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4570_1258!46!1074_48_Case of Perfetti Van Melle

4570_1258!46!1074_48_Case of Perfetti Van Melle

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I
N the then (2003), rupees 1,600 crore confectionerymarket in India, the local subsidiaries of the globalconfectionery majors Perfetti, Lotte, Wrigley’s andCadbury’s were swinging into action with new strategies,backed by fresh investments, to grab a larger slice of the rapidly growing confectionery market. Perfetti VanMelle, which entered into India as Perfetti in 1994, hadmanufacturing facilities at Manesar in Haryana andChennai, by 2003.
Perfetti Van Melle in India
PVMIL started its domestic production in India inJanuary 2001. However, before PVMIL set up its plantin India, it was present in this country since 1994. Itwas essentially importing its products from Indonesiaand Holland and selling them here.Shortly after Perfetti started its Indian productionoperations, globally this company took over another globalconfectionery giant, Van Melle of Italy (see Exhibit 2).That was one full year after the plants set up by Perfettiin India, started functioning. While global merger wasannounced in 2001, the consolidation of the operations
LESSONS IN BRANDING FROM THEGUMS LINE OF PERFETTI VAN MELLE IN INDIA
1
Anil Saraogi
 In 2003, while the overall top line for the Indian operations of the global confectionery major Perfetti Van Melle was showing consistently upward trend (around 14% CAGR), the Gums line of the same was a drag for the company and was not able to make a positive contribution to the company bottom-line. In fact,Gums business grew only 3 per cent last fiscal. The line has been faced with stagnant sales and was unableto utilise the allocated plant capacity. The Divisional Head of the Line, along with his team was faced withthis grave situation and was frantically looking for a break.
Key Words:
 Positioning, Product Category Hierarchy, Benefit Proposition, Brand Equity, Duality of Brand, Target Market
MANAGEMENT CASE
in Chennai (India) happened only in January 2002, whenthe combined organisational structure with oneManaging Director came into being. Initially, there wascooperation in distribution between the two companiesregion by region. The sales and distribution structurewas merged between April and June 2002, and fromDecember 2002 the legal merger also took place.The combined entity was named as Perfetti Van MilleIndia Pvt. Limited (PVMIPL). By 2002, this combinedentity had invested about rupees 500 crore to rupees600 crore in India. PVMIPL’s turnover was expected tohave crossed rupees 450 crore in fiscal 2002 - 03, uprupees 50 crores from rupees 400 crore in 2001. Apartfrom augmenting its manufacturing capacity, PVMIPLwas also expanding its distribution network. In the lasttwelve months (2002), PVMIPL had strengthened itsdistribution network from 3500 to 4000. The friendlyneighborhood panwalla (the ubiquitous kiosk sellingbeetle leaves and its formulations) now played a keyrole in the growth of company’s distribution network.PVMIPL’s products were stocked by an estimated 10lakh (one million) outlets across the length and breadthof the country. Out of these 10 lakh outlets around 2.5lakh were the ubiquitous pan shops.
1.This case has been prepared for class discussion only. Cases are not designed to present illustrations of either correct or incorrect handlingof managerial problems. The data and sequence of presentation of events in the case may not reflect the real chronological happenings.And they might have been altered a bit to drive home a point. Moreover, the resemblance of characters depicted in the case with actualexecutives is purely incidental.
 
VISION 
—The Journal of Business Perspective
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Vol. 12
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No. 2
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April–June 200862
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Saraogi
Background of Confectionery Industry and ItsVarious Segments in India
Confectionery industry in India has a long history andthe sweet candies have been very popular among thekids in the country. However, most of the segments of the confectionary industry have been reserved for thesmall scale industries in the country. At the same time,the confectionery industry in India is highly fragmentedwith many players having a strong regional presence.While the products in the unorganised sector in theconfectionery industry manifest themselves in varioustypes, the organised sector is broadly categorised infollowing four or five categories:1.Chocolate confectionery2.Sugar boiled confectionery: Hard boiled, toffees andother sugar based candies3.Gums (chewing gum and bubble gum)4.Cereal bars5.Mints (some put Mint in sugar boiled category)Sugar boiled category is by far the largest and alsothe most lucrative one. Sugar boiled confectionery isalso suitable for Indian climate. The size is about rupees600 crores and if we also include the share of unorganisedsector, this category alone clocks around rupees 2000crores annually. Chocolate and gum confectionery followthis, each with a similar sized share of the Indian market.In the approximately rupees 1600 crore organised marketchocolate and gums account for about rupees 400 croreeach.Although it is difficult to estimate the unorganisedmarket, in the early nineties unorganised market wasmuch bigger than the organised one. The ratio mighthave been around 70 (unorganised): 30 (organised) then.However with the entry of international players likePerfetti, Lotte, Warner Lambart etc, now (2003) it hasreversed to 40 (unorganised): 60 (organised), in anapproximately 220000 tones market.Parrys, Nutrine, Parle, Ravalgaon, etc are thelongtime players in the Indian confectionery market. Butnone had been a very serious player in the Gums line.Of late many of them have either been marginalised ortheir operations have been taken over by internationalconfectionary majors. As of 2003, in the rupees 1600crore organised confectionery market, following is apartial list of major players with some of their brands.The Indian confectionery market is quite differentcompared to other Western markets. Some differencesare:1.India is primarily a mono pack market while themarket worldwide is a multi pack market.2.The trade is also significantly different with theglobal market relying heavily on organised trade. InIndia retail outlets like
 paan
shops,
kirana
outletsresult in the bulk of the sales and organised trade isstill insignificant in terms of sales.3.Functional products and sugar free confectionerydominate the worldwide market while that trend isyet to pick up in India.
Competition
By 2003, the rupees 1,600 crore confectionery marketin India was exhibiting signs of recovery and growthand the local subsidiaries of global confectionery majors
S.N.CompanyBrandsGum Brands
1.HULMAX2.Perfetti PVMILAlpenlibe, Chlormint, Cofitos, GoliaCenter Fresh, Center Shock, Big Babol3.ITCMin-o-fresh4.WrigleysSolanoWrigleys, Boomer5.ParrysParrys Eclairs, Lacto King and Coffee Bite6.DaburHajmola7.Nutrine8.CadburysCadburys Eclairs, Gems, Five Star,Dairy Milk 9.NestleNestles Eclairs10.Warner LambartHalls, CloretChiclets (withdrawn since)11.LotteButter Scotch
 
VISION 
—The Journal of Business Perspective
q
Vol. 12
q
No. 2
q
April–June 2008
 Lessons in Branding from the Gums Line of Perfetti Van Melle in India
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63
Perfetti, Lotte, Wrigley’s and Cadbury were swinginginto action with new strategies backed by largerinvestments to grab a larger slice of the confectionerymarket.Korean confectionery company Lotte India, whichacquired a 60.39 per cent in Parry’s Confectionery fromthe Murugappa group in January 2004 for rupees 64.47crore, and another 20 per cent through an open offer, islooking to diversify into product categories likechocolates, biscuits, snack foods and ice creams. Lotte,counted among the five largest Korean Cheabols, has ahuge portfolio of brands including beverages, bottledwater, flavoured water, fruit juices, chocolates, biscuitsand ice creams. Lotte will use the Parry’s brand for fiveyears and is paying EID Parry a royalty of rupees 5 lakha year. Lotte is studying the domestic market and plansto roll out its global brands over a two to three year timeframe. The company recently rolled out Butter Scotch,a new sugar boiled candy in butterscotch flavour and isplanning to re-launch the blockbuster brand Coffee Bitevery soon. As on 2003 the combined portfolio of brandsdid not have any offering in Gums category.Cadbury India, the venerable (the wormscontroversy apart) chocolates and confectioneries majorin India is also eyeing the gum market and is looking atthe possibility of bringing in some of the brands fromWarner Lambert’s international portfolio. However,Cadbury’s does not share Perfetti’s enthusiasm for theIndian market. According to company officials, ‘Thegums market was not doing well in India. We areevaluating if there is a market for gums in India andwhether it is going to be worth our while,’ says BharatPuri, Managing Director, Cadbury India. For Cadbury’sthe attraction in the confectionery market lies in its fastergrowth over the chocolates market (still recovering fromworms). Earlier Cadbury’s re-launched Halls, one of Warner Lambert’s brands to push sales. The companysays Halls has begun doing well after the re-launch. Lastyear Cadbury India’s foreign parent acquired Pfizer’sinterests in the confectionery business for $4.2 billion.That included the Warner-Lambert product portfolio,known best for Halls, Clorets and Chiclets. Theacquisition is now poised to become a growth area forCadbury India, whose confectionery brands includeEclairs. Strangely enough, Cadbury’s is not using itsexisting chocolate network for retailing its confectioneryand has set up an entirely new network. Apart fromrepackaging and re-launching candy brand HallsCadbury’s does not seem to be doing anything aboutWarner Lambert’s other brands such as Chiclets, theoldest chewing gum brand in India and Clorets, whichsells with a small franchise without any advertisingsupport.Meanwhile, the global leader in the gum marketWrigley’s has also been aggressively expanding itspresence in India. In June, 2003 Wm Wrigley acquiredthe worldwide Joyco gum and confectionery businessesfrom Agrolimen, a privately-held Spanish foodconglomerate for €215 million. This cash transactionwas for Joyco’s operations in China, France, India, Italy,Poland and Spain along with Cafosa, its chewing andbubble-gum base business. The deal gave Wrigley’s adominant position in confectionery lollipops and bubblegums in India, since Joyco was a leader in the Indianconfectionery business and brought the Pim Pom candy,Boomer Gum and Solano lolli pop brands into Wrigley’sportfolio. Joyco on its part came to India in 1999 whenJoyco International, Spain bought out Dabur’s 49 percent stake in the erstwhile General de Confiteria. Andwas bracing up for India was also preparing itself forthe larger pie of the confectionery market in India. Alongwith its flagship brand Solano, Boomer and Pim Pom, itis fortifying its brand portfolio with a slew of brandslike, Bonkers, Donald Bubble Gum, Donald Candy andMickey Toffee, Aqtimint andSolano Coffee Bean. Butof course now it was a part of consolidated operationsof Wrigley’s India Pvt. Limited.Other companies present in Indian confectionerymarket were Candico, Nutrine, Ravalgaon, Parle, ITC,Nestle, Amul etc. However, none of them had anysignificant presence in gums business in 2003.
Industry Potential: High on Hopes But Slipping onVolumes
On the face of it, the vital statistics of the confectionerysegment seem more promising than the conventionalFMCG categories such as toilet soaps or detergents.While toilet soaps and detergents already reach over 90per cent of the households, both chocolate and sugarconfectioneries have abysmally low penetration levels.In 2001, the average consumption per capita per yearwas around 250 gms of sugar confectionery in a year(and out of this only 100 gram is attributed to organisedplayers), but in Australia it was around 2.50 kg (peryear). And the North Americans consumed around 10.6kg per capita in 2001.ORG-MARG estimates suggest that chocolatespenetrated just 5 per cent of the Indian households in2000 and gums could penetrate even less. On the other

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