Case Study: Cadbury Crisis

Management (Worm
Controversy)
In India chocolate consumption was very low in the early 90’s but as the
decade advanced the consumption drastically increased. The late 90’s
witnessed a good chocolate market condition. The chocolate market in
India is dominated by two multinational companies — Cadbury and
Nestle. The national companies – Amul and Campco are other candidates
in this race. Cadbury holds more than 70% of the total share of the market.
Nestle has emerged by holding almost 20% of the total share. Apart from
chocolate segment, there is also a big confectionery segment which is
flooded by companies like Parry’s, Ravalgaon, Candico and Nutrine. All
these are leading national players. The multinational companies like the
Cadbury, Nestle and Perfetti are the new entrants in the sugar
confectionery market. (Management paradise) There are several others
which have a minor share in these two segments. According to statistics,
the chocolate consumption in India is extremely low. If per capita
consumption is considered, it comes to only 160gms in the urban areas.
This amount is very low compared to the developed countries where the
per capita consumption is more than 8-10kg. Observing this fact it would
not be appropriate to consider the rural areas of India as it will be
extremely low. This low consumption is owing to the notion behind
consuming chocolates. Indians eat chocolates as indulgence and not as
snack food. The major target population is the children. India has
witnessed a slow growth rate of about 10% pa from the 70’s to the 80’s.
But as the century advanced the market stagnated. This was the time when
Cadbury launched its product- Dairy Milk as an anytime product rather
than an occasional luxury. All the advertisements of Dairy Milk paid a full
attention to adults and not children. And this proved to be the major
breakthrough for Cadbury as it tried to break the conventional ideas of the
Indians about chocolate.
On October 2003, just a month before Diwali, the Food and Drug
Administration Commissioner received complaints about infestation in
two bars of Cadbury Dairy Milk, Cadbury India’s flagship brand with over
70% market share. He ordered an enquiry and went directly to the media
with a statement. Over the following 3-week period, resultant adverse
media coverage touched close to 1000 clips in print and 120 on TV news
channels. In India, where Cadbury is synonymous with chocolate, the
company’s reputation and credibility was under intense scrutiny. Sales
volumes came down drastically in the first 10 weeks, which was the
festival season; retailer stocking and display dropped, employee morale –
especially that of the sales team – was shaken. The challenge was to
restore confidence in the key stakeholders (consumers, trade and
employees, particularly the sales team) and build back credibility for the
corporate brand through the same channels (the media) that had questioned
it.

In defense, Cadbury issued a statement that the infestation was not

possible at the manufacturing stage and poor storage at the retailers was
the most likely cause of the reported case of worms. But the FDA didn’t
buy that. FDA commisioner, Uttam Khobragade told CNBC-TV18, “It was
presumed that worms got into it at the storage level, but then what about
the packing – packaging was not proper or airtight, either ways it’s a
manufacturing defect with unhygienic conditions or improper packaging.”

That was followed by allegations and counter-allegations between

Cadbury and Food and Drug Administration (FDA). The heat of negative
publicity melted Cadbury’s sales by 30 per cent, at a time when it sees a
festive spike of 15 per cent.

For the first time, Cadbury’s advertising went off air for a month and a half
after Diwali, following the controversy. Consumers seemed to ignore their
chocolate cravings.

Genesis of the Crisis

Every crisis has two sides of the story. While the media claimed that
several customers found insects in Cadbury’s chocolates, during my
interactions, the Cadbury’s Chairman shared the company’s version. A
certain shop keeper in Mumbai who had apparently found an insect in a
bar of Cadbury’s chocolate was the source of the crisis. The company
believed that the bar may have been stored next to some flour or grains and
the insects might have crept into it. Instead of raising the matter with the
company, the shopkeeper decided to make the matter public. Supposedly,
the root of the problem was the shopkeeper’s disgruntlement with
Cadbury. He had some personal grievances with the company staff about
insufficient stocks and felt that this was the way to express his displeasure.
So, he registered a complaint with the health inspector in the Government
of Maharashtra.

The October 6, 2003 Food and Drug Administration (FDA) Dept. lab
report on ‘insect infestations’ in the Cadbury chocolate bar was positive for
the presence of two dead and one live insect. Consequently, the relevant
authorities called a press conference and blew up the whole issue before
the media. FDA had already seized the chocolate stocks from Cadbury’s
Talegaon plant. In its defence, the company released an elaborate
clarification statement underscoring the high-quality manufacturing
processes followed at its plants, and that the poor storage at the retailer’s
end was responsible for the reported case of worms in its chocolates. The
FDA did not buy the argument and blamed the company for its poor
packaging, which it believed was part of the manufacturing process. In the
argument and counter argument between the government agencies and
Cadbury that followed, the latter lost sales to the tune of nearly 45 percent
at the peak of the festival season.

Proactive Crisis Management

A crisis of this magnitude has the power to threaten the existence of a food
company. Readers would recollect the recent case (May 2015) of Maggi
Noodles when it was reported that the noodles had up to 17 times the
permissible limit of lead content. This was followed by a nationwide ban
on Maggi’s noodle products. It was a quarter later, in August 2015, when
the Bombay High Court struck down the ban and questioned the procedure
followed during the original tests.

In Cadbury’s case, the fight was fought not in the legal courts but in the
people’s court. At stake was the trust of three crore consumers who bought
the company’s products every month giving it a 70 percent market share.
To revive this eroded trust in the Cadbury brand and the safety of its
products, the company decided on a multi-pronged strategy to bounce back
with ‘Project Vishwas’.

Consumer Education
One of the key elements of Cadbury’s crisis management strategy was
consumer education. Under Project Vishwas, it engaged with over
1,90,000 retailers that sold its products. The company proactively
underscored Cadbury’s health conscious identity, and invited people to
come and see its factories. When interested people came, including media,
parents, and students, they were exposed to the rigorous system of quality
checking followed on the premises before the products left the factory
premises. The observers were convinced that there was nothing wrong in
the manufacturing process and the factory ecosystem. The problem arose
after the product left the factory. This helped convince customers and the
media to some extent.

New Packaging
Having come face-to-face with a major crisis, Cadbury did not want to
take any chances with consumer safety. It wanted to ring fence itself
against likely problems in its wholesale and retail supply chain. Earlier, a
Cadbury’s Dairy Milk bar used to be wrapped in a foil wrap, which was
not sealed. The unsealed foil wrap was packed inside a paper which was
open on both sides. This left the product vulnerable to mischief and
mishandling. Cadbury decided to revamp the packaging of all its chocolate
products. Through extensive discussions, it was decided that metallic poly-
flow packaging would be most suitable to protect the product by
completely sealing it. This nullified any chance of mismanagement at the
retailer’s end. At a cost of over ₹15 crores, Cadbury imported machines
that could heat seal the foil and achieve high standards of improvised
packaging. This process also increased the cost of the product by about 15
percent. However, the company decided to absorb this expense, and did
not hike the price of its chocolates.

Cadbury’s Chairman Pal underscored the company’s conviction that the

product must reach the consumer in the right condition, and if this costs
additional money and substantial investment, it should be done.

Constant Communication
The highlight of Cadbury’s crisis management strategy was constant
communication with the masses using the same platform that accentuated
the crisis – media. In the consumers’ minds the image of Cadbury’s
chocolates had been tarnished. It was natural for any parent to suggest to
their children not to buy Cadbury’s chocolates. I recollect another crisis the
company had faced a decade earlier when a Lucknow-based scientist
claimed that his research revealed that there was ‘nickel’ in Cadbury’s
chocolates. While the impact of media in 1993 wasn’t as loud as the 24X7
media of 2003. Yet, I remember my mother advising me (then studying in
middle school) not to buy Cadbury’s chocolates! Parents are the biggest
stakeholder in the purchase of products meant for kids. Cadbury had to
address this vital stakeholder to win their confidence. In the first quarter of
2004, Cadbury increased its advertisement spending by over 15 percent. It
roped in Bollywood superstar Amitabh Bachchan as its new brand
ambassador. The immense popularity he enjoyed with the Indian masses
helped the brand. His deep sonorous voice helped reassure the masses of
the renewed measures taken by Cadbury for their and their kids’ safety and
wellbeing. The outcome was slow yet positive. After six months of efforts,
the demand for Cadbury’s chocolates started becoming normal.

The consumers gave Cadbury another chance. Market studies indicated

that consumers eventually considered the incident as a lapse and not an
intentional betrayal of trust to harm consumers. Interestingly, public
memory is short; especially for products that enjoy a strong emotional
connect with target consumers. Cadbury’s chocolates had been a favourite
since 1948 when its products first became available in India.

Nearly two decades later, hardly anyone recollects that Cadbury faced a
crisis with its core and most popular product. However, in the current
scenario of managing risks and averting crises, Cadbury’s approach of
addressing the crisis with a multi-pronged strategy deserves a mention and
emulation. Some marketing and PR experts hold the company partly
responsible for ignoring the risk to product safety due to inadequate
packaging, which could have been proactively addressed much ahead of
time, thereby avoiding a crisis with deep financial and brand ramifications.
Is it desirable for companies to take such avoidable risks till a crisis
emerges? In fact, the best way to avert crises, is to proactively address
risks that could cause a crisis.

A key learning from this is that a food and beverage company’s

responsibility of product quality and safety does not end with the product
leaving its factory. It continues till the product is consumed by the end-
consumer. Hence, any product quality or consumer safety loopholes in the
total value chain should be mapped and proactively addressed by the
company.
Questions:
1.What is the Cadbury worm controversy?
2. Who made the claim & Was the claim proven to be true?
3. What did Cadbury do in response to the claim?
4. How did the public react to the controversy?
5. What kind of steps Cadbury take to address the controversy & did
the controversy have any long term impact on cadbury's reputation?
6. How Cadbury won the battle of worm controversy?
7. How did Amitabh Bachchan save Cadbury?
8. What lessons can be learned from the Cadbury worm controversy?