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A dissertation report on indian chocolate industry

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1. DESSERTATION REPORT ON INDIAN CHOCOLATE INDUSTRY Submitted inthe partial fulfillment of the award of the degree of Submitted by: (MBA IV SEM)ENROLLMENT NO.AMITY INTERNATIONAL BUSINESS SCHOOL (AMITYUNIVERSITY,NOIDA, Sec-44.)

2. ACKNOWLEDGEMENTI would like to pay my gratitude to .., andalso wish thanks to. AMITY BUSINNESS SCHOOL InternationalBusinessprogramme. Again, I greatly appreciate the diligent support provided by all mycolleagues, bothacademic and professional and the faculty members if AMITY for theirwholeheartedsupport and co-operation.Last but not the least, I would like to thank., my project guide for hisvaluable insight and unendingguidance.Above all, I thank God for giving me courage and wisdom to complete thispiece of worksuccessfully in time.

3. Contents Titles1. Introduction2. Objective3. Research Methodology4. ChocolateIndustry5. Chocolate in a Bloom6. Chocolate Industry in India7. Major Players8. Amul9.Nestle10. Cadbury11. SWOT analysis of Cadbury12. Market Segmentation13.Psychographics and Demographics14. Product Positioning15. Product MarketBoundary16. Price Sensitivity17. Consumer Buying Behavior14. Industry Structure andDynamics15. The Rural Conundrum16. Key Success Factors17. Product Life Cycle18.Positioning19. Procters 5 Force Model18. Rural Market Initiatives20. Suggestions21.Conclusion22. Bibliography

4. EXECUTIVE SUMMARYThe Cadburys Indias number one chocolate is able toshare with their market insightsbased upon unparalled breath of chocolate experience.Themerge in 1969 with Schweppes and the subsequent development of the business haveledto Cadbury Schweppes taking the led in both, the confectionery and soft drinkmarketintech UK and becoming a major force in the international market. CadburySchweppestoday manufactures product in 60 countries and a trade in staggering 120.Thisproject is a sincere effort to look for the market potential in chocolate andconfectioneryindustry. A descriptive research procedure had been applied to come to theconclusions ofthe project. The project later concluded in recommending the marketpotential of thechocolate and confectioneries.

5. INTRODUCTIONChocolates had its beginning in the times of the Mayas and theAztecs when they beatcocoa into a pulp and made bitter frothy chocolate out of them.They first becamepopular in Europe in a highly unrefined form. Then the Hershey FoodCompany was thefirst to bring out chocolates in the currently popular solid form. Themain ingredients ofchocolate is cocoa grown mainly on equatorial zones and of theconsumers looks forvariety he goes in for some of that companys own sugar milk solidsand permittedemulsifiers. Cocoa constitutes nearly 40% of the total raw material cost.Thefollowing report studies the chocolate industry in India and in particular the positionofthe chocolate brand - Cadbury. The brand name chosen is the umbrella brand as itwas feltthat the corporate name is recognized as brand not so much its individualproducts. Thestudy focuses on the marketing and the advertising, employed by Cadburyin the contextof the Indian macro environment and industry structure. The advertisingstrategy is


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studied with respect to Cadburys business and marketing objectives. Thestrategiesadopted are then analyzed for each product offering. Considering the strategiesofCadburys major competitor follows the analysis, nestle India ltd. to get anunderstandingas to where Cadburys stands.The report initially focuses on an examination of theindustry environment and theproduct class. The product then goes on to analyze the

corporate, marketing andadvertising strategies adopted by the selected company and itsmain competitor. Itconcludes by looking at the future challenges for the industry and thecompanyIt is also to be noted that the data used for analysis is of 2001-2003. This was themostrecent data available under whose purview the companies marketing and theadvertisingstrategies are studied.

6. OBJECTIVE OF THE PROJECTThe major objective is to study the MarketingSegmentation of Chocolate and: To understand the Consumer Buying Behavior ofChocolate. And also to study the Industry Structure and Dynamics.

7. RESEARCH METHODOLOGYSample Units: Three of the Number One brands inIndia namely Cadbury, Nestle andAmul respectively, were chosen on the basis of theirmarket shares. These threeindustries were chosen on the basis of the usage of the

products, as the usage of FMCGsand is high and noticeable.Sample Design: Non-probability sampling was resorted to and the methods used isConvenience sampling andJudgment sampling.Data Collection: Data was collected from Secondary data. Secondarydata was souredfrom various published sources which include magazines like BusinessIndia andBusiness World. Newspapers like Brand Equity, Brand Wagon and The Timesof Indiawere also used. Annual Report of Cadburys and Nestle were also referredDatawas analyzed manually .

8. Emerging markets drive growth for malt and chocolate drinksMalt- and chocolate-based drinks are often seen as relatively unsophisticated indeveloped markets in the west,but in many countries, in particular in Latin America, theyare big business indeed,marketed mostly as an excellent source of nutrition in countrieswhere food quality is

often poor. But improving sales in other countries will depend onfinding premiumpositioning. 9. Global retail volume sales of both malted and chocolate-based hot drinks

reached956,702 tones in 2003, according to a recent report from market analysts Euromonitor,with Latin America alone accounting for over one third of total sales.Indeed,Latin America accounts for two of the top three markets for chocolate-baseddrinks(Brazil and Mexico, the third being Spain), and manufacturers are increasinglyfocusingtheir marketing efforts on young people in these countries, according to thereport.Thisgoes hand-in-hand with the widespread introduction of value-added products inthesemarkets. In recent years, for example, the Mexican market saw the launch of anumber ofchocolate-based powders in new packaging, formats and formulas - often withnew

flavors. These products generally targeted consumers prepared to pay a premium,thoughsome were aimed at low-income segments of the population, according toEuromonitor.Brazilian manufacturers also met consumer demand by offering premiumchocolate-based products, helped by the fact that Brazilian consumers are more aware ofhealthissues than many of their Latin American counterparts. Brazilian consumersoftenupgrade by purchasing healthier chocolate-based products such as low-calorieanddiabetic-friendly alternatives, Euro monitor said, highlighting the 2003 launch ofToddyLight by PepsiCo as an example of this trend.Malt drinks, meanwhile, are most


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popular in India, which accounts for 22 per cent of theworlds retail volume sales. Theyare traditionally consumed as milk substitutes there andmarketed as a nutritious drink,mainly consumed by the old, the young and the sick. Saleshave also been aided byimproved retail and distribution in recent years, combined with alarge child and youthconsumer base, the report said.India also recorded the highest growth (53 per cent in US$

terms) during 1998-2003,again spurred by consumers trading up to value-added products.In 2003, for example,Glaxo Smith Kline re-launched Horlicks for Kids, specificallytargeted at young children,as well as launching Horlicks in three new flavors.

10. With its Horlicks brand (often seen as an old-fashioned drink in its home market intheUK) Glaxo Smith Kline in fact accounts for 70 per cent of malt-based hot drinks,withIndia alone contributing nearly 60 per cent of the companys global sales of theproduct.Other major players include Cadbury Schweppes and Nestl.But if developingnations have a growing taste for malt- and chocolate-based drinks,other moresophisticated markets have yet to catch on. Indeed, the report shows that theperformanceof malt- and chocolate-based drinks in mature western markets wascharacterized by ofstagnation and decline during 1998-2003.The US, for example, has seen a sharp decline

in value sales of both malt- and chocolate-based drinks over the past few years, mainly asthese products largely remained outsidethe overarching consumer trend for premium andhealthy products. In fact, malt-baseddrinks have an almost negligible presence in the US,with manufacturers largely failing toattract the important child and youth consumergroupsa category more interested insoft drinks.The performance of malt- andchocolate-based drinks in Western Europe was morepositive than that of the US, butnonetheless there was little in the way of growth during1998-2003. A relative lack ofinnovation and marketing activities, allied to demographicfactors such as falling birthrates, saw important western European markets such asGermany record modest growth,according to Euro monitor.The warmer winters experienced in Western Europe in recentyears also contributed tothe lower demand for chocolate- and malt based drinks. The UKexperienced sharpdecline of 13 per cent in retail volume terms in malt-based drinks andonly moderategrowth in chocolate drinks during 1998-2003.Looking forward, theemerging markets will, not surprisingly, continue to provide thebest opportunities forgrowth in this category, Euro monitor suggests. Market such asIndonesia and Mexico areexpected to see strong growth in both malt- and chocolate-based drinks by 2008, withlarge youth populations and a rising number of middle classconsumers as the key drivingfactors.

11. Among major markets, China is forecast to be the fastest growing market inbothchocolate-based (up 35 per cent by value) and malt-based (up 29 per cent by value)up to2008. Chinas booming economy along with rising levels of disposable incomeandincreased availability of quality products will encourage further consumption,theanalysts predict. Following Chinas accession to WTO, multinationals are alsoexpectedto penetrate the country further, driving up demand and in turn prompting morelocalmanufacturers to get involved in production.

12. Chocolate in a BloomIs a white bloom enough to put you off your chocolate?Scientists are hard at work to findout exactly how this bloom forms and how to stop it, asEmma Davies finds outNext time you reach out for your favorite chocolate bar you willprobably pay littleattention to its fat crystals. However, should you be unfortunate enoughto peel back thewrapping to reveal a chocolate covered in a mouldy-looking white bloom,


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and thenperhaps you might spare a thought for its crystal structure? The chocolateindustryploughs a lot of money into investigating chocolate crystals and bloom.Theindustry takes bloom seriously - not only because it is unsightly, but also because itcanchange the texture and the flavor release properties of the chocolate. Manufacturersarekeen to invest in research, using expensive techniques such as X-ray scattering andatomic

force microscopy (AFM), to help understand exactly how bloom forms and howto stop itforming. With the average person in the UK eating 10kg chocolate each year(accordingto Cadburys confectionery review of 1999), it is easy to see why the industrywants tocreate a perfect chocolate bar that stays temptingly glossy with a good snap.

13. Chocolate bloom develops naturally Temper, temperwith time, but it can be broughtonprematurely. How many of us have lefta chocolate bar on the car dashboard inthe sunand been disappointed to find Tempering is a crucial stage of chocolatethat it has beenspoilt by a bloom? In manufacture, which ensures that the fat in thethis case, the bloomdevelops because chocolate crystallizes in a thermodynamicallythe crystals melt and thenre-crystallise stable crystal form.in a different form when thetemperature drops again.Chocolate The process generally involves cooling thebloom can also form if the molten

chocolate (held at about 45C) to amanufacturing process doesnt include a temperature(about 27C) that inducestempering step (see Box 1), when the crystallization in bothstable and unstabletemperature is carefully raised and crystal forms (polymorphs).Raising thelowered to ensure that fat crystals grow temperature slightly (to about 30C)then meltsin the correct form, size, shape and out the unstable crystal forms leaving onlythenumber. stable crystals to seed the crystallization of the bulk chocolate in a stablepolymorphic form.Chocolate crystalsCocoa butter, perhaps the most To help crystals togrow, the chocolate isimportant ingredient of chocolate, is usually stirred as it is cooledusing scrapingcomposed of a mixture of saturated and and mixing blades.unsaturated fats(triglycerides), therelative proportions of which depend on The temperatures needed totemper a chocolatethe country of origin. Some of the depend on the composition of its fatphase.unsaturated triglycerides in cocoa butter Manufacturers need to find the righthavelow melting points, making it combination of stirring forces and temperaturespartly liquidat room temperature. for their ingredients.Adding milk fat to chocolate raises thelevel ofunsaturated triglycerides and

14. increases the proportion of liquid fat, which explains why milk chocolate is somuchsofter than its dark counterpart.The fat crystals in cocoa butter pack together in sixdifferent formats (polymorphs). Thechocolate industry labels these polymorphs forms I toVI (form I being the least stable)and aims to get the cocoa butter to crystallize in a stableform V to give the chocolate aglossy appearance and a good snap. Table 1. What goesinto a typical milk chocolate? Ingredient Per cent Cocoa mass 11.78 Milk powder 19.08Sugar 48.73 Added cocoa butter 19.98 Lecithin 0.35 Vanillin 0.08Surface scienceThesurface of a good quality chocolate contains lots of tiny fat crystals that can reflectlight,giving it a glossy appearance. Any cracks or crevices (or even fingerprints) on thesurfaceof the chocolate can encourage small, spiky fat crystals to grow. When thecrystals reach asize that can diffuse the reflection of light from the surface they give it adullappearance.Although the exact mechanism of bloom formation remains disputed, mostscientistsagree that it involves fat crystals transforming from form V to form VI. Becauseform VIcrystals are more stable than form V, chocolate should inevitably form a bloom atsomestage, unless preventive measures are taken.


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15. Richard Hartel at the department of food science in the University of Wisconsin,US,believes that although the form V to form VI transformation always accompaniesbloomformation, it does not necessarily cause it. With John Bricknell at Mars in NewJersey,US, he has analyzed a model chocolate using X-ray spectroscopy, to identify thetypesof fat crystals that develop. Their model chocolate contains amorphous sugar

particles -created by spray drying a mixture of corn syrup and sucrose and sieving themixture toensure that all the particles are the same size. The chocolate is made byblending andtempering a mixture of cocoa butter, lecithin (an emulsifier), sieved cocoapowder, milkfat and the amorphous sugar.Because the model chocolate contains nocrystalline sucrose, the researchers were able tosee clearly the changing polymorphicforms of the cocoa butter. They also used acolorimeter to measure the amount of whitebloom that developed on the chocolatesamples, enabling them to link changes inpolymorphic form to the onset of visual bloom.They discovered that the form V to formVI crystal transformation took place not only inall of the samples that developed a visualbloom but also in some of the samples thatremained bloom-free. Hartel says that mostpeople thought they understood bloomformation in chocolate to be the polymorphic

transition of cocoa butter. What our resultsshow is that the polymorphic transition indeedoccurs, but that something else is neededto create visual bloom.Hartels research team hascome up with a theory to explain how visual fat bloomdevelops in well-temperedchocolates. They suggest that, first of all, liquid fat must beable to get to the surface ofthe chocolate. The pumping action required to do this couldbe induced by temperaturefluctuations, which cause the fat crystals to melt and then tore-crystallise. Fat crystalswith high melting points dissolve in this liquid fat and aretaken along to the surfacewhere they can re-crystallise as spiky crystals. Any cracks andcrevices can help the liquidfat get to the surface. The way that the spikes grow from thesurface of the chocolate, saysHartel, is open for debate although the nature of the sitesavailable for growthundoubtedly plays a role in their formation.

16. An interesting and unexpected result emerged from Hartels study: the amorphoussugarused to make the model chocolate seemed to be able to prevent a visualbloomdeveloping. When the researchers looked at the samples through a microscope,they sawthat the fat crystals on the surface of the model chocolate were smooth, roundedand flat,causing little more than a slight dulling of the surface. These crystals weremarkedlydifferent to the spiky, needle-like crystals of real chocolate that can take awayits gloss.Hartel thinks that, because the smooth, spherical sugar particles pack togethermoretightly than the irregular-shaped sugar crystals in commercial chocolate, this reducesboththe rate of liquid fat migration and hence the rate of bloom formation.Despite thesuccess of the amorphous sugar at inhibiting fat bloom, Hartel says that itcould not beused in commercial chocolate because the sugar picks up moisture easilyand gives agummy texture in the mouth.By adding high melting point milk fat fractions to theirchocolate mix, Hartel and histeam have been able to delay substantially the transitionfrom form V to form VI. Indeed,milk fat is commonly used to inhibit fat bloom, andskimmed milk powder is better thanwhole milk at preventing bloom formation.How milkfat reduces bloom formation remains a mystery, but minor lipids in the milkfat (e.g.mono- and diglycerides) are generally thought to influence the kinetics of cocoabuttercrystallization. The denser crystal structures that form could potentially stop liquidfatfrom moving to the surface and re-crystallising. The minor lipids could also affect


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theamount and type of high-melting lipids that dissolve in the liquid fat and could evenslowdown the transformation of crystals from form V to form VI. Another theory isthatbecause milk fat can decrease the rate of fat crystallization, the chocolate contractslesson cooling. Fewer microscopic cracks appear, reducing the likelihood of liquidfatreaching the surface.Hartel predicts that understanding how the chocolate

microstructure influences the rateof bloom formation will ultimately allow the chocolatemanufacturer to produce highquality chocolates with enhanced resistance to bloom. 17. Making chocolateAn even temperResearchers at the University ofLeeds have been

working withCadbury to help make its temperingprocess more efficient and reducetheamount of money it spends on heatingand cooling vast quantities ofchocolate duringtempering.Industrial tempering usually involvesapplying shear forces (stirring)whilechanging the temperature. The shearrate has to be chosen carefullybecause if it istoo low then notenough crystals will be generated, andif its too high the crystals couldmelt.Scott Macmillan and Kevin Roberts,from Leeds chemical engineeringdepartment,have developed a methodthat enables them to look at crystal changes during tempering,with the aim of optimizingthe process in order to guarantee the growth of form V fat

crystals. They have designed atemperature-controlled shear cell, similar to the cone andplate system commonly usedin rheometers, placing the fat sample on the bottom plateand rotating the top cone. Thisset-up allows the researchers to heat and cool fat mixtureswhile at the same time varyingthe shear rate. Using the small angle X-ray scattering(SAXS) facility at dares bury, theyhave been able to monitor changes in crystal structurein the shear cell during tempering.When no shear stress was applied to cocoa buttersamples, the fat crystals transformedslowly from form III to form IV. However, onshearing the samples, the crystalstransformed from form III to form V. Macmillanbelieves that because the results give astrong indication of the inherent mechanismstaking place, they should be able to help

18. Cadbury determine the optimum shear rate and temperature to ensure that thechocolatecrystallizes in form V.Soft in the middleThose of you with sufficient self-restraint to put aside a half-eaten selection box ofchocolates may have noticed, onreopening the box, that the pralines are generally thefirst to develop a bloom. The nut-based filling contains fat that is liquid at roomtemperature and, as this fat migrates fromthe filling to the chocolate exterior, some of thecocoa butter in the chocolate moves in theopposite direction. The appealing texturecontrast between the inside and the outside ofthe praline can then be lost as the liquid fatsoftens the chocolate exterior and the cocoabutter hardens the soft centre. The liquid fatthat moves to the surface of the chocolate canalso drag some of the cocoa butter with it,which can re-crystallise at the surface and forma bloom.These problems can be solved to a certain extent by adding a layer of a harder fat(moresaturated triglycerides) in between the outer chocolate layer and the soft interior,oralternatively to the centre where it can act as a sponge for the liquid fat.Paul Smith andresearchers at the Institute for Surface Technology in Stockholm,Sweden, are working onthe problem of fat bloom in soft-centered chocolates and havedeveloped a techniqueusing radiolabel led (14C) triglycerides to study the fat exchangeprocess. They usedifferential scanning calorimetry (DSC) to determine the polymorphicform of thetriglyceride crystals and a 14C radio detector to follow the movement of theradiolabelledcompounds. So far, they have worked mainly on model fat systems, adding 14unlabelledfat crystals to an oil saturated with a C labelled triglyceride and gentlystirring the


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mixture. At regular intervals they remove samples and measure how many ofthe 14Ctriglycerides in the liquid oil phase crystallize out. Preliminary results suggest thattheexchange rate between fat crystals and dissolved fat is relatively fast when thecrystals aresmall but slow when the crystals are large.Smith is currently using atomic forcemicroscopy (AFM) to study the changes in thestructure of the surface of the chocolate

that occur when bloom forms. The diamond tip 19. of the AFM probe moves over the surface of the chocolate and deflects as it passesoverany undulations. Smith has chosen the technique over the standard methods ofscanningelectron microscopy or optical microscopy which can generate artifacts, he says.Opticalmicroscopy, explains Smith, is difficult to use with chocolate because of its darkColour.In addition, the limit of resolution means that only the large crystals can be pickedup.Smith has yet to release the results of the study but hopes to use them to helpunderstandthe methods of bloom formation and to observe the early onset of bloom.Thereis clearly more work to be done on bloom but new techniques and R & Dinvestmentshould lead the chocolate industry to its holy grail: a long-lasting chocolatethat doesntlose its gloss with storage.

20. THE CHOCOLATE INDUSTRY IN INDIAThe chocolate industry in India has asize of 20000 tones and is worth about Rs 400crores. The chocolate market has beengrowing by nearly 35 %. However there has beensome slowdown in the last twoyears.The chocolate market is predominantly urban with coverage of 95 %. The salesvolumehas decreased by 5% in the last year and the chocolate market had declined withtheaverage consumption coming down by 25% from 16000 tones to the current levelof125000 tonesChocolate consumption in India is extremely low. Per capita consumptionis around160gms in the urban areas, compared to 8-10kg in the developed countries. Inrural areas,it is even lower. Chocolates in India are consumed as indulgence and not as asnack food.A strong volume growth was witnessed in the early 90s when Cadburyrepositionedchocolates from children to adult consumption. The biggest opportunity islikely to stemfrom increasing the consumer base. Leading players like Cadbury andNestle have beenattempting to do this by value for money offerings, which are affordableto the masses.Cadbury, a subsidiary of Cadbury Schweppes is a dominating player in theIndianchocolate market with strong brands like Dairy Milk, Five Star, Perk, and Gemsetc.Dairy milk is the largest chocolate brand in India. Chocolates & Confectionerycontributeto 75% of Cadburys turnover. Cadbury also has a strong brand Bourn vita inthe maltedhealth drink category, which accounts for 24% of turnover. The parentCadburySchweppes during 2001 made an open offer for acquiring the 49% non-promoterholdingin the company. It has already acquired over 90% of the equity and proposes tobuy backthe balance equity and delist the stock from Indian bourses.

21. THE MAJOR PLAYERSThe major national players in the chocolate market in Indiaare:Cadbury India Ltd.Nestle India Ltd.Gujarat Cooperative milk marketing federationlimited (Amul)The combined chocolate and clair market is dominated by two giantsCadbury andnestle together they have 90 % share of the entire market. Amul holds a 5%share and ispresent only in the molded chocolate segment of the marketThe CHOCLATECHRONOLOGY1956 - Cadbury milk chocolate launched1957 - Cadbury 5 starlaunched1970 - Cadbury clairs launched1974 - Amul chocolate launched1986 - Cadburymilk chocolate re-launched as Cadburys dairy milk1990 - Cadbury launches premiumchocolate brand overtures1991 - Nestle chocolates launched. Cadbury counters nestles


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entry with all silk andunfurls huge consumer promotion campaign. Cadbury diary milkrevamped. Nestlelaunches Milky bar: Cadbury counters creamy bar1994 - Cadburys realtaste of life and 5 star reach for the stars campaign launched clairsrevamped andrenamed diary milk clairs1995 - Cadbury launches perk, preempting nestles KitkatOvertures is withdrawn1997 - Cadbury launches truffle1998 - Cadbury launches Gold,

Picnic (all these launches took place in the month ofDecember i.e. Dec 96 and dec-97 tobe more precise in keeping with the company policy 22. of launching new brands at the new year eve. However the hit the market at the

month ofJanuary only 23. AMUL: THE FLIGHT WHICH FAILED TO TAKE OFFGujarat cooperative milk

marketing federation limited (Amul)Amul is the third player in the chocolate market inIndia. The brand doesnt have anyinternational lineage and is miniscule in terms ofmarket share in chocolates andcompared to the two other players Cadburys andnestle.Amul had an extremely focused positioning of a giftfor someone you love albeitnot target to a singlegroup however Amul failed to capitalize on itseemingly due to thefollowing reasons.a. Chocolates have never been Amuls main products and hence there

was lack of organizational commitment. The company has never really supported orpushed its chocolates. This reflects on the drastic cutback on advertisement expenditurefor its chocolates which has negatively affected its top of the mind awareness levelb. Thecompany has enjoyed a high customer equity and pulls in butter and so it offered a verylow retailer margin of 3.1 % as against the industry average of around 7-8 % Amul triedthe same technique in chocolates too. However since it was neither leader nor enjoyed acustomer pull like in butter the company got very little support for its chocolatesc. Amulchocolates have shown a very limited product differentiation and have not really givenany important additional benefit to the consumers. The product line also

24. suffered in comparison to the portfolios of the competitor Cadbury and nestles. Itsonly strength was its low priceFollowing are the major brands ofAmul Amul premiumMilk Amul badam bar Amul orange Amul fruit and nut Amul crisp

25. NESTLE: A BRIEF INTRODUCTIONNestle India limitedNestle is a strong player inthe chocolates world wide but it entered the Indian marketmuch later in (1991) than oneof its global competitor Cadbury. Nestle initial foray intothe Indian market was not verysuccessful. The problem was in the formulation of theproduct. They were soft chocolateswith high fat content which were unsuitable to theIndian climate. Also the distributionfocus has been on the larger cities and urban areaswhich limited their customer base.Itwas with the launch of Chitchat that the companys strategy changed with respect tobothproduct and distribution. It increased its distribution network to cover small townsandinteriors as well so as to increase the customer base .It also modified the formulationofMoulded chocolate to suit the Indian condition. The company used three layers offoilpackaging so that Kitkat could survive the summer heat.Today nestle poses aformidable threat to Cadbury. Kitkat has captured a sizeable chunkof the market within ashort span of launch. Nestle, as in 2002-2003 has around 24 %market share with Kitkatalone accounting for 12% market share points. Nestle Bar Oneis another brand with amarket share of 6%. Nestle recently withdrew its Nestle bitterchocolate brand. The otherbrands of nestle are nestle milky bar and nestle crunch.Nestle have also entered the sugarconfectionery market in direct Compton with Cadburyby offering Allens splash andAllens coffees and Allens Butterscotch. Amul has alsoentered into another foray of the


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confectionery team that being ice creams. Thedistribution of this has been pretty goodwith Amul ice-cream being available all aroundIndia.The advertising for the company inIndia is being handled by love lints. Nestle has beenincreasing its adverting figure thelatest being in 2002 RS 25 crores.Major Chocolate Products

26. Crunch: Crunch Chocolate is one of the best-loved foods everywhere in the world. Itisone of lifes little pleasures. The attractive tastes and textures of chocolate andchocolateproducts delightthe senses of allages.Introduced in 1938,today CrunchisNestls third largestconfectionary brand sold in about 40 countries worldwide. NestlCrunch is available inthe following varieties: Nestl Crunch, Nestl White Crunch,Nestl Crunch Pieces,Nestl Bunch Crunch and new products Nestl Crunch withcaramel and Nestl Crunchassorted minis.Launched in 1938 in the USA, Crunch was thefirst chocolate bar to combine milkchocolate and crunchy crisps. Crunch is a uniquecombination of smooth Nestlchocolate and crisped rice, which delivers an excitingeating sensory experience ofdistinctive taste, texture and sound.Kitkat: Kitkat Chocolateis one of the best-loved foods everywhere in the world. It is oneof lifes little pleasures.The attractive tastes and textures of chocolate and chocolateproducts delight thesenses of

all ages.The product,developed as WaferCrisp, was initiallylaunched inLondon, UK inSeptember 1935 as Rowntrees Chocolate Crisp. It became Kitkat in1937, two yearsbefore the Second World War.Within two years of launch Kitkat was established asRowntrees leading product, aposition that it has maintained ever since. During theSecond World War RowntreeKitkat was seen as a valuable wartime food and advertisingdescribed the brand as Whatactive people need.

27. For most of its life Rowntree Kitkat has appeared in the well-known red andwhitewrapper. It did, however, change to a blue wrapper in 1945, when it was producedwith aplain chocolate covering due to a shortage of milk following the war. Thisbluepackaging was withdrawn in 1947 when the standard milk chocolate Kitkatwasreintroduced.No one can be absolutely sure where the name Kitkat came from but itis believed to befrom the famous 1920s Kitkat Club in South East London which hadsome influence. Asthe building had very low ceilings, it could only accommodatepaintings which werewide and not very high. In the art world, these paintings wereknown as Kats. Itsbelieved that Kitkat derived its name from paintings, which had to besnapped off to fitinto the rooms with the low ceilings.Reinventing NestleA detail analysisby the companies management to turnaround nestleTop line growth, bottom-linecontribution, difficult market situations. Nestle Indiastrademark `renovate and innovatestrategy is churning with action. Catalyst finds outmore.JUST how much can a housewifeinfluence a Rs 1,688-crore company? Shes someonewhose needs we anticipateTake, forexample, the exhaustive experimental kitchen and sensory laboratory at theplushcorporate headquarters of Nestle India at Gurgaon. Its obviously a first-of-its-kindfacilityand research centre for any food company in India.The objective? Consistent productdevelopment. Also, achieving a preference ratio of60:40 for every Nestle product asopposed to competition. The kitchen comprises a panelof application groups and 15professional tasters checking out new products forconsistency in quality and productevolution on a regular basis.The exercise, has resulted in the creation of two differentflavors of Maggi noodles (curryand tomato), Fruitips candy, besides new formulations ofNescafe and Bar One chocolatein recent months. "And this research model isnt asubstitute for consumer research, orregular test-marketing with the real consumer.


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28. Based on an international research and development model proprietary to Nestle SA,thekitchen is just one component of the Rs 3,000 crore allocated for a centralizedresearchand development cell for the foods conglomerate worldwide, against Rs 2,500crore spenton the same earlier. Another component is the third in a series of multi-cuisinerecipecollections cutting across all Nestle products, in place of the two earlier ones

whichcentered on Milkmaid and Maggi.The Nestle `renovate and innovate mantra,meanwhile, is on in full swing.Four existing brands - Nescafe, Milo, Bar One chocolatesand Maggi super seasonings -have been re-launched in new tastes, packaging and packsizes. And another variant ofKitkat - white chocolate - has just been rolled out.On thelaunch block a month from now are 10 new product variants spread across theculinaryand confectionery segments. The restructuring exercise of Excelcia Foods Ltd -the jointventure company in which Nestle acquired management control followingDabur Indiasdecision to exit non-core areas - has neared completion. Following that,Nestle proposesto enter fresh product categories such as biscuits in the forthcomingmonths.BeveragePartners Worldwide (BPW), the joint venture between Nestle SA and the CocaColaCompany too is looking to tap the Indian market for possible coffee and teavariants.But

its the food majors most keenly awaited venture - ice-cream - thats got theFMCGindustry abuzz. They are very much interested in the domestic ice-creams market.Ofcourse, that requires putting in place a cold chain, besides stabilizing its milk andUHTbusinesses first. Meanwhile, though theres no confirmation from Nestle, theindustrygrapevine suggests that Nestle has begun negotiations with Vadilal formanufacturing andmarketing ice-cream.Another category where Nestle could giveHindustan Lever a run for its money is candy.The company has recently rolled out acandy brand by the name of Fruitips.On the beverage front, following the introduction ofchocolate-and-coffee formulationChoc Cafe and Frappe under the Nescafe umbrella,Nestle has been setting up slosh-typevending machines for iced tea in two flavors - peachand lemon. In an economy thats in a

29. downturn, Nestls performance has been impressive. Net sales for third quarter thisyearwere Rs 533 crore against Rs 469 crore in the same period last year, recording agrowthof 13.5 per cent. While domestic sales grew at 11.4 per cent in value terms, exportsalesfor the quarter increased by 24.6 per cent. Sales during the first nine months of theyearimproved by 17.4 per cent, with a net profit increase of 28.6 per cent over thesameperiod last year.Despite excellent top line and impressive bottom-line contribution,the uncertain anddifficult domestic and international market environment, coupled withseasonalityfactors, will affect their performance in the fourth quarter. Market analystswarn thatincremental selling and advertising expenditure on new launches would dampenmarginsand that it would take time before the new products begin contributions toturnover orprofitability.While the success of the new variants is yet to be gauged,Nestls star performers remainNescafe, baby food Cerelac, Maggi and Everyday.Nestls biggest strength lies increating brands with distinct positioning. Hence, Nescafeis generic to coffee, just theway Maggi has become generic to instant noodles. Magginoodles face no directcompetition, with Top Ramen barely managing to hold ground inthe instant noodlescategory. Another winner has been Maggi ketchup, which, FMCGanalysts say, has beenbuilt from scratch to market leadership position, outperformingKissan.While Nestle has done exceptionally well in Western food categories such asketchup,condensed milk, noodles, coffee and weaning foods, the company hasnt been


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able tohandle Indian product categories such as pickles and tea too well. No one isreallymaking money in pickles. Not only is the unorganized and made-at-home sector toowell-entrenched, even the consumer shows no brand loyalty towards pickles. What drivesherpurchase pattern is new taste and not brand preference.The market for ready-to-cookmixes and soups too has been largely fragmented with adistinct skew towards the

unorganized sector.In chocolates, while Cadbury India continues its stranglehold of themarket, NestlsKitkat, Bar One, Munch and Classic have been performing reasonably.Two recent

30. entrants to this category have been ChocoStick and Milky bar Chocolate, the lattersoftchewy fudge in stick format priced at Rs 5.In the chilled dairy segment, Nestle dahihas recently been extended to Mumbai andPune. While the market for this continues tobe very small with only Mother Dairy andAmul giving Nestle competition in theorganized sector, milk in cartons is a conceptthats yet to go down well with the Indianconsumer. Apart from being expensive, theIndian consumer is still not ready to consumemilk without boiling it. And research hasproved that three-fourths of Indians prefer hotmilk. On the pricing front, Nestlecontinues to target the premium segment. They make

inroads into markets whichrepresent not only potential for consumption, but alsopotential for bottom-line. Nestlspremium pricing strategy is a strength thats worked inmost categories it operates in.Fruitips, therefore, occupies price points of 50 paisa and Re1 per unit against HLLs Maxwhich attacks the unorganized sector with an extremelyaggressive 25 paisa per unitprice.Its the association with quality that works in Nestlsfavour in most product categories.That this hasnt really worked in case of Nestls bottledwater brand, Pure Life, is moredistribution-related, feel industry watchers. Pure Life,launched earlier this year at a pricepoint of Rs 12, has been a lukewarm performercompared to Coca-Colas Kinley andPepsi Aquafina besides, of course, market leaderBisleri. Discounting at the trade levelhas been a problem area with bottled water.Andwhile spends on advertising have been raised at a macro level, brand-wise spendshavebeen re-allocated accordingly.According to the A&M Annual survey on Indias top 200 adand marketing spenders,Nestle was the countrys sixth largest advertising spender in2000-01, recording an adspend of Rs 128.46 crore which amounts to a 13.6 per centgrowth over the previousyear.Nestle Business

31. Nestle has a presence in the following categories - Baby Food, Milk products,Beverages(Coffee, malted beverage), Chocolates & confectionery and other processedfoodproducts. Category wise turnover breakup and growth % contribution 2001 2000 toturnover Rs mn. Rs mn. % yoyMilk Products 43 8159 7375 10.6%Beverages 29 56274903 14.8%Culinary Products 14 2764 2310 19.7%Chocolate & Confectionery 14 26462179 21.5%Total 19197 16768 14.5%BeveragesBeverages like coffee, tea and healthdrinks contribute to about 30% of Nestls turnover.Beverage sales registered a 15% yoygrowth during 2001. While about 14% of salescome from domestic market, exportscontribute to about 16% of sales.Nestls Nescafe dominates the premium instant coffeesegment. Nestls other coffeebrand Sunrise has also been re-launched under the Nescafefranchise to leverage on theexisting equity of the brand. Nestle has focused on expandingthe domestic marketthrough price cuts and product repositioning. However it has beenlosing share in thedomestic market, where it has a 37% market share. Milo, a brown-malted beverage waslaunched in 1996. It has an estimated volume share of about 3% inthe malted food drinksegment. Nestle has launched non-carbonated cold beverages such


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as Nestea Iced Teaand Nescafe Frappe during 2001.Nestle is one of the largest coffeeexporter in the country. Key export market is Russia,besides Hungary, Poland andTaiwan. Nestle has received an award for highest export ofinstant coffee and highestexport of coffee to Russia and CIS for FY00 and FY01.Turnover contribution fromexports registered a 17.5% volume growth in F12/01.Nescafe sales to Russia accounts for

80% (Rs2.5bn) of Nestls Rs3bn export turnover.Infant food/ milk products 32. Milk based products andbaby food contributes to 43% of Nestls turnover. Forensuringregular procurement of good quality milk, Nestle has developed a networkaround itsMoga factory for collection of fresh milk everyday from the farmers. Nestle hasadominating 87% market share in the baby weaning foods with its Cerelac andNestumbrands. Infant milk powder is sold under the Lactogen and Nestogen brands.Brandloyalties are very high in categories such as infant food and weaning cereals,enabling thecompany to command a price premiumOther milk products include dairywhiteners (21% market share) sold under theEveryDay and Tea Mate brands, sweetenedcondensed milk and ready to cook mixes fortraditional Indian sweets sold under theMilkmaid brand. The company also markets ghee(6% market share) under the EveryDay

brand. Nestle has expanded its milk productportfolio with the launch of new dairyproducts such as UHT milk, Curd and Butter.Huge investments are being made inbuilding a diversified dairy business and thedistribution infrastructure for the same. Milkproducts sales registered a 10.6% yoygrowth during 2001.Chocolates &ConfectioneryNestle forayed into chocolates & confectionery in 1990 and has cornered afourth shareof the chocolate market in the country. The category contributes 14% toNestlesturnover. It has expanded its products range to all segments of the market TheKitkatbrand is the largest selling chocolate brand in the world. Other brands includeMilky Bar,Marbles, Crunch, Nestle Rich Dark, Bar-One, Munch etc. The sugarconfectioneryportfolio consists of Polo, Soothers, Frootos and Milkybar clairs. Allsugarconfectionery products are sold under the umbrella brand Allens. Nestle has alsomarketssome of its imported brands like Quality Street, Lions and After Eight. Newlaunchessuch as Nestle Choco Stick and Milky Bar Choo at attractive price points to woonewconsumers. Chocolate confectionery sales registered a strong 21.5% yoy growth in2001aided by good volume growth in Munch, Kitkat and Classic sales. Nestle re-launchedBar-One during the yearCulinary products

33. Ready to cook food/ cooking aides are sold under the umbrella brand nameMaggie.Culinary product account for about 14% of Nestls turnover. Maggie is themarketleader in the noodles (45% market share) and the ketchup (43% market share)categories.Other products, sold under the umbrella brand Maggie, are ready-to -cookgravy/sauces,soups, seasonings, as well as traditional Indian foods such as pickles andinstant snackmixes. New taste variants are continuously launched to add variety to theproductofferings. Culinary product sales registered a 20% yoy growth during 2001.FutureprospectsNestle is focused on product expansion and improvement of distributionefficiency. TheDairy business is being expanded and is expected to drive growth in thelong run,although short-term profitability may be impacted in the investment stage.Thecompanys entry into the mineral water segment is a concern, as the segment isalreadyovercrowded and the company faces stiff competition especially from theColamanufacturers. Acquisition of an established brand could catapult Nestls positionin thesegment. In categories like beverages, culinary products and chocolate


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confectionery, thecompany is looking at driving growth through launch of smallerSKUs, thus enablingaffordability to a wide section of the population.Earnings sensitivityfactors Success of new category launches (Milk and Mineral Water) which involveconsiderable investment for promotional schemes and ad-spend and yield returns onlyafter a few years. Continued exports to Russia, Nestls main market for coffee exports.

Good monsoon ensures adequate availability of raw materials, which are mainlyagricultural in nature. Raw material prices have significant influence on margins. Government policies in terms of licensing, duties, movement of agricultural commoditiesetc. Market growth driven by overall economic growth and urbanization.

34. Rupee depreciation improves export realizationsDIRECTORS REPORT (7thMarch, 2001)1. Operations:Domestic Sales grew by 7% in value and 15% in volumeterms, during the year. ExportSales grew by 16% in value and 32% in volume. Profitafter Tax grew by 20% fromRs985mn to Rs1186mn.The market and economic growthcontinued to be sluggish during 2000. Concertedefforts of the management to maintainthe price of products (in some cases evenreduction of prices), better working capitalmanagement, continuous improvement ofsupply chain and a focus on flagship brands,

contributed significantly towards the aboveprofitability. The favourable impact of thecommodity prices during parts of the year andthe product mix, also contributedsignificantly towards improvement in profitability.During the year, the Company retiredcertain fixed assets from active use at variouslocations and the impairment loss on suchfixed assets has been charged to the Profit andLoss Account.Out of business prudence,the Company supplemented the Contingency Provision withfurther amount in 2000 ofRs295mn (net) to provide for various contingencies resultingfrom matters mainly relatingto issues under litigation, dispute and managementdiscretion.Your Companys overallsales and profit progression during 2000 can be consideredsatisfactory and in line withthe expectations.The current year has commenced as per plan in the domestic market andyour Directorsare hopeful of continued good results. However, with the current level ofinflation andeconomic indicators pointing towards a sluggish market, it would be difficultfor the

35. Company to maintain the level of earnings unless the Company takes price increaseonfinished products which would depend on market conditions and competitoractivities.2. Exports:Export Sales for the year at Rs2655mn have grown by 32% involume terms, over the lastyear. This has been mainly due to the higher exports ofNESCAFE to Russia, buoyantsales of Instant Tea and good performance of the culinaryproducts. However, depressedgreen coffee prices in domestic and international marketskept the export realizationslow. Measures taken for tapping new market and productopportunities have alsocontributed to this growth. The export competitiveness of valueadded instant coffeemanufactured in India continues to be adversely affected by thepurchase tax levied ongreen coffee. Efforts continue to tap new market and productopportunities.3. Dividends:Interim dividend of Rs. 8.00 per equity share, includingRs4.50 per equity share out ofundistributed profits of the previous financial years, waspaid during 2000.Your Directors are pleased to recommend to the Annual GeneralMeeting a final dividendof Rs6.00 per equity share. The dividend, if approved, shall bepayable to theshareholders registered in the books of the Company and beneficial ownersfurnished bythe Depositories, determined with reference to the book closure from 16thJune, 2001.4. Business Development:In line with the Companys objective to provide


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superior value in every product categoryand market sector, efforts were focused toprovide quality products to customers atattractive price points. While the Companycontinued to generally maintain price pointsacross all the product categories, the pricingof some products were also reduced to meetconsumer expectations.

36. MAGGI Noodles re launched in 1999 in response to popular consumer tastepreference,continued to boost sales during 2000 in the culinary segment. New flavourprofiles wereintroduced in the bouillon business.The market continued to react positivelyto the initiatives taken in the recent past to growthe consumption of instant coffee in thedomestic market. The new NESCAFE pricingand bringing the popular SUNRISE brandunder NESCAFE umbrella to benefit from itsassociation continued to strengthen thecategory. NESCAFE Frappe a blend of coffee,mocha and vanilla, which makes adelicious frothy cold coffee, was launched in selectmetropolitan cities in the third quarter.This was another strategic launch and seeks toaddress consumer with preference for colddrinks. NESCAFE Frappe has receivedencouraging response.In the area of Chocolate andConfectionery NESTLE MUNCH Crisp wafer biscuit withchocolayer, which waslaunched in select markets in1999, was rolled out nationallyduring 2000 and had good

growth. Continuing with the efforts to meet consumerexpectation on price points, thepricing of KITKAT was also reduced during the later halfof the year. MouldedChocolates and clairs also showed satisfactory growths. This hasalso helped inimproving the infrastructure and distribution reach of the Company in theChocolate andConfectionery segment.In the milk and cereal categories, EVERYDAY Dairy Whitenerand cereals hadsatisfactory growth. NESTLE Growing up Milk; a new product offeringsuperiornutrition, launched in 1999 was rolled out nationally during the year.YourCompany has also entered the Chilled Dairy business with the recent launch ofNESTLEDahi in select cities of the North. The initial response has been veryencouraging and yourCompany is working on plans to further leverage the internationalexpertise of NestleGroup, Switzerland in the area of Chilled Dairy.The performances of other products weregenerally in line with expectations. A fewproducts whose performance was notconsidered satisfactory are under constant reviewfor corrective action.

37. Your directors are pleased to report the implementation of the two newprojectsundertaken by the Company during 2000 packaged milk and packaged drinkingwater.Both the projects seek to leverage the worldwide experience and knowledge ofNestleGroup, Switzerland who are the leaders in these product categories.In line with itsobjective of long term growth and entry in significant value added foodsegments, theCompany forayed into the Ultra Heat Treated (UHT) liquid milk businessin April 2000by launch in Mumbai. Packaged UHT milk seeks to address growingconsumer concernson adulteration and product safety and brings with it reliability,complete hygiene andsafety. It offers convenience to the consumer, in terms of a shelflife without anydeterioration in the product quality and easy usage without refrigerationor boiling. UHTMilk has received encouraging response and has been rolled out in selectcities of theWest, South and North.The project for bottled water was implemented at the Samalkhafactory and waterlaunched in February, 2001 under the brand NESTLE PURE LIFE andis available inselect cities. NESTLE PURE LIFE contains a balance of essential mineralsand a lightpleasant taste and is manufactured under stringent quality control. Thepackaging hasbeen specially designed to maximize safety for the consumer and protectfrom possibletampering.The new categories like bottled water and liquid milk are lower


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margin categories andwill require considerable investments. Your Company sees them asstrategic and asrequiring support on a sustained basis.The two new Sales Branches atBangalore and Chandigarh set up in 1999 to furtherstrengthen the flexibility of the Salesorganization and for speedier response to the marketconditions, have started showingpositive results during the year. With a view to expanddistribution and increase

penetration in smaller towns, a concerted drive was undertakento make productsaffordable and accessible to consumers. An initiative taken includesmore penetrativepricing and smaller packs covering brands such as EVERYDAY DairyWhitener, MAGGINoodles, MILO Chocolate Energy Drink and NESCAFE InstantCoffee. The response hasbeen encouraging.

38. The Alternative Trade Channel unit created in 1999 undertook initiatives to taptheopportunities for out of home consumption, particularly for instant coffee andchocolateand confectionery and to extend availability of product to nontraditional outlets.Theoutcome of these initiatives has been encouraging and is beingconsolidated.Availability of NESCAFE has been enhanced through an expansion of thevendingmachine network and new consumption opportunities for Chocolates and

Confectionerywere identified and developed in areas like railway platforms, collegecanteens and majorevents.On the manpower development front, programmes during theyear continued to befocused on the operational front more particularly sales andproduction.To support the growth plans and distribution strategy, and simultaneouslyimprove theoperational efficiency, the thrust on strengthening supply chain continued toreceiveattention during the year. In addition to consolidating the improvements madeover thelast two years, significant progress was recorded in following areas:a) Reductionin finished goods inventory pipeline to improve freshness of stocks andreduce workingcapital.b) Control of distribution costs through innovative measures, despite steepincreases incost of fuel.c) Sustained improvement in customer service level to improveproduct availabilityacross all geographies and channels.d) Reduction in obsolescence ofmaterials.5. New Head Office:The Company moved into its new Head Office at Gurgaon.The new Head Office hasbeen designed to provide the employees with work environmentthat enhances whitecollar productivity. The new Office design seeks to stimulateimproved internalcommunication and enhance transparency in working. State of the artfacilities for

39. training, tasting, and a fully equipped test kitchen, have been made available thatwillfacilitate the efforts for innovation and renovation.

40. 6. Technology from Nestle:The Company being a part of Nestle Group, Switzerlandbenefits from its access toproprietary technology, technical and non technical expertiseand the fruits of theextensive centralized Research and Development. The diversifiedknowledge andexpertise have contributed significantly to the operations of yourCompany over theyears. Some of the key areas, which have benefited are:a) Manufactureof products of truly international quality. Product quality, whichencompasses taste,appearance, convenience and overall value for money, is a criticalfactor in consumerchoice and in a competitive market like India could determine thevery survival of theproducts. The high quality of products of your Company is borne outby the position andimage the products enjoy in the market and your Company continuingto be a leadingexporter of value added Instant Coffee in the country.b) Benchmarking of productsagainst competition to achieve an advantage in productquality, for increasing


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competitiveness.c) Access to latest technological developments, such as Spear pointTechnology forCocoa based products implemented during 2000 which would improveproduct qualityand competitiveness and the MUCH technology for instant coffeemanufactureimplemented during 1999, which would enhance the productivity byincreased extractionof coffee solids from coffee beans.d) Implementation of project for

bottled drinking water.e) Product innovation and renovation some illustrations areMUNCH Crisp wafer biscuitwith chocolayer; Nestle Dahi; Nestle Milk (UHT); JuniorFoods; NESCAFE Frappe;KITKAT Milky; new and improved flavours profiles ofbouillons; and re-launch ofMAGGI Noodles.f) Enhancement of skill and competence ofCompany personnel due to the trainingreceived.

41. g) Implementation of environmentally sound business practices.h) Technicalexpertise in various forms including Information Technology, which hasenabled thebusiness of your Company to grow and sustain.I) Providing assistance by way ofimproved technical and quality standards to localmanufacturers, who have contractmanufacturing arrangements with your Company.Your Directors are pleased to report thesigning of the General License Agreement withthe collaborator providing license of all

intellectual property rights for the productsmanufactured and sold by the Company usingsuch intellectual property. The GeneralLicense Agreement which is effective 1st January,2001 aligns the Company with theglobal practice of Nestle Group and would bebeneficial to the Company. Undoubtedly,without the know-how provided and ongoingtechnical assistance, your Company wouldhave found it difficult to achieve the progressthat has been attained. Your Directors notewith satisfaction that being a part of NestleGroup, the ongoing technology transfer andaccess to the fruits of extensive Research andDevelopment and authorization to useinternationally famous brands, would help theCompany significantly in its efforts toremain competitive in the market.7. Moga MilkDistrict:Your Company which started milk collection in Moga in 1961 with a dailycollection of510 kg of milk from 180 farmers has expanded its operations to an averagedailycollection of 540,000 kg of milk with total yearly collection of around 200 million.Kg ofmilk from nearly 81,000 farmers in its milk district. The Company owns no farmsorcattle but through its Agricultural Services world wide initiative of Nestle Group,worksclosely with the farmers to obtain the highest quality raw material. Recognizedas"Partners in Progress", Nestle Agricultural Services at Moga factory has contributeditsmite to the up-liftment of the milk district. Some significant steps taken by theCompanyin the recent past are:a) Installation of farm coolers.

42. b) Milk Collection Centers provided with new and improved equipment to enable onthespot testing of quality.c) Initiation of mechanization of large dairy farms.d) Farmerdevelopment programmes.The Company has over the past decades been providingfacilities and support to the dairyfarmers in areas such as veterinary services, breedimprovement; balanced cattle feedmixture, feeding for dairy herds, fodder seeds andtraining for improved farmmanagement practices.The milk district is a reflection of yourCompanys commitment to nurturing quality,technology and improved systems in thecommunity and the companys initiatives toimprove living in the region.9. InformationTechnology:Your Company continued to make significant investments in the InformationServices ofTechnology area to cope with the growing information needs necessary tomanageoperations more effectively in a complex supply chain environment.10.Community Health:Recognizing its responsibility to the community in which it operates,


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the Company overthe years has been taking initiatives in the area of community health atlocations aroundits factories. Some of the initiates taken in the recent past are:a) ProvideGovernment and village schools with facilities for toilets and hygiene drinkingwaterincluding deep bore wells, where necessary.b) Support to health officials in Pulse Polioprogrammes.C) Sponsorship of treatment of TB patients at clinic runs by NGO.

43. d) Healthcare Programmes with focus being on well being of employees andtheirfamilies covering vaccination, awareness programmes and health check up.

44. CADBURY: THE LEADERCadbury, a subsidiary of CadburySchweppes is adominating playerin the Indian chocolatemarket with strong brands likeDairy Milk, FiveStar, Perk, etc.Dairy milk is in fact the largestchocolate brand in India.Cadbury India nowstands onlysecond to Cadbury UK in sales of Dairy Milk. The company is pushing thegiftingsegment, through occasion linked gifts. Chocolates contribute to 64%ofCadburysturnover. Confectionery sales, accounting for 12% of turnover, is contributedlargely byclairs. The company attempted expanding its confectionery product portfolio,withlaunch of sugar based confectionery Googly and Frutus, without much success.Cadburyalso has a strong brand Bourn vita in the malted health drink category, which

accountsfor 24% of turnover.Chocolate consumption: in India is extremely low. Percapita consumption is around160gms in the urban areas, compared to 8-10kg in thedeveloped countries. In rural areas,it is even lower. Chocolates in India are consumed asindulgence and not as a snack food.A strong volume growth was witnessed in the early90s when Cadbury repositionedchocolates from children to adult consumption. Thebiggest opportunity is likely to stemfrom increasing the consumer base.Competition:Cadbury continues to dominate the chocolate market with about 69%market share. Nestlehas emerged as a significant competitor with about 20% marketshare. Key competition inthe chocolate segment is from co-operative owned Amul andCampco, besides a host ofunorganized sector players. There exists an even largerunorganized market in theconfectionery segment. Cadbury holds 4% of the market sharein this segment. Leadingnational players are Nutrine, Parrys, Ravalgaon, Candico,

45. Parles, Joyco India and Perfetti. The MNCs such as Joyco and Perfettihaveaggressively expanded their presence in the country in the last few years.Maltedfood drinks: Category consists of white drinks and brown drinks. White drinksaccount foralmost two-thirds of the 82,000 ton market. South and East are large marketsfor fooddrinks,accounting for the largestproportion of all India sales.Cadburys Bourn vita istheleader in the brown drink(cocoa based)segment. In the white drinksegment,SmithKlines Horlicksis the leader. Other significant players are Heinz (Complan), Nestle(Milo), GCMMF(Nutramul) and other SmithKline brands (Boost, Maltova, Viva).Cadbury holds 14%market share in food drinks segment.Performance: Despite toughmarket conditions & increased competition Cadburymanaged to record a double digit(11%) top line growth in 2000. The company achieveda volume growth of 5.2%. Thiswas achieved through innovative marketing strategies andfocused advertising campaignsfor flagship brand Dairy Milk... Net profit rose sharply by41.8% to Rs520mn. Reducedmaterial and energy costs and tighter control over workingcapital and capital expenditureenabled the company to improve profitability. Companyadded 8mn new consumers andsaw its outlets grow to 4.5 lakhs and consumers to 60mn.Outlook: The Cadburymanagement has cut down on its growth target by setting a 10%average volume growthtarget for the next three years (as against previous growth targetof 12% volume growth


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and 20% value growth). Coupled with inflationary priceincreases, this could translate intoa top line growth of 14-15%. This target also appearsdifficult to achieve given theconsumer slowdown and the fact that the company isdependent on a single category Chocolates to drive growth. In the malted food drinkscategory the company faces stiffcompetition from SmithKline Beecham, and marketshare has been stagnant at around

14% despite the companys efforts and investments inrepositioning the brand. Efforts atexpanding confectionery portfolio have also not 46. yielded desired results. The management has declared its intention to focus only

onclairs (which form a major portion of its 4% share in the confectionery segment) forthetime being in this category. In chocolates too, the onus remains on the 2-3 keybrandssuch as CDM, Perk and clairs, which have supported growth in thepast.Cadburys Ad CampaignKuch meetha ho jaye suggests Cadbury India, itsbrandambassador Amitabh Bachchan smiling down thehoardings lined along MumbaisMarine Drive rightdown to the companys corporate head office atMahalakshmi. Whilethe chocolate major is waitingfor Diwali to see a turnaround in its business aftertheworms controversy, at the moment its all about drivinggrowth for the category which

has seen a decline since thefirst quarter of this year.Being the market leader in chocolateswith a 70 per cent share, the company hasattempted to stretch the boundaries withinchocolate confectionery. It has also beenadventurous in unleashing a brand new categorywithin chocolate early this year.Introducing the concept of sweet snacking, it launchedCadbury Bytes in the south withthe positioning `Snacking ka meetha funda. The productis a crunchy wafer pillow with achoco-cream centre and is being rolled outnationally.Explaining the need to introduce this new category, Bharat Puri, ManagingDirector,Cadbury India, says, "While we were sure of our core competencies, there wasneed forinnovation to deliver double-digit growth. What we found was that we wereunder-represented in the area of snacking on the go and that there was a need for a lightcrunchysnack." While entry into salted snacks was ruled out, sweet snacks were theobviouschoice, and Bytes is unique to the chocolate majors Indian portfolio.Getting theright product and packaging was a challenge for the company. It has sub-contracted theproduct to get the volumes and is poised for a national launch. Adds Puri,"After all thiswas the first category anywhere in the world that Cadbury was entering and

47. we did not have the expertise. So the best way was to test-market the product andtodaywe find that it has already bagged five per cent of the chocolate market."Thecompany has no apprehensions of cannibalization of its chocolate brands. It believesthatwhile its chocolates are more of indulgence products, Bytes is about snacking whenone ishungry and can be treated as a snack in between meals.In the past when Cadbury tried outa biscuit brand, Chocobix, there was fear about someamount of cannibalization. After all,it was simply a biscuit coated in chocolate, and wasperceived to be another chocolatebrand in Cadburys portfolio.Stresses Puri, "Cadbury Bytes is adjacent to chocolates andin the markets that we havelaunched it, there has been no cannibalization. Chocolates arelargely an indulgenceproduct while Bytes is about between-meals snacking. A productwhich is consumedwhen one is feeling hungry or peckish."Another thrust area Cadburyhas been re-evaluating is confectionery. While growth ratesin this segment are healthiercompared to chocolates, it has always been a difficult marketto crack. Cadburys ownexperiences have led it to withdraw certain brands but now withWarners Lambertsinternational kitty under its fold, there are chances of reconsideringthe segment once


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again."Through the acquisition of Warner Lambert, there is a great set of brandsalreadyavailable to us. We are still examining which are the right brands for the Indianmarket,"says Puri. Cadbury has already identified Halls as the strongest brand inWarnerLamberts portfolio and re-launched the brand early this year. Adds Puri, "Hallswas notdoing well for a while so we re-launched it this year. When you have the existing

assets,it is necessary to get them right first. Halls is the first brand that we have revivedand it isnow doing well."In April 2003, Cadbury Indias foreign parent acquired Pfizersinterests in theconfectionery business for $4.2 billion. That included the Warner-Lambertproductportfolio, known best for Halls, Clorets and Chiclets. The acquisition is nowpoised tobecome a growth area for Cadbury India, whose confectionery brands includeclairs and

48. Googly. But instead of selling confectionery through its existing chocolatenetwork,Cadbury has set up an entirely new network.While Halls has been revived withnew packaging, there has been no change in the statusof its other brands. Chiclets hadbeen discontinued long before it belonged to Cadburyand Clorets continues to sell with asmall franchise. But now Cadbury is looking closelyat Warner Lamberts gums portfolio

(it is one of the worlds largest gum manufacturers)and is considering its viability for theIndian market. Sugarless gum brands such asDentyne Ice and Trident White have beenknown for their functional benefits worldwidebut steep pricing may be a deterrent to theirentry into the country."The gum market has not done well in India. But gum hasfunctional properties and is notmerely a breath freshener. We are now evaluating whetherthere is a market for them inIndia and whether it is going to be worth our while," saysPuri.The confectionery market may be huge in volumes but making money on it remainsatough task with its low margins. Governed by price points, one can sell at only at a Re1or 50 paisa unit price. "The issue is not of garnering volumes but making money outofthose volumes. The offer should be one which can get you both top and bottomlines,"states Puri. Having shifted focus from Googly, Cadbury had been tasting successwith itsage-old clairs which continue to bag almost 50 per cent of the market."There isscope in the market. Our clairs has been growing and this has been evident inour pastnumbers," claims Puri. At the same time the sugar confectionery market ishighlycompetitive and its all about finding the right consumer proposition and abusiness modelthat can deliver both top line and bottom-line growth.In spite of the new categories beingexplored by Cadbury, its star brand remains CadburyDairy Milk (CDM) which continuesto corner almost 30 per cent of the chocolate market.It is followed by brands such as 5-star, Perk and Gems. Each of these has been revampedover the years to generateexcitement for the category. For instance, recently Perk wasrejuvenated as a crunchierwafer while CDM came up as a white-and-brown variant inthe market.

49. "The chocolates category thrives on excitement. Its all about giving the consumerachoice and taste which they enjoy," adds Puri. For instance, in beverages, in spite ofitsmalted food brand Bourn vita, Cadbury decided to introduce a milk additive brandsuchas Delite, just to give its consumers the real taste of chocolate. Delite has addedflavourssuch as strawberry and mango and is not expected to encroach upon Bourn vitasshares.According to Puri, "There is still a large section of people who do not addanything tomilk. This will apply to children for whom milk is a problem and having anadditive willmake it a pleasurable experience."Making changes in its distributionnetwork, Cadbury split its sales and marketing teambetween its mass (confectionery) and


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core brands last year. "Chocolates needed to getretailed at larger and better outlets whileall the products below Rs 3 needed a differentdistribution network," says Puri. TodayCadburys distribution network reaches out to sixlakhs outlets each for its confectioneryand chocolate brands.With the worms episode behind it, there are other issues botheringthe company,especially which of the rising input costs of cocoa sugar and milk. Although

Cadbury hasbeen able to maintain prices, it is still grappling with the upward trend inprices for itsbasic raw materials. But its challenge remains that of growing the chocolatemarket inspite of the odds. Posting a turnover of Rs 729 crore last year, Cadbury iswaiting forDiwali to make a turnaround for both itself and the category which has beenthroughtroubled times.Getting growth should not be an issue, according to analyststracking the company.As Nikhil Vora, Senior Vice-President (Research), SSKISecurities, observes,"Considering the company was getting growth before the infestationepisodeoccurred, it should not be a tall order to get back to those levels. Thecompanyshould be able to record a 15 per cent compounded rate of growth over the nextfewyears." That would be a sweet recovery indeed for Cadbury.

50. Cadbury follows small packs strategySmall has indeed proved to be beautiful forCadbury. The company, after findingexceptional success inthe launch of small packsofPerk chocolate, has nowlaunched Picnic in smallpacks of 26 Gms. priced atRs 10. The43-gm packs arestill available and are pricedat Rs 15.Cadbury has embarked on a strategywhich involves increased consumption of itsproducts through enhanced reach,affordability and visibility, which it feels can beattained by creating new markets,widening the depth of its distribution network andworking towards a comprehensiveportfolio with brands across all price segments.On the distribution front, the companyaims to increase the number of its distributionoutlets from the present 4 lakhs to 5 lakhsby the year 2000.To attain the objectives of affordability, over the past two yearsCadbury has beenchanging its product portfolio from pure chocolate items toconfectionery which includescaramel, nuts, raisins and wafers. The aim is to bring downthe price line and enter othermarkets than the purely urban ones.In line with this, itlaunched Googly in early 1997, and followed it up with products likeMocka and EnglishToffee.The strategy of the company has been to launch one major product and follow itup withsmaller products, for instance, the launch of Picnic was followed by CadburyGold and acouple of sugar confectionery launches.

51. Intense competition from Nestle is one of the reasons Cadbury has reworked itsproductrange and made efforts to enter the mass product segment. In 1998, the companymovedinto smaller sized versions of Diary Milk and Perk and found to its delight thattheintroduction of economy priced models led to more people eating chocolate. In thesameyear, small packs increased chocolate volumes of Cadbury by 19 per cent andmarketshare to 70 per cent from 69 per cent in the previous year.Cadbury now has amarket share of 70 per cent of the chocolates market. It manufactureschocolates, sugarconfectionery and malted drinks. Chocolates constitute 71 per cent ofthe total turnover,malted drinks 22 per cent, and sugar confectionery 7 per cent.Nestle, with a 20 per centshare in the chocolates market, is expected to respond withMunch, a chocolate brandmeant to counter Picnic.Cadburys BusinessCadbury dominates the Ind ian chocolatemarket with a 65% market share. Besides, it hasa 4% market share in the organized sugarconfectionery market and a 15% market sharein milk/ malted foods segment.Changingproduct mix Contribution to turnover Contribution to turnover 1994 2001Chocolate 59%


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creating new reasons forconsumption.Cadburys Market SegmentsThe marketplace forany product is comprised of many different segments of consumers,each with differentneeds and wants. Market segmentation can be defined in a number ofways, such as: demographic variables (e.g. consumers age groups, gender, marital status, income etc) the lifestyle of consumers (i.e. their interests and activities) The benefits which

consumers look for in a product or n the occasions when the product might beconsumed.Cadbury takes into account all of these factors when producing a range ofproducts. Ittargets different segments within the market, such as the: break segment -products which are normally consumed as a snatched break and often with tea or coffee,for example Cadburys Timeout and Snack range Impulse segment - these products aremost often purchased on impulse, eating there and then. They include products such asCadburys Twirl, Moro, Star bar, Crunchie, Fuse and Dairy milk take-home segment -this describes products that are normally purchased in supermarkets, taken home andconsumed at a later stageGift segment - boxes of chocolates and other products purchasedfor gift occasions

55. Earnings sensitivity factorsCocoa bean prices: Domestic as well as internationalprices of key raw material - cocoahave significant impact on margins.Excise duties:Changes in excise levied on malt and chocolate influences end productprices and therebyvolume growth as well as margins.Changes in custom duties and foreign exchangefluctuations, as 20% of raw material isimported.Competition from MNCs like Nestle aswell as imported brands. Increasingcompetition puts pressure on advertisement budgetand margins. However on thepositive side, it helps in expanding the market.

56. CADBURYS FAILURES:How Cadburys positioning went haywire with`gems`Gems present an unusual case of how a textbook-perfect, ultra-sharp positioningcanactually become a disadvantageAt 34, Gems is one brand in theCadburys portfoliothatrefuses to grow up. Ofcourse, that is not such aliability now that children playa keyrole as consumers.What it does mean, however, is that Cadbury has to constantly work atkeeping its ageingbrand forever young. How has it managed so far? Gems was a sluggishperformer in thelate nineties and its market share slid dramatically. Now, the brandappears to beregaining some of its toddler energy and a campaign that is scheduled tobreak in 2003 isexpected to help further.Gems presents an unusual case of how atextbook-perfect ultra-sharp positioning canactually become a disadvantage. Of course,Cadbury doesnt consider this a problem yet.Cadbury actually consider Gems one of ourpower or advantage brands simply because itwas specifically developed for the kidssegment. And it has no competition at all in India.Cadburys problem is that Gems which is technically called a sugar-pannedconfectionery item that comes in colourfullittle buttonshas traditionally been sosharply targeted at children below ten years thatit did not lend itself readily to brandstretch as its target audience grew older. Even asCadbury successfully extended itsappeal from children to adults from 1996 onwards forits regular chocolates, the companylearnt a bitter lesson when it tried doing the same withGems.Through the seventies and eighties, Gems was one of the few options available totheIndian consumer, and more specifically the child, in terms of chocolate brands, theothersbeing CDM, Cadburys Five Star and Amul chocolates.

57. The other major advantage that Gems enjoyed probably created problems forCadburyslater the fact that it never faced competition. Nestle and Mars never broughttheirglobal brandsSmarties and M&M respectively.This was because, both the


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on thetop were also introduced. Then in early 2002, new cricket ball packs wereintroduced.This combined play value along with low costs.The innovation seems to bepaying off: This is equal to that of Rs 5 pouches, whichwere the highest contributors tothe total sales. The Re 1 packs now contribute to about

59. 20 per cent of sales. The company claims that these SKUs have now enabled Gemstostabilize its market share.But this does not mean Gems problems are over. For one, thecompetition to Gems hasextended to a further range of low-priced impulse purchases,which are crowding retailstores.For another, CDM, with a wider network of SKUs, andPerk are having the biggest biteof the consumer mindshare. So Cadbury seems to be lyinglow on Gems, especially onthe advertising front. The brand has been losing out to itsportfolio siblings when itcomes to retail visibility and booking order sizeas thenumber of SKUs of otherCadbury brands have increased. External face of the brand hasbeen far less glamorousthan other Cadbury brands.But all this is being compensated forby promos and innovations in packagingforinstance; Cadbury has introduced newstand-up trays for the tube packs to ensure countervisibility.However, as Gems picks uplost growth rates, there is a new movement that could createproblemsone that is partly

Cadburys creation. The newly-launched popsicle Chockilaunched to counter NestlsChocoStickpriced at Rs 2, has started eating intoGems equity. In fact, this segmenthas grown to 11 to 12 per cent of the chocolatemarket at the cost of Gems.UnlessCadburys is able to come up with more gems of innovation it may find one of itsoldestyoung brands succumb to old age.TEMPTATION CHOCOLATE GIANT LIVED TOREGRETIt is a problem faced by multinational companies: how do they tap into theconcerns oflocal consumers to make their advertising more relevant?The marketingpeople at Cadburys India thought they would try to sell more chocolateby playing on thebiggest issue facing the worlds largest democracy. That is Kashmir,which continues tothreaten to plunge India and its neighbour, Pakistan, into nuclear war.

60. Newspaper advertisements for the Temptations range of chocolate showed a mapofKashmir alongside the riddle: "Im good. Im tempting. Im too good to share. What amI?Cadburys Temptations or Kashmir?"To make matters worse, the ad was timed tocoincide with Indian Independence Day,when nationalist feelings were running at theirhighest.Cadburys India is a wholly owned subsidiary of Cadbury Schweppes which hasoperatedin the country for more than 50 years. It apologized after protests againsttheadvertisement whipped up by the ruling Bharatiya Janata Party (BJP), which playsonHindi nationalismSWOT ANALYSIS OF CADBURY INDIAStrengths Strong Brandnames like Cadbury dairy milk, Five Star and clairs Rich Product Mix Support fromthe parent Cadbury SchweppesWeakness Ltd. Key products, only one central brand(CDM). Pralines range totally wising in India. Lack of launching products in ruralIndiaOpportunity The Indian market and more specifically the urban areas where thepenetration of Chocolates is low can be developed as a future market throughaffordability and availabilityThreat Stiff competition in confectionary segment Thecompany has large exposure to foreign currency exchange rate risk mainly on account ofimported cocoa beans and cocoa butter in US Dollar and Pound Sterling

61. MARKET SEGMENTATIONThis can be done in two ways, product forms andcustomer basedWith respect to product formsThere are four major segments in thechocolate industryA. Moulded chocolate segmentThis segment constitutes 50 % of thetotal market Cadbury diary milk Cadbury s flagshipbrand has 50 % of this segment


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market .To position CDM in this segment Cadbury usedthe traditional demographicvariables of age, socio economic groups and usage intensity.CDM was positioned as aproduct that elders brought for their children and recently it hasshifted this positioningand has not only included parental love but has said that it is giftfor someone you loveand that can be anybody not only parents and children Cadbury hasassociated itself to

enduring and emotional values of love sharing and affection andreward considering thatCDM acts as a trendsetter for all the brands in this segment.Amul tried to be different andat its initial product launch as Cadbury had targetedchildren they had targeted teenagersbut unfortunately they were unsuccessful.The Cadbury brands in this segment areCadbury diary milk, Cadbury fruit and nut andCadbury temptation CDM is the leadingbrand here and others act as an endorser of thebrand here.From around 1993 this segmentbegan showing signs of maturity. This was hurtingCDM. This led to Cadbury attemptingto rejuvenate the segment. They changed their corecustomer from children to that of theuniverse, which means from children to adults thisattempts to redesign the market toenticing all age groups, helped bring about changes inthis segment. Today the notionassociated with the consumption of chocolates is that ofcasual ness instead of just product

consumption. Today this segment grows at 40 % perannum and is likely to remain animportant segment for further growth.B. Count line Bars SegmentThis segment forms 33% of the chocolate market. This segment is mostly targeted to theteenagers. MajorCadbury brands are 5 star, break, crisp, and double decker, perk. 5 star

62. in doing well here about 50 % of the segment while the rest of the brands acts asendorsernestle has a minor presence in this product category with bar one.Growth of asub segment chocolate wafers: Chocolate wafers are the new productsbeing offered bythe chocolate companies today in order to expand the market. In 1995Cadbury and nestlelaunched perk and Kit Kat respectively. These were wafer-enrobedchocolates in a newcontext and a different benefit offering. Both chocolates had a snackpositioning. Perkoffered the anytime anywhere snack proposition thodi se pet pujawhereas Kitkat tried topromote snacking through have a break have a Kitkat the growthrate of this segment is 15%- 20 % annually and is estimated to be worth over Rs 100crores making it a verylucrative segment.Internationally confectionery products like wafer chocolates have avery high tonnageand have a much bigger future than plain chocolates. Market researchand succeeds ofthese two brands suggest that Indian consumers and ready to accept waferchocolateproposition. This conviction of both Cadbury and nestle towards this segmentcan begauged from the fact that both brands are seeking unprecedented allocation offunds tothe tune of 60 to 70 % of the total advertisement budget of both companiesandchocolates.A new entrant in this category is Cadburys Picnic it is three layeredchocolate coatedwafer bar with dry fruits and caramel and crispies priced at Rs 14 for40gm bar. Picnicwill be used not only to expand the functional segment of the market butalso to counterkit Kat and other important bars (Snickers, Mars, and Lion) as against perkwhich ispositioned as a light snack picnic is positioned as a heavy near meal substitute.Inkeeping with the company new strategy of expanding the market this product hasbeenlaunched to develop the snacking area in the chocolate market.C. Choco-pannedsegmentsThis segment forms 4 % of the total market and Cadbury has 100 % of themarket in thissegment. The major brands are nutties caramels butterscotch band tiffins.All of thesebrands have been used by Cadbury to drive variety induce gifting practices


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and serve tosome specific taste preferences. Cadbury doesnt advertise these brands theyhave beenused as flanker products.

63. The opportunity for growth in this segment is high with the imminent entryofmultinationals like mars and Hersheys. This is also likely to pose a threat toCadburywhat with its complacency.D. Sugar panned segmentThis segment forms 15 %

of the total and Cadbury has about 98% of this .Its majorbrands being gems and clairs.clairs has been used strategically to foster chocolateconsumption among children aswell as adults by offering ` guilt free eat no more than abite full at a convenient pricepoint (65% of clairs eaters are from the householdearnings less than RS

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