Factors affecting demand of Cadbury Products in India

Overview: 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.

Per Capita Chocolate Consumption (in lb) of first 15 countries of the world Rank
Countries Per Capita Consumption (in lb)

1. Switzerland 22.36
2. Austria 20.13
3. Ireland 19.47
4. Germany 18.04
5. Norway 17.93
6. Denmark 17.66
7. United Kingdom 17.49
8. Belgium 13.16
9. Australia 12.99
10. Sweden 12.90
11. United States 11.64
12. France 11.38
13. Netherlands 10.56
14. Finland 10.45
15. Italy 6.13

INDIA, stands nowhere even near to these countries when compared in terms of Per
Capita Chocolate Consumption. 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 gms per Indian. Compare this
to over 7 kgs in most developed nations.

However, Indians swallowed 22,000 tonnes of chocolate last year and consumption is
growing at 10-12 percent annually.
The market size of chocolates was estimated to be around 16,000 tonnes, valued
around Rs. 4.16 billion in 1998. Volume growth which was over 20% pa in the 3 years
preceding 1998, slowed down thereafter.

Both chocolate and sugar confectioneries have abysmally low penetration levels, in
fact, even lower than biscuits, which reach 56 per cent of the households. Market
growth in the chocolate segment has hovered between 10 to 20%. In the last five
years, the category has grown by 14-15% on an average and will expect it to
continue growing at a similar rate in the next five years. The market presently has
close to 60mn consumers and they are mainly located in the urban areas. Growth will
mainly come through an increase in penetration as income levels improve. However,
almost all of this consumption is in the cities, and rural India is nearly ‘chocolate-
free’. But the fact is that three quarters of Indians live in Rural Areas. “Average
summertime temperatures reach 43 degrees Celsius in India. Chocolate melts at
body temperature of 36 degrees.”

Per capita consumption of chocolates in India is minuscule at 20gms in India as

compared to around 5-8 kgs and 8-10 kgs respectively in most European countries.
… Awareness about chocolates is very high in urban areas at over 95%. … Growth of
other lifestyle foods such as malted beverages and milk food have actually declined
by 3.7 per cent and 11.7 per cent, however the CHOCOLATES continue to grow at the
rate of 12.6%.

Low priced unit packs, increased distribution reach and new product launches can be
said to have fuelled this growth.

The launch of lower-priced, smaller bars of chocolate in the last two years and
positioning of chocolate as a substitute to traditional sweets during festivals, have
boosted consumption. This is also because chocolate, which was considered to be an
elitist food, has caught the fancy of buyers looking for a lifestyle item at affordable
cost.

Till recently, chocolate consumption had been restricted by low purchasing power in
the market. Chocolates and other cocoa-based snack foods were looked upon as
food suitable only for the well-off.

After economic liberalization in 1991, major changes have occurred in food habits,
partly on account of rise in gross domestic product (GDP) growth and higher
purchasing power in the hands of the middle-class representing a third of the total
population. Availability of chocolate products has also exploded.

A study had projected that sales of the Indian chocolate industry would rise from
$125/$130 million in 1998 to $175/$180 million by the year 2000 and to $450 million
by the year 2005 which ACTUALLY happened irrespective of various negative factors.
Per capita chocolate consumption continues to be low at about 200g per person,
being mainly consumed in urban areas. In the middle and higher income groups, 70
per cent of children, 43 per cent of young adults and 16 per cent of adults consume
chocolate.

Categories of Chocolates
Commercial Chocolates are available in the following forms:

1. Bars or Moulded Chocolates

2. Counts
3. Panned Chocolates (Gems)
4. Éclairs
5. Assorted Chocolates

Bars or moulded chocolates (like Dairy Milk, Truffle, Amul Milk Chocolate, Nestle
Premium, and Nestle Milky Bar) comprise the largest segment, accounting for 37% of
the total chocolate market in volume terms. … Wafer chocolates such as Kit-Kat and
Perk also belong to this segment. Panned chocolates accounts for 10% of the total
chocolate market. … Wafer chocolates such as Kit-Kat and Perk also belong to this
segment. ..

Form of Consumption
a. Pure Chocolates
b. Toffees
c. Cakes & Pastries
d. Malted Beverages
e. Wafer Biscuits & Baked Biscuits
f. Chocolate Desserts

CADBURY’S INTERNATIONAL
Cadbury is a very old trusted name. It all started in Birmingham in England when
John Cadbury started his family grocery shop with side business of cocoa and
chocolate products in around 1824. His two sons, Richard and George, expanded
their family business of cocoa and chocolate. Bournville, a town near Birmingham,
was build by them as a part of expansion of their business.

Cadbury family is also known for their contribution in social reforms and considered
as liberals. This family was in the forefront of adult education movement in England.

CADBURY’S INDIA LIMITED

Cadbury was originally incorporated as a wholly owned subsidiary of Cadbury
Schweppes Overseas Ltd (CSOL) in 1948. The company’s original name was Cadbury
Fry (India) Ltd. In 1978, CSOL diluted its equity stake to 40% to comply with FERA
guidelines. In 1982, the name was changed to Hindustan Cocoa Products. CSOL’s
shareholding was increased to 51% in Jan ’83 through a preferential rights issue of
Rs700mm. The current name was restored in Dec ’89. In 2001, Cadbury Schweppes
made an open offer to acquire the 49% public holding in the company. The parent
holds over 90% of the equity capital after the first open offer. A second open offer
has been made to buyback the balance shareholding, after which the company
would operate as a 100% subsidiary of Cadbury Schweppes Plc

Ever since the Cadbury is in India in 1947, Cadbury chocolates have ruled the hearts
of Indians with their fabulous taste. The company today employs nearly 2000 people
across India. Its one of the oldest and strongest players in the Indian confectionary
industry with an estimated 68 per cent value share and 62 per cent volume share of
the total chocolate market. It has exhibited continuously strong revenue growth of 34
per cent and net profit growth of 24 per cent throughout the 1990’s. Cadbury is
known for its exceptional capabilities in product innovation, distribution and
marketing.

With brands like Dairy Milk, Gems, 5 Star, Bournvita, Perk, Celebrations, Bytes, Chocki,
Delite and Temptations, there is a Cadbury offering to suit all occasions and moods.
Today, the company reaches millions of loyal customers through a distribution
network of 5.5 lakhs outlets across the country and this number is increasing
everyday.

OBJECTIVES AND VALUES

Our objective is to

Grow shareholder value…over the long term

Cadbury in every pocket

Our marketing strategy is aimed at achieving this vision by growing the market, by
appropriate
pricing strategy that will create a mass market and to have offerings in every
category to widen the
market

Core Factors Contributing To Demand of Cadbury:

PRICING
After the roaring success of Nestle’s Munch and Chocostick, Cadbury’s empire struck
back hard. The Rs 5 price point accounts for more than half of all chocolate sales.
Nestle had seized the initiative at this price point, with its launch of Munch, now a
roaring success (and the largest selling product at that price point). Today, Cadbury
has four products at this price point: CDM, Perk, 5 star and Gems – and the five-
rupee CDM bar is its single largest-selling SKU. “This is a potent price point in India,
because the average purchasing power is abysmally low,” is what industry analyst
have to say.

Nestle kicked off one of the biggest success – the liquid chocolate category with its
brand Chocostick priced at Rs.2 – three months ahead of competition. Cadbury did
react with Chocki, priced at Rs 2, expanding the concept of sachetisation to new
frontiers. Chocki has been the single biggest growth driver for Cadbury as well as the
entire chocolate category. The novelty of the format endeared itself to the existing
customer. In less than one year, it constituted nearly 10 per cent of the total
chocolate market, split equally between Cadbury and Nestle.

Volume led growth strategy

Cadbury has followed a well-planned strategy of fuelling volume growth by
introducing smaller unit packs at lower price points. Simultaneously, the company
seems to have astutely juggled with the larger pack sizes and raised prices to a
degree higher than what appears at face. The strategy has driven volumes in the last
two years and we expect the volume growth to continue in the next two years.

PRICE WOES
Chocki, selling at a potent price point of Rs 2, was ideal for smaller towns, especially
since it did not need refrigeration. But Chocki started to cannibalise other higher-
priced chocolates in larger markets. The students of Bombay Scottish (an upmarket
school in Mumbai) are not supposed to eat Chocki, they should not have even heard
of the product.

Distribution
Chocolate needs to be distributed directly, unlike other FMCG products like soaps
and detergents, which can be sold through a wholesale network. 90% of chocolate
products are sold directly to retailers.

Distribution, in the case of chocolates, is a major deterrent to new entrants as the

product has to be kept cool in summer and also has to be adapted to suit local
tropical conditions. Cadbury’s distribution network used to encompasses 2100
distributors and 450,000 retailers. The company has a total consumer base of over 65
million. Besides use of IT to improve distribution logistics, Cadbury is also attempting
to improve distribution quality. To address the issues of product stability, it has
installed VISI coolers at several outlets. This helps in maintaining consumption in
summer, when sales usually dip due to the fact that the heat affects product quality
and thereby offtake.

To avoid cannibalization of its higher priced products from lower priced ones,
Cadbury is setting up two separate distribution channels – one for CORE business &
other for MASS markets, with different stockists, wholesalers and retailers. One set
will be dedicated to Cadbury’s high-end products and traditional chocolates. The
other will cater to the mass market brands namely Chocki, Halls, Eclairs et al – all
products priced below Rs 3.

But today, Cadbury’s distribution network reaches out to six lakh outlets each for its
chocolate & confectionery brands (i.e. total reaching12 lakh outlets).

Promotion
Typically it is said that chocolates are being eaten when everyone is happy. And this
is something advertising has always portrayed. But it is found chocolates are eaten
under diverse conditions and moods – when people are anxious, when they are sad,
when happy – a whole range of emotions. Condensing these views & thoughts, it can
be said chocolate is a true soul mate. Someone who is with you through the ups and
downs of life, helping you bounce back. And that’s what Cadbury’s Dairy Milk (CDM)
positioned itself as – a special friend.

The Big ‘B’ FACTOR

The big factor that has pushed up CDM sales is the Amitabh Bachchan campaign. It
helped restore consumers’ faith in the quality of the product. In early January,
Cadbury appointed Amitabh Bachchan as its brand ambassador for a period of two
years.

The company believed that the reputation he has built up over the last three decades
complements their own, which was built over a period of 50 years. Yet, the entire
credit of recovery could not be attributed to the brand mascot. Incisive action taken
by the company also helped. Some of which were:

1. Responded to consumers concern over the issue rapidly. Also, the

communication campaign worked effectively in giving out the central
message.
2. The packaging was changed to include a sealed plastic wrapper inside the
outside foil. Cadbury’s launched a new ‘purity-sealed’ packaging for its
flagship product, Cadbury Dairy Milk. The packaging is in response to foreign
bodies, notably worms, being found in its products. Over the next few weeks
Cadbury will work towards introducing either a heatsealed or a flow-pack
packaging that offers a high level of resistance to infestation from improper
storage.
 3. New advertising & promotion campaigns were in place which accounted for
an Ad spend of nearly Rs 40 crore (Rs 400 million) Cadbury invested nearly Rs
25 crore (Rs 250 million) this year on new machinery for the improved
packaging.

SURVEY