A dissertation report on indian chocolate industry —

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1. DESSERTATION REPORT ON INDIAN CHOCOLATE INDUSTRY Submitted in

the partial fulfillment of the award of the degree of Submitted by: (MBA IV SEM)

ENROLLMENT NO.AMITY INTERNATIONAL BUSINESS SCHOOL (AMITY

UNIVERSITY,NOIDA, Sec-44.)

2. ACKNOWLEDGEMENTI would like to pay my gratitude to ………………….., and

also wish thanks to………………………. AMITY BUSINNESS SCHOOL International

Businessprogramme. Again, I greatly appreciate the diligent support provided by all my

colleagues, bothacademic and professional and the faculty members if AMITY for their

wholeheartedsupport and co-operation.Last but not the least, I would like to thank

……………………., my project guide for hisvaluable insight and unending

guidance.Above all, I thank God for giving me courage and wisdom to complete this

piece of worksuccessfully in time.

3. Contents Titles1. Introduction2. Objective3. Research Methodology4. Chocolate

Industry5. 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 Market

Boundary16. Price Sensitivity17. Consumer Buying Behavior14. Industry Structure and

Dynamics15. The Rural Conundrum16. Key Success Factors17. Product Life Cycle18.

Positioning19. Procters 5 Force Model18. Rural Market Initiatives20. Suggestions21.

Conclusion22. Bibliography

4. EXECUTIVE SUMMARYThe Cadbury‘s India‘s number one chocolate is able to

share with their market insightsbased upon unparalled breath of chocolate experience.The

merge in 1969 with Schweppes and the subsequent development of the business haveled

to Cadbury Schweppes taking the led in both, the confectionery and soft drink

marketintech UK and becoming a major force in the international market. Cadbury

Schweppestoday manufactures product in 60 countries and a trade in staggering 120.This

project is a sincere effort to look for the market potential in chocolate andconfectionery

industry. A descriptive research procedure had been applied to come to theconclusions of

the project. The project later concluded in recommending the marketpotential of the

chocolate and confectioneries.

5. INTRODUCTIONChocolates had its beginning in the times of the Mayas and the

Aztecs 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 Food

Company was thefirst to bring out chocolates in the currently popular solid form. The

main ingredients ofchocolate is cocoa grown mainly on equatorial zones and of the

consumers looks forvariety he goes in for some of that company‘s own sugar milk solids

and permittedemulsifiers. Cocoa constitutes nearly 40% of the total raw material cost.The

following report studies the chocolate industry in India and in particular the positionof

the chocolate brand - Cadbury. The brand name chosen is the umbrella brand as itwas felt

that the corporate name is recognized as brand not so much its individualproducts. The

study focuses on the marketing and the advertising, employed by Cadburyin the context

of the Indian macro environment and industry structure. The advertisingstrategy is

studied with respect to Cadburys business and marketing objectives. Thestrategies

adopted are then analyzed for each product offering. Considering the strategiesof

Cadburys major competitor follows the analysis, nestle India ltd. to get anunderstanding

as to where Cadburys stands.The report initially focuses on an examination of the

industry environment and theproduct class. The product then goes on to analyze the

corporate, marketing andadvertising strategies adopted by the selected company and its

main competitor. Itconcludes by looking at the future challenges for the industry and the

companyIt is also to be noted that the data used for analysis is of 2001-2003. This was the

mostrecent data available under whose purview the companies marketing and the

advertisingstrategies are studied.

6. OBJECTIVE OF THE PROJECTThe major objective is to study the Marketing

Segmentation of Chocolate and: To understand the Consumer Buying Behavior of

Chocolate. And also to study the Industry Structure and Dynamics.

7. RESEARCH METHODOLOGYSample Units: Three of the Number One brands in

India namely Cadbury, Nestle andAmul respectively, were chosen on the basis of their

market shares. These threeindustries were chosen on the basis of the usage of the

products, as the usage of FMCG‘sand is high and noticeable.Sample Design: Non-

probability sampling was resorted to and the methods used isConvenience sampling and

Judgment sampling.Data Collection: Data was collected from Secondary data. Secondary

data was souredfrom various published sources which include magazines like Business

India andBusiness World. Newspapers like Brand Equity, Brand Wagon and The Times

of Indiawere also used. Annual Report of Cadburys and Nestle were also referredData

was 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 premium

positioning.

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 Euro

monitor,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 increasinglyfocusing

their marketing efforts on young people in these countries, according to thereport.This

goes hand-in-hand with the widespread introduction of value-added products inthese

markets. In recent years, for example, the Mexican market saw the launch of anumber of

chocolate-based powders in new packaging, formats and formulas - often withnew

flavors. These products generally targeted consumers prepared to pay a premium,though

some were aimed at low-income segments of the population, according to

Euromonitor.Brazilian manufacturers also met consumer demand by offering premium

chocolate-based products, helped by the fact that Brazilian consumers are more aware of

healthissues than many of their Latin American counterparts. Brazilian consumers

oftenupgrade by purchasing healthier chocolate-based products such as low-calorie

anddiabetic-friendly alternatives, Euro monitor said, highlighting the 2003 launch of

ToddyLight by PepsiCo as an example of this trend.Malt drinks, meanwhile, are most

popular in India, which accounts for 22 per cent of theworld‘s retail volume sales. They

are 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 by

improved retail and distribution in recent years, combined with alarge child and youth

consumer 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, specifically

targeted 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 in

theUK) Glaxo Smith Kline in fact accounts for 70 per cent of malt-based hot drinks,

withIndia alone contributing nearly 60 per cent of the company‘s global sales of the

product.Other major players include Cadbury Schweppes and Nestlé.But if developing

nations have a growing taste for malt- and chocolate-based drinks,other more

sophisticated markets have yet to catch on. Indeed, the report shows that theperformance

of malt- and chocolate-based drinks in mature western markets wascharacterized by of

stagnation 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 as

these products largely remained outsidethe overarching consumer trend for premium and

healthy products. In fact, malt-baseddrinks have an almost negligible presence in the US,

with manufacturers largely failing toattract the important child and youth consumer

groups – a category more interested insoft drinks.The performance of malt- and

chocolate-based drinks in Western Europe was morepositive than that of the US, but

nonetheless there was little in the way of growth during1998-2003. A relative lack of

innovation and marketing activities, allied to demographicfactors such as falling birth

rates, saw important western European markets such asGermany record modest growth,

according to Euro monitor.The warmer winters experienced in Western Europe in recent

years also contributed tothe lower demand for chocolate- and malt based drinks. The UK

experienced sharpdecline of 13 per cent in retail volume terms in malt-based drinks and

only moderategrowth in chocolate drinks during 1998-2003.Looking forward, the

emerging markets will, not surprisingly, continue to provide thebest opportunities for

growth in this category, Euro monitor suggests. Market such asIndonesia and Mexico are

expected to see strong growth in both malt- and chocolate-based drinks by 2008, with

large youth populations and a rising number of middle classconsumers as the key driving

factors.

11. Among major markets, China is forecast to be the fastest growing market in

bothchocolate-based (up 35 per cent by value) and malt-based (up 29 per cent by value)

up to2008. China‘s booming economy along with rising levels of disposable income

andincreased availability of quality products will encourage further consumption,

theanalysts predict. Following China‘s accession to WTO, multinationals are also

expectedto penetrate the country further, driving up demand and in turn prompting more

localmanufacturers 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, as

Emma Davies finds outNext time you reach out for your favorite chocolate bar you will

probably pay littleattention to its fat crystals. However, should you be unfortunate enough

to peel back thewrapping to reveal a chocolate covered in a mouldy-looking white bloom,

and thenperhaps you might spare a thought for its crystal structure? The chocolate

industryploughs a lot of money into investigating chocolate crystals and bloom.The

industry takes bloom seriously - not only because it is unsightly, but also because itcan

change the texture and the flavor release properties of the chocolate. Manufacturersare

keen 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 it

forming. With the average person in the UK eating 10kg chocolate each year(according

to Cadburys confectionery review of 1999), it is easy to see why the industrywants to

create a perfect chocolate bar that stays temptingly glossy with a good snap.

13. Chocolate bloom develops naturally Temper, temperwith time, but it can be brought

onprematurely. How many of us have lefta chocolate bar on the car dashboard inthe sun

and been disappointed to find Tempering is a crucial stage of chocolatethat it has been

spoilt by a bloom? In manufacture, which ensures that the fat in thethis case, the bloom

develops because chocolate crystallizes in a thermodynamicallythe crystals melt and then

re-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 45°C) to amanufacturing process doesnt include a temperature

(about 27°C) that inducestempering step (see Box 1), when the crystallization in both

stable and unstabletemperature is carefully raised and crystal forms (polymorphs).

Raising thelowered to ensure that fat crystals grow temperature slightly (to about 30°C)

then meltsin the correct form, size, shape and out the unstable crystal forms leaving only

thenumber. stable crystals to seed the crystallization of the bulk chocolate in a stable

polymorphic form.Chocolate crystalsCocoa butter, perhaps the most To help crystals to

grow, the chocolate isimportant ingredient of chocolate, is usually stirred as it is cooled

using scrapingcomposed of a mixture of saturated and and mixing blades.unsaturated fats

(triglycerides), therelative proportions of which depend on The temperatures needed to

temper a chocolatethe country of origin. Some of the depend on the composition of its fat

phase.unsaturated triglycerides in cocoa butter Manufacturers need to find the righthave

low melting points, making it combination of stirring forces and temperaturespartly liquid

at room temperature. for their ingredients.Adding milk fat to chocolate raises thelevel of

unsaturated triglycerides and

14. increases the proportion of liquid fat, which explains why milk chocolate is so

muchsofter than its dark counterpart.The fat crystals in cocoa butter pack together in six

different formats (polymorphs). Thechocolate industry labels these polymorphs forms I to

VI (form I being the least stable)and aims to get the cocoa butter to crystallize in a stable

form V to give the chocolate aglossy appearance and a good snap. Table 1. What goes

into a typical milk chocolate? Ingredient Per cent Cocoa mass 11.78 Milk powder 19.08

Sugar 48.73 Added cocoa butter 19.98 Lecithin 0.35 Vanillin 0.08Surface scienceThe

surface 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 thesurface

of the chocolate can encourage small, spiky fat crystals to grow. When thecrystals reach a

size that can diffuse the reflection of light from the surface they give it adull

appearance.Although the exact mechanism of bloom formation remains disputed, most

scientistsagree that it involves fat crystals transforming from form V to form VI. Because

form VIcrystals are more stable than form V, chocolate should inevitably form a bloom at

somestage, unless preventive measures are taken.

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 accompanies

bloomformation, it does not necessarily cause it. With John Bricknell at Mars in New

Jersey,US, he has analyzed a model chocolate using X-ray spectroscopy, to identify the

typesof fat crystals that develop. Their model chocolate contains amorphous sugar

particles -created by spray drying a mixture of corn syrup and sucrose and sieving the

mixture toensure that all the particles are the same size. The chocolate is made by

blending andtempering a mixture of cocoa butter, lecithin (an emulsifier), sieved cocoa

powder, milkfat and the amorphous sugar.Because the model chocolate contains no

crystalline sucrose, the researchers were able tosee clearly the changing polymorphic

forms of the cocoa butter. They also used acolorimeter to measure the amount of white

bloom that developed on the chocolatesamples, enabling them to link changes in

polymorphic form to the onset of visual bloom.They discovered that the form V to form

VI crystal transformation took place not only inall of the samples that developed a visual

bloom but also in some of the samples thatremained bloom-free. Hartel says that most

people thought they understood bloomformation in chocolate to be the polymorphic

transition of cocoa butter. What our resultsshow is that the polymorphic transition indeed

occurs, but that something else is neededto create visual bloom.Hartels research team has

come up with a theory to explain how visual fat bloomdevelops in well-tempered

chocolates. They suggest that, first of all, liquid fat must beable to get to the surface of

the chocolate. The pumping action required to do this couldbe induced by temperature

fluctuations, which cause the fat crystals to melt and then tore-crystallise. Fat crystals

with high melting points dissolve in this liquid fat and aretaken along to the surface

where they can re-crystallise as spiky crystals. Any cracks andcrevices can help the liquid

fat get to the surface. The way that the spikes grow from thesurface of the chocolate, says

Hartel, is open for debate although the nature of the sitesavailable for growth

undoubtedly plays a role in their formation.

16. An interesting and unexpected result emerged from Hartels study: the amorphous

sugarused to make the model chocolate seemed to be able to prevent a visual

bloomdeveloping. When the researchers looked at the samples through a microscope,

they sawthat the fat crystals on the surface of the model chocolate were smooth, rounded

and flat,causing little more than a slight dulling of the surface. These crystals were

markedlydifferent to the spiky, needle-like crystals of real chocolate that can take away

its gloss.Hartel thinks that, because the smooth, spherical sugar particles pack together

moretightly than the irregular-shaped sugar crystals in commercial chocolate, this reduces

boththe rate of liquid fat migration and hence the rate of bloom formation.Despite the

success of the amorphous sugar at inhibiting fat bloom, Hartel says that itcould not be

used in commercial chocolate because the sugar picks up moisture easilyand gives a

gummy texture in the mouth.By adding high melting point milk fat fractions to their

chocolate mix, Hartel and histeam have been able to delay substantially the transition

from form V to form VI. Indeed,milk fat is commonly used to inhibit fat bloom, and

skimmed milk powder is better thanwhole milk at preventing bloom formation.How milk

fat 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 cocoabutter

crystallization. The denser crystal structures that form could potentially stop liquidfat

from moving to the surface and re-crystallising. The minor lipids could also affect

theamount and type of high-melting lipids that dissolve in the liquid fat and could even

slowdown the transformation of crystals from form V to form VI. Another theory is

thatbecause milk fat can decrease the rate of fat crystallization, the chocolate contracts

lesson cooling. Fewer microscopic cracks appear, reducing the likelihood of liquid

fatreaching the surface.Hartel predicts that understanding how the chocolate

microstructure influences the rateof bloom formation will ultimately allow the chocolate

manufacturer 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 reduce

theamount of money it spends on heatingand cooling vast quantities ofchocolate during

tempering.Industrial tempering usually involvesapplying shear forces (stirring)

whilechanging the temperature. The shearrate has to be chosen carefullybecause if it is

too low then notenough crystals will be generated, andif its too high the crystals could

melt.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 and

plate system commonly usedin rheometers, placing the fat sample on the bottom plate

and rotating the top cone. Thisset-up allows the researchers to heat and cool fat mixtures

while 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 structure

in the shear cell during tempering.When no shear stress was applied to cocoa butter

samples, the fat crystals transformedslowly from form III to form IV. However, on

shearing the samples, the crystalstransformed from form III to form V. Macmillan

believes that because the results give astrong indication of the inherent mechanisms

taking place, they should be able to help

18. Cadbury determine the optimum shear rate and temperature to ensure that the

chocolatecrystallizes 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, on

reopening 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 from

the filling to the chocolate exterior, some of thecocoa butter in the chocolate moves in the

opposite direction. The appealing texturecontrast between the inside and the outside of

the praline can then be lost as the liquid fatsoftens the chocolate exterior and the cocoa

butter hardens the soft centre. The liquid fatthat moves to the surface of the chocolate can

also drag some of the cocoa butter with it,which can re-crystallise at the surface and form

a 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 and

researchers at the Institute for Surface Technology in Stockholm,Sweden, are working on

the problem of fat bloom in soft-centered chocolates and havedeveloped a technique

using radiolabel led (14C) triglycerides to study the fat exchangeprocess. They use

differential scanning calorimetry (DSC) to determine the polymorphicform of the

triglyceride crystals and a 14C radio detector to follow the movement of theradiolabelled

compounds. So far, they have worked mainly on model fat systems, adding 14unlabelled

fat crystals to an oil saturated with a C labelled triglyceride and gentlystirring the

mixture. At regular intervals they remove samples and measure how many ofthe 14C

triglycerides in the liquid oil phase crystallize out. Preliminary results suggest thatthe

exchange rate between fat crystals and dissolved fat is relatively fast when thecrystals are

small but slow when the crystals are large.Smith is currently using atomic force

microscopy (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 passes

overany undulations. Smith has chosen the technique over the standard methods of

scanningelectron microscopy or optical microscopy which can generate artifacts, he says.

Opticalmicroscopy, explains Smith, is difficult to use with chocolate because of its dark

Colour.In addition, the limit of resolution means that only the large crystals can be picked

up.Smith has yet to release the results of the study but hopes to use them to help

understandthe methods of bloom formation and to observe the early onset of bloom.There

is clearly more work to be done on bloom but new techniques and R & Dinvestment

should lead the chocolate industry to its holy grail: a long-lasting chocolatethat doesnt

lose its gloss with storage.

20. THE CHOCOLATE INDUSTRY IN INDIAThe chocolate industry in India has a

size of 20000 tones and is worth about Rs 400crores. The chocolate market has been

growing by nearly 35 %. However there has beensome slowdown in the last two

years.The chocolate market is predominantly urban with coverage of 95 %. The sales

volumehas decreased by 5% in the last year and the chocolate market had declined with

theaverage consumption coming down by 25% from 16000 tones to the current level

of125000 tonesChocolate consumption in India is extremely low. Per capita consumption

is around160gms in the urban areas, compared to 8-10kg in the developed countries. In

rural areas,it is even lower. Chocolates in India are consumed as indulgence and not as a

snack food.A strong volume growth was witnessed in the early 90s when Cadbury

repositionedchocolates from children to adult consumption. The biggest opportunity is

likely to stemfrom increasing the consumer base. Leading players like Cadbury and

Nestle have beenattempting to do this by value for money offerings, which are affordable

to the masses.Cadbury, a subsidiary of Cadbury Schweppes is a dominating player in the

Indianchocolate market with strong brands like Dairy Milk, Five Star, Perk, and Gems

etc.Dairy milk is the largest chocolate brand in India. Chocolates & Confectionery

contributeto 75% of Cadbury‘s turnover. Cadbury also has a strong brand Bourn vita in

the maltedhealth drink category, which accounts for 24% of turnover. The parent

CadburySchweppes during 2001 made an open offer for acquiring the 49% non-promoter

holdingin the company. It has already acquired over 90% of the equity and proposes to

buy backthe balance equity and delist the stock from Indian bourses.

21. THE MAJOR PLAYERSThe major national players in the chocolate market in India

are:Cadbury India Ltd.Nestle India Ltd.Gujarat Cooperative milk marketing federation

limited (Amul)The combined chocolate and éclair market is dominated by two giants –

Cadbury 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 CHOCLATE

CHRONOLOGY1956 - Cadbury milk chocolate launched1957 - Cadbury 5 star

launched1970 - Cadbury éclairs launched1974 - Amul chocolate launched1986 - Cadbury

milk chocolate re-launched as Cadburys dairy milk1990 - Cadbury launches premium

chocolate brand overtures1991 - Nestle chocolates launched. Cadbury counters nestles

entry with all silk andunfurls huge consumer promotion campaign. Cadbury diary milk

revamped. Nestlelaunches Milky bar: Cadbury counters creamy bar1994 - Cadburys real

taste of life and 5 star reach for the stars campaign launched éclairsrevamped and

renamed diary milk éclairs1995 - Cadbury launches perk, preempting nestles Kitkat

Overtures 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 to

be 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 in

India. The brand doesn‘t have anyinternational lineage and is miniscule in terms of

market share in chocolates andcompared to the two other players Cadburys and

nestle.Amul had an extremely focused positioning of a giftfor someone you love albeit

not target to a singlegroup however Amul failed to capitalize on itseemingly due to the

following reasons.a. Chocolates have never been Amul‘s main products and hence there

was lack of organizational commitment. The company has never really supported or

pushed its chocolates. This reflects on the drastic cutback on advertisement expenditure

for its chocolates which has negatively affected its top of the mind awareness levelb. The

company has enjoyed a high customer equity and pulls in butter and so it offered a very

low retailer margin of 3.1 % as against the industry average of around 7-8 % Amul tried

the same technique in chocolates too. However since it was neither leader nor enjoyed a

customer pull like in butter the company got very little support for its chocolatesc. Amul

chocolates have shown a very limited product differentiation and have not really given

any important additional benefit to the consumers. The product line also

24. suffered in comparison to the portfolios of the competitor Cadbury and nestles. Its

only strength was its low priceFollowing are the major brands ofAmul♦ Amul premium

Milk♦ Amul badam bar♦ Amul orange♦ Amul fruit and nut♦ Amul crisp

25. NESTLE: A BRIEF INTRODUCTIONNestle India limitedNestle is a strong player in

the chocolates world wide but it entered the Indian marketmuch later in (1991) than one

of its global competitor Cadbury. Nestle initial foray intothe Indian market was not very

successful. The problem was in the formulation of theproduct. They were soft chocolates

with high fat content which were unsuitable to theIndian climate. Also the distribution

focus has been on the larger cities and urban areaswhich limited their customer base.It

was with the launch of Chitchat that the company‘s strategy changed with respect toboth

product and distribution. It increased its distribution network to cover small townsand

interiors as well so as to increase the customer base .It also modified the formulationof

Moulded chocolate to suit the Indian condition. The company used three layers of

foilpackaging so that Kitkat could survive the summer heat.Today nestle poses a

formidable threat to Cadbury. Kitkat has captured a sizeable chunkof the market within a

short span of launch. Nestle, as in 2002-2003 has around 24 %market share with Kitkat

alone accounting for 12% market share points. Nestle Bar Oneis another brand with a

market share of 6%. Nestle recently withdrew its Nestle bitterchocolate brand. The other

brands of nestle are nestle milky bar and nestle crunch.Nestle have also entered the sugar

confectionery market in direct Compton with Cadburyby offering Allen‘s splash and

Allen‘s coffees and Allen‘s Butterscotch. Amul has alsoentered into another foray of the

confectionery team that being ice creams. Thedistribution of this has been pretty good

with Amul ice-cream being available all aroundIndia.The advertising for the company in

India is being handled by love lint‘s. Nestle has beenincreasing its adverting figure the

latest being in 2002 RS 25 crores.Major Chocolate Products

26. Crunch: Crunch Chocolate is one of the best-loved foods everywhere in the world. It

isone of lifes little pleasures. The attractive tastes and textures of chocolate and

chocolateproducts delightthe senses of allages.Introduced in 1938,today Crunch

isNestlé‘s third largestconfectionary brand sold in about 40 countries worldwide. Nestlé

Crunch is available inthe following varieties: Nestlé Crunch, Nestlé White Crunch,

Nestlé Crunch Pieces,Nestlé Bunch Crunch and new products Nestlé Crunch with

caramel and Nestlé Crunchassorted minis.Launched in 1938 in the USA, Crunch was the

first chocolate bar to combine milkchocolate and crunchy crisps. Crunch is a unique

combination of smooth Nestléchocolate and crisped rice, which delivers an exciting

eating sensory experience ofdistinctive taste, texture and sound.Kitkat: Kitkat Chocolate

is 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 in

September 1935 as Rowntrees Chocolate Crisp. It became Kitkat in1937, two years

before the Second World War.Within two years of launch Kitkat was established as

Rowntrees leading product, aposition that it has maintained ever since. During the

Second World War RowntreeKitkat was seen as a valuable wartime food and advertising

described the brand as Whatactive people need.

27. For most of its life Rowntree Kitkat has appeared in the well-known red and

whitewrapper. It did, however, change to a blue wrapper in 1945, when it was produced

with aplain chocolate covering due to a shortage of milk following the war. This

bluepackaging was withdrawn in 1947 when the standard milk chocolate Kitkat

wasreintroduced.No one can be absolutely sure where the name Kitkat came from but it

is believed to befrom the famous 1920s Kitkat Club in South East London which had

some influence. Asthe building had very low ceilings, it could only accommodate

paintings which werewide and not very high. In the art world, these paintings were

known as Kats. Itsbelieved that Kitkat derived its name from paintings, which had to be

snapped off to fitinto the rooms with the low ceilings.Reinventing NestleA detail analysis

by the companies management to turnaround nestleTop line growth, bottom-line

contribution, difficult market situations. Nestle Indiastrademark `renovate and innovate

strategy is churning with action. Catalyst finds outmore.JUST how much can a housewife

influence a Rs 1,688-crore company? Shes someonewhose needs we anticipateTake, for

example, the exhaustive experimental kitchen and sensory laboratory at theplush

corporate headquarters of Nestle India at Gurgaon. Its obviously a first-of-its-kindfacility

and research centre for any food company in India.The objective? Consistent product

development. Also, achieving a preference ratio of60:40 for every Nestle product as

opposed to competition. The kitchen comprises a panelof application groups and 15

professional tasters checking out new products forconsistency in quality and product

evolution on a regular basis.The exercise, has resulted in the creation of two different

flavors of Maggi noodles (curryand tomato), Fruitips candy, besides new formulations of

Nescafe and Bar One chocolatein recent months. "And this research model isnt a

substitute for consumer research, orregular test-marketing with the real consumer.

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 centralized

researchand development cell for the foods conglomerate worldwide, against Rs 2,500

crore spenton the same earlier. Another component is the third in a series of multi-cuisine

recipecollections 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 chocolates

and Maggi super seasonings -have been re-launched in new tastes, packaging and pack

sizes. And another variant ofKitkat - white chocolate - has just been rolled out.On the

launch block a month from now are 10 new product variants spread across theculinary

and confectionery segments. The restructuring exercise of Excelcia Foods Ltd -the joint

venture company in which Nestle acquired management control followingDabur Indias

decision to exit non-core areas - has neared completion. Following that,Nestle proposes

to enter fresh product categories such as biscuits in the forthcomingmonths.Beverage

Partners Worldwide (BPW), the joint venture between Nestle SA and the CocaCola

Company 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 the

FMCGindustry 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 and

UHTbusinesses first. Meanwhile, though theres no confirmation from Nestle, the

industrygrapevine suggests that Nestle has begun negotiations with Vadilal for

manufacturing andmarketing ice-cream.Another category where Nestle could give

Hindustan Lever a run for its money is candy.The company has recently rolled out a

candy brand by the name of Fruitips.On the beverage front, following the introduction of

chocolate-and-coffee formulationChoc Cafe and Frappe under the Nescafe umbrella,

Nestle has been setting up slosh-typevending machines for iced tea in two flavors - peach

and lemon. In an economy thats in a

29. downturn, Nestlé‘s performance has been impressive. Net sales for third quarter this

yearwere Rs 533 crore against Rs 469 crore in the same period last year, recording a

growthof 13.5 per cent. While domestic sales grew at 11.4 per cent in value terms, export

salesfor the quarter increased by 24.6 per cent. Sales during the first nine months of the

yearimproved by 17.4 per cent, with a net profit increase of 28.6 per cent over the

sameperiod last year.Despite excellent top line and impressive bottom-line contribution,

the uncertain anddifficult domestic and international market environment, coupled with

seasonalityfactors, will affect their performance in the fourth quarter. Market analysts

warn thatincremental selling and advertising expenditure on new launches would dampen

marginsand that it would take time before the new products begin contributions to

turnover orprofitability.While the success of the new variants is yet to be gauged,

Nestlé‘s star performers remainNescafe, baby food Cerelac, Maggi and Everyday.

Nestlé‘s biggest strength lies increating brands with distinct positioning. Hence, Nescafe

is generic to coffee, just theway Maggi has become generic to instant noodles. Maggi

noodles face no directcompetition, with Top Ramen barely managing to hold ground in

the instant noodlescategory. Another winner has been Maggi ketchup, which, FMCG

analysts say, has beenbuilt from scratch to market leadership position, outperforming

Kissan.While Nestle has done exceptionally well in Western food categories such as

ketchup,condensed milk, noodles, coffee and weaning foods, the company hasnt been

able tohandle Indian product categories such as pickles and tea too well. No one is

reallymaking money in pickles. Not only is the unorganized and made-at-home sector too

well-entrenched, even the consumer shows no brand loyalty towards pickles. What drives

herpurchase pattern is new taste and not brand preference.The market for ready-to-cook

mixes and soups too has been largely fragmented with adistinct skew towards the

unorganized sector.In chocolates, while Cadbury India continues its stranglehold of the

market, Nestlé‘sKitkat, Bar One, Munch and Classic have been performing reasonably.

Two recent

30. entrants to this category have been ChocoStick and Milky bar Chocolate, the latter

softchewy fudge in stick format priced at Rs 5.In the chilled dairy segment, Nestle dahi

has recently been extended to Mumbai andPune. While the market for this continues to

be very small with only Mother Dairy andAmul giving Nestle competition in the

organized sector, milk in cartons is a conceptthats yet to go down well with the Indian

consumer. Apart from being expensive, theIndian consumer is still not ready to consume

milk without boiling it. And research hasproved that three-fourths of Indians prefer hot

milk. On the pricing front, Nestlecontinues to target the premium segment. They make

inroads into markets whichrepresent not only potential for consumption, but also

potential for bottom-line. Nestlé‘spremium pricing strategy is a strength thats worked in

most categories it operates in.Fruitips, therefore, occupies price points of 50 paisa and Re

1 per unit against HLLs Maxwhich attacks the unorganized sector with an extremely

aggressive 25 paisa per unitprice.Its the association with quality that works in Nestlé‘s

favour in most product categories.That this hasnt really worked in case of Nestlé‘s bottled

water 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 performer

compared to Coca-Colas Kinley andPepsi Aquafina besides, of course, market leader

Bisleri. Discounting at the trade levelhas been a problem area with bottled water.And

while spends on advertising have been raised at a macro level, brand-wise spendshave

been re-allocated accordingly.According to the A&M Annual survey on Indias top 200 ad

and marketing spenders,Nestle was the countrys sixth largest advertising spender in

2000-01, recording an adspend of Rs 128.46 crore which amounts to a 13.6 per cent

growth 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 processed

foodproducts. Category wise turnover breakup and growth % contribution 2001 2000 to

turnover Rs mn. Rs mn. % yoyMilk Products 43 8159 7375 10.6%Beverages 29 5627

4903 14.8%Culinary Products 14 2764 2310 19.7%Chocolate & Confectionery 14 2646

2179 21.5%Total 19197 16768 14.5%BeveragesBeverages like coffee, tea and health

drinks contribute to about 30% of Nestlé‘s turnover.Beverage sales registered a 15% yoy

growth during 2001. While about 14% of salescome from domestic market, exports

contribute to about 16% of sales.Nestlé‘s Nescafe dominates the premium instant coffee

segment. Nestlé‘s other coffeebrand Sunrise has also been re-launched under the Nescafe

franchise to leverage on theexisting equity of the brand. Nestle has focused on expanding

the domestic marketthrough price cuts and product repositioning. However it has been

losing 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% in

the malted food drinksegment. Nestle has launched non-carbonated cold beverages such

as Nestea Iced Teaand Nescafe Frappe during 2001.Nestle is one of the largest coffee

exporter in the country. Key export market is Russia,besides Hungary, Poland and

Taiwan. Nestle has received an award for highest export ofinstant coffee and highest

export of coffee to Russia and CIS for FY00 and FY01.Turnover contribution from

exports registered a 17.5% volume growth in F12/01.Nescafe sales to Russia accounts for

80% (Rs2.5bn) of Nestlé‘s Rs3bn export turnover.Infant food/ milk products

32. Milk based products and baby food contributes to 43% of Nestlé‘s turnover. For

ensuringregular procurement of good quality milk, Nestle has developed a network

around itsMoga factory for collection of fresh milk everyday from the farmers. Nestle has

adominating 87% market share in the baby weaning foods with its Cerelac and

Nestumbrands. 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 dairy

whiteners (21% market share) sold under theEveryDay and Tea Mate brands, sweetened

condensed milk and ready to cook mixes fortraditional Indian sweets sold under the

Milkmaid brand. The company also markets ghee(6% market share) under the EveryDay

brand. Nestle has expanded its milk productportfolio with the launch of new dairy

products such as UHT milk, Curd and Butter.Huge investments are being made in

building a diversified dairy business and thedistribution infrastructure for the same. Milk

products sales registered a 10.6% yoygrowth during 2001.Chocolates &

ConfectioneryNestle forayed into chocolates & confectionery in 1990 and has cornered a

fourth shareof the chocolate market in the country. The category contributes 14% to

Nestle‗sturnover. It has expanded its products range to all segments of the market The

Kitkatbrand is the largest selling chocolate brand in the world. Other brands include

Milky Bar,Marbles, Crunch, Nestle Rich Dark, Bar-One, Munch etc. The sugar

confectioneryportfolio consists of Polo, Soothers, Frootos and Milkybar Éclairs. All

sugarconfectionery products are sold under the umbrella brand Allens. Nestle has also

marketssome of its imported brands like Quality Street, Lions and After Eight. New

launchessuch as Nestle Choco Stick and Milky Bar Choo at attractive price points to woo

newconsumers. Chocolate confectionery sales registered a strong 21.5% yoy growth in

2001aided 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 name

Maggie.Culinary product account for about 14% of Nestlé‘s turnover. Maggie is the

marketleader in the noodles (45% market share) and the ketchup (43% market share)

categories.Other products, sold under the umbrella brand Maggie, are ready-to -cook

gravy/sauces,soups, seasonings, as well as traditional Indian foods such as pickles and

instant snackmixes. New taste variants are continuously launched to add variety to the

productofferings. Culinary product sales registered a 20% yoy growth during 2001.Future

prospectsNestle is focused on product expansion and improvement of distribution

efficiency. TheDairy business is being expanded and is expected to drive growth in the

long run,although short-term profitability may be impacted in the investment stage.

Thecompany‘s entry into the mineral water segment is a concern, as the segment is

alreadyovercrowded and the company faces stiff competition especially from the

Colamanufacturers. Acquisition of an established brand could catapult Nestlé‘s position

in thesegment. In categories like beverages, culinary products and chocolate

confectionery, thecompany is looking at driving growth through launch of smaller

SKU‘s, thus enablingaffordability to a wide section of the population.Earnings sensitivity

factors ♦ Success of new category launches (Milk and Mineral Water) which involve

considerable investment for promotional schemes and ad-spend and yield returns only

after a few years. ♦ Continued exports to Russia, Nestlé‘s main market for coffee exports.

♦ Good monsoon ensures adequate availability of raw materials, which are mainly

agricultural in nature. Raw material prices have significant influence on margins. ♦

Government policies in terms of licensing, duties, movement of agricultural commodities

etc. ♦ Market growth driven by overall economic growth and urbanization.

34. ♦ Rupee depreciation improves export realizationsDIRECTORS REPORT (7th

March, 2001)1. Operations:Domestic Sales grew by 7% in value and 15% in volume

terms, during the year. ExportSales grew by 16% in value and 32% in volume. Profit

after Tax grew by 20% fromRs985mn to Rs1186mn.The market and economic growth

continued to be sluggish during 2000. Concertedefforts of the management to maintain

the price of products (in some cases evenreduction of prices), better working capital

management, continuous improvement ofsupply chain and a focus on flagship brands,

contributed significantly towards the aboveprofitability. The favourable impact of the

commodity prices during parts of the year andthe product mix, also contributed

significantly towards improvement in profitability.During the year, the Company retired

certain fixed assets from active use at variouslocations and the impairment loss on such

fixed assets has been charged to the Profit andLoss Account.Out of business prudence,

the Company supplemented the Contingency Provision withfurther amount in 2000 of

Rs295mn (net) to provide for various contingencies resultingfrom matters mainly relating

to issues under litigation, dispute and managementdiscretion.Your Companys overall

sales and profit progression during 2000 can be consideredsatisfactory and in line with

the expectations.The current year has commenced as per plan in the domestic market and

your Directorsare hopeful of continued good results. However, with the current level of

inflation andeconomic indicators pointing towards a sluggish market, it would be difficult

for the

35. Company to maintain the level of earnings unless the Company takes price increase

onfinished products which would depend on market conditions and competitor

activities.2. Exports:Export Sales for the year at Rs2655mn have grown by 32% in

volume terms, over the lastyear. This has been mainly due to the higher exports of

NESCAFE to Russia, buoyantsales of Instant Tea and good performance of the culinary

products. However, depressedgreen coffee prices in domestic and international markets

kept the export realizationslow. Measures taken for tapping new market and product

opportunities have alsocontributed to this growth. The export competitiveness of value

added instant coffeemanufactured in India continues to be adversely affected by the

purchase tax levied ongreen coffee. Efforts continue to tap new market and product

opportunities.3. Dividends:Interim dividend of Rs. 8.00 per equity share, including

Rs4.50 per equity share out ofundistributed profits of the previous financial years, was

paid during 2000.Your Directors are pleased to recommend to the Annual General

Meeting a final dividendof Rs6.00 per equity share. The dividend, if approved, shall be

payable to theshareholders registered in the books of the Company and beneficial owners

furnished bythe Depositories, determined with reference to the book closure from 16th

June, 2001.4. Business Development:In line with the Companys objective to provide

superior value in every product categoryand market sector, efforts were focused to

provide quality products to customers atattractive price points. While the Company

continued to generally maintain price pointsacross all the product categories, the pricing

of some products were also reduced to meetconsumer expectations.

36. MAGGI Noodles re launched in 1999 in response to popular consumer taste

preference,continued to boost sales during 2000 in the culinary segment. New flavour

profiles wereintroduced in the bouillon business.The market continued to react positively

to the initiatives taken in the recent past to growthe consumption of instant coffee in the

domestic market. The new NESCAFE pricingand bringing the popular SUNRISE brand

under NESCAFE umbrella to benefit from itsassociation continued to strengthen the

category. NESCAFE Frappe a blend of coffee,mocha and vanilla, which makes a

delicious frothy cold coffee, was launched in selectmetropolitan cities in the third quarter.

This was another strategic launch and seeks toaddress consumer with preference for cold

drinks. NESCAFE Frappe has receivedencouraging response.In the area of Chocolate and

Confectionery NESTLE MUNCH Crisp wafer biscuit withchocolayer, which was

launched in select markets in1999, was rolled out nationallyduring 2000 and had good

growth. Continuing with the efforts to meet consumerexpectation on price points, the

pricing of KITKAT was also reduced during the later halfof the year. Moulded

Chocolates and Éclairs also showed satisfactory growths. This hasalso helped in

improving the infrastructure and distribution reach of the Company in theChocolate and

Confectionery segment.In the milk and cereal categories, EVERYDAY Dairy Whitener

and cereals hadsatisfactory growth. NESTLE Growing up Milk; a new product offering

superiornutrition, launched in 1999 was rolled out nationally during the year.Your

Company has also entered the Chilled Dairy business with the recent launch ofNESTLE

Dahi in select cities of the North. The initial response has been veryencouraging and your

Company is working on plans to further leverage the internationalexpertise of Nestle

Group, Switzerland in the area of Chilled Dairy.The performances of other products were

generally in line with expectations. A fewproducts whose performance was not

considered satisfactory are under constant reviewfor corrective action.

37. Your directors are pleased to report the implementation of the two new

projectsundertaken by the Company during 2000 packaged milk and packaged drinking

water.Both the projects seek to leverage the worldwide experience and knowledge of

NestleGroup, Switzerland who are the leaders in these product categories.In line with its

objective of long term growth and entry in significant value added foodsegments, the

Company forayed into the Ultra Heat Treated (UHT) liquid milk businessin April 2000

by launch in Mumbai. Packaged UHT milk seeks to address growingconsumer concerns

on adulteration and product safety and brings with it reliability,complete hygiene and

safety. It offers convenience to the consumer, in terms of a shelflife without any

deterioration in the product quality and easy usage without refrigerationor boiling. UHT

Milk has received encouraging response and has been rolled out in selectcities of the

West, South and North.The project for bottled water was implemented at the Samalkha

factory and waterlaunched in February, 2001 under the brand NESTLE PURE LIFE and

is available inselect cities. NESTLE PURE LIFE contains a balance of essential minerals

and a lightpleasant taste and is manufactured under stringent quality control. The

packaging hasbeen specially designed to maximize safety for the consumer and protect

from possibletampering.The new categories like bottled water and liquid milk are lower

margin categories andwill require considerable investments. Your Company sees them as

strategic and asrequiring support on a sustained basis.The two new Sales Branches at

Bangalore and Chandigarh set up in 1999 to furtherstrengthen the flexibility of the Sales

organization and for speedier response to the marketconditions, have started showing

positive results during the year. With a view to expanddistribution and increase

penetration in smaller towns, a concerted drive was undertakento make products

affordable and accessible to consumers. An initiative taken includesmore penetrative

pricing and smaller packs covering brands such as EVERYDAY DairyWhitener, MAGGI

Noodles, MILO Chocolate Energy Drink and NESCAFE InstantCoffee. The response has

been encouraging.

38. The Alternative Trade Channel unit created in 1999 undertook initiatives to tap

theopportunities for out of home consumption, particularly for instant coffee and

chocolateand confectionery and to extend availability of product to nontraditional outlets.

Theoutcome of these initiatives has been encouraging and is being

consolidated.Availability of NESCAFE has been enhanced through an expansion of the

vendingmachine network and new consumption opportunities for Chocolates and

Confectionerywere identified and developed in areas like railway platforms, college

canteens and majorevents.On the manpower development front, programmes during the

year continued to befocused on the operational front more particularly sales and

production.To support the growth plans and distribution strategy, and simultaneously

improve theoperational efficiency, the thrust on strengthening supply chain continued to

receiveattention during the year. In addition to consolidating the improvements made

over thelast two years, significant progress was recorded in following areas:a) Reduction

in finished goods inventory pipeline to improve freshness of stocks andreduce working

capital.b) Control of distribution costs through innovative measures, despite steep

increases incost of fuel.c) Sustained improvement in customer service level to improve

product availabilityacross all geographies and channels.d) Reduction in obsolescence of

materials.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 environment

that enhances whitecollar productivity. The new Office design seeks to stimulate

improved internalcommunication and enhance transparency in working. State of the art

facilities for

39. training, tasting, and a fully equipped test kitchen, have been made available that

willfacilitate the efforts for innovation and renovation.

40. 6. Technology from Nestle:The Company being a part of Nestle Group, Switzerland

benefits from its access toproprietary technology, technical and non technical expertise

and the fruits of theextensive centralized Research and Development. The diversified

knowledge andexpertise have contributed significantly to the operations of your

Company over theyears. Some of the key areas, which have benefited are:a) Manufacture

of products of truly international quality. Product quality, whichencompasses taste,

appearance, convenience and overall value for money, is a criticalfactor in consumer

choice and in a competitive market like India could determine thevery survival of the

products. The high quality of products of your Company is borne outby the position and

image the products enjoy in the market and your Company continuingto be a leading

exporter of value added Instant Coffee in the country.b) Benchmarking of products

against competition to achieve an advantage in productquality, for increasing

competitiveness.c) Access to latest technological developments, such as Spear point

Technology forCocoa based products implemented during 2000 which would improve

product qualityand competitiveness and the MUCH technology for instant coffee

manufactureimplemented during 1999, which would enhance the productivity by

increased extractionof coffee solids from coffee beans.d) Implementation of project for

bottled drinking water.e) Product innovation and renovation some illustrations are

MUNCH Crisp wafer biscuitwith chocolayer; Nestle Dahi; Nestle Milk (UHT); Junior

Foods; NESCAFE Frappe;KITKAT Milky; new and improved flavours profiles of

bouillons; and re-launch ofMAGGI Noodles.f) Enhancement of skill and competence of

Company personnel due to the trainingreceived.

41. g) Implementation of environmentally sound business practices.h) Technical

expertise in various forms including Information Technology, which hasenabled the

business of your Company to grow and sustain.I) Providing assistance by way of

improved technical and quality standards to localmanufacturers, who have contract

manufacturing arrangements with your Company.Your Directors are pleased to report the

signing of the General License Agreement withthe collaborator providing license of all

intellectual property rights for the productsmanufactured and sold by the Company using

such intellectual property. The GeneralLicense Agreement which is effective 1st January,

2001 aligns the Company with theglobal practice of Nestle Group and would be

beneficial to the Company. Undoubtedly,without the know-how provided and ongoing

technical assistance, your Company wouldhave found it difficult to achieve the progress

that has been attained. Your Directors notewith satisfaction that being a part of Nestle

Group, the ongoing technology transfer andaccess to the fruits of extensive Research and

Development and authorization to useinternationally famous brands, would help the

Company significantly in its efforts toremain competitive in the market.7. Moga Milk

District:Your Company which started milk collection in Moga in 1961 with a daily

collection of510 kg of milk from 180 farmers has expanded its operations to an average

dailycollection 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 farms

orcattle but through its Agricultural Services world wide initiative of Nestle Group,

worksclosely with the farmers to obtain the highest quality raw material. Recognized

as"Partners in Progress", Nestle Agricultural Services at Moga factory has contributed

itsmite to the up-liftment of the milk district. Some significant steps taken by the

Companyin the recent past are:a) Installation of farm coolers.

42. b) Milk Collection Centers provided with new and improved equipment to enable on

thespot testing of quality.c) Initiation of mechanization of large dairy farms.d) Farmer

development programmes.The Company has over the past decades been providing

facilities and support to the dairyfarmers in areas such as veterinary services, breed

improvement; balanced cattle feedmixture, feeding for dairy herds, fodder seeds and

training for improved farmmanagement practices.The milk district is a reflection of your

Companys commitment to nurturing quality,technology and improved systems in the

community and the companys initiatives toimprove living in the region.9. Information

Technology:Your Company continued to make significant investments in the Information

Services ofTechnology area to cope with the growing information needs necessary to

manageoperations more effectively in a complex supply chain environment.10.

Community Health:Recognizing its responsibility to the community in which it operates,

the Company overthe years has been taking initiatives in the area of community health at

locations aroundits factories. Some of the initiates taken in the recent past are:a) Provide

Government and village schools with facilities for toilets and hygiene drinkingwater

including deep bore wells, where necessary.b) Support to health officials in Pulse Polio

programmes.C) Sponsorship of treatment of TB patients at clinic runs by NGO.

43. d) Healthcare Programmes with focus being on well being of employees and

theirfamilies covering vaccination, awareness programmes and health check up.

44. CADBURY: THE LEADERCadbury, a subsidiary of CadburySchweppes is a

dominating playerin the Indian chocolatemarket with strong brands likeDairy Milk, Five

Star, Perk, etc.Dairy milk is in fact the largestchocolate brand in India.Cadbury India now

stands onlysecond to Cadbury UK in sales of Dairy Milk. The company is pushing the

giftingsegment, through occasion linked gifts. Chocolates contribute to 64%of

Cadbury‘sturnover. Confectionery sales‘, accounting for 12% of turnover, is contributed

largely byÉclairs. 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. Per

capita consumption is around160gms in the urban areas, compared to 8-10kg in the

developed countries. In rural areas,it is even lower. Chocolates in India are consumed as

indulgence and not as a snack food.A strong volume growth was witnessed in the early

90s when Cadbury repositionedchocolates from children to adult consumption. The

biggest opportunity is likely to stemfrom increasing the consumer base.Competition:

Cadbury continues to dominate the chocolate market with about 69%market share. Nestle

has emerged as a significant competitor with about 20% marketshare. Key competition in

the chocolate segment is from co-operative owned Amul andCampco, besides a host of

unorganized sector players. There exists an even largerunorganized market in the

confectionery segment. Cadbury holds 4% of the market sharein this segment. Leading

national players are Nutrine, Parrys, Ravalgaon, Candico,

45. Parle‘s, Joyco India and Perfetti. The MNC‘s such as Joyco and Perfetti

haveaggressively expanded their presence in the country in the last few years.Malted

food drinks: Category consists of white drinks and brown drinks. White drinksaccount for

almost two-thirds of the 82,000 ton market. South and East are large marketsfor food

drinks,accounting for the largestproportion of all India sales.Cadbury‘s Bourn vita is

theleader in the brown drink(cocoa based)segment. In the white drinksegment,

SmithKline‘s 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 tough

market conditions & increased competition Cadburymanaged to record a double digit

(11%) top line growth in 2000. The company achieveda volume growth of 5.2%. This

was achieved through innovative marketing strategies andfocused advertising campaigns

for flagship brand Dairy Milk... Net profit rose sharply by41.8% to Rs520mn. Reduced

material and energy costs and tighter control over workingcapital and capital expenditure

enabled the company to improve profitability. Companyadded 8mn new consumers and

saw its outlets grow to 4.5 lakhs and consumers to 60mn.Outlook: The Cadbury

management has cut down on its growth target by setting a 10%average volume growth

target for the next three years (as against previous growth targetof 12% volume growth

and 20% value growth). Coupled with inflationary priceincreases, this could translate into

a top line growth of 14-15%. This target also appearsdifficult to achieve given the

consumer slowdown and the fact that the company isdependent on a single category –

Chocolates to drive growth. In the malted food drinkscategory the company faces stiff

competition from SmithKline Beecham, and marketshare has been stagnant at around

14% despite the company‘s efforts and investments inrepositioning the brand. Efforts at

expanding confectionery portfolio have also not

46. yielded desired results. The management has declared its intention to focus only

onÉclairs (which form a major portion of its 4% share in the confectionery segment) for

thetime being in this category. In chocolates too, the onus remains on the 2-3 key

brandssuch as CDM, Perk and Éclairs, which have supported growth in the

past.Cadbury‘s Ad CampaignKuch meetha ho jaye suggests Cadbury India, its

brandambassador Amitabh Bachchan smiling down thehoardings lined along Mumbais

Marine Drive rightdown to the companys corporate head office atMahalakshmi. While

the chocolate major is waitingfor Diwali to see a turnaround in its business after

theworms 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 chocolates

with a 70 per cent share, the company hasattempted to stretch the boundaries within

chocolate confectionery. It has also beenadventurous in unleashing a brand new category

within chocolate early this year.Introducing the concept of sweet snacking, it launched

Cadbury Bytes in the south withthe positioning `Snacking ka meetha funda. The product

is a crunchy wafer pillow with achoco-cream centre and is being rolled out

nationally.Explaining the need to introduce this new category, Bharat Puri, Managing

Director,Cadbury India, says, "While we were sure of our core competencies, there was

need forinnovation to deliver double-digit growth. What we found was that we were

under-represented in the area of snacking on the go and that there was a need for a light

crunchysnack." While entry into salted snacks was ruled out, sweet snacks were the

obviouschoice, and Bytes is unique to the chocolate majors Indian portfolio.Getting the

right product and packaging was a challenge for the company. It has sub-contracted the

product to get the volumes and is poised for a national launch. Adds Puri,"After all this

was 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 and

todaywe find that it has already bagged five per cent of the chocolate market."The

company has no apprehensions of cannibalization of its chocolate brands. It believesthat

while its chocolates are more of indulgence products, Bytes is about snacking whenone is

hungry and can be treated as a snack in between meals.In the past when Cadbury tried out

a 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 chocolate

brand in Cadburys portfolio.Stresses Puri, "Cadbury Bytes is adjacent to chocolates and

in the markets that we havelaunched it, there has been no cannibalization. Chocolates are

largely an indulgenceproduct while Bytes is about between-meals snacking. A product

which is consumedwhen one is feeling hungry or peckish."Another thrust area Cadbury

has been re-evaluating is confectionery. While growth ratesin this segment are healthier

compared to chocolates, it has always been a difficult marketto crack. Cadburys own

experiences have led it to withdraw certain brands but now withWarners Lamberts

international kitty under its fold, there are chances of reconsideringthe segment once

again."Through the acquisition of Warner Lambert, there is a great set of brands

alreadyavailable to us. We are still examining which are the right brands for the Indian

market,"says Puri. Cadbury has already identified Halls as the strongest brand in

WarnerLamberts portfolio and re-launched the brand early this year. Adds Puri, "Halls

was 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 revived

and it isnow doing well."In April 2003, Cadbury Indias foreign parent acquired Pfizers

interests in theconfectionery business for $4.2 billion. That included the Warner-Lambert

productportfolio, known best for Halls, Clorets and Chiclets. The acquisition is now

poised tobecome a growth area for Cadbury India, whose confectionery brands include

Éclairs and

48. Googly. But instead of selling confectionery through its existing chocolate

network,Cadbury has set up an entirely new network.While Halls has been revived with

new packaging, there has been no change in the statusof its other brands. Chiclets had

been discontinued long before it belonged to Cadburyand Clorets continues to sell with a

small 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 the

Indian market. Sugarless gum brands such asDentyne Ice and Trident White have been

known for their functional benefits worldwidebut steep pricing may be a deterrent to their

entry into the country."The gum market has not done well in India. But gum has

functional properties and is notmerely a breath freshener. We are now evaluating whether

there is a market for them inIndia and whether it is going to be worth our while," says

Puri.The confectionery market may be huge in volumes but making money on it remains

atough task with its low margins. Governed by price points, one can sell at only at a Re

1or 50 paisa unit price. "The issue is not of garnering volumes but making money out

ofthose volumes. The offer should be one which can get you both top and bottom

lines,"states Puri. Having shifted focus from Googly, Cadbury had been tasting success

with itsage-old Éclairs which continue to bag almost 50 per cent of the market."There is

scope in the market. Our Éclairs has been growing and this has been evident inour past

numbers," claims Puri. At the same time the sugar confectionery market ishighly

competitive and its all about finding the right consumer proposition and abusiness model

that can deliver both top line and bottom-line growth.In spite of the new categories being

explored by Cadbury, its star brand remains CadburyDairy Milk (CDM) which continues

to 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 generate

excitement for the category. For instance, recently Perk wasrejuvenated as a crunchier

wafer while CDM came up as a white-and-brown variant inthe market.

49. "The chocolates category thrives on excitement. Its all about giving the consumer

achoice and taste which they enjoy," adds Puri. For instance, in beverages, in spite of

itsmalted food brand Bourn vita, Cadbury decided to introduce a milk additive brand

suchas Delite, just to give its consumers the real taste of chocolate. Delite has added

flavourssuch as strawberry and mango and is not expected to encroach upon Bourn vita‘s

shares.According to Puri, "There is still a large section of people who do not add

anything tomilk. This will apply to children for whom milk is a problem and having an

additive willmake it a pleasurable experience."Making changes in its distribution

network, Cadbury split its sales and marketing teambetween its mass (confectionery) and

core brands last year. "Chocolates needed to getretailed at larger and better outlets while

all the products below Rs 3 needed a differentdistribution network," says Puri. Today

Cadburys distribution network reaches out to sixlakhs outlets each for its confectionery

and chocolate brands.With the worm‘s episode behind it, there are other issues bothering

the 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 in

prices for itsbasic raw materials. But its challenge remains that of growing the chocolate

market inspite of the odds. Posting a turnover of Rs 729 crore last year, Cadbury is

waiting forDiwali to make a turnaround for both itself and the category which has been

throughtroubled times.Getting growth should not be an issue, according to analysts

tracking the company.As Nikhil Vora, Senior Vice-President (Research), SSKI

Securities, observes,"Considering the company was getting growth before the infestation

episodeoccurred, it should not be a tall order to get back to those levels. The

companyshould be able to record a 15 per cent compounded rate of growth over the next

fewyears." That would be a sweet recovery indeed for Cadbury.

50. Cadbury follows small packs strategySmall has indeed proved to be beautiful for

Cadbury. The company, after findingexceptional success inthe launch of small packs

ofPerk chocolate, has nowlaunched Picnic in smallpacks of 26 Gms. priced atRs 10. The

43-gm packs arestill available and are pricedat Rs 15.Cadbury has embarked on a strategy

which 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 comprehensive

portfolio with brands across all price segments.On the distribution front, the company

aims to increase the number of its distributionoutlets from the present 4 lakhs to 5 lakhs

by the year 2000.To attain the objectives of affordability, over the past two years

Cadbury has beenchanging its product portfolio from pure chocolate items to

confectionery which includescaramel, nuts, raisins and wafers. The aim is to bring down

the price line and enter othermarkets than the purely urban ones.In line with this, it

launched Googly in early 1997, and followed it up with products likeMocka and English

Toffee.The strategy of the company has been to launch one major product and follow it

up withsmaller products, for instance, the launch of Picnic was followed by Cadbury

Gold and acouple of sugar confectionery launches.

51. Intense competition from Nestle is one of the reasons Cadbury has reworked its

productrange and made efforts to enter the mass product segment. In 1998, the company

movedinto smaller sized versions of Diary Milk and Perk and found to its delight that

theintroduction of economy priced models led to more people eating chocolate. In the

sameyear, small packs increased chocolate volumes of Cadbury by 19 per cent and

marketshare to 70 per cent from 69 per cent in the previous year.Cadbury now has a

market share of 70 per cent of the chocolates market. It manufactureschocolates, sugar

confectionery 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 cent

share in the chocolates market, is expected to respond withMunch, a chocolate brand

meant to counter Picnic.Cadbury‘s BusinessCadbury dominates the Indian chocolate

market with a 65% market share. Besides, it hasa 4% market share in the organized sugar

confectionery market and a 15% market sharein milk/ malted foods segment.Changing

product mix Contribution to turnover Contribution to turnover 1994 2001Chocolate 59%

65%Sugar Confectionery 9% 10%Food Drinks 32% 24%Current market sharesChocolate

69.2%

52. Sugar Confectionery 4.0%Food Drinks 14.2%Expanding distribution reach2100+

distributors450000 retail outlets60mn ConsumersFuture strategy • Maintain dominance in

chocolate confectionery and market leadership in brown drinks. • New channels such as

Gifting, child connectivity and Value for Money offerings to be the ley growth drivers •

Grow volume sales at 10% pa over the next three years. • Achieve the goal of best

manufacturing location in Cadbury Schweppes world for Dairy Milk and Éclairs • One

new major product launch every yearChocolates and confectionery products (75% of

turnover)For more than five decades now, Cadbury has enjoyed leadership position in the

Indianchocolate market to the extent that Cadbury‘ has become a generic name for

chocolateproducts. Cadbury has leading brands in all the segments viz bars (Dairy Milk,

Crackle,Temptations), count lines (5 star, Milk Treat), panned confectionery (Gems) and

waferchocolates (Perk), éclairs (Cadburys Éclairs), toffees (English Toffee).During 2001,

Cadbury‘s chocolate sales (65% turnover) registered a 9% value growth,aided primarily

by growth in the flagship brand Dairy Milk. Dairy Milk contributes anestimated 30% to

Cadbury‘s sales. Gems and Five Star were re-launched during the yearto stem their de-

growth. Perk registered a de-growth during 2001 despite launch of new

53. variants. New brand initiatives included the launch of Temptations in the

premiumsegment and Chocki a low priced chocolate confectionery targeted at

children.Cadbury entered the hard-boiled sugar confectionery market with the launch of

Googly in1996. In 1997, the company launched a coffee based sugar confectionery

product Mocka.Cadbury has a 4% market share in the confectionery segment, largely

contributed byÉclairs. Other confectionery brands such as Gollum, Frutus, Nice Cream,

etc launched inthe last two years did not receive a good market response and the

company has decided tominimize focus on those brands. Éclairs was re-launched with

unique packaging incartons during 2001.Food drinks (25% of turnover)Cadbury‘s Bourn

vita is the leading brand in the brown drinks segment of milk/ maltedfood products.

Overall share in the malted food drinks market is estimated at 15%.Brown drinks earlier

positioned as taste enhancers were losing market to white drinksduring the last few years.

Cadbury re-launched Bourn vita with a new formulation andadvertising campaign

positioning it on the health benefit platform to compete with whitedrinks. The brand was

re-launched in the South – the largest food drink market in thecountry, during 2001.

Bourn vita sales registered a 12% growth in value terms in 2001 toRs, contributing 24%

to total turnover.Cadbury‘s other products include Cadbury‘s Drinking Chocolate and

Cadbury‘s Cocoapowder. These account for only 1% of Cadbury‘s

turnover.DistributionCadburys distribution network encompasses 2100 distributors and

450,000 retailers. Thecompany has a total consumer base of over 65mn. Besides use of

IT to improvedistribution logistics, Cadbury is also attempting to improve distribution

quality. Toaddress the issues of product stability, it has installed Visi coolers at several

outlets. Thishelps in maintaining consumption in summer, when sales usually dip due to

the fact thatthe heat affects product quality and thereby off take.

54. StrategyIncreasing the consumer base by focusing on the twin proposition of

affordability andavailability is being followed to drive future growth. Small affordable

priced packs havebeen launched, which have helped improve penetration. Also

advertising for chocolates isaimed at changing consumer perception and eating habits by

creating new reasons forconsumption.Cadburys Market SegmentsThe marketplace for

any product is comprised of many different segments of consumers,each with different

needs 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 be

consumed.Cadbury takes into account all of these factors when producing a range of

products. 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 are

most often purchased on impulse, eating there and then. They include products such as

Cadburys Twirl, Moro, Star bar, Crunchie, Fuse and Dairy milk • take-home segment -

this describes products that are normally purchased in supermarkets, taken home and

consumed at a later stageGift segment - boxes of chocolates and other products purchased

for gift occasions

55. Earnings sensitivity factorsCocoa bean prices: Domestic as well as international

prices of key raw material - cocoahave significant impact on margins.Excise duties:

Changes in excise levied on malt and chocolate influences end productprices and thereby

volume growth as well as margins.Changes in custom duties and foreign exchange

fluctuations, as 20% of raw material isimported.Competition from MNCs like Nestle as

well as imported brands. Increasingcompetition puts pressure on advertisement budget

and 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 positioning

canactually become a disadvantageAt 34, Gems is one brand in theCadbury‘s portfolio

thatrefuses to grow up. Ofcourse, that is not such aliability now that children playa key

role as consumers.What it does mean, however, is that Cadbury has to constantly work at

keeping its ageingbrand forever young. How has it managed so far? Gems was a sluggish

performer in thelate nineties and its market share slid dramatically. Now, the brand

appears to beregaining some of its toddler energy and a campaign that is scheduled to

break in 2003 isexpected to help further.Gems presents an unusual case of how a

textbook-perfect ultra-sharp positioning canactually become a disadvantage. Of course,

Cadbury doesn‘t consider this a problem yet.Cadbury actually consider Gems one of our

power or advantage brands simply because itwas specifically developed for the kids

segment. And it has no competition at all in India.Cadbury‘s problem is that Gems —

which is technically called a ―sugar-panned‖confectionery item that comes in colourful

little buttons — has traditionally been sosharply targeted at children below ten years that

it did not lend itself readily to brandstretch as its target audience grew older. Even as

Cadbury successfully extended itsappeal from children to adults from 1996 onwards for

its regular chocolates, the companylearnt a bitter lesson when it tried doing the same with

Gems.Through the seventies and eighties, Gems was one of the few options available to

theIndian consumer, and more specifically the child, in terms of chocolate brands, the

othersbeing CDM, Cadbury‘s Five Star and Amul chocolates.

57. The other major advantage that Gems enjoyed probably created problems for

Cadbury‘slater — the fact that it never faced competition. Nestle and Mars never brought

theirglobal brands — Smarties and M&M respectively.This was because, both the

international brands are not developed keeping the climaticrigours of India in mind. So as

against Gems, which is a product formulated specificallyfor India, the sugar shells of

Smarties and M&M cracked easily in a tropical climate.The result was that Cadbury‘s

never had the chance to benchmark its performance as faras Gems was concerned. Other

than ads in storybooks and comics like Champak, Tinkleand Amar Chitra Katha, there

was little focus on advertising till the late eighties.The first significant commercial for

Gems broke in 1989. This ―Gems Bond‖ campaignwas an animated commercial based on

the character of James Bond, which was used inpromotional stickers. However, the

campaign was taken off in the early nineties.It was actually the storyline and the

animation that was working. The character was notfor the child.The early nineties saw

the emergence of pester power. Strangely, Cadbury did notcapitalize on this trend. What

made Cadbury sit up was the entry of brands in the earlynineties, like Wrigley‘s,

Freshmint, Boomer‘s, Big Babool and candies from Perfetti,Candico and Parle Products,

all of which were priced at Re 1 or Rs 2 compared with Rs 5for a 20 gm pack of Gems.So

it was no longer just chocolates vying for the child‘s attention but chips, candy, andsugar

boiled sweets, bubblegum, all of which were upping their noise levels. This wasworrying

for Cadbury‘s, as almost half Gems‘ sales came from impulse purchase.Meanwhile,

international players like Nestle were expected to enter the scene with brandslike Kit-Kat

and Milkybar. In 1994, Cadbury re-launched Dairy Milk with the theme line―The real

taste of Life‖, positioning it as chocolate with universal appeal.Just as Cadbury flanked

Perk to target young adults and reworked Cadbury Dairy Milk‘sappeal to include adults,

in 1996 it attempted to extend Gems‘ appeal to teenagers. Thenew campaign was pegged

on the baseline — ―Smart, very smart‖ — derived from Madmagazine. The trouble was

that this campaign was not backed by product changes, so

58. teenagers, who were always edgy about being associated with a children‘s brand,

wereunimpressed.By 1997, the overall slowdown in the fast moving consumer durables

market hadaffected the chocolate segment. In spite of the re-launch, Cadbury‘s net profit

dropped by5 per cent to Rs 18.6 crore. Perk had not overtaken Kit-Kat as expected. The

onlyCadbury brand doing reasonably well was the low-priced sugar boiled confectionery

—Googly — which went on to become a Rs 15-crore brand in its first year.Gems had

staggered down to a growth rate of 3 to 5 per cent and its market share slippedto 6 or 7

per cent from 10 to 12 per cent in the early nineties.In 1998, the company went back to

Gems‘ imagery of a children‘s brand. A newcampaign was launched to target the urban

child. It now included a whole range ofChocogem characters, who were supposed to

symbolize a child‘s partners in fun (Mastika partner). Also, for the first time, the

communication emphasized the chocolate content.However, this re-launch did not really

contribute to the brand‘s revival simply becausethe brand still lacked excitement. This

was when the company decided to look at markettrends abroad.Internationally, brands

targeted at younger children sold because they offered value-adslike toys. Also consumer

research revealed that the chocolate flavour and CDM‘s equitywas not being utilized

fully.So the company decided to constantly change the packaging and include add-ons

likeplay value around Gems core proposition. The problem was that in the Indian

market,promotions like toys on smaller stock keeping units (SKUs) at low cost can be

verydifficult. So the company had to opt for innovations on pack sizes and formats

first.In early 2001, the company introduced Re 1 packs, with four buttons, solely to

increasepenetration. Later, tube packs priced at Rs 15 with flip tops and a maze-ball game

on thetop were also introduced. Then in early 2002, new cricket ball packs were

introduced.This combined play value along with low costs.The innovation seems to be

paying off: This is equal to that of Rs 5 pouches, whichwere the highest contributors to

the 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 Gems

tostabilize its market share.But this does not mean Gems‘ problems are over. For one, the

competition 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, and

Perk are having the biggest biteof the consumer mindshare. So Cadbury seems to be lying

low on Gems, especially onthe advertising front. The brand has been losing out to its

portfolio siblings when itcomes to retail visibility and booking order size — as the

number of SKUs of otherCadbury brands have increased. External face of the brand has

been far less glamorousthan other Cadbury brands.But all this is being compensated for

by promos and innovations in packaging — forinstance; Cadbury has introduced new

stand-up trays for the tube packs to ensure countervisibility.However, as Gems picks up

lost growth rates, there is a new movement that could createproblems — one that is partly

Cadbury‘s creation. The newly-launched popsicle Chocki— launched to counter Nestlé‘s

ChocoStick — priced at Rs 2, has started eating intoGem‘s equity. In fact, this segment

has grown to 11 to 12 per cent of the chocolatemarket — at the cost of Gems.Unless

Cadbury‘s is able to come up with more gems of innovation it may find one of itsoldest

―young‖ brands succumb to old age.TEMPTATION CHOCOLATE GIANT LIVED TO

REGRETIt is a problem faced by multinational companies: how do they tap into the

concerns oflocal consumers to make their advertising more relevant?The marketing

people at Cadburys India thought they would try to sell more chocolateby playing on the

biggest issue facing the worlds largest democracy. That is Kashmir,which continues to

threaten to plunge India and its neighbour, Pakistan, into nuclear war.

60. Newspaper advertisements for the Temptations range of chocolate showed a map

ofKashmir alongside the riddle: "Im good. Im tempting. Im too good to share. What am

I?Cadburys Temptations or Kashmir?"To make matters worse, the ad was timed to

coincide with Indian Independence Day,when nationalist feelings were running at their

highest.Cadburys India is a wholly owned subsidiary of Cadbury Schweppes which has

operatedin the country for more than 50 years. It apologized after protests against

theadvertisement whipped up by the ruling Bharatiya Janata Party (BJP), which plays

onHindi nationalismSWOT ANALYSIS OF CADBURY INDIAStrengths• Strong Brand

names like Cadbury dairy milk, Five Star and Éclairs• Rich Product Mix• Support from

the parent Cadbury SchweppesWeakness• Ltd. Key products, only one central brand

(CDM). Pralines range totally wising in India.• Lack of launching products in rural

IndiaOpportunity• The Indian market and more specifically the urban areas where the

penetration of Chocolates is low can be developed as a future market through

affordability and availabilityThreat• Stiff competition in confectionary segment• The

company has large exposure to foreign currency exchange rate risk mainly on account of

imported cocoa beans and cocoa butter in US Dollar and Pound Sterling

61. MARKET SEGMENTATIONThis can be done in two ways, product forms and

customer basedWith respect to product formsThere are four major segments in the

chocolate industryA. Moulded chocolate segmentThis segment constitutes 50 % of the

total market Cadbury diary milk Cadbury s flagshipbrand has 50 % of this segment

market .To position CDM in this segment Cadbury usedthe traditional demographic

variables of age, socio economic groups and usage intensity.CDM was positioned as a

product that elders brought for their children and recently it hasshifted this positioning

and has not only included parental love but has said that it is giftfor someone you love

and that can be anybody not only parents and children Cadbury hasassociated itself to

enduring and emotional values of love sharing and affection andreward considering that

CDM acts as a trendsetter for all the brands in this segment.Amul tried to be different and

at its initial product launch as Cadbury had targetedchildren they had targeted teenagers

but unfortunately they were unsuccessful.The Cadbury brands in this segment are

Cadbury diary milk, Cadbury fruit and nut andCadbury temptation CDM is the leading

brand here and others act as an endorser of thebrand here.From around 1993 this segment

began showing signs of maturity. This was hurtingCDM. This led to Cadbury attempting

to rejuvenate the segment. They changed their corecustomer from children to that of the

universe, which means from children to adults thisattempts to redesign the market to

enticing all age groups, helped bring about changes inthis segment. Today the notion

associated 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 an

important segment for further growth.B. Count line Bars SegmentThis segment forms 33

% of the chocolate market. This segment is mostly targeted to theteenagers. Major

Cadbury 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 as

endorsernestle has a minor presence in this product category with bar one.Growth of a

sub segment chocolate wafers: Chocolate wafers are the new productsbeing offered by

the chocolate companies today in order to expand the market. In 1995Cadbury and nestle

launched perk and Kit Kat respectively. These were wafer-enrobedchocolates in a new

context and a different benefit offering. Both chocolates had a snackpositioning. Perk

offered the anytime anywhere snack proposition thodi se pet pujawhereas Kitkat tried to

promote 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 very

lucrative segment.Internationally confectionery products like wafer chocolates have a

very high tonnageand have a much bigger future than plain chocolates. Market research

and succeeds ofthese two brands suggest that Indian consumers and ready to accept wafer

chocolateproposition. This conviction of both Cadbury and nestle towards this segment

can begauged from the fact that both brands are seeking unprecedented allocation of

funds tothe tune of 60 to 70 % of the total advertisement budget of both companies

andchocolates.A new entrant in this category is Cadburys Picnic it is three layered

chocolate coatedwafer bar with dry fruits and caramel and crispies priced at Rs 14 for

40gm bar. Picnicwill be used not only to expand the functional segment of the market but

also to counterkit Kat and other important bars (Snickers, Mars, and Lion) as against perk

which 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 has

beenlaunched to develop the snacking area in the chocolate market.C. Choco-panned

segmentsThis segment forms 4 % of the total market and Cadbury has 100 % of the

market 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

and serve tosome specific taste preferences. Cadbury doesn‘t advertise these brands they

have beenused as flanker products.

63. The opportunity for growth in this segment is high with the imminent entry

ofmultinationals like mars and Hershey‘s. This is also likely to pose a threat to

Cadburywhat 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 éclairs.

Éclairs has been used strategically to foster chocolateconsumption among children as

well as adults by offering ` guilt free eat no more than abite full at a convenient price

point (65% of éclairs eaters are from the householdearnings less than RS 4000 per

month)E. A gem is still Cadburys primary tool to protect its franchise in the child

segment. It‘s been previously associated in its commercial with the international spy

character James bond. Around 1995 gems were repositioned to broad base its appeal from

3 to 6 yr. olds to teenagers as well. However this failed due the product form which has

become deep-rooted with kids and hence the company has reverted back to its target

segment of kids with a new offering of choco gemsMarket Segmentation with respect to

the consumer buying powerThese are• High-income customers (price greater than Rs 25

for 40gm) who will go in for premium chocolate brands.• Middle income customers

(Price between Rs 10-25) who are price sensitive• Children who are mostly price driven

and will consume more of toffees in the price range of Re 0.50 – Re

1PSYCHOGRAPHICS AND DEMOGRAPHICSThis is attempted in terms of the

consumersa. High income customers

64. It is estimated the age group buying the chocolates would be 232 on wards the

incomelevel is estimated to be Rs 8000 per month. The customer are mostly urban and

aremostly professional (engineers doctors executives)The psychographic profile: They

can either be individuals indulging themselves or theycould be indulging their children.

They are inner-directed people who form their ownvalues and norms and believe in not

adhering to the social norms. They are some whatoccasion driven in their buying

behaviorb. Middle income customersThe age group of this segment will be 15 plus. The

income level is estimated to bearound Rs 5000 a month. The consumers can be urban

semi urban and is currentlyspreading to rural areasThe Psychographic profile: They are

likely to be variety seeking in their behavior. Theyare self expressing by nature and inner

directed to the extent. They like to indulgethemselves but with a little bit of cushion

support.c. ChildrenThe upper age limit is estimated to be 12 yrs. They mostly purchase

their chocolates withtheir pocket money or get as gifts from elders. The consumers can be

urban, semi urbanand rural though there is somewhat greater emphasis on urbanThe

psychographic profile: There is novelty seeking in their behavior. They are also

funloving. PRODUCT POSITIONINGThe differentiation planks used in the Indian

chocolate market areProduct quality (levels of fat /cocoa) e.g. Kit Kat though priced

higher then perk sellsmore due to better quality.Chocolate with additives likes fruit and

nut.

65. Packaging: A chocolate being predominantly an impulse driven purchase

category,packaging is an important mode of attracting attention at the display counter•

International heritage of its product• Functional attributes like the energy bar• As a gift

item• As a snack the positioning of a chocolate as a gift item is receding now it more

itself being positioned as a snack or a quick meal substituteSize small sizes to increase

trial rates this is gaining tremendous today since thecompanies in a bid to offer chocolates

at affordable prices are reducing their packing size.Shape (e.g. chocolates in the shape of

toys targeted at children) for Christmas seasonchocolates were shaped as Mickey mouse

and this proved very successful for the seasonalso the shape has to be such the product is

worth sharing this has been attributed as amajor season for the success of third launch of

kit Kat.

66. .Evaluation of the Advertising strategy Marketing strategy Right Wrong CDM Five

Star Right Amul Chocolates Perk Picnic Advertising Cadbury‘s Strategy Temptation

Wrong Cadbury‘s All Silk Bar-One GemsProduct market boundaryFor deciding the

product market boundary the [product market will be defined as the setof those products

which at as substitutes to satisfy the specific needs that are alreadyidentified of the

customer. Further for defining the product market the consumerjudgment of

similarityAnd substitution will be used which are going to be more reliable then the

categoriesdefined by the industry classification. To refine the categories further only

those productsthat fall in the processed food category are considered the following• Ice

cream - Ice cream is eaten as a desert or milk based snack. People also consume it to feel

themselves as a part of a upper strata of society (this is the attitudinal aspect associated

with eating out in famous parlors like Basin Robbins). It satisfies the need for food social

belonging and hence competes with chocolates for money spend by the consumers to

satisfy the needs.• Biscuits with mew variant of biscuits like chocolate cream elaichi

cream puffed biscuits launched in India biscuits are increasingly becoming snack budget

of the consumers further glucose biscuit are positioned as a source for energy same as

some chocolates like 5 star which are positioned as energy bars, hence they compete with

each other directly.

67. • Wafer chips and packaged nankeens: with their high visibly easy availability and

aggressive advertising by multinationals like Pepsi chips are competing with snacks like

wafer chocolate which are purchased by consumer on impulse basis.• Fast food: fast food

consists of western food like pizzas burgers and traditional Indian food like samosa and

pakoras. Many chocolate marketing companies realized that if they want to position

chocolates as snacks they would have to compete with these fat foods directly through

their advertisement.• Sweet / Pans: sweets and sweet pan consumed after dinner as a

desert directly competed with chocolates which is also eaten many times after eight.•

Sugar based confectionery chocolate éclairs directly compete with many sugar based

confectioneries particularly toffees in Indian market many of these toffees like pan

pasand coffee bite melody have become popular and eroded the market share of

chocolate éclairs from time to time.• Soft drinks with the advent of fountain machines

soft drinks have become easily accessible and convenient for consumption. This has

therefore resulted in soft drinks being increasingly perceived as a n impulse purchase

item with this occurrence chocolate have come in direct competition with cold drinks.•

Chewing gum this segment is also experiencing a rapid growth with its worth about Rs

150 crore. There is a virtual explosion of the chewing gum in the re1 segment and it

cannibalizes the chocolates in the lower price segment.The product market boundary can

be illustrated as follows:

68. Foods Snacks Fast Food Desserts Soft Drinks Ice cream Moulded Count Line

Chocolate Bars Choco Sugar Panned Panned Sugar Based Sweets Confectionary

Chewing Gum Wafers Biscuits & Namkeens

69. PRICE SENSITIVITYAt the outset the chocolate market appears to be price

sensitive. This is starkly broughtout in the following casesWhen the excise duty on

chocolates was raised from 16.5 % to 27.5 % and cocoa pricesraised by 25 % in 1992-93

the retail prices went up by 30 %. As a result the sales andconsumption fell by more than

30% in the next two yearsThe major players have successfully launched small size packs

of chocolates. Keeping inminds the price sensitive nature of the market the companies are

reducing the pack sizesto be able to offer chocolates at affordable prices and fit them to a

RS 6-8 bracket. Due tothe broad basing of the chocolate market there is a drive towards

smaller convenientpacks for a larger audience and it also increases trial. However the

upper segments of theconsumer base are not price sensitive. For example chocolate like

Kit Kat which is priced30 % above its rival perk has a similar market share of 8%.

Consumer Buying BehaviorThe product comes under Fast Moving consumer Foods

(FMCG) and the product isgenerally purchased as a convenience good. The general

characteristics of this productare:

70. It is a low involvement product, but there are significant differences in various brands

inmarket. The following matrix may help in studying the behavior of consumer for

thisparticular product.In this product, consumers are often found to do a lot of brand

switching. AlthoughThe consumer expects some benefits from chocolates, but he chooses

a brand withoutmuch evaluation, and evaluates it during consumption only. But next

time, quite often hemay reach for another brand out of boredom or a wish for a different

taste. Brandswitching occurs for the sake of variety rather than dissatisfaction.Consumer

Buying Behavior High Involvement Low InvolvementSignificance Difference in

Complex buying behavior Variety seeking behaviorBrandsFew Difference in Brands

Dissonance reducing Habitual buying behavior buying behaviorCadbury has 70% of

market share, and hence this variety-seeking behavior had notaffected its sales

negatively. This had been possible due to various factors like lack ofstrong competition.

However, with the new entrants in the market, there has been stiffcompetition. There are

few segments like water chocolates segment where company facesstrong competition

from Nestle, the second major player in the market. In these segmentscompany should try

to increase brand loyalty for its brands. This increased consumerloyalty will also act as

deterrent towards development of strong competitions in othersegments. Further to

increase the overall size of market, company should try to increaseconsumer‘s

involvement with chocolates. (Company can use consumer involvementachieved by soft

drink marketers in USA as a benchmark. In USA, consumerinvolvement in soft drinks is

much higher than other beverages like coffee).

71. INDUSTRY STRUCTURE AND DYNAMICSWith Cadbury cornering almost 65 %

market share and nestle getting another 24 %industry has all the characteristics of a

duple. This industry is characterized by a neartotal absence of unorganized sector as

compared to its substitutes like ice creams chipsetc. Various internationally famous

brands such as mars Hershey etc are either importedin a very small quantity or are

smuggled to avoid high import duty. Other chocolates likeToblerone Twix snickers are

being imported through California foods in India. Thesehelp in expanding the premium

imported segment of the chocolate market. As thesebrands have miniscule volumes and

high price they are not giving any seriouscompetition to Indian brands.The market has

been stable over a long period of time with two major companiesCadbury and nestle

occupying the major share in the market. . However with the threat ofentry of new

competitors and also the broad basing of the market the repositioning of theentire

chocolate eating concept we foresee a lot of action in the market. This is alreadyseen in

the war of perk and Kitkat, which had very nearly taken on the intensity of colawars.

Nestle has started threatening the long enjoyed lead of Cadbury and Cadbury is allset to

defend its territory.

72. Market Share 5% 6% 24% 65% Cadbury Nestle Amul OthersThere have not been

many changes in the competitive strategies, Marketing practicesproduct modification of

different brands till 1994. All major brands have beenrepositioned once or twice only.

But with the maturing market the new marketingstrategy is to target a new breeds of

consumer the consenting adult rather then theindulged child. In keeping with this market

redefinition a lot of brands have beenrepositioned onto a new plank the most successful

plank being Cadbury diary milk whichled to an increase in 20 % of consumption.Till now

frequency of the new product development was also very low but after thelaunch of

Kitkat this industry is experiencing a lot of action. Cadbury came with perk inresponse to

Kitkat in a very share time frame. Cadbury had also launched relish a brandin count line

bar segment there has not been significant technological development inIndia in

chocolate. But to create excitement and growth in the category Cadbury haslaunched

many new products, which led to change in consumer taste and preferences.These

products are based on strong international R &D capability of the chocolatemajors.Kit

Kat is manufactured in a newly commissioned plant in go and due to

cumulativeproduction volume nestle is not likely to enjoy the benefits of learning curve.

But apart

73. from relative cost advantage Cadbury has pursued vigorously product

differentiationstrategy. Apart from manufacturing products suitable for Indian taste and

distributionCadbury has established strong brand equity and brand loyalty among Indian

consumers.Seasonal factors like weather festival etc do affect the demand for chocolates.

Insummers due to lack of cold chain at all places chocolate are not able to bear the heat

andhumid condition. Thus retailer do not stock them this shows high bargaining power of

theretailers.Chocolates have emerged as a gift item to be used during traditional Indian

festivals likedeepawali and New Year. Companies like Cadbury come with special gift

packs thusdemands shoot up during festival season Demand is also sensitive to economic

factorslike recession in economy or substantial increase in price of chocolates. However

in theyear 1997, chocolate manufacturers were spending only 80 % of the festival budget

ascompared to the previous year. Advertisements spent across corporate India were

prunedin the last festival seasons which led to a fall in demand. Companies are hopeful of

beingable to reverse the trend for the current year.Entry barriers• Brand image•

Requirement of specialized machinery• Lack of raw materials (cocoa) in sufficient

quantities• Government regulation in the form of excise duties• Need of heterogeneous

and wide distribution (being an impulse purchase category)Exit barriers• Government

regulation• Specialized assets like machinery cold chains etcThe rural conundrumRatna

Bhushan

74. Big opportunity, large masses to be tapped. Yet success in rural India has

eludedseveral corporates. Can India Inc really make it big in rural markets? CIIs

recentSummit had experts introspect on the subject.IT is not a one- timeact, not

amarketinggimmick or a soundbyte. It has been theWaterloo of manycompanies. It

involvesaddressing some 700million potential consumers, over 40 per cent of the Indian

middle-class, and about halfthe countrys disposable income. Rural marketing, a much-

talked about and hotly debatedsubject, was once again the focus of attention of FMCG

majors such as Nestle India andCoca-Cola.Last weeks Marketing Summit in New Delhi

hosted by the Confederation of IndianIndustry saw heads of these companies express

diverse points of view on the issue.Carlo Donati, Chairman & Managing DirectorCarlo

Donati, Chairman and Managing Director, Nestle India, observed that `generalizingthe

rural market can be dangerous. "It is true that in todays congested and difficultmarkets,

both local and global, all FMCG as well as other companies or corporationslook and

search for new opportunities, consumers and markets. Going rural is a questionany

marketing person must have reflected on many times," he said.Drawing attention to the

700 million potential consumers in rural India, Donati pointedout that the rural market

presented both an opportunity and a problem, given that thismarket has been

characterized by unbalanced growth and infrastructural problems.

75. So is Nestle going rural? "Our product portfolio is essentially designed for

urbanconsumers; but all the same we are closely monitoring the rural consumer," Donati

said.Nestlé‘s rural initiatives have largely been based on price-led initiatives. Brands such

asMaggi noodles and Kitkat chocolates have been priced at Rs 5, and few other candy

andchocolate brands are priced at Rs 2 per unit. These price points not only help Nestle

reachmore retail formats in urban markets, but also help in making inroads into rural

markets.Currently, rural markets account for below 10 per cent of the food majors

revenues.Key Success Factors:• Research and Development:With increasing competition

in the industry R&D may become an important and criticalfactor for success in newly

emerging segments of the market. Indian players like Amulare not able to launch

chocolates in fast growing count line wafers segment of the market,as they don‘t have

appropriate technology. But still moulded chocolates which constitute62 % of the market

do not require any special R&D.• PricePrice can be used as a basis for competition in the

industry. In 1995 perk was launched ata price Rs 4 less than Kitkat was. This brand was

specially produced for Indian marketsand successfully competed with internationally

famous Kitkat. But low on price withoutbrand equity may not really help as Amul and

various regional brands are priced lowerthen category leaders without having much

success.• International LineageThe international image associated with chocolates acts as

a propeller for the salesconsidering the significance of user imagery and aspirational

aspect of this productcategory. The lead can be attributed to the international lineage

despite the higher pricecompared to the price of perk However this has to be taken into

consonance with theprice factor considering that the Indian consumer is price sensitive.•

Product Quality

76. Product quality per se may not be critical success factor. But many instances prove

thatpoor product supported with high decibel advertising is; likely to be a failure

Cadburyhas constantly improved the product quality along with rest of the marketing mix

as atool to create growth in the category.• DistributionChocolate being an impulse

purchase wide and heterogeneous distribution channels areimportant so that the

consumers have it within arms length of desire. In India distributionof chocolates gain

special significance due to very hot weather condition during summermonths•

Availability of capitalChocolate manufacturing is a capital intensive business and clear

lack of unorganizedsector underlines the importance of capital availability.• Quickness of

responseWith the increasing competition fast response is assuming significance. For

example perkwas launched 15 days of the launch of Kitkat to counter the threat.

77. Product Life CycleMarket research is a process designed to link managers to

consumers throughinformation. It is used to identify opportunities and make better-

informed decisions aboutproducts, which have future market potential.Market research

has revealed that Chocolate play more of a functional role than one ofpure indulgence:

they are often a meal substitute. Research also shows that successfulsnack brands in the

confectionery category tend to have more foody values and oftencontain ingredients such

as cereal, wafer, biscuits, peanuts and fruit to break up thechocolate delivery.Cadburys

philosophy is to continue as a driving force in the confectionery market, andthus

constantly analyze its offerings for consumers. The core objective of Cadburysinnovation

programme is to generate incremental volume for the company and achievethe vision of

market leadership in every segment in which it operates. The role ofinnovation is critical

as it allows Cadbury to develop ahead of its competitors in thoseareas of the market

which are new or growing.1. Product DevelopmentCadbury set out two objectives for the

development of Fuse:1. to grow the market for chocolate confectionery;2. To increase

Cadburys share of the snacking sector.The concept was developed after market research

identified the growth of snacking and adefinite gap in the market for a chocolatier snack.

A number of ingredients were devisedand tested following a survey which questioned

consumers about their snacking habitsand preferences. A research and development team

was then asked to develop a numberof product recipes which addressed the needs

expressed by consumers.Not all products successfully emerge from the product

development phase. Research anddevelopment involves combining various ingredients to

develop potential new products.Considerable development time is spent on all brands of

Cadbury‘s, carefully engineeringthe ingredients in order to deliver the right balance of

chocolate, food elements and

78. texture. More than 250 ingredients were tried and tested in various combinations

beforethe recipe was finalized.Any new product in the snacking sector must establish

points of difference from existingproducts within the market - thus creating a unique

selling proposition (USP) i.e. aproduct with unique appeal which is not shared by any of

its competitors. Whereas otherconfectionery snacking products focus primarily upon

ingredients, with chocolate usedonly to coat the bar, the product developers decided to

use Cadburys chocolate to fusetogether a number of popular snacking ingredients such as

raisins, peanuts, crisp cerealand fudge pieces.2. Early Consumer TestingAs products are

developed, they must be tested to ensure that consumers would bewilling to buy them. As

approximately 85% of all new products launched into the groceryand allied trade sectors

fail in their first year, extensive research helps to reduce the riskof launching a new

product into an already competitive market. The brands go throughtwo extensive in home

placement tests. The results of these tests were multiplied intorepeat purchase and

purchase frequency figures to allow. Cadbury to anticipate thevolume of bars required for

the launch of any new brands.A key element of any new product launch is the

development of a strong brand nameThe design brief for the brands require two

objectives:1. To communicate the dynamic and slightly wacky personality of the new

product and create interest at the point of purchase (i.e. in store)2. To bring the brand

name to life by communicating the fusion of Cadbury‘s chocolate with the snacking

ingredients.3. Pack DesignPackaging enables a manufacturer to convey both the tangible

and intangible attributes ofa product. The packaging for Cadburys new product sought to

position it as a unique,exciting and delicious chocolate snack which would stand out from

its competitors. Itwas important to emphasize the qualities and appeal whilst at the same

time reinforcingthat it was a Cadbury brand.

79. The packaging achieved impact by using bright, fiery colours for the product name

andcontrasting them against the deep and instantly recognizable Cadbury purple,

whichcommunicated the manufacturers heritage. The colours were also used in a gun

powderstyle to suggest an explosive taste. The vibrancy of the design aimed to

differentiate itfrom other products in the sector so that it would have an immediate point-

of-sale impactboth on-shelf and in store display units.Three different packaging formats

are developed in order to maximize the various multi-purchase opportunities available.

The key pack size was the single bar, designed to enticetrial and to encourage repeat

purchase. The treat size and the multi-packs were aimed atfamilies.Brand name: Like

packaging, brand names play a critical role in the success of aproduct, by helping to

create a products personality. The new product aimed to havebroad appeal to 16-34 year

olds, although it was primarily targeted at 16-24 year olds.The name of the new brand is

chosen to communicate the idea. The logo is also inassociation with the brands name.4.

Further Consumer TestingTesting is vital throughout the entire product development

process. It helps to providevaluable information that can be used to fine-tune the product

and minimize many of thelaunch risks.In research, brands are tested for texture,

interesting eat and combination of ingredients,than its competitors and each carries a

rating.5. The launch strategyThe launch strategy of any new product is critical. Cadbury

has two targets for itsproducts - trade customers who stock the product and consumers

who buy it. In recentyears, product launching has become an art which can make or break

a product. Asuccessful launch makes potential customers aware of the new product and

keen to try it.

80. Before consumers could try the product, however, it was important for Cadbury to

gainthe support of its trade customers. Retailers had to view it as helpful in

encouragingcustomers to visit their shops. If the product had failed to interest retailers

anddistributors, the costs of investment would not have been met and they would not

havestocked the product.Cadbury conducts one-to-one briefings with over 70 key trade

customers. This helpedCadbury build awareness and commitment to the launch and

obtain significant orders forin-store displays and merchandising ahead of the launch date.

The trade commitment wasreflected in high levels of display support in store during the

launch.Traditionally, new confectionery products are initially launched in one region of

thecountry, in order to gauge the products success, before moving on to other regions

over aperiod of time. Time Out and Wispa Gold, for example, were launched in this

way.There were certain key requirements to the co-ordination of the launch:Secrecy had

to be paramount!Marketers who had identified the gap in the market had to work closely

with individualsfrom research and development as well as other external

agencies.Manufacturing operations, in conjunction with marketing and finance, had to

evaluate anew factory investment for Board approval.Having a catchy hook for a new

launch helps to make consumers notice the product.Cadbury selects a date and then

christens that day as that brands day. This involved tightmanagement of stock

distribution, with more than 40 million bars being moved fromCadbury depots into the

trade only a few days prior to the launch date.Press releases were tailored to specific

audiences. In each case, a strict embargo wasimposed to ensure that the impact of the day

was not diluted. The only exceptions werebriefings with The Grocer, and Marketing

(trade publications) and the media, whichreviewed the product in its business

pages.Public relations (PR) support was substantial. It told the story of the brand

beinglaunched explained that it had taken so many years to develop, the investment

incurred,the plant in which it is being manufactured and the advertising cost involved.

The results

81. of the TV campaign and PR campaign were so successful that Cadbury was

underpressure to meet repeat orders post-launch!6. Post-launch resultsAfter a new

product launch, it is important to analyze whether the product has managedto meet its

launch objectives. Cadbury tries to find out as to how much increase has theirbeen in the

percentage of its market share with the launch of the new product.One way of evaluating

the effectiveness of advertising and promotional campaigns is toask market research

volunteers to identify advertisements using prompts in a recall test.The Fuse launch had

created massive awareness of the new brand; achieving greaterprompted awareness

Cadburys competitors reacted to the success of Fuse by increasingtheir own new product

activity.Control Institutions Facilitating Institution Government Advertisin

Nestle/Foreign g Brands Media MRTP Management MR Agencies Cadbury U.K.

82. Positioning With Respect To the Price Segments Positioning Drives attitude Drives

snacking Drives variety, gifting and taste Price and and preferences behaviour

Consumption Cadbury‘s Temptation High Cadbury‘s fruit & Nut (above Rs. Kitkat

Cadbury‘s Roast Almond 25 Cadbury‘s Bounville For 40 gms.) Cadbury‘s Nut Milk

Tangro Almond Tango Fruit & Nut Medium Cadbury‘s Creamy Bar (Rs. 10-25

Cadbury‘s crackle Cadbury‘s Perk Tango Cashew for Cadbury‘s diary Tango Crispy 40

gms.) Milk Amul Fruit & Nut Nestle Crunch Amul Milk Chocolate Low Nestle Premium

Amul Bitter (Below Rs. Milk Amul Orange 10 Nestle Classic Amul Crisp For 40 gms.)

Tango Milk Cadbury‘s Relish Nestle Rich Dark Mystique Price, Positioning and Ad

Descriptions of All the Brands AdvertisementCompany Brand Weight Price Positioning

campaign

83. Cadbury Dairy Milk 48 gm. Rs. Product for people who are The real taste ofNestle

Kit Kat 36gm Rs 15 Snack for routine usage Have a break Chocolate 15 Natural and

spontaneous Life Fruit & Nut 50 gm. Rs. Piggybacking on Cadbury‘s Kit Kat Have a

Roast 80 gm. 19 dairy Milk Have a Kit Kat Almond 35 gm. Rs. Play it Cool Milky Bar

40gm Rs 13 Milkybar , give me the Nutrition for children and Creamy bar 40 gm. 38

power sugary taste Bourmville Crunch 40gm Rs 13 Rs.Fun Product Chicken or Egg 11

Have a Crunch Bar One 50 Rs 10 Rs.Snack For those in between times gm 13 Classic

Crackle 40gm gm. 10 Rs. 40 Rs Product for teenagers, fun Crack, Crack, Éclairs 7gm

Rs0.50 12 Alternative to Diary Milk CrackleAmul Premium 5Star 40gm gm. 10 Rs.Gift

Source of energy for body for someone bar love 40 Rs for all ages – Gift & Energy you

Milk 40gm Rs 10 10 expression of love mind Perk Orange 35 gm. Rs. 40gm Rs8.50

Anytime, anywhere snack Thodi si pet puja Crisp 40gm Rs 12 12 Break 25 gm. Rs. 6

Light chocolate bar to fulfill a I want a break Fruit & nut 40gm Rs10 snack need rather

than just taste Bitter Diary Milk 1.00 Close to chocolate with a twin Éclairs teenagers

Éclairs taste –tough from outside and ‗jo bhi khaye duniya soft creamy bhool jaye ‘

Filing within. Relish 17gm Rs 3 Nutties 40gm Rs 13 Tiffins Rs 12

84. Procter‘s 5 Forces Model Substitution Substitutes like ice cream, Potato chips,

biscuits, Soft drinks, chewing gum are a source of threat as well as opportunity for

market SuppliersMajor raw materials suppliersare cocoa produced in LatinAmerica

countries Competitors DuopolyDue to negligible domesticproducts in India , suppliers

Both the major players have Buyersenjoy high bargaining power financial muscle to

sustain Since chocolates do not their brands satisfy any immediate needs,Milk supply

also fluctuates it is not a necessary item.therefore in summers months All players

following a pullmilk suppliers gain sufficient strategy Consumer power is very

highbargaining power and consumers need to be persuaded through various positioning

planks to consume chocolates New entrants Imminent entry of global majors like

Hershey‘s, Mars etc is bound to change the power equation in the Indian chocolate

market Rural Market Initiatives Contrary to most FMCG players, Cadbury is not looking

at the rural markets for growth. Most of the sale comes from urban areas. Chocolate

consumption in urban India itself is low. There is a large untapped demand in urban

market alone. Only 60mn people out of the urban middle class population of about

85. 280mn consume chocolates. Why should they go to rural areas? The target ofadding

10mn consumers annually can be achieved from the urban areas.Besides storage and

logistics is also a problem. Chocolate needs to bedistributed directly, unlike other FMCG

products like soaps and detergents,which can be sold through a wholesale network. 90%

of the products are solddirectly to retailers. Building such a direct network in rural areas

is a dauntingtask. Currently, Cadbury is looking at growth through expansion of the

targetsize, which will grow as more people move upwards in the income pyramid.

SUGGESTIONSLooking at the FutureThe consumption of chocolates in India is among

the lowest in the world. Acomparison with the world wide industry average is an eye

opener. In India theaverage per capita consumption is a mere 20 gm compared to the

world averageper capita consumption of 2.24kg. Moreover data on world wide

chocolateconsumption indicates that – in the mature markets this figure is as high

as9.36kg, while even the emerging markets total up to 1.16 kg. While looking at

86. the consolidated averages –would be misleading, even the consumption amongthe

potential consumers of chocolates is extremely low as compared to theworld

average.Potential Chocolate Consumers Income Age Groups Groups Total 5-14 15-19

20-24 25-34 (Rs`000 p.a.)Rural 62-86 2.2 0.8 0.7 1.2 4.9 >86 13.5 4.8 4.3 7

29.6(Millions) Total 15.7 5.6 5 8.2 34.5 62-86 7.0 2.5 2.2 3.7 15.4 >86 18.8 4.9 4.4 7.2

30.2 Total 20.8 7.4 6.6 10.8 45.7Total 36.5 13.0 11.7 19.0 80.2Using the figures as

mentioned in the table above one can arrive at a roughestimate of the potential consumers

of chocolate in the country. For this purposethe populations in the age groups of 5 yrs to

35 yrs falling in the income groupshaving an annual household income of Rs 62000and

above have beenreconsidered. The total population in this group is about 80 million split

into 45million urban consumers and 35 million rural consumers.As the consumption of

chocolates is skewed towards the urban consumers, itcan be estimated that 80 % of the

chocolate consumed is in urban areas. Usingthese figures the per capita consumption for

the relevant target population is asgiven in the table belowChocolate Consumption Share

of Tonnage Relevant target Gms. per market population consumer (millions)Urban 80 %

12800 45.7 280SalesRural 20 % 3200 34.5 40Sales

87. Total 100 % 16000 80.2 200Comparing these figures to the world average, it can be

concluded that there is avery high potential for the chocolate market.As eating habits of

large parts of Indian society are becoming consistent withthe rest of the world; the

category is poised for a significant growth. The waferwars between Perk and Kit Kat is

an interesting indication of the times to comeand it has reached almost the same intensity

as the cola wars!! As these newplayers and existing companies introduce new type of

chocolates, distinctionbetween chocolates, biscuits, ice-cream will become less and many

hybridsproduct will grow. Along with this the potential to expand the consumer base

byincorporating a wider array of taste and needs of the consumers. Segmentationof

market based on consumer age is increasingly becoming irrelevant. There areexpected to

be many products target at specific new segments. This is veryobvious with the emerging

segmentation policy of using the ego states. A shiftin media strategy of various

companies can also be estimated. Instead of presentuse of mass media, specialized media

targeted at different segment will catchthe fancy of media planners. At the same time one

can see an increasingassociation between the brands and various highly published events

in order toincrease the brand equity in the minds of all the stake holders .Further there

willbe lot of improvement in packaging and modification of products as per

Indianconditions. A trend in the future wherein the innovative packaging can be usedas a

differentiating factor in order to increase the usage of the product can beforeseen. It is

seen that the chocolate giants is slowly shifting to the largeuntapped interiors, with the

increasingly saturating market in the urban areasand also increasing clutter. The first

mover advantage by monopolizing thedistribution network will work in great favor of the

company; hence it can berecommended that Cadburys should move in before any of the

other companiescan realize what hit them.

88. CONCLUSIONThe objective of the study was to study the Marketing Segmentation

of Amul,Nestle, and Cadbury, Consumer Buying Behavior of Chocolate Industry andalso

to study the Industry Structure and Dynamics.a. Advertising plays an important role in

creating brand awareness, brand recall and brand recognition which are important in

helping a customer make purchase decision of that brand.b. Brand should adopt itself to

the local culture.c. Brand should be kept alive.d. The styles and code to the brand should

change as clientele advance and grow.e. Brand should continuously evolve with the

culture and the product should innovate.Thus, we can say that companies which want to

make their brands No. 1 shouldadopt the above findings in their brand building exercise.

However forgeneralization of the results, a study needs to be undertaken based on a

largersample across different industries.

89. BIBLIOGRAPHY1. Kotler, Philip. ―Marketing management ‘‘2. Aaker, David et al,

―Advertising Management ‘‘3. Business Line ―Catalyst‖4. Financial Express ― Brand

Wagon ‘‘5. Times Of India ― Brand Equity ‘‘6. Strategic Brand Management7. Internet

Sources• www.cadbury.co.in• www.business-standard.com• www.financialexpress.com•

www.economictimes.com• www.hinduonline.com• www.indiaserver.com•

www.indiainformer.com• www.india-today.com