown
drinks.
New channels such as Gifting, child connectivity and Value for Money offerings
to be the ley growth drivers
Grow volume sales at 10% pa over the next three years.
Achieve the goal of best manufacturing location in Cadbury Schweppes world for
Dairy Milk and Éclairs
One new major product launch every year
Chocolates and confectionery products (75% of turnover)
For more than five decades now, Cadbury has enjoyed leadership position in the Indian
chocolate market to the extent that 'Cadbury’ has become a generic name for chocolate
products. Cadbury has leading brands in all the segments viz bars (Dairy Milk, Crackle,
Temptations), count lines (5 star, Milk Treat), panned confectionery (Gems) and wafer
chocolates (Perk), éclairs (Cadburys' Éclairs), toffees (English Toffee).
During 2001, Cadbury’s chocolate sales (65% turnover) registered a 9% value growth,
aided primarily by growth in the flagship brand Dairy Milk. Dairy Milk contributes an
estimated 30% to Cadbury’s sales. Gems and Five Star were re-launched during the year
to stem their de-growth. Perk registered a de-growth during 2001 despite launch of new
variants. New brand initiatives included the launch of Temptations in the premium
segment and Chocki a low priced chocolate confectionery targeted at children.
Cadbury entered the hard-boiled sugar confectionery market with the launch of Googly in
1996. In 1997, the company launched a coffee based sugar confectionery product Mocka.
Cadbury has a 4% market share in the confectionery segment, largely contributed by
Éclairs. Other confectionery brands such as Gollum, Frutus, Nice Cream, etc launched in
the last two years did not receive a good market response and the company has decided to
minimize focus on those brands. Éclairs was re-launched with unique packaging in
cartons during 2001.
Food drinks (25% of turnover)
Cadbury’s Bourn vita is the leading brand in the brown drinks segment of milk/ malted
food products. Overall share in the malted food drinks market is estimated at 15%.
Brown drinks earlier positioned as taste enhancers were losing market to white drinks
during the last few years. Cadbury re-launched Bourn vita with a new formulation and
advertising campaign positioning it on the health benefit platform to compete with white
drinks. The brand was re-launched in the South – the largest food drink market in the
country, during 2001. Bourn vita sales registered a 12% growth in value terms in 2001 to
Rs, contributing 24% to total turnover.
Cadbury’s other products include Cadbury’s Drinking Chocolate and Cadbury’s Cocoa
powder. These account for only 1% of Cadbury’s turnover.
Distribution
Cadbury's distribution network encompasses 2100 distributors and 450,000 retailers. The
company has a total consumer base of over 65mn. Besides use of IT to improve
distribution logistics, Cadbury is also attempting to improve distribution quality. To
address the issues of product stability, it has installed Visi coolers at several outlets. This
helps in maintaining consumption in summer, when sales usually dip due to the fact that
the heat affects product quality and thereby off take.
Strategy
Increasing the consumer base by focusing on the twin proposition of affordability and
availability is being followed to drive future growth. Small affordable priced packs have
been launched, which have helped improve penetration. Also advertising for chocolates is
aimed at changing consumer perception and eating habits by creating new reasons for
consumption.
Cadbury's Market Segments
The marketplace for any product is comprised of many different segments of consumers,
each with different needs and wants. Market segmentation can be defined in a number of
ways, such as:
demographic variables (e.g. consumers' age groups, gender, marital status, income
etc)
the lifestyle of consumers (i.e. their interests and activities)
The benefits which consumers look for in a product or n the occasions when the
product might be consumed.
Cadbury takes into account all of these factors when producing a range of products. It
targets different segments within the market, such as the:
break segment - products which are normally consumed as a snatched break and
often with tea or coffee, for example Cadbury's Timeout and Snack range
Impulse segment - these products are most often purchased on impulse, eating
there and then. They include products such as Cadbury's Twirl, Moro, Star bar,
Crunchie, Fuse and Dairy milk
take-home segment - this describes products that are normally purchased in
supermarkets, taken home and consumed at a later stage
Gift segment - boxes of chocolates and other products purchased for gift occasions
Earnings sensitivity factors
Cocoa bean prices: Domestic as well as international prices of key raw material - cocoa
have significant impact on margins.
Excise duties: Changes in excise levied on malt and chocolate influences end product
prices and thereby volume growth as well as margins.
Changes in custom duties and foreign exchange fluctuations, as 20% of raw material is
imported.
Competition from MNCs like Nestle as well as imported brands. Increasing
competition puts pressure on advertisement budget and margins. However on the
positive side, it helps in expanding the market.
CADBURYS FAILURES:
How Cadburys positioning went haywire with `gems`
Gems present an unusual case of how a textbook-perfect, ultra-sharp positioning can
actually become a disadvantage
At 34, Gems is one brand in the
Cadbury’s portfolio that
refuses to grow up. Of
course, that is not such a
liability now that children play
a key role as consumers.
What it does mean, however, is that Cadbury has to constantly work at keeping its ageing
brand forever young. How has it managed so far? Gems was a sluggish performer in the
late nineties and its market share slid dramatically. Now, the brand appears to be
regaining some of its toddler energy and a campaign that is scheduled to break in 2003 is
expected to help further.
Gems presents an unusual case of how a textbook-perfect ultra-sharp positioning can
actually become a disadvantage. Of course, Cadbury doesn’t consider this a problem yet.
Cadbury actually consider Gems one of our power or advantage brands simply because it
was specifically developed for the kids segment. And it has no competition at all in India.
Cadbury’s problem is that Gems — which is technically called a “sugar-panned”
confectionery item that comes in colourful little buttons — has traditionally been so
sharply targeted at children below ten years that it did not lend itself readily to brand
stretch as its target audience grew older. Even as Cadbury successfully extended its
appeal from children to adults from 1996 onwards for its regular chocolates, the company
learnt a bitter lesson when it tried doing the same with Gems.
Through the seventies and eighties, Gems was one of the few options available to the
Indian consumer, and more specifically the child, in terms of chocolate brands, the others
being CDM, Cadbury’s Five Star and Amul chocolates.
The other major advantage that Gems enjoyed probably created problems for Cadbury’s
later — the fact that it never faced competition. Nestle and Mars never brought their
global brands — Smarties and M&M respectively.
This was because, both the international brands are not developed keeping the climatic
rigours of India in mind. So as against Gems, which is a product formulated specifically
for India, the sugar shells of Smarties and M&M cracked easily in a tropical climate.
The result was that Cadbury’s never had the chance to benchmark its performance as far
as Gems was concerned. Other than ads in storybooks and comics like Champak, Tinkle
and Amar Chitra Katha, there was little focus on advertising till the late eighties.
The first significant commercial for Gems broke in 1989. This “Gems Bond” campaign
was an animated commercial based on the character of James Bond, which was used in
promotional stickers. However, the campaign was taken off in the early nineties.
It was actually the storyline and the animation that was working. The character was not
for the child.
The early nineties saw the emergence of pester power. Strangely, Cadbury did not
capitalize on this trend. What made Cadbury sit up was the entry of brands in the early
nineties, like Wrigley’s, Freshmint, Boomer’s, Big Babool and candies from Perfetti,
Candico and Parle Products, all of which were priced at Re 1 or Rs 2 compared with Rs 5
for a 20 gm pack of Gems.
So it was no longer just chocolates vying for the child’s attention but chips, candy, and
sugar boiled sweets, bubblegum, all of which were upping their noise levels. This was
worrying for Cadbury’s, as almost half Gems’ sales came from impulse purchase.
Meanwhile, international players like Nestle were expected to enter the scene with brands
like Kit-Kat and Milkybar. In 1994, Cadbury re-launched Dairy Milk with the theme line
“The real taste of Life”, positioning it as chocolate with universal appeal.
Just as Cadbury flanked Perk to target young adults and reworked Cadbury Dairy Milk’s
appeal to include adults, in 1996 it attempted to extend Gems’ appeal to teenagers. The
new campaign was pegged on the baseline — “Smart, very smart” — derived from Mad
magazine. The trouble was that this campaign was not backed by product changes, so
teenagers, who were always edgy about being associated with a children’s brand, were
unimpressed.
By 1997, the overall slowdown in the fast moving consumer durables market had
affected the chocolate segment. In spite of the re-launch, Cadbury’s net profit dropped by
5 per cent to Rs 18.6 crore. Perk had not overtaken Kit-Kat as expected. The only
Cadbury brand doing reasonably well was the low-priced sugar boiled confectionery —
Googly — which went on to become a Rs 15-crore brand in its first year.
Gems had staggered down to a growth rate of 3 to 5 per cent and its market share slipped
to 6 or 7 per cent from 10 to 12 per cent in the early nineties.
In 1998, the company went back to Gems’ imagery of a children’s brand. A new
campaign was launched to target the urban child. It now included a whole range of
Chocogem characters, who were supposed to symbolize a child’s partners in fun (Masti
ka partner). Also, for the first time, the communication emphasized the chocolate content.
However, this re-launch did not really contribute to the brand’s revival simply because
the brand still lacked excitement. This was when the company decided to look at market
trends abroad.
Internationally, brands targeted at younger children sold because they offered value-ads
like toys. Also consumer research revealed that the chocolate flavour and CDM’s equity
was not being utilized fully.
So the company decided to constantly change the packaging and include add-ons like
play value around Gems core proposition. The problem was that in the Indian market,
promotions like toys on smaller stock keeping units (SKUs) at low cost can be very
difficult. So the company had to opt for innovations on pack sizes and formats first.
In early 2001, the company introduced Re 1 packs, with four buttons, solely to increase
penetration. Later, tube packs priced at Rs 15 with flip tops and a maze-ball game on the
top were also introduced. Then in early 2002, new cricket ball packs were introduced.
This combined play value along with low costs.
The innovation seems to be paying off: This is equal to that of Rs 5 pouches, which
were the highest contributors to the total sales. The Re 1 packs now contribute to about
20 per cent of sales. The company claims that these SKUs have now enabled Gems to
stabilize its market share.
But this does not mean Gems’ problems are over. For one, the competition to Gems has
extended to a further range of low-priced impulse purchases, which are crowding retail
stores.
For another, CDM, with a wider network of SKUs, and Perk are having the biggest bite
of the consumer mindshare. So Cadbury seems to be lying low on Gems, especially on
the advertising front. The brand has been losing out to its portfolio siblings when it
comes to retail visibility and booking order size — as the number of SKUs of other
Cadbury brands have increased. External face of the brand has been far less glamorous
than other Cadbury brands.
But all this is being compensated for by promos and innovations in packaging — for
instance; Cadbury has introduced new stand-up trays for the tube packs to ensure counter
visibility.
However, as Gems picks up lost growth rates, there is a new movement that could create
problems — one that is partly Cadbury’s creation. The newly-launched popsicle Chocki
— launched to counter Nestlé’s ChocoStick — priced at Rs 2, has started eating into
Gem’s equity. In fact, this segment has grown to 11 to 12 per cent of the chocolate
market — at the cost of Gems.
Unless Cadbury’s is able to come up with more gems of innovation it may find one of its
oldest “young” brands succumb to old age.
TEMPTATION CHOCOLATE GIANT LIVED TO REGRET
It is a problem faced by multinational companies: how do they tap into the concerns of
local consumers to make their advertising more relevant?
The marketing people at Cadbury's India thought they would try to sell more chocolate
by playing on the biggest issue facing the world's largest democracy. That is Kashmir,
which continues to threaten to plunge India and its neighbour, Pakistan, into nuclear war.
Newspaper advertisements for the Temptations range of chocolate showed a map of
Kashmir alongside the riddle: "I'm good. I'm tempting. I'm too good to share. What am I?
Cadbury's Temptations or Kashmir?"
To make matters worse, the ad was timed to coincide with Indian Independence Day,
when nationalist feelings were running at their highest.
Cadbury's India is a wholly owned subsidiary of Cadbury Schweppes which has operated
in the country for more than 50 years. It apologized after protests against the
advertisement whipped up by the ruling Bharatiya Janata Party (BJP), which plays on
Hindi nationalism
SWOT ANALYSIS OF CADBURY INDIA
Strengths
Strong Brand names like Cadbury dairy milk, Five Star and Éclairs
Rich Product Mix
Support from the parent Cadbury Schweppes
Weakness
Ltd. Key products, only one central brand (CDM). Pralines range totally wising in
India.
Lack of launching products in rural India
Opportunity
The Indian market and more specifically the urban areas where the penetration of
Chocolates is low can be developed as a future market through affordability and
availability
Threat
Stiff competition in confectionary segment
The company has large exposure to foreign currency exchange rate risk mainly on
account of imported cocoa beans and cocoa butter in US Dollar and Pound Sterling
MARKET SEGMENTATION
This can be done in two ways, product forms and customer based
With respect to product forms
There are four major segments in the chocolate industry
A. Moulded chocolate segment
This segment constitutes 50 % of the total market Cadbury diary milk Cadbury s flagship
brand has 50 % of this segment market .To position CDM in this segment Cadbury used
the traditional demographic variables of age, socio economic groups and usage intensity.
CDM was positioned as a product that elders brought for their children and recently it has
shifted this positioning and has not only included parental love but has said that it is gift
for someone you love and that can be anybody not only parents and children Cadbury has
associated itself to enduring and emotional values of love sharing and affection and
reward considering that CDM acts as a trendsetter for all the brands in this segment.
Amul tried to be different and at its initial product launch as Cadbury had targeted
children they had targeted teenagers but unfortunately they were unsuccessful.
The Cadbury brands in this segment are Cadbury diary milk, Cadbury fruit and nut and
Cadbury temptation CDM is the leading brand here and others act as an endorser of the
brand here.
From around 1993 this segment began showing signs of maturity. This was hurting
CDM. This led to Cadbury attempting to rejuvenate the segment. They changed their core
customer from children to that of the universe, which means from children to adults this
attempts to redesign the market to enticing all age groups, helped bring about changes in
this segment. Today the notion associated with the consumption of chocolates is that of
casual ness instead of just product consumption. Today this segment grows at 40 % per
annum and is likely to remain an important segment for further growth.
B. Count line Bars Segment
This segment forms 33 % of the chocolate market. This segment is mostly targeted to the
teenagers. Major Cadbury brands are 5 star, break, crisp, and double decker, perk. 5 star
in doing well here about 50 % of the segment while the rest of the brands acts as endorser
nestle has a minor presence in this product category with bar one.
Growth of a sub segment chocolate wafers: Chocolate wafers are the new products
being offered by the chocolate companies today in order to expand the market. In 1995
Cadbury and nestle launched perk and Kit Kat respectively. These were wafer-enrobed
chocolates in a new context and a different benefit offering. Both chocolates had a snack
positioning. Perk offered the anytime anywhere snack proposition thodi se pet puja
whereas Kitkat tried to promote snacking through have a break have a Kitkat the growth
rate of this segment is 15 %- 20 % annually and is estimated to be worth over Rs 100
crores making it a very lucrative segment.
Internationally confectionery products like wafer chocolates have a very high tonnage
and have a much bigger future than plain chocolates. Market research and succeeds of
these two brands suggest that Indian consumers and ready to accept wafer chocolate
proposition. This conviction of both Cadbury and nestle towards this segment can be
gauged from the fact that both brands are seeking unprecedented allocation of funds to
the tune of 60 to 70 % of the total advertisement budget of both companies and
chocolates.
A new entrant in this category is Cadburys Picnic it is three layered chocolate coated
wafer bar with dry fruits and caramel and crispies priced at Rs 14 for 40gm bar. Picnic
will be used not only to expand the functional segment of the market but also to counter
kit Kat and other important bars (Snickers, Mars, and Lion) as against perk which is
positioned as a light snack picnic is positioned as a heavy near meal substitute. In keeping
with the company new strategy of expanding the market this product has been launched
to develop the snacking area in the chocolate market.
C. Choco-panned segments
This segment forms 4 % of the total market and Cadbury has 100 % of the market in this
segment. The major brands are nutties caramels butterscotch band tiffins. All of these
brands have been used by Cadbury to drive variety induce gifting practices and serve to
some specific taste preferences. Cadbury doesn’t advertise these brands they have been
used as flanker products.
The opportunity for growth in this segment is high with the imminent entry of
multinationals like mars and Hershey’s. This is also likely to pose a threat to Cadbury
what with its complacency.
D. Sugar panned segment
This segment forms 15 % of the total and Cadbury has about 98% of this .Its major
brands being gems and éclairs. Éclairs has been used strategically to foster chocolate
consumption among children as well as adults by offering ` guilt free eat no more than a
bite full at a convenient price point (65% of éclairs eaters are from the household
earnings less than RS 4000 per month)
E. A gem is still Cadburys primary tool to protect its franchise in the child segment.
It’s been previously associated in its commercial with the international spy character
James bond. Around 1995 gems were repositioned to broad base its appeal from 3 to
6 yr. olds to teenagers as well. However this failed due the product form which has
become deep-rooted with kids and hence the company has reverted back to its target
segment of kids with a new offering of choco gems
Market Segmentation with respect to the consumer buying power
These are
High-income customers (price greater than Rs 25 for 40gm) who will go in for
premium chocolate brands.
Middle income customers (Price between Rs 10-25) who are price sensitive
Children who are mostly price driven and will consume more of toffees in the price
range of Re 0.50 – Re 1
PSYCHOGRAPHICS AND DEMOGRAPHICS
This is attempted in terms of the consumers
a. High income customers
It is estimated the age group buying the chocolates would be 232 on wards the income
level is estimated to be Rs 8000 per month. The customer are mostly urban and are
mostly professional (engineers doctors executives)
The psychographic profile: They can either be individuals indulging themselves or they
could be indulging their children. They are inner-directed people who form their own
values and norms and believe in not adhering to the social norms. They are some what
occasion driven in their buying behavior
b. Middle income customers
The age group of this segment will be 15 plus. The income level is estimated to be
around Rs 5000 a month. The consumers can be urban semi urban and is currently
spreading to rural areas
The Psychographic profile: They are likely to be variety seeking in their behavior. They
are self expressing by nature and inner directed to the extent. They like to indulge
themselves but with a little bit of cushion support.
c. Children
The upper age limit is estimated to be 12 yrs. They mostly purchase their chocolates with
their pocket money or get as gifts from elders. The consumers can be urban, semi urban
and rural though there is somewhat greater emphasis on urban
The psychographic profile: There is novelty seeking in their behavior. They are also fun
loving.
PRODUCT POSITIONING
The differentiation planks used in the Indian chocolate market are
Product quality (levels of fat /cocoa) e.g. Kit Kat though priced higher then perk sells
more due to better quality.
Chocolate with additives likes fruit and nut.
Packaging: A chocolate being predominantly an impulse driven purchase category,
packaging is an important mode of attracting attention at the display counter
International heritage of its product
Functional attributes like the energy bar
As a gift item
As a snack the positioning of a chocolate as a gift item is receding now it more itself
being positioned as a snack or a quick meal substitute
Size small sizes to increase trial rates this is gaining tremendous today since the
companies in a bid to offer chocolates at affordable prices are reducing their packing size.
Shape (e.g. chocolates in the shape of toys targeted at children) for Christmas season
chocolates were shaped as Mickey mouse and this proved very successful for the season
also the shape has to be such the product is worth sharing this has been attributed as a
major season for the success of third launch of kit Kat.
.Evaluation of the Advertising strategy
Marketing strategy
Right Wrong
Advertising
Strategy
Right
CDM
Five Star
Perk
Picnic
Amul Chocolates
Wrong
Cadbury’s
Temptation
Cadbury’s All Silk
Gems
Bar-One
Product market boundary
For deciding the product market boundary the [product market will be defined as the set
of those products which at as substitutes to satisfy the specific needs that are already
identified of the customer. Further for defining the product market the consumer
judgment of similarity
And substitution will be used which are going to be more reliable then the categories
defined by the industry classification. To refine the categories further only those products
that fall in the processed food category are considered the following
Ice cream - Ice cream is eaten as a desert or milk based snack. People also consume
it to feel themselves as a part of a upper strata of society (this is the attitudinal aspect
associated with eating out in famous parlors like Basin Robbins). It satisfies the need
for food social belonging and hence competes with chocolates for money spend by
the consumers to satisfy the needs.
Biscuits with mew variant of biscuits like chocolate cream elaichi cream puffed
biscuits launched in India biscuits are increasingly becoming snack budget of the
consumers further glucose biscuit are positioned as a source for energy same as some
chocolates like 5 star which are positioned as energy bars, hence they compete with
each other directly.
Wafer chips and packaged nankeens: with their high visibly easy availability and
aggressive advertising by multinationals like Pepsi chips are competing with snacks
like wafer chocolate which are purchased by consumer on impulse basis.
Fast food: fast food consists of western food like pizzas burgers and traditional
Indian food like samosa and pakoras. Many chocolate marketing companies realized
that if they want to position chocolates as snacks they would have to compete with
these fat foods directly through their advertisement.
Sweet / Pans : sweets and sweet pan consumed after dinner as a desert directly
competed with chocolates which is also eaten many times after eight.
Sugar based confectionery chocolate éclairs directly compete with many sugar
based confectioneries particularly toffees in Indian market many of these toffees like
pan pasand coffee bite melody have become popular and eroded the market share of
chocolate éclairs from time to time.
Soft drinks with the advent of fountain machines soft drinks have become easily
accessible and convenient for consumption. This has therefore resulted in soft drinks
being increasingly perceived as a n impulse purchase item with this occurrence
chocolate have come in direct competition with cold drinks.
Chewing gum this segment is also experiencing a rapid growth with its worth about
Rs 150 crore. There is a virtual explosion of the chewing gum in the re1 segment and
it cannibalizes the chocolates in the lower price segment.
The product market boundary can be illustrated as follows:
Foods
Snacks Fast Food
Wafers Biscuits & Namkeens
Desserts Soft Drinks Ice cream
Sugar Based Sweets ConfectionaryChewing Gum
Moulded Count Line ChocolateBars
Choco Sugar Panned Panned
PRICE SENSITIVITY
At the outset the chocolate market appears to be price sensitive. This is starkly brought
out in the following cases
When the excise duty on chocolates was raised from 16.5 % to 27.5 % and cocoa prices
raised by 25 % in 1992-93 the retail prices went up by 30 %. As a result the sales and
consumption fell by more than 30% in the next two years
The major players have successfully launched small size packs of chocolates. Keeping in
minds the price sensitive nature of the market the companies are reducing the pack sizes
to be able to offer chocolates at affordable prices and fit them to a RS 6-8 bracket. Due to
the broad basing of the chocolate market there is a drive towards smaller convenient
packs for a larger audience and it also increases trial. However the upper segments of the
consumer base are not price sensitive. For example chocolate like Kit Kat which is priced
30 % above its rival perk has a similar market share of 8%.
Consumer Buying Behavior
The product comes under Fast Moving consumer Foods (FMCG) and the product is
generally purchased as a convenience good. The general characteristics of this product
are:
It is a low involvement product, but there are significant differences in various brands in
market. The following matrix may help in studying the behavior of consumer for this
particular product.
In this product, consumers are often found to do a lot of brand switching. Although
The consumer expects some benefits from chocolates, but he chooses a brand without
much evaluation, and evaluates it during consumption only. But next time, quite often he
may reach for another brand out of boredom or a wish for a different taste. Brand
switching occurs for the sake of variety rather than dissatisfaction.
Consumer Buying Behavior
High Involvement Low Involvement
Significance Difference in
Brands
Complex buying behavior Variety seeking behavior
Few Difference in Brands Dissonance reducing
buying behavior
Habitual buying behavior
Cadbury has 70% of market share, and hence this variety-seeking behavior had not
affected its sales negatively. This had been possible due to various factors like lack of
strong competition. However, with the new entrants in the market, there has been stiff
competition. There are few segments like water chocolates segment where company faces
strong competition from Nestle, the second major player in the market. In these segments
company should try to increase brand loyalty for its brands. This increased consumer
loyalty will also act as deterrent towards development of strong competitions in other
segments. Further to increase the overall size of market, company should try to increase
consumer’s involvement with chocolates. (Company can use consumer involvement
achieved by soft drink marketers in USA as a benchmark. In USA, consumer
involvement in soft drinks is much higher than other beverages like coffee).
INDUSTRY STRUCTURE AND DYNAMICS
With Cadbury cornering almost 65 % market share and nestle getting another 24 %
industry has all the characteristics of a duple. This industry is characterized by a near
total absence of unorganized sector as compared to its substitutes like ice creams chips
etc. Various internationally famous brands such as mars Hershey etc are either imported
in a very small quantity or are smuggled to avoid high import duty. Other chocolates like
Toblerone Twix snickers are being imported through California foods in India. These
help in expanding the premium imported segment of the chocolate market. As these
brands have miniscule volumes and high price they are not giving any serious
competition to Indian brands.
The market has been stable over a long period of time with two major companies
Cadbury and nestle occupying the major share in the market. . However with the threat of
entry of new competitors and also the broad basing of the market the repositioning of the
entire chocolate eating concept we foresee a lot of action in the market. This is already
seen in the war of perk and Kitkat, which had very nearly taken on the intensity of cola
wars. Nestle has started threatening the long enjoyed lead of Cadbury and Cadbury is all
set to defend its territory.
Market Share
65%
24%
5% 6%
Cadbury Nestle Amul Others
There have not been many changes in the competitive strategies, Marketing practices
product modification of different brands till 1994. All major brands have been
repositioned once or twice only. But with the maturing market the new marketing
strategy is to target a new breeds of consumer the consenting adult rather then the
indulged child. In keeping with this market redefinition a lot of brands have been
repositioned onto a new plank the most successful plank being Cadbury diary milk which
led to an increase in 20 % of consumption.
Till now frequency of the new product development was also very low but after the
launch of Kitkat this industry is experiencing a lot of action. Cadbury came with perk in
response to Kitkat in a very share time frame. Cadbury had also launched relish a brand
in count line bar segment there has not been significant technological development in
India in chocolate. But to create excitement and growth in the category Cadbury has
launched many new products, which led to change in consumer taste and preferences.
These products are based on strong international R &D capability of the chocolate
majors.
Kit Kat is manufactured in a newly commissioned plant in go and due to cumulative
production volume nestle is not likely to enjoy the benefits of learning curve. But apart
from relative cost advantage Cadbury has pursued vigorously product differentiation
strategy. Apart from manufacturing products suitable for Indian taste and distribution
Cadbury has established strong brand equity and brand loyalty among Indian consumers.
Seasonal factors like weather festival etc do affect the demand for chocolates. In
summers due to lack of cold chain at all places chocolate are not able to bear the heat and
humid condition. Thus retailer do not stock them this shows high bargaining power of the
retailers.
Chocolates have emerged as a gift item to be used during traditional Indian festivals like
deepawali and New Year. Companies like Cadbury come with special gift packs thus
demands shoot up during festival season Demand is also sensitive to economic factors
like recession in economy or substantial increase in price of chocolates. However in the
year 1997, chocolate manufacturers were spending only 80 % of the festival budget as
compared to the previous year. Advertisements spent across corporate India were pruned
in the last festival seasons which led to a fall in demand. Companies are hopeful of being
able to reverse the trend for the current year.
Entry barriers
Brand image
Requirement of specialized machinery
Lack of raw materials (cocoa) in sufficient quantities
Government regulation in the form of excise duties
Need of heterogeneous and wide distribution (being an impulse purchase category)
Exit barriers
Government regulation
Specialized assets like machinery cold chains etc
The rural conundrum
Ratna Bhushan
Big opportunity, large masses to be tapped. Yet success in rural India has eluded
several corporates. Can India Inc really make it big in rural markets? CII's recent
Summit had experts introspect on the subject.
IT is not a one- time
act, not a
marketing
gimmick or a sound
byte. It has been the
Waterloo of many
companies. It involves
addressing some 700
million potential consumers, over 40 per cent of the Indian middle-class, and about half
the country's disposable income. Rural marketing, a much-talked about and hotly debated
subject, was once again the focus of attention of FMCG majors such as Nestle India and
Coca-Cola.
Last week's Marketing Summit in New Delhi hosted by the Confederation of Indian
Industry saw heads of these companies express diverse points of view on the issue.
Carlo Donati, Chairman & Managing Director
Carlo Donati, Chairman and Managing Director, Nestle India, observed that `generalizing
the rural market can be dangerous'. "It is true that in today's congested and difficult
markets, both local and global, all FMCG as well as other companies or corporations
look and search for new opportunities, consumers and markets. Going rural is a question
any marketing person must have reflected on many times," he said.
Drawing attention to the 700 million potential consumers in rural India, Donati pointed
out that the rural market presented both an opportunity and a problem, given that this
market has been characterized by unbalanced growth and infrastructural problems.
So is Nestle going rural? "Our product portfolio is essentially designed for urban
consumers; but all the same we are closely monitoring the rural consumer," Donati said.
Nestlé’s rural initiatives have largely been based on price-led initiatives. Brands such as
Maggi noodles and Kitkat chocolates have been priced at Rs 5, and few other candy and
chocolate brands are priced at Rs 2 per unit. These price points not only help Nestle reach
more retail formats in urban markets, but also help in making inroads into rural markets.
Currently, rural markets account for below 10 per cent of the food major's revenues.
Key Success Factors:
Research and Development :
With increasing competition in the industry R&D may become an important and critical
factor for success in newly emerging segments of the market. Indian players like Amul
are not able to launch chocolates in fast growing count line wafers segment of the market,
as they don’t have appropriate technology. But still moulded chocolates which constitute
62 % of the market do not require any special R&D.
Price
Price can be used as a basis for competition in the industry. In 1995 perk was launched at
a price Rs 4 less than Kitkat was. This brand was specially produced for Indian markets
and successfully competed with internationally famous Kitkat. But low on price without
brand equity may not really help as Amul and various regional brands are priced lower
then category leaders without having much success.
International Lineage
The international image associated with chocolates acts as a propeller for the sales
considering the significance of user imagery and aspirational aspect of this product
category. The lead can be attributed to the international lineage despite the higher price
compared to the price of perk However this has to be taken into consonance with the
price factor considering that the Indian consumer is price sensitive.
Product Quality
Product quality per se may not be critical success factor. But many instances prove that
poor product supported with high decibel advertising is; likely to be a failure Cadbury
has constantly improved the product quality along with rest of the marketing mix as a
tool to create growth in the category.
Distribution
Chocolate being an impulse purchase wide and heterogeneous distribution channels are
important so that the consumers have it within arms length of desire. In India distribution
of chocolates gain special significance due to very hot weather condition during summer
months
Availability of capital
Chocolate manufacturing is a capital intensive business and clear lack of unorganized
sector underlines the importance of capital availability.
Quickness of response
With the increasing competition fast response is assuming significance. For example perk
was launched 15 days of the launch of Kitkat to counter the threat.
Product Life Cycle
Market research is a process designed to link managers to consumers through
information. It is used to identify opportunities and make better-informed decisions about
products, which have future market potential.
Market research has revealed that Chocolate play more of a functional role than one of
pure indulgence: they are often a meal substitute. Research also shows that successful
snack brands in the confectionery category tend to have more 'foody' values and often
contain ingredients such as cereal, wafer, biscuits, peanuts and fruit to break up the
chocolate delivery.
Cadbury's philosophy is to continue as a driving force in the confectionery market, and
thus constantly analyze its offerings for consumers. The core objective of Cadbury's
innovation programme is to generate incremental volume for the company and achieve
the vision of market leadership in every segment in which it operates. The role of
innovation is critical as it allows Cadbury to develop ahead of its competitors in those
areas of the market which are new or growing.
1. Product Development
Cadbury set out two objectives for the development of Fuse:
1. to grow the market for chocolate confectionery;
2. To increase Cadbury's share of the snacking sector.
The concept was developed after market research identified the growth of snacking and a
definite gap in the market for a chocolatier snack. A number of ingredients were devised
and tested following a survey which questioned consumers about their snacking habits
and preferences. A research and development team was then asked to develop a number
of product recipes which addressed the needs expressed by consumers.
Not all products successfully emerge from the product development phase. Research and
development involves combining various ingredients to develop potential new products.
Considerable development time is spent on all brands of Cadbury’s, carefully engineering
the ingredients in order to deliver the right balance of chocolate, food elements and
texture. More than 250 ingredients were tried and tested in various combinations before
the recipe was finalized.
Any new product in the snacking sector must establish points of difference from existing
products within the market - thus creating a unique selling proposition (USP) i.e. a
product with unique appeal which is not shared by any of its competitors. Whereas other
confectionery snacking products focus primarily upon ingredients, with chocolate used
only to coat the bar, the product developers decided to use Cadbury's chocolate to ''fuse''
together a number of popular snacking ingredients such as raisins, peanuts, crisp cereal
and fudge pieces.
2. Early Consumer Testing
As products are developed, they must be tested to ensure that consumers would be
willing to buy them. As approximately 85% of all new products launched into the grocery
and allied trade sectors fail in their first year, extensive research helps to reduce the risk
of launching a new product into an already competitive market. The brands go through
two extensive 'in home placement' tests. The results of these tests were multiplied into
repeat purchase and purchase frequency figures to allow. Cadbury to anticipate the
volume of bars required for the launch of any new brands.
A key element of any new product launch is the development of a strong brand name
The design brief for the brands require two objectives:
1. To communicate the dynamic and slightly wacky personality of the new product and
create interest at the point of purchase (i.e. in store)
2. To bring the brand name to life by communicating the fusion of Cadbury’s chocolate
with the snacking ingredients.
3. Pack Design
Packaging enables a manufacturer to convey both the tangible and intangible attributes of
a product. The packaging for Cadbury's new product sought to position it as a unique,
exciting and delicious chocolate snack which would stand out from its competitors. It
was important to emphasize the qualities and appeal whilst at the same time reinforcing
that it was a Cadbury brand.
The packaging achieved impact by using bright, fiery colours for the product name and
contrasting them against the deep and instantly recognizable 'Cadbury purple', which
communicated the manufacturer's heritage. The colours were also used in a gun powder
style to suggest an explosive taste. The vibrancy of the design aimed to differentiate it
from other products in the sector so that it would have an immediate point-of-sale impact
both on-shelf and in store display units.
Three different packaging formats are developed in order to maximize the various multi-
purchase opportunities available. The key pack size was the single bar, designed to entice
trial and to encourage repeat purchase. The 'treat size' and the multi-packs were aimed at
families.
Brand name: Like packaging, brand names play a critical role in the success of a
product, by helping to create a product's 'personality'. The new product aimed to have
broad appeal to 16-34 year olds, although it was primarily targeted at 16-24 year olds.
The name of the new brand is chosen to communicate the idea. The logo is also in
association with the brands name.
4. Further Consumer Testing
Testing is vital throughout the entire product development process. It helps to provide
valuable information that can be used to fine-tune the product and minimize many of the
launch risks.
In research, brands are tested for texture, 'interesting eat' and combination of ingredients,
than its competitors and each carries a rating.
5. The launch strategy
The launch strategy of any new product is critical. Cadbury has two targets for its
products - trade customers who stock the product and consumers who buy it. In recent
years, product launching has become an art which can make or break a product. A
successful launch makes potential customers aware of the new product and keen to try it.
Before consumers could try the product, however, it was important for Cadbury to gain
the support of its trade customers. Retailers had to view it as helpful in encouraging
customers to visit their shops. If the product had failed to interest retailers and
distributors, the costs of investment would not have been met and they would not have
stocked the product.
Cadbury conducts one-to-one briefings with over 70 key trade customers. This helped
Cadbury build awareness and commitment to the launch and obtain significant orders for
in-store displays and merchandising ahead of the launch date. The trade commitment was
reflected in high levels of display support in store during the launch.
Traditionally, new confectionery products are initially launched in one region of the
country, in order to gauge the product's success, before moving on to other regions over a
period of time. Time Out and Wispa Gold, for example, were launched in this way.
There were certain key requirements to the co-ordination of the launch:
Secrecy had to be paramount!
Marketers who had identified the gap in the market had to work closely with individuals
from research and development as well as other external agencies.
Manufacturing operations, in conjunction with marketing and finance, had to evaluate a
new factory investment for Board approval.
Having a catchy 'hook' for a new launch helps to make consumers notice the product.
Cadbury selects a date and then christens that day as that brands day. This involved tight
management of stock distribution, with more than 40 million bars being moved from
Cadbury depots into the trade only a few days prior to the launch date.
Press releases were tailored to specific audiences. In each case, a strict embargo was
imposed to ensure that the impact of the day was not diluted. The only exceptions were
briefings with The Grocer, and Marketing (trade publications) and the media, which
reviewed the product in its business pages.
Public relations (PR) support was substantial. It told the story of the brand being
launched explained that it had taken so many years to develop, the investment incurred,
the plant in which it is being manufactured and the advertising cost involved. The results
of the TV campaign and PR campaign were so successful that Cadbury was under
pressure to meet repeat orders post-launch!
6. Post-launch results
After a new product launch, it is important to analyze whether the product has managed
to meet its launch objectives. Cadbury tries to find out as to how much increase has their
been in the percentage of its market share with the launch of the new product.
One way of evaluating the effectiveness of advertising and promotional campaigns is to
ask market research volunteers to identify advertisements using prompts in a recall test.
The Fuse launch had created massive awareness of the new brand; achieving greater
prompted awareness Cadbury's competitors reacted to the success of Fuse by increasing
their own new product activity.
Control Institutions Facilitating Institution
Government
Nestle/Foreign Brands
MRTP
Cadbury U.K.
Management
AdvertisingAgencies O& M Media
MR Agencies
Positioning With Respect To the Price Segments
Positioning
Price
Drives attitude
and
behaviour
Drives snacking
and
Consumption
Drives variety, gifting and taste
preferences
High
(above Rs.
25
For 40 gms.)
Kitkat
Cadbury’s Temptation
Cadbury’s fruit & Nut
Cadbury’s Roast Almond
Cadbury’s Bounville
Cadbury’s Nut Milk
Tangro Almond
Medium
(Rs. 10-25
for
40 gms.)
Cadbury’s crackle
Cadbury’s diary
Milk
Cadbury’s Perk
Tango Fruit & Nut
Cadbury’s Creamy Bar
Tango Cashew
Tango Crispy
Amul Fruit & Nut
Nestle Crunch
Low
(Below Rs.
10
For 40 gms.)
Nestle Premium
Milk
Nestle Classic
Tango Milk
Amul Milk Chocolate
Amul Bitter
Amul Orange
Amul Crisp
Cadbury’s Relish
Nestle Rich Dark
Mystique
Price, Positioning and Ad Descriptions of All the Brands
Company Brand Weight Price Positioning Advertisement
campaign
Cadbury Dairy Milk
Chocolate
48 gm. Rs.
15
Product for people who are
Natural and spontaneous
The real taste of
Life
Fruit & Nut
Roast
Almond
Creamy bar
Bourmville
50 gm.
80 gm.
35 gm.
40 gm.
Rs.
19
Rs.
38
Rs.
11
Rs.
13
Piggybacking on Cadbury’s
dairy Milk
Crackle 40 gm. Rs.
12
Product for teenagers, fun
Alternative to Diary Milk
Crack, Crack,
Crackle
5Star 40 gm. Rs.
10
Source of energy for body &
mind
Energy bar
Perk 35 gm. Rs.
12
Anytime, anywhere snack Thodi si pet puja
Break 25 gm. Rs. 6 Light chocolate bar to fulfill a
snack need rather than just taste
I want a break
Diary Milk
Éclairs
1.00 Close to chocolate with a twin
taste –tough from outside and
soft creamy
Filing within.
Éclairs teenagers
‘jo bhi khaye duniya
bhool jaye ’
Relish
Nutties
Tiffins
17gm
40gm
Rs 3
Rs 13
Rs 12
Nestle Kit Kat 36gm Rs 15 Snack for routine usage Have a break
Have a Kit Kat
Have a Kit Kat
Play it Cool
Milky Bar 40gm Rs 13 Milkybar , give me the Nutrition for children and
power sugary taste
Crunch 40gm Rs 13 Fun Product Chicken or Egg
Have a Crunch
Bar One 50
gm
Rs 10 Snack For those in between times
Classic
Éclairs
40gm
7gm
Rs 10
Rs0.50
Amul Premium
Milk
Orange
Crisp
Fruit & nut
Bitter
40gm
40gm
40gm
40gm
40gm
Rs 10
Rs 10
Rs8.50
Rs 12
Rs10
Gift for all ages –
expression of love
Gift for someone you love
Procter’s 5 Forces Model
Rural Market Initiatives
Contrary to most FMCG players, Cadbury is not looking at the rural markets for
growth. Most of the sale comes from urban areas. Chocolate consumption in
urban India itself is low. There is a large untapped demand in urban market
alone. Only 60mn people out of the urban middle class population of about
Substitution
Substitutes like ice cream, Potato chips, biscuits, Soft drinks, chewing gum are a source of threat as well as opportunity for market
Expansion Suppliers
Major raw materials suppliers are cocoa produced in Latin America countries
Due to negligible domestic products in India , suppliers enjoy high bargaining power
Milk supply also fluctuates therefore in summers months milk suppliers gain sufficient bargaining power
CompetitorsDuopoly
Both the major players have financial muscle to sustain their brands
All players following a pull strategy
BuyersSince chocolates do not satisfy any immediate needs, it is not a necessary item.
Consumer power is very high and consumers need to be persuaded through various positioning planks to consume chocolates
New entrants
Imminent entry of global majors like Hershey’s, Mars etc is bound to change the power equation in the Indian chocolate market
280mn consume chocolates. Why should they go to rural areas? The target of
adding 10mn consumers annually can be achieved from the urban areas.
Besides storage and logistics is also a problem. Chocolate needs to be
distributed directly, unlike other FMCG products like soaps and detergents,
which can be sold through a wholesale network. 90% of the products are sold
directly to retailers. Building such a direct network in rural areas is a daunting
task. Currently, Cadbury is looking at growth through expansion of the target
size, which will grow as more people move upwards in the income pyramid.
SUGGESTIONS
Looking at the Future
The consumption of chocolates in India is among the lowest in the world. A
comparison with the world wide industry average is an eye opener. In India the
average per capita consumption is a mere 20 gm compared to the world average
per capita consumption of 2.24kg. Moreover data on world wide chocolate
consumption indicates that – in the mature markets this figure is as high as
9.36kg, while even the emerging markets total up to 1.16 kg. While looking at
the consolidated averages –would be misleading, even the consumption among
the potential consumers of chocolates is extremely low as compared to the
world average.
Potential Chocolate Consumers
Income
Groups
(Rs`000 p.a.)
Age Groups
Total5-14 15-19 20-24 25-34
Rural
(Millions)
62-86 2.2 0.8 0.7 1.2 4.9
>86 13.5 4.8 4.3 7 29.6
Total 15.7 5.6 5 8.2 34.5
62-86 7.0 2.5 2.2 3.7 15.4
>86 18.8 4.9 4.4 7.2 30.2
Total 20.8 7.4 6.6 10.8 45.7
Total 36.5 13.0 11.7 19.0 80.2
Using the figures as mentioned in the table above one can arrive at a rough
estimate of the potential consumers of chocolate in the country. For this purpose
the populations in the age groups of 5 yrs to 35 yrs falling in the income groups
having an annual household income of Rs 62000and above have been
reconsidered. The total population in this group is about 80 million split into 45
million urban consumers and 35 million rural consumers.
As the consumption of chocolates is skewed towards the urban consumers, it
can be estimated that 80 % of the chocolate consumed is in urban areas. Using
these figures the per capita consumption for the relevant target population is as
given in the table below
Chocolate Consumption
Share of
market
Tonnage Relevant target
population
(millions)
Gms. per
consumer
Urban
Sales
80 % 12800 45.7 280
Rural
Sales
20 % 3200 34.5 40
Total 100 % 16000 80.2 200
Comparing these figures to the world average, it can be concluded that there is a
very high potential for the chocolate market.
As eating habits of large parts of Indian society are becoming consistent with
the rest of the world; the category is poised for a significant growth. The wafer
wars between Perk and Kit Kat is an interesting indication of the times to come
and it has reached almost the same intensity as the cola wars!! As these new
players and existing companies introduce new type of chocolates, distinction
between chocolates, biscuits, ice-cream will become less and many hybrids
product will grow. Along with this the potential to expand the consumer base by
incorporating a wider array of taste and needs of the consumers. Segmentation
of market based on consumer age is increasingly becoming irrelevant. There are
expected to be many products target at specific new segments. This is very
obvious with the emerging segmentation policy of using the ego states. A shift
in media strategy of various companies can also be estimated. Instead of present
use of mass media, specialized media targeted at different segment will catch
the fancy of media planners. At the same time one can see an increasing
association between the brands and various highly published events in order to
increase the brand equity in the minds of all the stake holders .Further there will
be lot of improvement in packaging and modification of products as per Indian
conditions. A trend in the future wherein the innovative packaging can be used
as a differentiating factor in order to increase the usage of the product can be
foreseen. It is seen that the chocolate giants is slowly shifting to the large
untapped interiors, with the increasingly saturating market in the urban areas
and also increasing clutter. The first mover advantage by monopolizing the
distribution network will work in great favor of the company; hence it can be
recommended that Cadburys should move in before any of the other companies
can realize what hit them.
CONCLUSION
The objective of the study was to study the Marketing Segmentation of Amul,
Nestle, and Cadbury, Consumer Buying Behavior of Chocolate Industry and
also to study the Industry Structure and Dynamics.
a. Advertising plays an important role in creating brand awareness, brand
recall and brand recognition which are important in helping a customer
make purchase decision of that brand.
b. Brand should adopt itself to the local culture.
c. Brand should be kept alive.
d. The styles and code to the brand should change as clientele advance and
grow.
e. Brand should continuously evolve with the culture and the product should
innovate.
Thus, we can say that companies which want to make their brands No. 1 should
adopt the above findings in their brand building exercise. However for
generalization of the results, a study needs to be undertaken based on a larger
sample across different industries.
BIBLIOGRAPHY
1. Kotler, Philip. “Marketing management ’’
2. Aaker, David et al, “Advertising Management ’’
3. Business Line “Catalyst”
4. Financial Express “ Brand Wagon ’’
5. Times Of India “ Brand Equity ’’
6. Strategic Brand Management
7. Internet Sources
www.cadbury.co.in
www.business-standard.com
www.financialexpress.com
www.economictimes.com
www.hinduonline.com
www.indiaserver.com
www.indiainformer.com
www.india-today.com