Monday, November 23, 2009

Cadbury aims for a bigger bite of Indian market



Even as US-based Kraft Foods Inc. and other likely bidders emerge for the world’s second largest confectioner, Cadbury Plc is renewing its own bid for the Indian consumer with hopes to raise its market share in the subcontinent.

Over last three years, Cadbury’s Indian arm has logged higher profits by doubling sales growth through its presence in more retail outlets through a wholesale network that has grown as it increased reach into smaller towns.

Smaller packs and variants of existing brands starting at Rs2 boosted sales in the last few years, but the aim now is to energize the category by attracting new customers via a new avatar of Perk, the wafer chocolate introduced in the 1990s to counter Swiss multinational Nestle SA’s successful launch of KitKat.

The new Rs5 Perk, which is bigger than the version it replaces, boasts of having glucose energy and is aimed at bringing more on-the-go teenagers looking for a low-cost hunger buster.

“The increase in size is important for the new consumers,” said V. Chandramouli, director of human resources and strategy for Cadbury India Ltd. “At the same time, the product went through multiple rounds of evaluation to make sure we do not alienate existing buyers.”

Cadbury’s switch to the fast lane happened with the arrival of Anand Kripalu, whose mantra even at his former employer Unilever was to kick up not just market share but to lift the entire category.

“If you have super brands and star talent, then that combination has to make us bigger than what we are,” said Kripalu, Cadbury India’s managing director who interacts informally with his employees every quarter via an open house.

The London-headquarted company, which also sells bubble gum Bubbaloo and milk-food drink Bournvita, has dominated the Indian market for over six decades with around 80% share of the chocolate business in the 1980s.

With the entry of Nestle in the 1990s, its share slipped and now stands at 71% of the Rs2,000-crore chocolate market, according to research group AC Nielsen. Nestle, which is more popular for its dairy products, Nescafe coffee and Maggi noodles, has a close to 25% share of the chocolate pie, and Gujarat Cooperative Milk Marketing Federation, widely known for its Amul butter, milk and ghee, and imported chocolates take the remaining 4% share.

“While I would applaud Cadbury by saying that they have put up barriers to entry, I think that their position today is not so much of their own making as much as the fact that nobody has chosen to give them an iota of a fight in the market because competitors have other businesses that are far more profitable,” said Sharda Agarwal, a director at brand consultancy MarketGate.

Cadbury’s brand share in India may be the highest in the world but that ranking lacks sheen as annual consumption of chocolates by an Indian is just 54g, against 10.5kg in the UK and 5kg in the US.

So, three years ago, with a multifunctional team of sales people with distributor focus, marketeers intuitive of consumer needs and the scientists in the product and packaging research and development lab, the move to create a chocolate magnet for new customers that would push per capita consumption began.

Meanwhile, Sunil Sethi, Cadbury India’s director of sales, pedalled hard to improve supply chain efficiencies by chiselling away more than half of the distributors to remain with the most productive ones and connecting their computers to the corporate server, enabling electronic order placements and shrinking unreliable paper bills.

Next came offering-specific assortments, as against the entire brand basket, to retailers via distributors based on the customers they attracted, which reduced inventory at the distributors and also improved their cash flow.

The result: a 700% jump in the number of wholesalers that the distributors serviced and an average of at least 20% annual growth in sales along with a nearly 30% jump in profit.

“We’ve freed up money from blocked inventory, and as a result, you have made your distributor far more profitable,” Sethi said. “Today, most of my retailers are earning a 24% return on investment versus earlier when it would vary anywhere between 15-25%.”

With the launch of the new Perk, which has a more cost-effective recipe along with cheaper packaging, the firm expects to double its retail presence to two million outlets in another two-three years, inching closer to reaching all the 4.6 million outlets that stock confectionaries. It is also offering the new Perk in a more affordable Rs100 trade pack versus Rs145 earlier.

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