Chocolate Market in India

The chocolate market in India is pegged at Rs 2,000 crore and is growing at a rate of 18-20 per cent per annum. The global chocolate market is estimated around $83.2 bn. The industry is extremely fragmented in terms of range of products. The two giants Cadbury with 70 per cent and Nestle around 25 per cent have been instrumental in building up the chocolate market in India with huge investments in product development, advertising and brand building. The key growth drivers are tradition of gifting sweets in India, shifting in consumer preference from traditional mithai to chocolates, rising income levels and attractive pricing which is suitable for every pocket. The entry into this market requires a large capital investment for branding and production facilities. Also, facing the major international players with established history and success is difficult. The key challenges that the chocolate market is facing in India are inflationary pressures on raw material prices, lack of government initiative, high entry barriers due to duopolistic market and price-sensitive consumer. Chocolate has featured highest growth in the packaged food industry and it is expected to show similar trend, with a CAGR of around 20 per cent in future. Some of the key growth drivers are

Tradition of gifting sweets in India Shifting in consumer preference from traditional mithai to chocolates Expansion potential because of lesser penetration Rising income levels Increasing consumer awareness Attractive pricing suitability for every pocket

The dynamism in chocolate industry has given way to many new emerging trends. Homemade chocolates have become popular and the concept of exclusive chocolate stores has gained ground. Chocolates have moved from just another product on shelf to exclusive stores. As a result of increasing health- consciousness, the demand for sugar-free and diet chocolates is on rise. Majority of the sales (around 70 per cent) come from the urban market. With increasing awareness, rising disposable income and rapid development in rural markets there is huge untapped potential. There is a long way to go for chocolate industry in India.

Popular variants & flavours

Chocolates are sold in the following forms: Bars or Moulded Chocolates Counts Panned Chocolates (Gems) Eclairs Assorted Chocolates

Bars or moulded chocolates like Dairy Milk, Amul, Nestle Premium, and Truffle account for 35 - 40 per cent of the total market (in terms of volume). The Count chocolates such as Five Star, Kitkat, Perk etc. is the next largest segment, accounting for 30 per cent of the total market. Panned chocolates enjoy 10 per cent of the total market share. Few important points that consumers keep in mind while purchasing chocolates are its flavour, quality and packaging. There has been lot of development in this area and manufacturers are now producing different falvours and varieties e.g. fruits, dried nuts, liquor, and mint. Prioritising these aspects has helped market players in product differentiation. Of late, many manufacturers have segmented the market into different categories based on product differentiation on the basis of flavour. Consumers in this target segment are not price-sensitive rather performancesensitive. Serving right products to these consumers helps manufacturers to command premium for their products.

Key challenges & issues

Inflationary pressures on raw material prices Lack of government initiative High excise and import duties High entry barriers due to duopolistic market Price-sensitive consumer The raw material cost of producing chocolates has gone up by 20 per cent. India imports most of its cocoa requirements. The prices of cocoa have risen globally due to unavailability of the commodity. High excise and import duty adds to the cost. Role of modern retail formats Earlier consumption of chocolate was concentrated in developed side of the world. The developing countries faced problems of poor retail infrastructure as well as affordability however with rising income levels and rapid development of modern retail trade-air-conditioned supermarkets / hypermarkets and convenience stores, the consumption of chocolates has escalated drastically in developing countries. India is no exception to this. In India, though independent retailers are still the largest distribution channel but of late modern retail is also supporting the growth by growing at a faster pace.

Absence of Indian brands

Lack of expertise Chocolate is not a traditional Indian food / snack. It has been adopted from the West High entry barriers Distribution is complex Capital-intensive Cool storage and transportation is very expensive Unavailability of raw material Major raw material for chocolates i.e. Cocoa is imported Lack of government support Chocolates primarily constitute the impulse-buying category and most of the chocolate brands are placed near the payment counter. In India, chocolates are consumed as excitement / enjoyment and not as snack. Therefore, more than 75 per cent of chocolate purchases are impulse. To influence this behaviour, retailer/ shopkeeper tries to keep chocolates within reachable (counter) distance. Chocolates are usually kept at or below eye level to facilitate maximum visibility.

Consumer Trends
1. Mithai- the traditional Indian sweats is getting substituted by chocolates among upwardly mobile Indians. Instead of buying sweats on Raksha Bandhan, sisters prefer offering chocolates to their brothers. This is the reason for sudden spurt in advertisement between July & Sep by most of the companies 2. The range and variety of chocolates available in malls seems to be growing day by day, which leads to lot of impulse sales for chocolate companies 3. Chocolates which use to be unaffordable, is now considered mid-priced. Convenience over Mithai in terms of packaging and shelf life in making both middle class and rich Indians opt for chocolates 4. Designer chocolates have become status symbols. They are linked to ones aspiration and lifestyle and malls are perfect points of sale as people usually are happy and gay at these destinations 5. Cadbury initial communication for Celebrations was concentrated on occasions like Diwali and Rakshabandhan. Over the last seven to eight years, the brand emerged as a good gift proposition for occasions and enabled people to come closer. Research done by Cadbury suggested that they should extend the plank of occasion-based gifting to social gifting i.e. all-year-round gifting options. 6. Consumers can choose from wide range of chocolates, which initially was limited to Milk chocolates like DairyMilk and MilkyBar. In past few years we have seen so many SKUs with almonds, raisins and all sort of nuts. And how can we forget latest 5 star crunchy and Ulta Perk, which has opened new windows for consumers. Cadbury Silk is one slightly expensive SKU which has picked up. 7. In past, consumers had negligible inclination for dark chocolates. But now we have seen a change in the Indian palate, which is increasing the base of this sub-segment. Cadbury is actively promoting bournville for the same reason
Note: Below data corresponds to the market situation in 2008.

Companies
1. The chocolate market in India has only three big players, Cadbury, Nestle and Amul

2. New brands such as Sweet World, Candico and Chocolatiers are present in several malls 3. The largest target segment for Cadbury is youth. 4. Delhi-based Chocolatiers, started with a small shop in south Delhis Chittaranjan Park and has now ventured into malls and multiplexes in NCR, Mumbai and Bangalore, with focus on high-end or designer chocolates, a niche market of their own

Companies & Brands

1. Cadbury - 5 Star, Bytes (chocolate snack), Celebration, Dairy Milk, Gems, Perk 2. Nestle - Bar One, Kit Kat, Milkybar, Munch, Nestle 3. Amul - Amul (Chocozoo, Chocomines) 4. Dairy Milk is the market leader 5. 5 Star (heritage brand which came to India in 1969) has a market share of over 14%

Advertisement Trends (AdEx - division of TAM Media Research)

1. Chocolate advertising rose by 30 per cent during January-November 2007 compared to January-November 2006 2. Maximum chocolate advertising was during Raksha Bandhan across 2005 and 2006 and January-November 2007 3. As expected chocolate advertising skewed towards kids channels and regional GEC took the second position 4. Cadbury India Ltd rules chocolate advertising on television 5. 17 per cent more advertising during third quarter 2007 (Raksha Bandhan festival) compared to first quarter 2007 6. Regional GEC took the second place with a 21 per cent share ad volumes of chocolates, followed by Hindi movie with 13 per cent share during January-November 2007 7. Among regional GEC, maximum advertising of chocolates was on Malayalam and Bengali channels 8. Cadbury India Ltd was way ahead of its peers with 66 per cent share followed by Nestle India Ltd and Parle Products Pvt Ltd during January-November 2007 9. During January-November 2007 the number of new chocolate brands advertised decreased to seven from 12 during 2006 10. Nestle Munch Pop Chocolate led the chart of new chocolate brands advertised on television during January-November 2007 Some BTL Activities 1. Cadbury India has tied up with leading coffee chain Caf Coffee Day for direct sampling of the product in top cities External Environment 1. The prices of cocoa and milk, the chief ingredients used in chocolates, have gone up by 50 per cent, while the price of sugar, another important raw material, has come down. The overall input costs have gone up by 20 per cent. If the prices of these commodities keep increasing, companies will be forced to increase the prices. India imports most of its cocoa requirements. The prices of cocoa have risen globally due to unavailability of the commodity 2. US-based chocolate-maker Hersheys is mulling a foray into the Indian chocolate market through its joint venture with Godrej.

Useful Reads http://marketingpractice.blogspot.in/2011/06/nestle-bar-one-kaafi-hai-not-enough.html http://marketingpractice.blogspot.in/2010/04/danone-choco-milk-chocolate-smoothie.html