Indian Chocolate Industry

8/2/2019 Indian Chocolate Industry

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FINAL PROJECT

ON

INDIAN CHOCOLATE INDUSTRY

Submitted in the partial fulfillment of the

award of the degree of

-

Submitted by-

NEERAJ VERMA

PIYUSH GANGWAR

SAURABH GUPTA

UPTEC COMPUTER CONSULTANCY

MALLROAD,KANPUR


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ACKNOWLEDGEMENT

I would like to pay my gratitude to .., and also wishthanks to. UPTEC COMPUTERCONSULTANCY Business programme.

Again, I greatly appreciate the diligent support provided by all mycolleagues, both academic and professional and the faculty members ifUPTEC for their whole hearted support and co-operation.

Last but not the least, I would like to thank ., my

project guide for his valuable insight and unending guidance.

Above all, I thank God for giving me courage and wisdom to completethis piece of work successfully in time.


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Contents

Titles

Introduction Objective Research Methodology Chocolate Industry Chocolate in a Bloom Chocolate Industry in India Major Players Amul Nestle Cadbury SWOT analysis of Cadbury Market Segmentation Psychographics and Demographics Product Positioning Product Market Boundary Price Sensitivity Customer Buying Behavior Industry Structure and Dynamics The Rural Conundrum Key Success Factors Product Life Cycle Positioning Proctors 5 Force Model

Rural Market Initiatives Suggestions Conclusion Bibliography


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EXECUTIVE SUMMARY

The Cadburys Indias 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 ofthe business have led to Cadbury Schweppes taking the led in both, theconfectionery and soft drink market in tech UK and becoming a majorforce in the international market. Cadbury Schweppes todaymanufactures product in 60 countries and a trade in staggering 120.

This project is a sincere effort to look for the market potential inchocolate and confectionery industry. A descriptive research procedurehad been applied to come to the conclusions of the project. The projectlater concluded in recommending the market potential of the chocolateand confectioneries.


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INTRODUCTION

Chocolates had its beginning in the times of the Mayas and the Aztecswhen 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 inthe currently popular solid form. The main ingredients of chocolate iscocoa grown mainly on equatorial zones and of the consumers looks forvariety he goes in for some of that companys own sugar milk solids and

permitted emulsifiers. Cocoa constitutes nearly 40% of the total rawmaterial cost.

The following report studies the chocolate industry in India and inparticular the position of the chocolate brand - Cadbury. The brand namechosen is the umbrella brand as it was felt that the corporate name isrecognized as brand not so much its individual products. The studyfocuses on the marketing and the advertising, employed by Cadbury inthe context of the Indian macro environment and industry structure. Theadvertising strategy is studied with respect to Cadburys business and

marketing objectives. The strategies adopted are then analyzed for eachproduct offering. Considering the strategies of Cadburys majorcompetitor follows the analysis, nestle India ltd. to get an understandingas to where Cadburys stands.

The report initially focuses on an examination of the industryenvironment and the product class. The product then goes on to analyzethe corporate, marketing and advertising strategies adopted by theselected company and its main competitor. It concludes by looking at thefuture challenges for the industry and the company it is also to be notedthat the data used for analysis is of 2001-2003. This was the most recentdata available under whose purview the companys marketing and the

advertising strategies are studied.


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OBJECTIVE OF THE PROJECT

The major objective is to study the Marketing Segmentation ofChocolate and:

To understand the Consumer Buying Behavior of Chocolate. And also to study the Industry Structure and Dynamics.


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RESEARCH METHODOLOGY

Sample Units: Three of the Number One brands in India namelyCadbury, Nestle and Amul respectively, were chosen on the basis of

their market shares. These three industries were chosen on the basis ofthe usage of the products, as the usage of FMCG sand is high andnoticeable.

Sample Design: Non-probability sampling was resorted to and themethods used is Convenience sampling and Judgment sampling.

Data Collection: Data was collected from Secondary data. Secondary

data was soured from various published sources which includemagazines like Business India and Business World. Newspapers likeBrand Equity, Brand Wagon and The Times of India were also used.Annual Report of Cadburys and Nestle were also referred Data wasanalyzed manually.


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THE CHOCOLATE INDUSTRY

Emerging markets drive growth for malt and chocolate drinks

Malt- and chocolate-based drinks are often seen as relativelyunsophisticated 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 qualityis often poor. But improving sales in other countries will depend onfinding premium positioning.

Global retail volume sales of both malted and chocolate-based hot drinksreached956,702 tones in 2003, according to a recent report from marketanalysts Euro monitor, with Latin America alone accounting for overone third of total sales.

Indeed, Latin America accounts for two of the top three markets forchocolate-based drinks (Brazil and Mexico, the third being Spain), andmanufacturers are increasingly focusing their marketing efforts onyoung 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 powdersin new packaging, formats and formulas - often with new flavors. Theseproducts generally targeted consumers prepared to pay a premium,though some were aimed at low-income segments of the population,according to Euro monitor.


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Brazilian manufacturers also met consumer demand by offeringpremium chocolate-based products, helped by the fact that Brazilianconsumers are more aware of health issues than many of their Latin

American counterparts. Brazilian consumers often upgrade bypurchasing healthier chocolate-based products such as low-calorie anddiabetic-friendly alternatives, Euro monitor said, highlighting the 2003launch of Toddy Light by PepsiCo as an example of this trend.

Malt drinks, meanwhile, are most popular in India, which accounts for22 per cent of the worlds retail volume sales. They are traditionallyconsumed as milk substitutes there and marketed as a nutritious drink,

mainly consumed by the old, the young and the sick. Sales have alsobeen aided by improved retail and distribution in recent years, combinedwith a large child and youth consumer base, the report said.

India also recorded the highest growth (53 per cent in US$ terms) during1998-2003, again spurred by consumers trading up to value-addedproducts. In 2003, for example, Glaxo Smith Kline re-launched Horlicksfor 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 homemarket in the UK) Glaxo Smith Kline in fact accounts for 70 per cent ofmalt-based hot drinks, with India alone contributing nearly 60 per centof the companys global sales of the product. Other major playersinclude Cadbury Schweppes and Nestl.

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 ofstagnation and decline during 1998-2003.


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The US, for example, has seen a sharp decline in value sales of bothmalt- and chocolate-based drinks over the past few years, mainly asthese products largely remained outside the overarching consumer trend

for premium and healthy products. In fact, malt-based drinks have analmost negligible presence in the US, with manufacturers largely failingto attract the important child and youth consumer groups a categorymore interested in soft drinks.

The performance of malt- and chocolate-based drinks in Western Europewas more positive than that of the US, but nonetheless there was little inthe way of growth during1998-2003. A relative lack of innovation and

marketing activities, allied to demographic factors such as falling birthrates, saw important western European markets such as Germany recordmodest growth, according to Euro monitor.

The warmer winters experienced in Western Europe in recent years alsocontributed to the lower demand for chocolate- and malt based drinks.The UK experienced sharp decline of 13 per cent in retail volume termsin malt-based drinks and only moderate growth in chocolate drinks

during 1998-2003.

Looking forward, the emerging markets will, not surprisingly, continueto provide the best opportunities for growth in this category, Euromonitor suggests. Market such as Indonesia and Mexico are expected tosee strong growth in both malt- and chocolate-based drinks by 2008,with large youth populations and a rising number of middle classconsumers as the key driving factors.

Among major markets, China is forecast to be the fastest growingmarket in both chocolate-based (up 35 per cent by value) and malt-based(up 29 per cent by value) up to2008. Chinas booming economy along

with rising levels of disposable income and increased availability of


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quality products will encourage further consumption, the analystspredict. Following Chinas accession to WTO, multinationals are alsoexpected to penetrate the country further, driving up demand and in turn

prompting more local manufacturers to get involved in production.


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CHOCOLATE IN A BLOOM

Is a white bloom enough to put you off your chocolate? Scientists arehard at work to find out exactly how this bloom forms and how to stopit, as Emma Davies finds out .

Next time you reach out for your favorite chocolate bar you willprobably pay little attention to its fat crystals. However, should you be

unfortunate enough to peel back the wrapping to reveal a chocolatecovered in a mouldy-looking white bloom, and then perhaps you mightspare a thought for its crystal structure? The chocolate industry ploughsa 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 releaseproperties of the chocolate. Manufacturers are keen to invest in research,

using expensive techniques such as X-ray scattering and atomic forcemicroscopy (AFM), to help understand exactly how bloom forms andhow to stop it forming. With the average person in the UK eating 10kgchocolate each year(according to Cadburys confectionery review of1999), it is easy to see why the industry wants to create a perfectchocolate bar that stays temptingly glossy with a good snap.


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CHOCOLATE CRYSTAL

Crystals Cocoa butter, perhaps the most ingredient of chocolate, iscomposed of a mixture of saturated and unsaturated fats (triglycerides),

the relative proportions of which depend on the country of origin. Someof Unsaturated triglycerides in cocoa butter have low melting points,making it partly liquid at room temperature. Adding milk fat tochocolate raises the level of unsaturated triglycerides and increases theproportion of liquid fat, which explains why milk chocolate is so muchsofter 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 toVI (form I being the least stable) and aims to get the cocoa butter tocrystallize in a stable form V to give the chocolate a glossy appearanceand a good snap.

SURFACE SCIENCE

The surface of a good quality chocolate contains lots of tiny fat crystalsthat can reflect light, giving it a glossy appearance. Any cracks orcrevices (or even fingerprints) on the surface of the chocolate can


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encourage small, spiky fat crystals to grow. When the crystals reach asize that can diffuse the reflection of light from the surface they give it adull appearance.

Although the exact mechanism of bloom formation remains disputed,most scientists agree that it involves fat crystals transforming from formV to form VI. Because form VIcrystals is more stable than form V,chocolate should inevitably form a bloom at some stage, unlesspreventive measures are taken.

Richard Hartel at the department of food science in the University ofWisconsin, US, believes that although the form V to form VI

transformation always accompanies bloom formation, it does notnecessarily cause it. With John Bicknell at Mars in New Jersey, US, hehas analyzed a model chocolate using X-ray spectroscopy, to identify thetypes of fat crystals that develop. Their model chocolate containsamorphous sugar particles -created by spray drying a mixture of cornsyrup and sucrose and sieving the mixture to ensure that all the particlesare 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, theresearchers were able to see clearly the changing polymorphic forms ofthe cocoa butter. They also used a colorimeter to measure the amount ofwhite bloom that developed on the chocolate samples, enabling them tolink changes in polymorphic form to the onset of visual bloom.

They discovered that the form V to form VI crystal transformation tookplace not only in all of the samples that developed a visual bloom butalso in some of the samples that remained bloom-free. Hartel says thatmostpeople thought they understood bloom formation in chocolate to be


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the polymorphic transition of cocoa butter. What our results show is thatthe polymorphic transition indeed occurs, but that something else isneeded to create visual bloom.

Hartels research team has come up with a theory to explain how visualbloomdevelops in well-tempered chocolates fat. They suggest that, firstof all, liquid fat must be able to get to the surface of the chocolate. Thepumping action required to do this could be induced by temperaturefluctuations, which cause the fat crystals to melt and then tore-crystallize. Fat crystals with high melting points dissolve in this liquidfat and are taken along to the surface where they can re-crystallize as

spiky crystals. Any cracks and crevices can help the liquid fat get to thesurface. The way that the spikes grow from the surface of the chocolate,says Hartel, is open for debate although the nature of the sites availablefor growth undoubtedly plays a role in their formation.

An interesting and unexpected result emerged from Hartels study: theamorphous sugar used to make the model chocolate seemed to be able toprevent a visual bloom developing. When the researchers looked at the

samples through a microscope, they saw that the fat crystals on thesurface of the model chocolate were smooth, rounded and flat, causinglittle more than a slight dulling of the surface. These crystals weremarkedly different to the spiky, needle-like crystals of real chocolatethat can take away its gloss.

Hartel thinks that, because the smooth, spherical sugar particles packtogether more tightly than the irregular-shaped sugar crystals in

commercial chocolate, this reduces both the rate of liquid fat migrationand 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


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the sugar picks up moisture easily and gives a gummy texture in themouth.

By adding high melting point milk fat fractions to their chocolatemix,

Hartel and his team have been able to delay substantially the transitionfrom form V to form VI. Indeed, milk fat is commonly used to inhibit fatbloom, and skimmed milk powder is better than whole milk atpreventing bloom formation.

How milk fat reduces bloom formation remains a mystery, but minorlipids in the milk fat (e.g. mono- and triglycerides) are generally thoughtto influence the kinetics of cocoa butter crystallization. The denser

crystal structures that form could potentially stop liquid fat from movingto the surface and re-crystallizing. The minor lipids could also affect theamount and type of high-melting lipids thatdissolve in the liquid fat andcould even slowdown the transformation of crystals from form V toform VI. Another theory is that because milk fat can decrease the rate offat crystallization, the chocolate contracts lesson cooling. Fewermicroscopic cracks appear, reducing the likelihood of liquid fat reaching

the surface.

Hartel predicts that understanding how the chocolate microstructureinfluences the rate of bloom formation will ultimately allow thechocolate manufacturer to produce high quality chocolates withenhanced resistance to bloom.


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CHOCOLATE INDUSTRY IN INDIA

Chocolate industry in India has a size of 20000 tones and is worth aboutRs 400crores. The chocolate market has been growing by nearly 35 %.

However there has been some slowdown in the last two years. Thechocolate market is predominantly urban with coverage of 95 %. Thesales volume has decreased by 5% in the last year and the chocolatemarket had declined with the average consumption coming down by25% from 16000 tones to the current level of125000 tones Chocolateconsumption in India is extremely low. Per capita consumption isaround160gms in the urban areas, compared to 8-10kg in the developed

countries. In rural areas, it is even lower. Chocolates in India areconsumed as indulgence and not as a snack food. A strong volumegrowth was witnessed in the early 90s when Cadbury repositionedchocolates from children to adult consumption. The biggest opportunityis likely to stem from increasing the consumer base. Leading players likeCadbury and Nestle have been attempting to do this by value for moneyofferings, which are affordable to the masses. Cadbury, a subsidiary ofCadbury Schweppes is a dominating player in the Indian chocolatemarket with strong brands like Dairy Milk, Five Star, Perk, and Gemsetc. Dairy milk is the largest chocolate brand in India. Chocolates &Confectionery contribute to 75% of Cadburys turnover. Cadbury alsohas a strong brand Bourn vita in the malted health drink category, whichaccounts for 24% of turnover. The parent Cadbury Schweppes during


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2001 made an open offer for acquiring the 49% non-promoter holding inthe company. It has already acquired over 90% of the equity andproposes 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 clair 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 chocolatesegment of the market.

The CHOCLATE CHRONOLOGY

1956 - Cadbury milk chocolate launched

1957 - Cadbury 5 star launched

1970 - Cadbury clairs launched

1974 - Amul chocolate launched

1986 - Cadbury milk chocolate re-launched as Cadburys dairy milk


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1990 - Cadbury launches premium chocolate brand overtures1991 -Nestle chocolates launched. Cadbury counters nestles entry with all silkand unfurls huge consumer promotion campaign. Cadbury diary milk

revamped. Nestle launches Milky bar: Cadbury counters creamy bar1994 - Cadburys real taste of life and 5 star reach for the stars campaignlaunched clairs revamped and renamed diary milk clairs

1995 - Cadbury launches perk, preempting nestles Kitkat Overtures iswithdrawn

1997 - Cadbury launches truffle

1998 - Cadbury launches Gold, Picnic (all these launches took place inthe month of December i.e. Dec 96 and dec-97 to be more precise inkeeping with the company policy of launching new brands at the newyear eve. However they hit the market at the month of January only.


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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 branddoesnt have any international lineage and is miniscule in terms ofmarket share in chocolates and compared to the two other playersCadburys and nestle.

Amul had an extremely focused positioning of a gift for someone youlove albeit not target to a single group however Amul failed to capitalizeon it seemingly due to the following reasons.

Chocolates have never been Amuls main products and hence there waslack of organizational commitment. The company has never reallysupported or pushed its chocolates. This reflects on the drastic cut backon advertisement expenditure for its chocolates which has negativelyaffected its top of the mind awareness level.

.

The company has enjoyed high customer equity and pulls in butter andso it offered a very low retailer margin of 3.1 % as against the industryaverage of around 7-8 % Amul tried the same technique in chocolatestoo. However since it was neither leader nor enjoyed a customer pull likein butter the company got very little support for its chocolates.


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Amul chocolates have shown a very limited product differentiation andhave not really given any important additional benefit to the consumers.The product line also suffered in comparison to the portfolios of thecompetitor 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


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by love lints. Nestle has been increasing its adverting figure the latestbeing in 2002 RS 25 crores.

Major Chocolate Products

Crunch: Crunch Chocolate is one of the best-loved foods everywherein the world. It is one of lifes little pleasures. The attractive tastes and

textures of chocolate and chocolate products delight the senses of

allages.Introduced in 1938,

Today Crunch is Nestls third largest confectionary brand sold in about

40 countries worldwide. Nestl Crunch is available in the followingvarieties: Nestl Crunch, Nestl White Crunch, Nestl Crunch Pieces,Nestle Bunch Crunch and new products Nestl Crunch with caramel andNestl Crunch assorted minis.

Launched in 1938 in the USA, Crunch was the first chocolate bar tocombine milk chocolate and crunchy crisps. Crunch is a uniquecombination of smooth Nestle chocolate and crisped rice, which deliversan exciting eating sensory experience of distinctive taste, texture andsound.

Kitkat: Kitkat Chocolate is one of the best-loved foods everywhere inthe world. It is one of lifes little pleasures. The attractive tastes and

textures of chocolate and chocolate products delight the senses of allages. The product, developed as Wafer Crisp, was initially launched inLondon, UK in September 1935 as Row trees Chocolate Crisp. Itbecame Kitkat in1937, two years before the Second World War.


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Within two years of launch Kitkat was established as Rowntrees leading

Product, a position that it has maintained ever since. During the SecondWorld War Rowntree Kitkat was seen as a valuable wartime food andadvertising 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 plain chocolate covering due to a shortage ofmilk following the war. This blue packaging was withdrawn in 1947when the standard milk chocolate Kitkat was reintroduced.

No one can be absolutely sure where the name Kitkat came from but it isbelieved to be from the famous 1920s Kitkat Club in South East Londonwhich had some influences. As the building had very low ceilings, itcould only accommodate paintings which were wide and not very high.In the art world, these paintings were known as Kats. Its believed thatKitkat derived its name from paintings, which had to be snapped off tofit into the rooms with the low ceilings.

Reinventing Nestle

A detail analysis by the companys management to turnaround nestle

Top line growth, bottom-line contribution, difficult market situations.Nestle India trademark `renovate and innovate strategy is churning withaction. Catalyst finds out more.


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JUST how much can a housewife influence an Rs 1,688-crore company?Shes someone whose needs we anticipate

Take, for example, the exhaustive experimental kitchen and sensory

laboratory at the plush corporate headquarters of Nestle India at Gorgon.Its obviously a first-of-its-kind facility and research centre for any foodcompany in India.

The objective? Consistent product development. Also, achieving apreference ratio of60:40 for every Nestle product as opposed tocompetition. The kitchen comprises a panel of application groups and 15professional 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 ofMaggi noodles (curry and tomato), Fruitips candy, besides newformulations of Nescafe and Bar One chocolate in recent months. "Andthis research model isnt a substitute for consumer research, or regulartest-marketing with the real consumer.

Based on an international research and development model proprietaryto Nestle SA, the kitchen is just one component of the Rs 3,000 croreallocated for a centralized research and development cell for the foodsconglomerate worldwide, against Rs 2,500 crore spent on the sameearlier. Another component is the third in a series of multi-cuisine recipecollections cutting across all Nestle products, in place of the two earlierones which centered on Milkmaid and Maggi.

The Nestle `renovate and innovate mantra, meanwhile, is on in fullswing.

Four existing brands - Nescafe, Milo, Bar One chocolates and Maggisuper seasonings -have been re-launched in new tastes, packaging and


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pack sizes. And another variant of Kitkat - white chocolate - has justbeen rolled out.

On the launch block a month from now are 10 new product variants

spread across the culinary and confectionery segments. The restructuringexercise of Excelcia Foods Ltd -the joint venture company in whichNestle acquired management control following Dabur Indias decision toexit non-core areas - has neared completion. Following that, Nestleproposes to enter fresh product categories such as biscuits in theforthcoming months.

Beverage Partners Worldwide (BPW), the joint venture between Nestle

SA and the Coca Cola Company too is looking to tap the Indian marketfor possible coffee and tea variants.

But its the food majors most keenly awaited venture - ice-cream - thatgot the FMCG industry abuzz. They are very much interested in thedomestic ice-creams market. Of course, that requires putting in place acold chain, besides stabilizing its milk and UHT businesses first.

Meanwhile, though threes no confirmation from Nestle, the industrygrapevine suggests that Nestle has begun negotiations with Vadilal formanufacturing and marketing ice-cream.

Another category where Nestle could give Hindustan Lever a run for itsmoney is candy. The company has recently rolled out a candy brand bythe 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 intwo flavors - peach and lemon. In an economy that in a


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downturn , Nestls performance has been impressive. Net sales for thirdquarter this year were Rs 533 crore against Rs 469 crore in the sameperiod 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 quarterincreased by 24.6 per cent. Sales during the first nine months of the yearimproved by 17.4 per cent, with a net profit increase of 28.6 per centover the same period last year.

Despite excellent top line and impressive bottom-line contribution, theuncertain 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 andadvertising expenditure on new launches would dampen margins andthat it would take time before the new products begin contributions toturnover or profitability.

While the success of the new variants is yet to be gauged, Nestls star

performers remain Nescafe, baby food Cerelac, Maggi and Every day.Nestls biggest strength lies in creating brands with distinct positioning.

Hence, Nescafe is generic to coffee, just the way Maggi has becomegeneric to instant noodles. Maggi noodles face no direct competition,with Top Ramen barely managing to hold ground in the instant noodlescategory. Another winner has been Maggi ketchup, which, FMCGanalysts 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 hasnt been able to handle Indian product categories suchas 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-


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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 themarket, Nestls Kitkat, Bar One, Munch and Classic have beenperforming reasonably. Two recent entrants to this category have beenChoc Stick and Milky bar Chocolate, the latter soft chewy fudge instick format priced at Rs 5.

In the chilled dairy segment, Nestle dahi has recently been extended toMumbai and Pune. While the market for this continues to be very smallwith only Mother Dairy and Amul giving Nestle competition in theorganized sector, milk in cartons is a concept thats yet to go down wellwith the Indian consumer. Apart from being expensive, the Indianconsumer is still not ready to consume milk without boiling it. Andresearch has proved that three-fourths of Indians prefer hot milk. On the

pricing front, Nestle continues to target the premium segment. Theymake inroads into markets which represent not only potential forconsumption, but also potential for bottom-line. Nestls premiumpricing strategy is a strength that worked in most categories it operatesin.

Fruitips, therefore, occupies price points of 50 paisa and Re 1 per unitagainst HLLs Max which attacks the unorganized sector with an

extremely aggressive 25 paisa per unit price.Its the association with quality that works in Nestls favour in mostproduct categories. That this hasnt really worked in case of Nestlsbottled water brand, Pure Life, is more distribution-related, feel industrywatchers. Pure Life, launched earlier this year at a price point of Rs 12,


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has been a lukewarm performer compared to Coca-Colas Kinley andPepsi Aquafina besides, of course, market leader Bisleri. Discounting atthe 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 Indias top 200 ad andmarketing spenders, Nestle was the countrys sixth largest advertisingspender in 2000-01, recording an ad spend of Rs 128.46 crore whichamounts to a 13.6 per cent growth over the previous year.


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Nestle Business

Nestle has a presence in the following categories - Baby Food, Milkproducts, Beverages(Coffee, malted beverage), Chocolates &

confectionery and other processed food products.

Category wise turnover breakup and growth

Beverages

Beverages like coffee, tea and health drinks contribute contribute to

about 30% of Nestls turnover. Beverage sales registered a 15% growthduring 2001. While about 14% of sales come from domestic market,exports contribute to about 16% of sales.

Nestls Nescafe dominates the premium instant coffee segment.

Nestls other coffee brand Sunrise has also been re-launched under theNescafe franchise to leverage on the existing equity of the brand. Nestlehas focused on expanding the domestic market through price cuts and

product repositioning. However it has been losing share in the domesticmarket, where it has a 37% market share. Milo, a brown-maltedbeverage was launched in 1996. It has an estimated volume share ofabout 3% in the malted food drink segment. Nestle has launched non-


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carbonated cold beverages such as Nestea Iced Tea and Nescafe Frappeduring 2001.

Nestle is one of the largest coffee exporter in the country. Key export

market is Russia, besides Hungary, Poland and Taiwan. Nestle hasreceived an award for highest export ofinstant coffee and highest exportof coffee to Russia and CIS for FY00 and FY01.Turnover contributionfrom exports registered a 17.5% volume growth in F12/01.Nescafe salesto Russia accounts for 80% (Rs2.5bn) of Nestls Rs3bn exportturnover.

Infant food/ milk products

Milk based products and baby food contributes to 43% of Nestls

turnover. For ensuring regular procurement of good quality milk, Nestlehas developed a network around its Moga factory for collection of freshmilk everyday from the farmers. Nestle has a dominating 87% marketshare 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 andweaning cereals, enabling the company to command a price premium .

Other milk products include dairy whiteners (21% market share) soldunder the Every Day and Tea Mate brands, sweetened condensed milkand ready to cook mixes for traditional Indian sweets sold under theMilkmaid 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, Curdand Butter. Huge investments are being made in building a diversifieddairy business and the distribution infrastructure for the same. Milkproducts sales registered a 10.6% yoy growth during 2001.


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Chocolates & Confectionery

Nestle forayed into chocolates & confectionery in 1990 and has cornereda fourth share of the chocolate market in the country. The category

contributes 14% to Nestles turnover. It has expanded its products rangeto all segments of the market The Kitkat brand is the largest sellingchocolate brand in the world. Other brands include Milky Bar, Marbles,Crunch, Nestle Rich Dark, Bar-One, Munch etc. The sugarconfectionery portfolio consists of Polo, Soothers, Frootos and Milkybarclairs. All sugar confectionery products are sold under the umbrellabrand Allens. Nestle has also markets some of its imported brands like

Quality Street, Lions and After Eight. New launches such as NestleChoco Stick and Milky Bar Choo at attractive price points to woo newconsumers. Chocolate confectionery sales registered a strong 21.5% yoygrowth in 2001aided by good volume growth in Munch, Kitkat andClassic sales. Nestle re-launched Bar-One during the year.

Culinary products

Ready to cook food/ cooking aides are sold under the umbrella brandname Maggie. Culinary product account for about 14% of Nestlsturnover. Maggie is the market leader in the noodles (45% market share)and the ketchup (43% market share) categories. Other products, soldunder the umbrella brand Maggie, are ready-to -cook gravy/sauces,soups, seasonings, as well as traditional Indian foods such as pickles andinstant snack mixes. New taste variants are continuously launched to addvariety 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 distributionefficiency. The Dairy business is being expanded and is expected to


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drive growth in the long run, although short-term profitability may beimpacted in the investment stage. The companys entry into the mineralwater segment is a concern, as the segment is already overcrowded and

the company faces stiff competition especially from the Colamanufacturers. Acquisition of an established brand could catapultNestls position in the segment. In categories like beverages, culinaryproducts and chocolate confectionery, the company is looking at drivinggrowth through launch of smaller SKUs, thus enabling affordability to awide section of the population.

Earnings sensitivity factors

Success of new category launches (Milk and Mineral Water) whichinvolve considerable investment for promotional schemes and ad-spendand yield returns only after a few years.

Continued exports to Russia, Nestls 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 ofagricultural 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, duringthe year. Export Sales grew by 16% in value and 32% in volume. Profitafter Tax grew by 20% fromRs985mn to Rs1186mn.


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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 onflagship brands, contributed significantly towards the above profitability.The favourable impact of the commodity prices during parts of the yearand the product mix, also contributed significantly towards improvementin profitability.

During the year, the Company retired certain fixed assets from activeuse 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 ContingencyProvision with further amount in 2000 of Rs295mn (net) to provide forvarious contingencies resulting from matters mainly relating to issuesunder litigation, dispute and management discretion.

Your Companys 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 andyour Directors are hopeful of continued good results. However, with thecurrent level of inflation and economic indicators pointing towards asluggish market, it would be difficult for the Company to maintain thelevel of earnings unless the Company takes price increase on finishedproducts which would depend on market conditions and competitor

activities.


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2. Exports:

Export Sales for the year at Rs2655mn have grown by 32% in volumeterms, over the last year. This has been mainly due to the higher exports

of NESCAFE to Russia, buoyant sales of Instant Tea and goodperformance of the culinary products. However, depressed green coffeeprices in domestic and international markets kept the export realizationslow. Measures taken for tapping new market and product opportunitieshave also contributed to this growth. The export competitiveness ofvalue added instant coffee manufactured in India continues to beadversely 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 perequity share out of undistributed profits of the previous financial years,was paid during 2000.Your Directors are pleased to recommend to theAnnual General Meeting a final dividend of Rs6.00 per equity share.

The dividend, if approved, shall be payable to the shareholdersregistered in the books of the Company and beneficial owners furnishedby the Depositories, determined with reference to the book closure from16th June, 2001.

4. Business Development:

In line with the Companys objective to provide superior value in everyproduct category and market sector, efforts were focused to provide

quality products to customers at attractive price points. While theCompany continued to generally maintain price points across all theproduct categories, the pricing of some products were also reduced tomeet consumer expectations.


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MAGGI Noodles re launched in 1999 in response to popular consumertaste preference, continued to boost sales during 2000 in the culinarysegment. New flavour profiles were introduced in the bouillon business.

The market continued to react positively to the initiatives taken in therecent past to grow the consumption of instant coffee in the domesticmarket. The new NESCAFE pricing and bringing the popular SUNRISEbrand under NESCAFE umbrella to benefit from its associationcontinued to strengthen the category. NESCAFE Frappe a blend ofcoffee, 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 preferencefor cold drinks. NESCAFE Frappe has received encouraging response.

In the area of Chocolate and Confectionery NESTLE MUNCH Crispwafer biscuit with chocolayer, which was launched in select marketsin1999, was rolled out nationally during 2000 and had good growth.Continuing with the efforts to meet consumer expectation on pricepoints, the pricing of KITKAT was also reduced during the later half of

the year. Moulded Chocolates and clairs also showed satisfactorygrowths. This has also helped in improving the infrastructure anddistribution reach of the Company in the Chocolate and Confectionerysegment.

In the milk and cereal categories, EVERYDAY Dairy Whitener andcereals had satisfactory growth. NESTLE Growing up Milk; a newproduct offering superior nutrition, launched in 1999 was rolled out

nationally during the year.

Your Company has also entered the Chilled Dairy business with therecent launch of NESTLE Dahi in select cities of the North. The initialresponse has been very encouraging and your Company is working on


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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 consideredsatisfactory are under constant review for corrective action.

Your directors are pleased to report the implementation of the two newprojects undertaken by the Company during 2000 packaged milk andpackaged drinking water. Both the projects seek to leverage theworldwide experience and knowledge of Nestle Group, Switzerland whoare the leaders in these product categories.

In line with its objective of long term growth and entry in significantvalue added food segments, the Company forayed into the Ultra HeatTreated (UHT) liquid milk business in April 2000 by launch in Mumbai.Packaged UHT milk seeks to address growing consumer concerns onadulteration and product safety and brings with it reliability, completehygiene and safety. It offers convenience to the consumer, in terms of a

shelf life without any deterioration in the product quality and easy usagewithout refrigeration or boiling. UHT Milk has received encouragingresponse and has been rolled out in select cities of the West, South andNorth.

The project for bottled water was implemented at the Samalkha factoryand water launched in February, 2001 under the brand NESTLE PURELIFE and is available in select cities. NESTLE PURE LIFE contains a

balance of essential minerals and a light pleasant taste and ismanufactured under stringent quality control. The packaging hasbeenspecially designed to maximize safety for the consumer and protect frompossible tampering.


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The new categories like bottled water and liquid milk are lower margincategories and will require considerable investments. Your Companysees them as strategic and as requiring support on a sustained basis.

The two new Sales Branches at Bangalore and Chandigarh set up in1999 to further strengthen the flexibility of the Sales organization andfor speedier response to the market conditions, have started showingpositive results during the year. With a view to expand distribution andincrease penetration in smaller towns, a concerted drive was under takento make products affordable and accessible to consumers. An initiativetaken includes more penetrative pricing and smaller packs covering

brands such as EVERYDAY Dairy Whitener, MAGGI Noodles, MILOChocolate Energy Drink and NESCAFE Instant Coffee. The responsehas been encouraging.

The Alternative Trade Channel unit created in 1999 undertook initiativesto tap the opportunities for out of home consumption, particularly forinstant coffee and chocolate and confectionery and to extend availabilityof 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 ofthe vending machine network and new consumption opportunities forChocolates and Confectionery were identified and developed in areaslike 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 salesand production.

To support the growth plans and distribution strategy, andsimultaneously improve the operational efficiency, the thrust onstrengthening supply chain continued to receive attention during the


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year. In addition to consolidating the improvements made over the lasttwo 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, despitesteep increases in cost of fuel.

c) Sustained improvement in customer service level to improve productavailabilityacross 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 newHead Office has been designed to provide the employees with workenvironment that enhances white collar productivity. The new Officedesign seeks to stimulate improved internal communication and enhancetransparency in working. State of the art facilities for training, tasting,

and a fully equipped test kitchen, have been made available that willfacilitate the efforts for innovation and renovation.


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6. Technology from Nestle:

The Company being a part of Nestle Group, Switzerland benefits fromits access to proprietary technology, technical and non technical

expertise and the fruits of the extensive centralized Research andDevelopment. The diversified knowledge and expertise have contributedsignificantly to the operations of your Company over the years. Some ofthe key areas, which have benefited are:

a) Manufacture of products of truly international quality. Productquality, which encompasses taste, appearance, convenience and overallvalue for money, is a critical factor in consumer choice and in a

competitive market like India could determine the very survival of theproducts. The high quality of products of your Company is borne out bythe position and image the products enjoy in the market and yourCompany continuing to be a leading exporter of value added InstantCoffee 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 pointTechnology for Cocoa based products implemented during 2000 whichwould improve product quality and competitiveness and the MUCHtechnology for instant coffee manufacture implemented during 1999,which would enhance the productivity by increased extraction of coffeesolids from coffee beans.

d) Implementation of project for bottled drinking water.

e) Product innovation and renovation some illustrations are MUNCHCrisp wafer biscuit with chocolayer; Nestle Dahi; Nestle Milk (UHT);


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Junior Foods; NESCAFE Frappe; KITKAT Milky; new and improvedflavours profiles of bouillons; and re-launch ofMAGGI 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 InformationTechnology, which has enabled the business of your Company to growand sustain.

I) providing assistance by way of improved technical and quality

standards to local manufacturers, who have contract manufacturingarrangements with your Company.

Your Directors are pleased to report the signing of the General LicenseAgreement with the collaborator providing license of all intellectualproperty rights for the products manufactured and sold by the Companyusing such intellectual property. The General License Agreement whichis effective 1st January, 2001 aligns the Company with the globalpractice of Nestle Group and would be beneficial to the Company.Undoubtedly, without the know-how provided and ongoing technicalassistance, your Company would have found it difficult to achieve theprogress that has been attained. Your Directors note with satisfactionthat being a part of Nestle Group, the ongoing technology transfer andaccess to the fruits of extensive Research and Development andauthorization to use internationally famous brands, would help the

Company significantly in its efforts to remain competitive in the market.


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7. Moga Milk District:

Your Company which started milk collection in Moga in 1961 with adaily collection of510 kg of milk from 180 farmers has expanded itsoperations to an average daily collection of 540,000 kg of milk with totalyearly collection of around 200 million. Kg of milk from nearly 81,000farmers in its milk district. The Company owns no farms or cattle butthrough its Agricultural Services worldwide initiative of Nestle Group,works closely with the farmers to obtain the highest quality rawmaterial. Recognized as Partners in Progress", Nestle Agricultural

Services at Moga factory has contributed its mite to the up-liftment ofthe milk district. Some significant steps taken by the Company in therecent past are:

a) Installation of farm coolers.

b) Milk Collection Centers provided with new and improved equipmentto enable on thespot 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 andsupport to the dairy farmers in areas such as veterinary services, breedimprovement; 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 Companys commitment tonurturing quality, technology and improved systems in the communityand the companys initiatives to improve living in the region.


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9. Information Technology:

Your Company continued to make significant investments in theInformation Services of Technology area to cope with the growing

information needs necessary to manage operations more effectively in acomplex supply chain environment.

10. Community Health:

Recognizing its responsibility to the community in which it operates, theCompany over the years has been taking initiatives in the area ofcommunity 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 andhygiene 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 employeesand their families covering vaccination, awareness programmes andhealth check up.


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CADBURY: THE LEADER

Cadbury, a subsidiary of Cadbury Schweppes is a dominating player inthe 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 DairyMilk. The company is pushing the gift in segment,

Through occasion linked gifts. Chocolates contribute to 64%ofCadburys turnover. Confectionery sales, accounting for 12% ofturnover, is contributed largely by clairs. The company attemptedexpanding its confectionery product portfolio, with launch of sugarbased confectionery Googly and Frutus, without much success. Cadbury


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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 around160gms in the urban areas, compared to 8-10kg inthe developed countries. In rural areas, it is even lower. Chocolates inIndia are consumed as indulgence and not as a snack food. A strongvolume growth was witnessed in the early 90s when Cadburyrepositioned chocolates from children to adult consumption. The biggestopportunity 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 significantcompetitor with about 20% market share. Key competition in thechocolate segment is from co-operative owned Amul and Campco,besides a host of unorganized sector players. There exists an even largerunorganized market in the confectionery segment. Cadbury holds 4% ofthe market share in this segment. Leading national players are Nutrine,Parrys, Ravalgaon, Candico,Parles, Joyco India and Perfetti.

The MNCs such as Joyco and Perfetti have aggressively expanded theirpresence in the country in the last few years.


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Malted food drinks: Category consists of white drinks and browndrinks. White drinks account for almost two-thirds of the 82,000 tonmarket.

South and East are large markets for food drinks, accounting for thelargest proportion of all India sales. Cadburys Bourn vita is the leader in

the brown drink (cocoa based) segment. In the white drink segment,Smith Klines Horlicks is the leader. Other significant players are Heinz(Complan), Nestle (Milo), GCMMF (Nutramul) and other SmithKlinebrands (Boost, Maltova, Viva). Cadbury holds 14%market share in fooddrinks segment.

Performance: Despite tough market conditions & increased competitionCadbury managed to record a double digit (11%) top line growth in

2000. The company achieved volume growth of 5.2%. This wasachieved through innovative marketing strategies and focusedadvertising campaigns for flagship brand Dairy Milk... Net profit rosesharply by41.8% to Rs520mn. Reduced material and energy costs andtighter control over working capital and capital expenditure enabled the


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company to improve profitability. Company added 8mn new consumersand 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% valuegrowth). Coupled with inflationary price increases, this could translateinto a top line growth of 14-15%. This target also appears difficult toachieve given the consumer slowdown and the fact that the company isdependent on a single category Chocolates to drive growth. In themalted food drinks category the company faces stiff competition from

SmithKline Beecham, and market share has been stagnant at around14% despite the companys efforts and investments in repositioning thebrand. Efforts at expanding confectionery portfolio have also not yieldeddesired results. The management has declared its intention to focus onlyon clairs (which form a major portion of its 4% share in theconfectionery segment) for the time being in this category. In chocolatestoo, the onus remains on the 2-3 key brands such as CDM, Perk and

clairs, which have supported growth in the past.


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Cadburys Ad Campaign

Kuch meetha ho jaye suggests Cadbury India, its brand ambassadorAmitabh Bachchan smiling down the hoardings lined along Mumbais

Marine Drive right down to the companys corporate head office AtMahalakshmi.

While the chocolate major is waiting for Diwali to see a turnaround in itsbusiness after the worms controversy, at the moment its all aboutdriving growth for the category which has seen a decline since the firstquarter of this year.

Being the market leader in chocolates with a 70 per cent share, thecompany has attempted to stretch the boundaries within chocolate

confectionery. It has also been adventurous in unleashing a brand newcategory within chocolate early this year. Introducing the concept ofsweet snacking, it launched Cadbury Bytes in the south with thepositioning `Snacking ka meetha funda. The product is a crunchy waferpillow with a choco-cream centre and is being rolled out nationally.


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Explaining the need to introduce this new category, Bharat Puri,Managing Director, Cadbury India, says, "While we were sure of ourcore competencies, there was need for innovation to deliver double-digit

growth. What we found was that we were under-represented in the areaof snacking on the go and that there was a need for a light crunchysnack." While entry into salted snacks was ruled out, sweet snacks werethe obvious choice, and Bytes is unique to the chocolate majors Indianportfolio.

Getting the right product and packaging was a challenge for thecompany. It has sub-contracted the product to get the volumes and is

poised for a national launch. Adds Puri,"After all this was the firstcategory anywhere in the world that Cadbury was entering and we didnot have the expertise. So the best way was to test-market the productand today we find that it has already bagged five per cent of thechocolate market."

The company has no apprehensions of cannibalization of its chocolatebrands. It believes that while its chocolates are more of indulgence

products, Bytes is about snacking when one is hungry and can be treatedas a snack in between meals.

In the past when Cadbury tried out a biscuit brand, Chocobix, there wasfear about some amount of cannibalization. After all, it was simply abiscuit coated in chocolate, and was perceived to be another chocolatebrand in Cadburys portfolio.

Stresses Puri, "Cadbury Bytes is adjacent to chocolates and in themarkets that we have launched it, there has been no cannibalization.Chocolates are largely an indulgence product while Bytes is aboutbetween-meals snacking. A product which is consumed when one isfeeling hungry or peckish."


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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. Cadburys own experiences

have led it to withdraw certain brands but now withWarners Lambertsinternational kitty under its fold, there are chances of reconsidering thesegment once again.

"Through the acquisition of Warner Lambert, there is a great set ofbrands already available to us. We are still examining which are the rightbrands for the Indian market,"says Puri. Cadbury has already identifiedHalls as the strongest brand in WarnerLamberts portfolio and re-

launched the brand early this year. Adds Puri, "Halls was not doing wellfor a while so we re-launched it this year. When you have the existingassets, it is necessary to get them right first. Halls is the first brand thatwe have revived and it is now doing well."

In April 2003, Cadbury Indias foreign parent acquired Pfizers interestsin 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 CadburyIndia, whose confectionery brands include clairs and Googly. Butinstead 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 nochange in the status of its other brands. Chiclets had been discontinuedlong before it belonged to Cadbury and Clorets continues to sell with a

small franchise. But now Cadbury is looking closelyat Warner Lambertsgums portfolio (it is one of the worlds largest gum manufacturers) and isconsidering its viability for the Indian market. Sugarless gum brandssuch as Dentyne Ice and Trident White have been known for their


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functional benefits worldwide but steep pricing may be a deterrent totheir 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 evaluatingwhether there is a market for them in India and whether it is going to beworth our while," says Puri.

The confectionery market may be huge in volumes but making moneyon it remains a tough task with its low margins. Governed by pricepoints, one can sell at only at a Re 1or 50 paisa unit price. "The issue isnot of garnering volumes but making money out of those volumes. The

offer should be one which can get you both top and bottom lines, "statesPuri. Having shifted focus from Googly, Cadbury had been tastingsuccess with it sage-old clairs which continue to bag almost 50 per centof the market.

"There is scope in the market. Our clairs has been growing and this hasbeen evident in our past numbers," claims Puri. At the same time the

sugar confectionery market is highly competitive and its all aboutfinding the right consumer proposition and a business model that candeliver both top line and bottom-line growth.

In spite of the new categories being explored by Cadbury, its star brandremains Cadbury Dairy Milk (CDM) which continues to corner almost30 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 wasrejuvenated as a crunchier wafer while CDM came up as a white-and-brown variant in the market.


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"The chocolates category thrives on excitement. Its all about giving theconsumer 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 itsconsumers the real taste of chocolate. Delite has added flavours such asstrawberry and mango and is not expected to encroach upon Bourn vitas

shares. According to Puri, "There is still a large section of people whodo not add anything to milk. This will apply to children for whom milkis a problem and having an additive will make it a pleasurableexperience."

Making changes in its distribution network, Cadbury split its sales andmarketing team between its mass (confectionery) and core brands lastyear. "Chocolates needed to get retailed at larger and better outlets whileall the products below Rs 3 needed a different distribution network,"says Puri. Today Cadburys distribution network reaches out to six lakhsoutlets each for its confectionery and chocolate brands.

With the worms episode behind it, there are other issues bothering the

company, especially which of the rising input costs of cocoa sugar andmilk. Although Cadbury has been able to maintain prices, it is stillgrappling with the upward trend in prices for its basic raw materials. Butits challenge remains that of growing the chocolate market in spite of theodds. Posting a turnover of Rs 729 crore last year, Cadbury is waitingfor Diwali to make a turnaround for both itself and the category whichhas been through troubled times.


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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 shouldnot 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.


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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 Perkchocolate, 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 Rs15.

Cadbury has embarked on a strategy which involves increasedconsumption of its products through enhanced reach, affordability andvisibility, which it feels can be attained by creating new markets,widening the depth of its distribution network and working towards acomprehensive portfolio with brands across all price segments.

On the distribution front, the company aims to increase the number of itsdistribution outlets from the present 4 lakhs to 5 lakhs by the year 2000.

To attain the objectives of affordability, over the past two years Cadburyhas been changing its product portfolio from pure chocolate items to


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confectionery which includes caramel, nuts, raisins and wafers. The aimis to bring down the price line and enter other markets than the purelyurban ones.

In line with this, it launched Googly in early 1997, and followed it upwith products like Mocka and English Toffee.

The strategy of the company has been to launch one major product andfollow it up with smaller products, for instance, the launch of Picnic wasfollowed by Cadbury Gold and a couple of sugar confectionerylaunches.

Intense competition from Nestle is one of the reasons Cadbury hasreworked its product range and made efforts to enter the mass productsegment. In 1998, the company moved into smaller sized versions ofDiary Milk and Perk and found to its delight that the introduction ofeconomy priced models led to more people eating chocolate. In the sameyear, small packs increased chocolate volumes of Cadbury by 19 percent 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 22per cent, and sugar confectionery 7 per cent.

Nestle, with a 20 per cent share in the chocolates market, is expected torespond with Munch, a chocolate brand meant to counter Picnic.


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Cadburys Business

Cadbury dominates the Indian chocolate market with a 65% marketshare. Besides, it has a 4% market share in the organized sugarconfectionery market and a 15% market share in milk/ malted foodssegment.

Changing product mix

Future strategy

Maintain dominance in chocolate confectionery and market leadershipin 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 clairs One new major product launch every year


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Chocolates and confectionery products (75% of turnover)

For more than five decades now, Cadbury has enjoyed leadershipposition in the Indian chocolate market to the extent that Cadbury has

become a generic name for chocolate products. Cadbury has leadingbrands in all the segments viz bars (Dairy Milk, Crackle, Temptations),count lines (5 star, Milk Treat), panned confectionery (Gems) and waferchocolates (Perk), clairs (Cadburys clairs), toffees (English Toffee).

During 2001, Cadburys chocolate sales (65% turnover) registered a 9%

value growth, aided primarily by growth in the flagship brand DairyMilk. Dairy Milk contributes an estimated 30% to Cadburys 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 newvariants. New brand initiatives included the launch of Temptations in thepremium segment and Chocki a low priced chocolate confectionerytargeted at children.

Cadbury entered the hard-boiled sugar confectionery market with the

launch of Googly in1996. In 1997, the company launched a coffee basedsugar confectionery product Mocka.Cadbury has a 4% market share inthe confectionery segment, largely contributed by clairs. Otherconfectionery brands such as Gollum, Frutus, Nice Cream, and etclaunched in the last two years did not receive a good market responseand the company has decided to minimize focus on those brands. clairswas re-launched with unique packaging in cartons during 2001.

Food drinks (25% of turnover)Cadburys Bourn vita is the leading brand in the brown drinks segment

of milk/ malted food products. Overall share in the malted food drinksmarket is estimated at 15%.Brown drinks earlier positioned as tasteenhancers were losing market to white drinks during the last few years.


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Cadbury re-launched Bourn vita with a new formulation and advertisingcampaign positioning it on the health benefit platform to compete withwhite drinks. The brand was re-launched in the South the largest food

drink market in the country, during 2001. Bourn vita sales registered a12% growth in value terms in 2001 to Rs, contributing 24% to totalturnover.

Cadburys other products include Cadburys Drinking Chocolate and

Cadburys Cocoapowder. These account for only 1% of Cadburysturnover.

Distribution

Cadburys distribution network encompasses 2100 distributors and450,000 retailers. The company has a total consumer base of over 65mn.Besides use of IT to improve distribution logistics, Cadbury is alsoattempting to improve distribution quality. To address the issues ofproduct stability, it has installed Visi coolers at several outlets. Thishelps 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 ofaffordability and availability is being followed to drive future growth.Small affordable priced packs have been launched, which have helpedimprove penetration. Also advertising for chocolates is aimed atchanging consumer perception and eating habits by creating new reasons

for consumption.


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Cadburys Market Segments

The marketplace for any product is comprised of many differentsegments 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, maritalstatus, 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 rangeof products. It targets different segments within the market, such as the:

break segment - products which are normally consumed as a snatchedbreak and often with tea or coffee, for example Cadburys Timeout andSnack range.

Impulse segment - these products are most often purchased on impulse,eating there and then. They include products such as Cadburys Twirl,Moro, Star bar, Crunchie, Fuse and Dairy milk.

Take-home segment - this describes products that are normallypurchased in supermarkets, taken home and consumed at a later stage.

Gift segment - boxes of chocolates and other products purchased for giftoccasions.

Earnings sensitivity factors

Cocoa bean prices: Domestic as well as international prices of key rawmaterial - cocoa have significant impact on margins.


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Excise duties: Changes in excise levied on malt and chocolate influencesend 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.


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CADBURYS FAILURES:

How Cadburys positioning went haywire with `gems`

Gems present an unusual case of how a textbook-perfect, ultra-sharppositioning can actually become a disadvantage.

At 34, Gems is one brand in the Cadburys portfolio that refuses to growup. Of course, that is not such a liability now that children play a keyrole as consumers.

What it does mean, however, is that Cadbury has to constantly work atkeeping its ageing brand forever young. How has it managed so far?Gems were a sluggish performer in the late nineties and its market shareslid dramatically. Now, the brand appears to be regaining some of itstoddler energy and a campaign that is scheduled to break in 2003 isexpected to help further.

Gems present an unusual case of how a textbook-perfect ultra-sharppositioning can actually become a disadvantage. Of course, Cadburydoesnt consider this a problem yet. Cadbury actually consider Gemsone of our power or advantage brands simply because it was specificallydeveloped for the kids segment. And it has no competition at all in India.


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Cadburys problem is that Gems which is technically called a sugar-panned confectionery item that comes in colorful little buttons hastraditionally been so sharply targeted at children below ten years that it

did not lend itself readily to brand stretch as its target audience grewolder. Even as Cadbury successfully extended its appeal from children toadults from 1996 onwards for its regular chocolates, the company learnta bitter lesson when it tried doing the same with Gems.

Through the seventies and eighties, Gems was one of the few optionsavailable to the Indian consumer, and more specifically the child, interms of chocolate brands, the others being CDM, Cadburys Five Star

and Amul chocolates.The other major advantage that Gems enjoyed probably createdproblems for Cadburys laterthe fact that it never faced competition.Nestle and Mars never brought their global brands Smartys andM&M respectively.

This was because, both the international brands are not developed

keeping the climaticrigours of India in mind. So as against Gems, whichis a product formulated specifically for India, the sugar shells ofSmartys and M&M cracked easily in a tropical climate.

The result was that Cadburys never had the chance to benchmark its

performance as faras Gems was concerned. Other than ads in storybooksand comics like Champak, Tinkle and Amar Chitra Katha, there waslittle focus on advertising till the late eighties.

The first significant commercial for Gems broke in 1989. This GemsBond campaign was an animated commercial based on the character ofJames Bond, which was used in promotional stickers. However, thecampaign was taken off in the early nineties.


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It was actually the storyline and the animation that was working. Thecharacter 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 wasthe entry of brands in the early nineties, like Wrigleys, Freshmint,Boomers, Big Babool and candies from Perfetti, Candico and ParleProducts, all of which were priced at Re 1 or Rs 2 compared with Rs5for a 20 gm pack of Gems.

So it was no longer just chocolates vying for the childs attention butchips, candy, and sugar boiled sweets, bubblegum, all of which were

upping their noise levels. This was worrying for Cadburys, as almosthalf Gems sales came from impulse purchase.

Meanwhile, international players like Nestle were expected to enter thescene 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 reworkedCadbury Dairy Milks appeal to include adults, in 1996 it attempted toextend Gems appeal to teenagers. The new campaign was pegged onthe baselineSmart, very smart derived from Mad magazine. Thetrouble was that this campaign was not backed by product changes, so

Teenagers, who were always edgy about being associated with achildrens brand, were unimpressed.

By 1997, the overall slowdown in the fast moving consumer durablesmarket had affected the chocolate segment. In spite of the re-launch,Cadburys net profit dropped by5 per cent to Rs 18.6 crore. Perk had not

overtaken Kit-Kat as expected. The only Cadbury brand doing


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reasonably well was the low-priced sugar boiled confectionery Googlywhich 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 earlynineties.

In 1998, the company went back to Gems imagery of a childrensbrand. A new campaign was launched to target the urban child. It nowincluded a whole range of Chocogem characters, who were supposed tosymbolize a childs partners in fun (Mastika partner). Also, for the first

time, the communication emphasized the chocolate content.

However, this re-launch did not really contribute to the brands revivalsimply because the brand still lacked excitement. This was when thecompany decided to look at market trends abroad.

Internationally, brands targeted at younger children sold because theyoffered value-ads like toys. Also consumer research revealed that thechocolate flavour and CDMs equity was not being utilized fully.

So the company decided to constantly change the packaging and includeadd-ons like play value around Gems core proposition. The problem wasthat in the Indian market, promotions like toys on smaller stock keepingunits (SKUs) at low cost can be very difficult. So the company had toopt 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 fliptops and a maze-ball game on thetop were also introduced. Then in early2002, new cricket ball packs were introduced.This combined play valuealong with low costs.


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The innovation seems to be paying off:

This is equal to that of Rs 5 pouches, which were the highestcontributors to the total sales. The Re 1 packs now contribute to about

20 per cent of sales. The company claims that these SKUs have nowenabled 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-pricedimpulse 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 belying low on Gems, especially on the advertising front. The brand hasbeen losing out to its portfolio siblings when it comes to retail visibilityand booking order size as the number of SKUs of other Cadburybrands have increased. External face of the brand has been far lessglamorous 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 traysfor the tube packs to ensure counter visibility.

However, as Gems picks up lost growth rates, there is a new movementthat could create problemsone that is partly Cadburys creation. Thenewly-launched Popsicle Chockilaunched to counter Nestls ChocStickpriced at Rs 2, has started eating into Gems equity. In fact, thissegment has grown to 11 to 12 per cent of the chocolate marketat the

cost of Gems. Unless Cadburys is able to come up with more gems ofinnovation it may find one of its oldest young brands succumb to oldage.


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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 morerelevant?

The marketing people at Cadburys India thought they would try to sellmore chocolate by playing on the biggest issue facing the worlds largestdemocracy. That is Kashmir, which continues to threaten to plunge Indiaand its neighbor, Pakistan, into nuclear war.

Newspaper advertisements for the Temptations range of chocolateshowed a map of Kashmir alongside the riddle: "Im good. Imtempting. Im too good to share. What am I? Cadburys Temptations orKashmir?"

To make matters worse, the ad was timed to coincide with IndianIndependence Day, when nationalist feelings were running at theirhighest.

Cadburys India is a wholly owned subsidiary of Cadbury Schweppeswhich has operated in the country for more than 50 years. It apologizedafter protests against the advertisement whipped up by the rulingBharatiya Janata Party (BJP), which plays on Hindi nationalism

SWOT ANALYSIS OF CADBURY INDIA

Strengths Strong Brand names like Cadbury dairy milk, Five Star and clairs

Rich Product Mix

Support from the parent Cadbury Schweppes


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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 marketthrough affordability and availability

Threat

Stiff competition in confectionary segment

The company has large exposure to foreign currency exchange rate riskmainly on account of imported cocoa beans and cocoa butter in USDollar and Pound Sterling


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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.

Moulded chocolate segment

This segment constitutes 50 % of the total market Cadbury diary milkCadbury s flagship brand has 50 % of this segment market .To positionCDM in this segment Cadbury used the traditional demographic

variables of age, socio economic groups and usage intensity.CDM waspositioned as a product that elders brought for their children and recentlyit has shifted this positioning and has not only included parental love buthas said that it is gift for someone you love and that can be anybody notonly parent

Indian Chocolate Industry

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