Kelloggs in India - Case study

Kellogg’s is, of course, a mighty brand. Its cereals have been consumed around the globe
more than any of its rivals. Sub-brands such as Corn Flakes, Frosties and Rice Krispies are
the breakfast favorites of millions.

In the late 1980s, the company had reached an all-time peak, commanding a staggering 40
per cent of the US ready-to-eat market from its cereal products alone. By that time,
Kellogg’s had over 20 plants in 18 countries world wide, with yearly sales reaching above
US $6 billion.

However, in the 1990s Kellogg’s began to struggle. Competition was getting tougher as its
nearest rivals General Mills increased the pressure with its Cheerios brand. Kellogg’s
management team was accused of being ‘unimaginative’, and of ‘spoiling some of the
world’s top brands’ in a 1997 article in Fortune magazine.

In core markets such as the United States and the UK, the cereal industry has been
stagnant for over a decade, as there has been little room for growth. Therefore, from the
beginning of the 1990s Kellogg’s looked beyond its traditional markets in Europe and the
United States in search of more cereal eating consumers. It didn’t take the company too
long to decide that India was a suitable target for Kellogg’s products. After all, here was a
country with over 950 million inhabitants, 250 million of whom were middle class, and a
completely untapped market potential.

In 1994, three years after the barriers to international trade had opened in India, Kellogg’s
decided to invest US $65 million into launching its number one brand, Corn Flakes. The
news was greeted optimistically by Indian economic experts such as Bhagirat B Merchant,
who in 1994 was the director of the Bombay Stock Exchange. ‘Even if Kellogg’s has only a
two percent market share, at 18 million consumers they will have a larger market than in the
US itself,’ he said at the time.

However, the Indian sub-continent found the whole concept of eating breakfast cereal a
new one. Indeed, the most common way to start the day in India was with a bowl of hot
vegetables. While this meant that Kellogg’s had few direct competitors it also meant that the
company had to promote not only its product, but also the very idea of eating breakfast
cereal in the first place.
The first sales figures were encouraging, and indicated that breakfast cereal consumption
was on the rise. However, it soon became apparent that many people had bought Corn
Flakes as a one-off, novelty purchase. Even if they liked the taste, the product was too
expensive. A 500-gram box of Corn Flakes cost a third more than its nearest competitor.
However, Kellogg’s remained unwilling to bow to price pressure and decided to launch other
products in India, without doing any further research of the market. Over the next few years
Indian cereal buyers were introduced to Kellogg’s Wheat Flakes, Frosties, Rice Flakes,
Honey Crunch, All Bran, Special K and Chocos, Chocolate Puffs – none of which have
managed to replicate the success they have encountered in the West.

Furthermore, the company’s attempts to ‘Indianize’ its range have been disastrous. Its
Mazza-branded series of fusion cereals, with flavors such as mango, coconut and rose,
failed to make a lasting impression.

Acknowledging the relative failure of these brands in India, Kellogg’s has come up with a
new strategy to establish the company’s brand equity in the market. If it can’t sell cereal, it’s
going to try and sell biscuits. The news of this brand extension was covered in depth in the
Indian Express newspaper in 2000:

The company has been looking at alternate product categories to counter poor off take for
its breakfast cereal brands in the Indian market, say sources. Meanwhile, the Kellogg main
stay – breakfast cereals – has seen frenzied marketing activity from the company’s end.
The idea behind the effort is to establish the Kellogg brand equity in the market.

‘The company is concentrating on establishing its brand name in the market irrespective of
the off take. The focus is entirely on being present and visible on the retail shelves with a
wide range of products,’ explains a company dealer in Mumbai.

As per the trade, Kellogg India has disclosed to the dealers its intention of launching more
than one new product onto the market every month for the next six months.

These rapid-fire launches were supported with extensive ‘below-the-line’ activity, such as
consumer offers on half of Kellogg’s cereal boxes. Although most of the biscuit ranges have
so far been a success with children, due in part to their low price, Kellogg’s is still struggling
in the cereal category.

Although the company tried to be more sensitive to the requirements of the market, through
subtle taste alterations, the high price of the cereals remains a deterrent. According to a
study conducted by research firm PROMAR International, titled ‘The Sub-Continent in
Transition: A strategic assessment of food, beverage, and agribusiness opportunities in
India in 2010,’ the price factor will restrict Kellogg’s from further market growth. ‘While
Kellogg’s has ushered in a shift in Indian breakfast habits and adapted its line of cereal
flavors to meet the Indian palate, the price of the product still restricts consumption to urban
centers and affluent households,’ the study reports.

One of the reasons why Kellogg’s and these other brands’ passage to India was not smooth
was because they had been blinded by figures. The Indian population may be verging on 1
billion, but its middle class accounts for only a quarter of that figure. However, a 1996
survey conducted by the Indian National Council on Applied Economic Research in Delhi
found that the sub-continent’s ‘consumer class’ numbers are around 100 million people at
the most, and that buying habits and tastes vary greatly between the Indian regions. After
all, India has 17 official languages and six major religions spread throughout 25 states.

As a result, only those companies which are in tune with India’s many cultural complexities
can stand a chance. One of the companies which has managed to get it right is Unilever.
However, the conglomerate has had a head start on those Western companies which
entered the market after 1991.

Indeed, Unilever’s soap and toothpaste products have been available in India since 1887,
when the sub-continent was still the crown jewel of the British Empire. The secret to
Unilever’s longevity in India is distribution. Hindustan Unilever Limited (Unilever’s Indian
arm) has products available in a staggering total of 10 million small shops throughout rural
India.

As for Kellogg’s, it remains to be seen whether its move into other product categories, such
as snack food, will be able to help strengthen its brand. The dilemma that it may face is that
if it becomes associated with biscuits rather than cereals, core products like Corn Flakes
could become a marginal part of the company’s brand identity in India.

‘Kellogg’s is caught in a bind,’ one Indian brand analyst remarked in India’s Business Line
newspaper. ‘It realises that cornflakes can make money only in the long haul, so it needs a
product which will give it some accelerated growth and the tonnage it is desperately looking
for. However, its area of strength worldwide lies in breakfast cereal and not in the snack
food category.’

However, other impartial Indian commentators are more optimistic about Kellogg’s future
prospects within the sub-continent. Among those who believe Kellogg’s will eventually
succeed is Jagdeep Kapoor, the managing director of Indian marketing firm Samiska
Marketing Consultants. ‘With every product offering, Kellogg’s chances improve based on
its learning in the Indian market,’ he says. "Only time will tell."
Lessons from Kellogg’s

Do your homework. Why did Kellogg’s cereals have a tough ride in India? ‘It was just clumsy
cultural homework,’ says Titoo Ahluwalia, chairman of market research company ORG MARG
in Bombay.

Don’t underestimate local competitors. Although Indian brands were worried they would struggle
against a new wave of foreign competition following the market opening of 1991, they were wrong.
‘Multinational corporations must not start with the assumption thatIndia is a barren field,’ said C K
Prahalad, business professor at the University ofMichigan, in a Business Week article. ‘The trick is
not to be too big.’

Remember that square pegs don’t fit into round holes. When Kellogg’s first launched Corn
Flakes in India it was essentially launching a Western product attempting to appeal to Indian tastes.
Globalization may be an increasing trend, but regional identities, customs and tastes are as distinct
as ever. It may be easy for brand managers of global brands to view the world as homogenous,
where consumer demands are all the same, but the reality is rather different. ‘There is a bigger
opportunity in localizing your offerings and the smarter companies are realizing this,’ says
Ramanujan Sridhar, chief executive officer at Indian marketing and advertising consultancy firm
Brand Comm.

Don’t try and make consumers strangers to their culture. ‘The rules are very clear,’ says Wahid
Berenjian, the managing director for US Pizza (which has successfully launched a range of pizzas
with Indian toppings) in an article for the Hindu newspaper, Business Line. ‘You can alienate me a
bit from my culture, but you cannot make me a stranger to my culture. The society is much stronger
than any company or product.’ Brands who want to succeed in India and other culturally distinct
markets need to remember this.