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Chocolate - Analysis

Chocolate - Analysis

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Published by: nhtsng123 on Jun 16, 2012
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 Chocolate Market in India
The chocolate market in India is pegged at Rs 2,000 crore and is growing at a rate of18-20 per cent per annum. The global chocolate market is estimated around $83.2bn. 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 beeninstrumental in building up the chocolate market in India with huge investments inproduct development, advertising and brand building.The key growth drivers are tradition of gifting sweets in India, shifting in consumerpreference from traditional mithai to chocolates, rising income levels and attractivepricing which is suitable for every pocket.
 
The entry into this market requires a large capital investment for branding andproduction facilities. Also, facing the major international players with establishedhistory and success is difficult.The key challenges that the chocolate market is facing in India are inflationarypressures on raw material prices, lack of government initiative, high entry barriersdue to duopolistic market and price-sensitive consumer.Chocolate has featured highest growth in the packaged food industry and it isexpected to show similar trend, with a CAGR of around 20 per cent in future. Someof 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 pocketThe dynamism in chocolate industry has given way to many new emerging trends.Homemade chocolates have become popular and the concept of exclusive chocolatestores has gained ground. Chocolates have moved from just another product onshelf to exclusive stores. As a result of increasing health- consciousness, thedemand for sugar-free and diet chocolates is on rise.Majority of the sales (around 70 per cent) come from the urban market. Withincreasing awareness, rising disposable income and rapid development in ruralmarkets there is huge untapped potential. There is a long way to go for chocolateindustry in India.
Popular variants & flavours
 
Chocolates are sold in the following forms:
Bars or Moulded Chocolates
Counts
Panned Chocolates (Gems)
Eclairs
Assorted ChocolatesBars or moulded chocolates like Dairy Milk, Amul, Nestle Premium, and Truffleaccount for 35 - 40 per cent of the total market (in terms of volume). The Countchocolates 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 centof the total market share.Few important points that consumers keep in mind while purchasing chocolates areits flavour, quality and packaging. There has been lot of development in this areaand manufacturers are now producing different falvours and varieties e.g. fruits,dried nuts, liquor, and mint. Prioritising these aspects has helped market players inproduct differentiation. Of late, many manufacturers have segmented the market intodifferent categories based on product differentiation on the basis of flavour.Consumers in this target segment are not price-sensitive rather performance-sensitive. Serving right products to these consumers helps manufacturers tocommand premium for their products.
Key challenges & issues
Inflationary pressures on raw material pricesLack of government initiative
 –
High excise and import dutiesHigh entry barriers due to duopolistic marketPrice-sensitive consumerThe raw material cost of producing chocolates has gone up by 20 per cent. Indiaimports most of its cocoa requirements. The prices of cocoa have risen globally dueto unavailability of the commodity. High excise and import duty adds to the cost.Role of modern retail formatsEarlier consumption of chocolate was concentrated in developed side of the world.The developing countries faced problems of poor retail infrastructure as well asaffordability however with rising income levels and rapid development of modernretail 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 oflate 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 beenadopted 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 isimported
Lack of government support
Chocolates primarily constitute the impulse-buying category and most of thechocolate 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 influencethis behaviour, retailer/ shopkeeper tries to keep chocolates within reachable(counter) distance. Chocolates are usually kept at or below eye level to facilitatemaximum visibility.
Consumer Trends
1. Mithai- the traditional Indian sweats is getting substituted by chocolates among upwardlymobile Indians. Instead of buying sweats on Raksha Bandhan, sisters prefer offeringchocolates to their brothers. This is the reason for sudden spurt in advertisement betweenJuly & Sep by most of the companies2. 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 companies3. Chocolates which use to be unaffordable, is now considered mid-priced. Convenienceover Mithai in terms of packaging and shelf life in making both middle class and rich Indiansopt for chocolates
4. Designer chocolates have become status symbols. They are linked to one’s aspiration and
lifestyle and malls are perfect points of sale as people usually are happy and gay at thesedestinations5. Cadbury initial communication for Celebrations was concentrated on occasions like Diwaliand Rakshabandhan. Over the last seven to eight years, the brand emerged as a good giftproposition for occasions and enabled people to come closer. Research done by Cadburysuggested 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 Milkchocolates like DairyMilk and MilkyBar. In past few years we have seen so many SKUs withalmonds, raisins and all sort of nuts. And how can we forget latest 5 star crunchy and UltaPerk, which has opened new windows for consumers. Cadbury Silk is one slightly expensiveSKU which has picked up.7. In past, consumers had negligible inclination for dark chocolates. But now we have seen achange in the Indian palate, which is increasing the base of this sub-segment. Cadbury isactively 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

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