Mini project on INDIAN chocolate Industry

Cadbury’s India
Project done for MANAGERIAL
ECONOMICS
Vijaiyesh R
By Tirumuruganathan R
Santhosh Kumar P
Gowthaman A
Geeridharan B

Submitted on
19-10-
2010
SUMMARY:
“An Analytical Study of Chocolate Industry in India with Special Reference to Cadbury’s
India” is a sweet CHOCOLATE story of chocolates in the hot and humid plains of INDIA,
which enlightens us about the size & status of chocolate industry in India. The project gives
information about the competitors, their market share, and their product basket and highlights
success features.
The project also covers a brief study of Cadbury's India Limited - the biggest player in the
Indian Chocolate Industry with reference to its presence, market share, product offerings, marketing
strategies, strengths & weaknesses, success factors and Worm Controversy Management. Also, the
implication of pricing, distribution strategies and impact of external environment has been recorded.
The project throws light on problems and challenges of the Indian Chocolate Industry, growth
opportunities and strategies to be adopted for growth in this industry.
Finally, the project gives information about home-made chocolates and Chocolate Boutiques
and the ways in which Indian consumers and Chocolate players are experimenting and innovating
chocolates and giving the Indian Chocolate Industry a new sweetness.

Project Objective:

This project aims at understanding the overall Chocolate Industry in India, the product
portfolios of different players in the market, various factors affecting the growth and success of
Chocolate industry in India, the challenges and opportunities which the market offers and the
changing trends in the Indian Chocolate Industry. The project also covers a brief study of
Cadbury’s India with reference to above points.
An Overview of Chocolate Industry in India:
The chocolate industry in India as it stands today is dominated by two companies, both
multinationals. The market leader is Cadbury with a lion's share of 70 percent. The company's
brands (Five Star, Gems, Eclairs, Perk, Dairy Milk) are leaders their segments. Till the early 90s,
Cadbury had a market share of over 80 percent, but its party was spoiled when Nestle appeared
on the scene. The latter has introduced its international brands in the country (Kit Kat, Lions),
and now commands approximately 15 percent market share. The Gujarat Co-operative Milk
Marketing Federation (GCMMF) and Central Arecanut and Cocoa Manufactures and Processors
Co-operative (CAMPCO) are the other companies operating in this segment. Competition in the
segment will get keener as overseas chocolate giants Hershey's and Mars consolidate to grab a
bite of the Indian chocolate pie.
The Indian chocolate industry produces over 30,000 tones of chocolate products in year. The
most important players in the Indian chocolate market are Cadbury and Nestle, now Amul is also
emerging as one of the major players in the market. Today Cadbury and Nestle cater to the majority of the
customers due to their strong image and deep penetration into the world market. A research has been
conducted to find out the customers attitude towards chocolates in India in relation to Cadbury and
Nestle.

The Indian chocolate industry is extremely fragmented with a range of products

catering to a variety of consumers. We have the bars/slabs, jellies, lollipops, toffees and sugar
candies. Given India's mammoth population, it comes as a surprise that per capita chocolate
consumption in the country is dismally low - a mere 20 gm per Indian. Compare this to over
7kgs in most developed nations. However, Indians swallowed 22,000 tonnes of chocolate last
year and consumption is growing at 10-12 percent annually.

Type : Subsidiary of Kraft Foods Industry Confectionery

Founded : 1824
Headquarters : Uxbridge, London, United Kingdom
Revenue : GB£5,384 million (2008)
Operating income : GB£388 million (2008)
Net income : GB£364 million (2008)
Employees : 71,657 (2008)

Executive compensation:
In 2008 Todd Stitzer, Cadbury's CEO, was paid a £2,665,000 bonus. Combined with his
annual salary of £985,000 and other payments of £448,000 this gives a total remuneration of
over £4 million
ABOUT THE COMPANY:
Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and
Cadbury creates a global powerhouse in snacks, confectionery and quick meals.

With annual revenues of approximately $50 billion, the combined company is the world's second largest
food company, making delicious products for billions of consumers in more than 160 countries. We
employ approximately 140,000 people and have operations in more than 70 countries.

In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it
today has five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior),
Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota and
Chennai). The corporate office is in Mumbai.

Our core purpose "make today delicious" captures the spirit of what we are trying to achieve as a
business. We make delicious foods you can feel good about. Whether watching your weight or preparing
to celebrate, grabbing a quick bite or sitting down to family night, we pour our hearts into creating foods
that are wholesome and delicious.
Today, as a combined company with an unmatched portfolio in confectionery, snacking and quick meals,
we are poised in our leap towards quantum growth. We are the world's No.1 Confectionery Company.
And we will continue to “make today delicious”!

Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For over two
decades, we have worked with the Kerala Agriculture University to undertake cocoa research and
released clones, hybrids that improve the cocoa yield.

Head office
Cadbury's head office is the Cadbury House in the Uxbridge Business Park in Uxbridge,
London Borough of Hilling don, England.

Operations:
United Kingdom
Ireland
United States
Australia and New Zealand
India
PRODUCT INNOVATIONS:
Their Products
• Chocolates
• Snacks
• Beverages
• Candy
• Gums

Chocolates Snacks Beverages Candy Gums

Dairy Milk Bytes Bournvita Halls Bubbaloo
5 STAR
Perk
Celebrations
Temptations
Éclairs
Gems
Macro and Micro economy:

MACRO ECONOMY: Cadbury Dairy Milk:

The story of Cadbury Dairy Milk started way back in 1905 at Bournville, U.K., but the
journey with chocolate lovers in India began in 1948.The pure taste of Cadbury Dairy Milk is the
taste most Indians crave for when they think of Cadbury Dairy Milk.
Cadbury Dairy Milk has been the market leader in the chocolate category for years. And has
participated and been a part of every Indian's moments of happiness, joy and celebration. Today,
Cadbury Dairy Milk alone holds 30% value share of the Indian chocolate market.
Cadbury 5 STAR:
Consumer feedback suggested that the old 5 Star was too chewy, and people complained
of it sticking to their teeth. It was made softer and melted easily in the mouth & introduced as
5 Star Crunchy.
Cadbury PERK:
Perk was made much lighter and the size of the bar increased to match Nestle’s Munch.
Perk had been under fire from Nestle’s deadly duo of KitKat and Munch, but after the relaunch,
its market share is two per cent more than KitKat’s. And, the five-year-old brand is now almost
as big as the decades-old 5 Star in size, both in the region of Rs 50-55 crore.

MICRO Economy:
Cadbury BOURNVITA:
Cadbury Bournvita was launched during the same year.
It is among the oldest brands in the Malt Based Food / Malt Food category with a rich heritage
and has always been known to provide the best nutrition to aid growth and all round
development.
Cadbury Halls:
Halls is marketed in 24 different countries around the world & is offered in over 26 flavours.

Halls produced the largest sweet in the world in 1964. Weighing 76kilos, the sweet was put on
exhibition in New York.

Marketing Strategy:

Comparison of Sales during 2006 – 2009

Years Sales(in Rs. Millions)
2006 3354
2007 3892
2008 4324
2009 4716
 Cadbury’s advertising has, over the past few years, aptly reflected India’s passion for
chocolates.
CADBURY ADVERTISEMENTS
Dil ko jab kushi choo jaye..."...kuch meetha jo jaye.."
Akhir barvi pass ho hi gaya." kuch meetha jo jaye..
Log Cadbury Kyon Khate Hai….Khaane waalon ko khaane ka bahaana."
Cadbury’s Dairy Milk…..Asli swad zindagi ka
CADBURY DESERTS
“khaane ke baad kuch meetha ho jaaye.”
CADBURY CELEBRATIONS
Looking wistfully at a photograph, Mr. Bachchan
thinks, he recollects the photo-shoot when he had
thrown the cap off his friend's head.
Aaj dil ne socha yun, kissi apne ko kya doon?
Jo usse kahe tum apne ho,
.jo apne aap mein khaas ho,
jo sirf taufa nahin ehsaas ho
Jisme rishto ki mithas ho….
Cadbury’s Celebrations

Competitors:
The major players in the Indian Chocolate Industry are:
• Nestle India
PROBLEMS FACED:
Cadbury and the Worm Controversy:
The discovery of worms in some samples of Cadbury’s Chocolate in early October 2003
created one of the biggest controversies in India against a Multi National reputed for being a
benchmark of QUALITY.
The controversy created an deep adverse impact on the company with their sales not only
drastically dipping down, but at the same time allowing the competitors to establish their
foothold and taking maximum advantage of Cadbury’s misfortune.
The controversy, and the adverse publicity received in several countries, set back its plan of
outsourcing model which would have resulted in significant revenue generation, several months
back.
The "worms’ controversy" came at the worst time….the next few months were the peak
season of Diwali, Eid & Christmas. Cadbury sells almost 1,000 tonnes of chocolates during
Diwali. In that year, the sales during festival season dropped by 30 per cent. The company saw
its value share melt from 73 per cent in October 2003 to 69.4 per cent in January 2004. In May,
however, it inched up to 71 per cent. CDM sales volumes declined from 68 per cent in October
’03 to 64 per cent in January 2004.
Clearly, the worm controversy took a toll on Cadbury's bottom-line. For the year ended
December 2003, its net profit fell 37 per cent to Rs 45.6 crore (Rs 456 million) as compared with
a 21 per cent increase in the previous year.
However, Cadbury’s reiterated that all through the 55 years of leadership in India, that it has
remained synonymous with chocolates and have remained committed to high quality and
consumer satisfaction."

CABDBURY’S FIGHT-BACK:

'Project Vishwas'
“Steps to ensure quality & regain the confidence”
Following the controversy over infestation in its chocolates, Cadbury India Ltd unveiled
'Project Vishwas', a plan involving distribution and retail channels to ensure the quality of its
products.
The company's team of quality control managers, along with around 300 sales staff,
checked over 50,000 retail outlets in Maharashtra and replaced all questionable stocks with
immediate effect.
The Vishwas programme was intended to build awareness among retailers on storage
requirements for chocolates, provide assistance in improving storage conditions and strengthen
packaging of the company's range of products.
Cadbury reduced the number of chocolates in its bulk packets to 22 bars from the present 60
bars. These helped stockists display and sell the products "safely and hygienically ".Nearly
190,000 retailers in key states were covered under this awareness programme.
Problems & Challenges in Indian Chocolate Industry:
1. TEMPERATURE:
A peculiar problem that hinders the distribution to far-off places is the tendency of chocolates to
melt under even moderate heat. The temperatures can reach as high as 48 degrees in summers,
whereas chocolate starts melting at body temperature (about 37-38 degrees) .Manufacturers
have to take precautionary measures to ensure the preservation of chocolates especially in
summer.
2. UNAVAILABILITY OF CONTROLLED REFRIGERATION:
India does not have controlled refrigerated distribution. Air-condition supermarkets are rare.
Cadbury loses 1.5 percent of annual sales of Rs. 6.8 billion to heat damage. Companies
revise ingredients to make chocolate withstand heat, and so Indian chocolates are more resilient
to heat than European chocolates by a factor of 2 degrees. Ironically, the chocolate market has
grown recently because smaller retailers have stuffed fridges and coolers supplied by the cola
companies Coke and Pepsi with chocolates.
Nestle and Cadbury have tried to provide loans for retailers to buy fridges, but to hold down
power costs the shopkeepers switch off the fridges at night. As a result the cocoa fat melts and
migrates to the main body of the chocolate bar. When the cooling is switched on in the morning,
the cocoa fat solidifies and turns white, presenting a bizarre, un-sellable white on black form.
Electricity costs money and is not provided in a uniform way, so on and off the electricity
goes and the product may suffer sometimes
3. RAW MATERIALS:
Cocoa is the key raw material and accounts for around 35% of the total material cost
(including packaging) of chocolates. The price of cocoa has been hitting a new high of late.
Cocoa prices are at a near 20-year high at $2358 per ton, up from $900 a year back. India does
not produce cocoa to any noteworthy extent but is a large consumer of chocolates. Consumption
of chocolates and other cocoa-based products, especially among the middle class, has been
growing.
4. TRANSPORTATION:
Chocolate needs to be distributed directly, unlike other FMCG products. 90% of our products are
sold directly to retailers. Building such a direct network in rural areas is a daunting task since the
infrastructure is poor in India in rural areas.
5. THREAT FROM IMPORTED BRANDS:
Free availability of imported brands bought through illegal routes pose a threat to the domestic
chocolate industry. Usually, these imported chocolates taste better than domestic chocolate due
to recipe difference. Hence consumers who are willing to spend a little more, prefer these
imported chocolates.
However, the premium brands, which come through official channels, do not pose a threat to the
market, as these cater to a small niche market. However there is a lot of dumping from
neighboring countries like Dubai, Nepal, etc of inferior brand of imported chocolates. These are
not only of low quality, but are brought very near to their expiry dates. Most of the cheap
chocolate brands that are available do not meet Indian Food Regulations.
Success factors of Cadbury’s India Limited:
1. Global management processes:
India occupies a high profile position in the global organization, with advocates in regional and
global headquarters. Global management has allowed the local operation a high degree of
flexibility in growing the business, understanding that asset utilization may be lower and returns
slower to arrive, but expecting volume share to compensate for lower margins in the long run.
2. Local management processes:
The Cadbury India team is all-Indian and has a deep understanding of local market dynamics.
The business is set in a way that highlights localization across all facets – driving the belief that
the only way to succeed in India is by developing localized business models. For example, the
company tailored the chocolate formula in India to prevent melting in the country’s open-air high
frequency store environment.
3. Customized business models:
Local management has set up systems to test and develop products from the ground up with
specialized interlinked cells that execute innovation and market testing hand-in-hand. Cadbury
India is known as a key product innovator. Besides Dairy Milk, the entire Cadbury product
portfolio in India has been developed locally to suit Indian consumer tastes. Packaging,
marketing and distribution have all been tailored to local market conditions.
4. Royalty Structure:
Royalty to Cadbury Schweppes Plc., is around 1 per cent of the turnover. But with that, the
company gets unlimited access to latest technology, new products and so on. They can also
introduce new products from the parent, if it is suitable for Indian market.
5. Subtle reengineering of raw material mix led to cost savings:
Cadbury has reduced its dependence on cocoa, thus lowering its exposure to volatile raw
material prices as well as cutting costs.
It appears that they have subtly altered its recipe by using less of costlier cocoa and more of milk
and sugar. Cadbury's launch of Perk has also contributed significantly in reducing the
proportion of cocoa in the overall raw material mix. Consequently, Cadbury saved about
Rs.94mn (1.8 percent of net sales) in FY1999.

Cadbury is no longer Cadbury:

The company reaches millions of loyal customers through a distribution

network of 5.5 lakhs outlets across the country and this number is increasing every
day.
Cadbury has the largest market share anywhere in the world and has been the
fastest growing FMCG Company in the last three years with a compound annual growth
rate of 12.5 per cent.
On February 2, 2010, Cadbury became part of Kraft Foods.
CONCLUSION
The Indian Chocolate Industry is a unique mix with extreme consumption patterns,
attitudes, beliefs, income level and spending. At one hand, we have designer chocolates that are
consumed when priced at even Rs 2500/kg while there are places in India where people have
never even tasted chocolates once.

Understanding the consumer demands and maintaining the quality will be essential.
Companies will have to keep themselves abreast with the developments in other parts of the
world.

Cadbury’s strategy to attract consumers is somewhat unique in a sense, instead of focusing on the
product; it seeks to tap into emotions normally associated with chocolates. They have also adapted their
strategies to the unique demands of the Indian retail sector. The strategy has clearly proved successful, as
they have been able to build and maintain a leadership position in the market with many loyal customers.