saurabhsrivastava”

7/28/2019 saurabhsrivastava”

http://slidepdf.com/reader/full/saurabhsrivastava 1/80

ON

“A Comparative study of Chocolate

Market in India”

Submitted for the partial fulfillment of the requirement

For the Degree

Of

Master of Business Administration

FROM

U.P. TECHNICAL UNIVERSITY

UNDER THE GUIDANCE OF SUBMITTED BY

1



Table of Contents

PrafacePraface

Acknowledgement Acknowledgement

1. Executive summery

2. Chocolate Industry in India

3. Major Players

4. Amul

5. Nestle

6. Cadbury

7. Market share8. problem definition

9. Research Methodology

10.Analysis and interpretation

11.findings

12.Suggestion

13.conclusion

14.limitation15.Bibliography

2



PREFACEPREFACE

This project report has been prepared with the objective for the

fulfillment of the degree of master's in business administration, a requisite

requirement.

The report contains all the finding deducted during the analysis process.

The title of the project is “A Comparative study of Chocolate Market in

India” It consists of research work conducted, tabulation & analysis of data

collected, which ends in the effective & impressive suggestion &

conclusion.

I hereby divided this Project Report into different sections in which contain

different information’s about Chocolate Industry and details about my

project work.

3



ACKNOWJEDEMENT

A large number of individuals have contributed directly and indirectly in

this project. I am thankful to all of them for their help and encouragement.

I express my sincere thanks to my parents & friends for their constant

support and suggestions to accomplish my goals.

Last but not the least I thank God for his love and grace that enabled

me to complete this project.

Thank You.

4



5



THE CHOCOLATE INDUSTRY IN INDIA

The chocolate industry in India has a size of 20000 tones and is worth

about Rs 400 crores. The chocolate market has been growing by nearly 35

%. However there has been some slowdown in the last two years.

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

sales volume has decreased by 5% in the last year and the chocolate

market had declined with the average consumption coming down by 25%

from 16000 tones to the current level of 125000 tones

Chocolate consumption in India is extremely low. Per capita consumption

is around 160gms 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 90's when Cadbury repositioned

chocolates from children to adult consumption. The biggest opportunity is

likely to stem from increasing the consumer base. Leading players like

Cadbury and Nestle have been attempting 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

Indian chocolate market with strong brands like Dairy Milk, Five Star, Perk,

and Gems etc. Dairy milk is the largest chocolate brand in India.

Chocolates & Confectionery contribute to 75% of Cadbury’s turnover.

Cadbury also has a strong brand Bourn vita in the malted health drinkcategory, which accounts for 24% of turnover. The parent Cadbury

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

promoter holding in the company. It has already acquired over 90% of the

equity and proposes to buy back the balance equity and delist the stock

from Indian bourses.

6



THE FLIGHT WHICH FAILED TO TAKE OFF

Gujarat cooperative milk marketing federation limited (Amul)

Amul is the third player in the chocolate market in India. The brand doesn’t

have any international lineage and is miniscule in terms of market share in

chocolates and compared to the two other players Cadburys and nestle.

Amul had an extremely focused

positioning of a gift for someone you

love albeit not target to a single group

however Amul failed to capitalize on it

seemingly 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

negativelyaffected its top of

the mind

awareness level

7



b. 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

chocolates

c. 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 suffered

d. in comparison to the portfolios of the competitor Cadbury and nestles.

Its only strength was its low price

Following are the major

brands of Amul

Amul premium Milk

♦ Amul badam bar

♦ Amul orange♦ Amul fruit and nut

♦ Amul crisp

8



Nestle India limited

Nestle is a strong player in the chocolates world wide but it entered the

Indian market much later in (1991) than one of its global competitor

Cadbury. Nestle initial foray into the Indian market was not very successful.

The problem was in the formulation of the product. They were soft

chocolates with high fat content which were unsuitable to the Indian

climate. Also the distribution focus has been on the larger cities and urban

areas which limited their customer base.

It was with the launch of Chitchat that the company’s strategy changed with

respect to both product and distribution. It increased its distribution network

to cover small towns and interiors as well so as to increase the customer

base .It also modified the formulation of Moulded chocolate to suit the

Indian condition. The company used three layers of foil packaging so that

Kitkat could survive the summer heat.

Today nestle poses a formidable threat to Cadbury. Kitkat has captured asizeable chunk of 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 One is another brand with a market

share of 6%. Nestle recently withdrew its Nestle bitter chocolate 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 Cadbury by offering Allen’s splash and Allen’s coffees and Allen’s

Butterscotch. Amul has also entered into another foray of the confectionery

team that being ice creams. The distribution of this has been pretty good

with Amul ice-cream being available all around India.

9



The advertising for the company in India is being handled by love lint’s.

Nestle has been increasing its adverting figure the latest being in 2002 RS

25 crores.

Major Chocolate Products

Crunch: Crunch Chocolate is one of the best-loved foods everywhere in

the world. It is one of life's little pleasures. The attractive tastes and

textures of

chocolate

andchocolate

products

delight the

senses of all ages.

Introduced in 1938, today Crunch is Nestlé’s third largest confectionary

brand sold in about 40 countries worldwide. Nestlé Crunch is available in

the following varieties: Nestlé Crunch, Nestlé White Crunch, Nestlé CrunchPieces, Nestlé Bunch Crunch and new products Nestlé Crunch with

caramel and Nestlé Crunch assorted minis.

Launched in 1938 in the USA, Crunch was the first chocolate bar to

combine milk chocolate and crunchy crisps. Crunch is a unique

combination of smooth Nestlé chocolate and crisped rice, which delivers an

exciting eating sensory experience of distinctive taste, texture and sound.

10



Kitkat: Kitkat Chocolate is one of the best-loved foods everywhere in the

world. It is one of life's little pleasures. The attractive tastes and textures of

chocolate and

chocolate

products delight

the senses of allages.

The product, developed as Wafer Crisp, was initially launched in London,

UK in September 1935 as Rowntree's Chocolate Crisp. It became 'Kitkat' in

1937, two years before the Second World War.

Within two years of launch Kitkat was established as Rowntree's leading

product, a position that it has maintained ever since. During the Second

World War Rowntree Kitkat was seen as a valuable wartime food and

advertising described the brand as 'What active people need'.

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

white wrapper. It did, however, change to a blue wrapper in 1945, when it

was produced with a plain chocolate covering due to a shortage of milk

following the war. This blue packaging was withdrawn in 1947 when the

standard milk chocolate Kitkat was reintroduced.

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

believed to be from the famous 1920's Kitkat Club in South East London

which had some influence. As the building had very low ceilings, it could

only accommodate paintings which were wide and not very high. In the art

world, these paintings were known as 'Kats'. It's believed that Kitkat

derived its name from paintings, which had to be snapped off to fit into the

rooms with the low ceilings.

Reinventing Nestle

A detail analysis by the companies management to turnaround nestle

11



Top line growth, bottom-line contribution, difficult market situations. Nestle

India's trademark `renovate and innovate' strategy is churning with action.

Catalyst finds out more.

JUST how much can a housewife influence a Rs 1,688-crore company?

She's someone whose needs we anticipate

Take, for example, the exhaustive experimental kitchen and sensory

laboratory at the plush corporate headquarters of Nestle India at Gurgaon.

It's obviously a first-of-its-kind facility and research centre for any food

company in India.

The objective? Consistent product development. Also, achieving a

preference ratio of 60:40 for every Nestle product as opposed to

competition. The kitchen comprises a panel of application groups and 15

professional tasters checking out new products for consistency in quality

and product evolution on a regular basis.

The exercise, has resulted in the creation of two different flavors of Maggi

noodles (curry and tomato), Fruitips candy, besides new formulations of

Nescafe and Bar One chocolate in recent months. "And this research

model isn't a substitute for consumer research, or regular test-marketing

with the real consumer.

Based on an international research and development model proprietary to

Nestle SA, the kitchen is just one component of the Rs 3,000 crore

allocated for a centralized research and development cell for the foods

conglomerate worldwide, against Rs 2,500 crore spent on the same earlier.

Another component is the third in a series of multi-cuisine recipe

collections cutting across all Nestle products, in place of the two earlier

ones which centered 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

12



sizes. And another variant of Kitkat - white chocolate - has just been rolled

out.

On the launch block a month from now are 10 new product variants spread

across the culinary and confectionery segments. The restructuring exercise

of Excelcia Foods Ltd - the joint venture company in which Nestle acquired

management control following Dabur India's decision to exit non-core

areas - has neared completion. Following that, Nestle proposes to enter

fresh product categories such as biscuits in the forthcoming months.

But it's the food major's most keenly awaited venture - ice-cream - that's

got the FMCG industry abuzz. They are very much interested in the

domestic ice-creams market. Of course, that requires putting in place a

cold chain, besides stabilizing its milk and UHT businesses first.

Meanwhile, though there's no confirmation from Nestle, the industry

grapevine suggests that Nestle has begun negotiations with Vadilal for

manufacturing and marketing 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

formulation Choc Cafe and Frappe under the Nescafe umbrella, Nestle has

been setting up slosh-type vending machines for iced tea in two flavors -

peach and lemon. In an economy that's in a downturn, Nestlé’s

performance has been impressive. Net sales for third quarter this year

were Rs 533 crore against Rs 469 crore in the same period last year,

recording a growth of 13.5 per cent. While domestic sales grew at 11.4 per

cent in value terms, export sales for the quarter increased by 24.6 per cent.Sales during the first nine months of the year improved by 17.4 per cent,

with a net profit increase of 28.6 per cent over the same period last year.

Despite excellent top line and impressive bottom-line contribution, the

uncertain and difficult domestic and international market environment,

13



coupled with seasonality factors, will affect their performance in the fourth

quarter. Market analysts warn that incremental selling and advertising

expenditure on new launches would dampen margins and that it would

take time before the new products begin contributions to turnover or

profitability.

While the success of the new variants is yet to be gauged, Nestlé’s star

performers remain Nescafe, baby food Cerelac, Maggi and Everyday.

Nestlé’s biggest strength lies in creating brands with distinct positioning.

Hence, Nescafe is generic to coffee, just the way Maggi has become

generic to instant noodles. Maggi noodles face no direct competition, with

Top Ramen barely managing to hold ground in the instant noodles

category. Another winner has been Maggi ketchup, which, FMCG analysts

say, has been built 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 hasn't been able to handle Indian product categories such as

pickles and tea too well. No one is really making 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 her

purchase pattern is new taste and not brand preference.

The market for ready-to-cook mixes and soups too has been largely

fragmented with a distinct skew towards the unorganized sector.

In chocolates, while Cadbury India continues its stranglehold of the market,

Nestlé’s Kitkat, Bar One, Munch and Classic have been performing

reasonably. Two recent entrants to this category have been ChocoStickand Milky bar Chocolate, the latter soft chewy fudge in stick format priced

at Rs 5.

In the chilled dairy segment, Nestle dahi has recently been extended to

Mumbai and Pune. While the market for this continues to be very small

14



with only Mother Dairy and Amul giving Nestle competition in the organized

sector, milk in cartons is a concept that's yet to go down well with the

Indian consumer. Apart from being expensive, the Indian consumer is still

not ready to consume milk without boiling it. And research has proved that

three-fourths of Indians prefer hot milk. On the pricing front, Nestle

continues to target the premium segment. They make inroads into marketswhich represent not only potential for consumption, but also potential for

bottom-line. Nestlé’s premium pricing strategy is a strength that's worked in

most categories it operates in.

Fruitips, therefore, occupies price points of 50 paisa and Re 1 per unit

against HLL's Max which attacks the unorganized sector with an extremely

aggressive 25 paisa per unit price.

It's the association with quality that works in Nestlé’s favour in most

product categories. That this hasn't really worked in case of Nestlé’s

bottled water brand, Pure Life, is more distribution-related, feel industry

watchers. Pure Life, launched earlier this year at a price point of Rs 12, has

been a lukewarm performer compared to Coca-Cola's Kinley and Pepsi

Aquafina besides, of course, market leader Bisleri. Discounting at the trade

level has been a problem area with bottled water.

According to the A&M Annual survey on India's top 200 ad and marketing

spenders, Nestle was the country's sixth largest advertising spender in

2005-06, recording an ad spend of Rs 128.46 crore which amounts to a

13.6 per cent growth over the previous year.

NESTLE BUSINESS Nestle has a presence in the following categories -

Baby Food, Milk products, Beverages (Coffee, malted beverage), Chocolates &

confectionery and other processed food products. Category wise turnover breakup

and growth

15



% contribution

to turnover

2006

Rs mn.

2005

Rs mn. % yoy

Milk 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%

Chocolates & Confectionery

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

fourth share of the chocolate market in the country. The category

contributes 14% to Nestle‘s turnover. It has expanded its products range to

all segments of the market The Kitkat brand 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 confectionery portfolio

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

confectionery products are sold under the umbrella brand Allen's. Nestle

has also markets some of its imported brands like Quality Street, Lions and

After Eight . New launches such as Nestle Choco Stick and Milky Bar Chooat attractive price points to woo new consumers. Chocolate confectionery

sales registered a strong 21.5% yoy growth in 2001 aided by good volume

growth in Munch, Kitkat and Classic sales.Nestle re-launched Bar-One

during year

Future prospects Nestle is focused on product expansion and

improvement of distribution efficiency. The Dairy 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. The company’s

entry into the mineral water segment is a concern, as the segment is

16



already overcrowded and the company faces stiff competition especially

from the Cola manufacturers. Acquisition of an established brand could

catapult Nestlé’s position in the segment. In categories like beverages,

culinary products and chocolate confectionery, the company is looking at

driving growth through launch of smaller SKU’s, thus enabling affordability

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.

♦ Rupee depreciation improves export realizations

Nestle

17



THE NESTLE India stock has been bubbling with activity in an otherwise

listless equity market.

Till date, the stock has surged 77 per cent from its low of Rs 304 in May

2005 and now commands a valuation 39 times the expected earnings for

2000. This is steep by FMCG standards.

The recent surge in the stock is partly driven by the announcement by the

parent, Nestle SA, that it would use the creeping acquisition route to mop

up another five per cent in Nestle India through open-market purchases.

But improving the stock's valuation can also be traced to good financial

performance in a market starved of healthy earnings numbers.

On a comeback trail

The resumption of its coffee exports to Russia and a favourable input price

environment pepped up Nestle India's net profit growth to 28 per cent in

the first nine months of 2005. Sales growth in this period was 10.4 per

cent, with domestic sales rising 9.8 per cent and export sales 13.8 per

cent. In reality, the growth in sustainable net profits was higher than

reported as the company took an additional one-time charge of Rs 14.70

crore in the first nine months of 2000 for provisions against contingencies.

Unusually, low input prices may have contributed considerably to margin

expansion. Continuing surpluses in global production have pushed both

coffee and cocoa prices (the two key inputs for Nestle India, apart from

milk) to historic lows in 2005. While coffee prices are hovering close to their

seven-year lows, cocoa prices recently bounced off their lowest levels in

three decades.

With global agencies forecasting high carry-in stocks for the next season,

the soft input price advantage could be with Nestle for the time being. Does

this mean Nestle India will sustain its healthy earnings performance over

the next couple of years? This will depend on its ability to revive sales

growth in its domestic product categories.

18



Greener pastures at home?

Nestlé’s 10.4 per cent sales growth in the first nine months of 2005 is partly

magnified by the low base of comparison. The cessation of coffee exports

to Russia due to the economic crisis there, led to a 38 per cent drop inexport sales (and a 5 per cent drop in net sales) for Nestle India in 2002.

Instant coffee exports to Russia resumed this year, but the business

remains poor because realizations have fallen in line with green coffee

prices. Since realizations in the export market are unlikely to look up in the

next year, Nestle will continue to look to its domestic product portfolio to

sustain earnings growth.

In recent times, as with other FMCG companies, Nestle India's top line

growth in the domestic market was unimpressive, at around 8 per cent in

1999 and 9.8 per cent in the first nine months of 2005. In the domestic

market, Nestle India has traditionally derived its revenues from five product

baskets -- coffee (Nescafe Select, Sunrise); milk products (Milkmaid

condensed milk and ready mixes, Coffeemate coffee creamer, Everyday

Dairy Whitener); weaning foods for infants (Cerelac, Nestum, Lactogen);

chocolates/confectionery and malted beverages (Milo, Kitkat, Charge,Munch, Polo); and food products (Maggi noodles, soups). .

Nestle India has also shied away from the mass market for liquid milk in

plastic pouches, and instead restricted itself to ultra heat treated (UHT)

milk in Tetra packs. The product is priced at a substantial premium to the

other local brands.

Investment outlook: Nestlé’s new product forays are into extremely

competitive markets and investments in the new businesses are likely to be

high over the next few years. In this respect, the advantage of soft input

prices, high cash flows available from the stable businesses (such as

weaning cereals and coffee) and the financial might of the parent, Nestle

SA, will stand Nestle India in good stead.

19



The royalty to the parent should ensure that Nestle India continues to enjoy

ungrudging access to the parent's product portfolio. In many respects, in

India Nestle is pitted against its key adversaries worldwide -- Group

Danone and Unilever. In the foods business at the global level, both

companies are considerably smaller than Nestle SA.

But marketing prowess, rather than size is likely to determine the success

of Nestle India's new product forays in the next couple of years. Since the

high growth rates of this are partly on account of the low base of last year,

the growth rates are likely to reach more moderate levels next year. The

stock continues to be a good investment option for investors with a three-

year horizon. But since the recent uptrend is partly on account of factors

unrelated to the fundamentals, there could be some downside to the stock

in the near-term.

Sales growth in 2001 led by a robust 20% growth in

volumes

Nestlé’s domestic sales registered a 18.5% volume growth during the first

9 months of 2006. Exports registered a 31% yoy volume growth. In value

terms, domestic sales grew by 15.8% yoy to Rs12.1bn, while Exports grew

by 26.4% yoy to Rs2.4bn.

Pressure on prices

Jan-Sep Jan-Sep % yoy

Average Realizations (Rs/kg) 2006 2005

Domestic 115 117 -2.3

Exports 181 188 -3.7

Segment wise realization decline has been the highest in Beverages. Milk

product and culinary product prices have been more or less maintained at

previous year’s level, while the company has been able to improve

realizations on its chocolate & confectionery portfolio.

20



CategoryRealizations (Rs/kg)

% yoy2006 2005

Milk & Nutrition Products 112 113 -1.4

Beverages 202 238 -15.1

Culinary Products 70 69 1.9

Chocolates & Confectionery 152 143 6.8

Beverages leading volume growth, value growth being led by culinary

segment

Beverage sales have grown at a fast pace of 42% in the first 9 months of

2001 driven by rising exports and revised pricing strategy in domestic

market. Growth in value terms is however lower due to a sharp 15%

decline in realizations. Culinary product sales grew by 20% in volumes and

22% in value. Volume growth in chocolate & confectionery segment was

12%, which was higher then market leader and average industry growth,

signifying that the company has been able to improve market share in the

category.

Turnover Contribution

by

Growth

Volume Value Volume Value Realizatio

ns

21



Milk & Nutrition Products 47 43 15 13 -1.4

Beverages 18 29 42 21 -15.1

Culinary Products 24 14 20 22 1.9

Chocolates &

Confectionery

11 14 12 20 6.8

Milk products, which account for a significant 43% of Nestlé’s revenues,

have grown at steady 15% in volume terms. Turnover contribution of

beverages is 29%, while culinary products and chocolate & confectionery

each contribute 14% to Nestle Rs14.5bn turnover in the first 9 months of

2006….

Profit Margin

Operating margins have improved from 18.1% to 18.5% in 2006 driven by

lower material cost. Raw material cost declined from 44.4% of sales in

F12/05 to 43.1% of sales in F12/06.

Operating Margins 2006 2005

EBITDA 18.5 18.1

Adjusted EBITDA 18.5 17.7

Improved working capital and asset management The company has

been able to improve working capital management. Operating cash flow

has registered a CAGR of 15% in the last 4 years. Fixed asset turnover

has also gradually improved over the last 3 years. Net indebtedness (total

financial liabilities net of liquid assets) has declined from a high 2.5x in

1998 to 0.3z currently.

2003 2004 2006 2006-Sep

Operating Cash Flow 1743 2391 2420 1966

Rotation of Operating Net Working

Capital7.1 9.6 14.7 18.1

Rotation of Fixed Assets 4.0 3.9 4.2 4.7

22



Net Indebtedness 2.5 1.0 0.9 0.3

"India Infoline Ltd (IIL) and India Infoline Securities Ltd (IISL) do not have

any positions in any

DIRECTORS' REPORT (7th March, 2006)

1. Operations:

Domestic Sales grew by 7% in value and 15% in volume terms, during the

year. Export Sales grew by 16% in value and 32% in volume. Profit after

Tax grew by 20% from Rs985mn to Rs1186mn.

The market and economic growth continued to be sluggish during 2005.

Concerted efforts of the management to maintain the price of products (in

some cases even reduction of prices), better working capital management,

continuous improvement of supply chain and a focus on flagship brands,

contributed significantly towards the above profitability. The favourable

impact of the commodity prices during parts of the year and the product

mix, also contributed significantly towards improvement in profitability.

During the year, the Company retired certain fixed assets from active use

at various locations and the impairment loss on such fixed assets has been

charged to the Profit and Loss Account.

Out of business prudence, the Company supplemented the Contingency

Provision with further amount in 2005 of Rs295mn (net) to provide for

various contingencies resulting from matters mainly relating to issues

under litigation, dispute and management discretion.

Your Company's overall sales and profit progression during 2005 can be

considered satisfactory and in line with the expectations.

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

your Directors are hopeful of continued good results. However, with the

current level of inflation and economic indicators pointing towards a

sluggish market, it would be difficult for the Company to maintain the level

23



of earnings unless the Company takes price increase on finished 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 last year. This has been mainly due to the higher

exports of NESCAFE to Russia, buoyant sales of Instant Tea and good

performance of the culinary products. However, depressed green coffee

prices in domestic and international markets kept the export realizations

low. Measures taken for tapping new market and product opportunities

have also contributed to this growth. The export competitiveness of value

added instant coffee manufactured in India continues to be adversely

affected by the purchase tax levied on green 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 of undistributed profits of the previous financial

years, was paid during 2005.

Your Directors are pleased to recommend to the Annual General Meeting a

final dividend of Rs6.00 per equity share. The dividend, if approved, shall

be payable to the shareholders registered in the books of the Company

and beneficial owners furnished by the Depositories, determined with

reference to the book closure from 16th June, 2006.

4. Business Development:In line with the Company's objective to provide

superior value in every product category and market sector, efforts were

focused to provide quality products to customers at attractive price points.

While the Company continued to generally maintain price points across all

the product categories, the pricing of some products were also reduced to

meet consumer expectations.

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 were introduced in the bouillon business.

24



The market continued to react positively to the initiatives taken in the

recent past to grow the consumption of instant coffee in the domestic

market. The new NESCAFE pricing and bringing the popular SUNRISE

brand under NESCAFE umbrella to benefit from its association continued

to strengthen the category. NESCAFE Frappe a blend of coffee, mocha

and vanilla, which makes a delicious frothy cold coffee, was launched inselect metropolitan cities in the third quarter. This was another strategic

launch and seeks to address consumer with preference for cold drinks.

NESCAFE Frappe has received encouraging response.

In the area of Chocolate and Confectionery NESTLE MUNCH Crisp wafer

biscuit with chocolayer, which was launched in select markets in1999, was

rolled out nationally during 2000 and had good growth. Continuing with the

efforts to meet consumer expectation on price points, the pricing of KITKATwas also reduced during the later half of the year. Moulded Chocolates and

Éclairs also showed satisfactory growths. This has also helped in

improving the infrastructure and distribution reach of the Company in the

Chocolate and Confectionery segment.

In the milk and cereal categories, EVERYDAY Dairy Whitener and cereals

had satisfactory growth. NESTLE Growing up Milk; a new product offering

superior nutrition, launched in 1999 was rolled out nationally during theyear.

Your Company has also entered the Chilled Dairy business with the recent

launch of NESTLE Dahi in select cities of the North. The initial response

has been very encouraging and your Company is working on plans to

further leverage the international expertise of Nestle Group, Switzerland in

the area of Chilled Dairy.

The performances of other products were generally in line with

expectations. A few products whose performance was not considered

satisfactory are under constant review for corrective action.

25



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

projects undertaken by the Company during 2000 packaged milk and

packaged drinking water. Both the projects seek to leverage the worldwide

experience and knowledge of Nestle Group, Switzerland who are the

leaders in these product categories.

In line with its objective of long term growth and entry in significant value

added food segments, the Company forayed into the Ultra Heat Treated

(UHT) liquid milk business in April 2000 by launch in Mumbai. Packaged

UHT milk seeks to address growing consumer 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 shelf life

without any deterioration in the product quality and easy usage without

refrigeration or boiling. UHT Milk has received encouraging response andhas been rolled out in select cities of the West, South and North.

The project for bottled water was implemented at the Samalkha factory and

water launched in February, 2001 under the brand NESTLE PURE LIFE

and is available in select cities. NESTLE PURE LIFE contains a balance of

essential minerals and a light pleasant taste and is manufactured under

stringent quality control. The packaging has been specially designed to

maximize safety for the consumer and protect from possible tampering.

The new categories like bottled water and liquid milk are lower margin

categories and will require considerable investments. Your Company sees

them as strategic and as requiring support on a sustained basis.

The two new Sales Branches at Bangalore and Chandigarh set up in 1999

to further strengthen the flexibility of the Sales organization and for

speedier response to the market conditions, have started showing positive

results during the year. With a view to expand distribution and increase

penetration in smaller towns, a concerted drive was undertaken to make

products affordable and accessible to consumers. An initiative taken

includes more penetrative pricing and smaller packs covering brands such

26



as EVERYDAY Dairy Whitener, MAGGI Noodles, MILO Chocolate Energy

Drink and NESCAFE Instant Coffee. The response has been encouraging.

The Alternative Trade Channel unit created in 1999 undertook initiatives to

tap the opportunities for out of home consumption, particularly for instant

coffee and chocolate and confectionery and to extend availability of

product to nontraditional outlets. The outcome of these initiatives has been

encouraging and is being consolidated.

Availability of NESCAFE has been enhanced through an expansion of the

vending machine network and new consumption opportunities for

Chocolates and Confectionery were identified and developed in areas like

railway platforms, college canteens and major events.

On the manpower development front, programmes during the year continued to be focused on the operational front more particularly sales

and production.

To support the growth plans and distribution strategy, and simultaneously

improve the operational efficiency, the thrust on strengthening supply chain

continued to receive attention during the year. In addition to consolidating

the improvements made over the last two years, significant progress was

recorded in following areas:

a) Reduction in finished goods inventory pipeline to improve freshness of

stocks and reduce working capital.

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

increases in cost of fuel.

c) Sustained improvement in customer service level to improve product

availability across 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 has been designed to provide the

27



employees with work environment that enhances white collar productivity.

The new Office design seeks to stimulate improved internal communication

and enhance transparency in working. State of the art facilities for training,

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

will facilitate the efforts for innovation and renovation.

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

Switzerland benefits from its access to proprietary technology, technical

and non technical expertise and the fruits of the extensive centralized

Research and Development. The diversified knowledge and expertise have

contributed significantly to the operations of your Company over the years.

Some of the key areas, which have benefited are:

a) Manufacture of products of truly international quality. Product quality,

which encompasses taste, appearance, convenience and overall value for

money, is a critical factor in consumer choice and in a competitive market

like India could determine the very survival of the products. The high

quality of products of your Company is borne out by the position and image

the products enjoy in the market and your Company continuing to be a

leading exporter of value added Instant Coffee in the country.

b) Benchmarking of products against competition to achieve an advantage

in product quality, for increasing competitiveness.

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

Technology for Cocoa based products implemented during 2000 which

would improve product quality and competitiveness and the MUCH

technology for instant coffee manufacture implemented during 1999, which

would enhance the productivity by increased extraction of coffee solids

from coffee beans.

d) Implementation of project for bottled drinking water.

e) Product innovation and renovation some illustrations are MUNCH Crisp

wafer biscuit with chocolayer; Nestle Dahi; Nestle Milk (UHT); Junior

28



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

profiles of bouillons; and re-launch of MAGGI Noodles.

f) Enhancement of skill and competence of Company personnel due to the

training received.

g) Implementation of environmentally sound business practices.

h) Technical expertise in various forms including Information Technology,

which has enabled the business of your Company to grow and sustain.

I) Providing assistance by way of improved technical and quality standards

to local manufacturers, who have contract manufacturing arrangements

with your Company.

7. Moga Milk District:Your Company which started milk collection in Mogain 1961 with a daily collection of 510 kg of milk from 180 farmers has

expanded its operations to an average daily collection of 540,000 kg of milk

with total yearly collection of around 200 million. Kg of milk from nearly

81,000 farmers in its milk district. The Company owns no farms or cattle

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

works closely with the farmers to obtain the highest quality raw material.

Recognized as "Partners in Progress", Nestle Agricultural Services at

Moga factory has contributed its mite to the up-liftment of the milk district.

Some significant steps taken by the Company in the recent past are:

a) Installation of farm coolers.

b) Milk Collection Centers provided with new and improved equipment to

enable on the spot 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 dairy farmers in areas such as veterinary services, breed

29



improvement; balanced cattle feed mixture, feeding for dairy herds, fodder

seeds and training for improved farm management practices.

The milk district is a reflection of your Company's commitment to nurturing

quality, technology and improved systems in the community and the

company's initiatives to improve living in the region.

9. Information Technology:Your Company continued to make significant

investments in the Information Services of Technology area to cope with

the growing information needs necessary to manage operations more

effectively in a complex supply chain environment.

10. Community Health:Recognizing its responsibility to the community in

which it operates, the Company over the years has been taking initiatives

in the area of community health at locations around its factories. Some of the initiates taken in the recent past are:

a) Provide Government and village schools with facilities for toilets and

hygiene drinking water 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.

d) Healthcare Programmes with focus being on well being of employees

and their families covering vaccination, awareness programmes and health

check up.

THE

LEADER

30



Cadbury, a subsidiary of Cadbury Schweppes is a dominating player in the

Indian chocolate market with strong brands like Dairy Milk, Five Star, Perk,

etc. Dairy milk is in fact the largest chocolate brand in India. Cadbury India

now stands only second to Cadbury UK in sales of Dairy Milk. The

company is pushing the gifting segment, through occasion linked gifts.

Chocolates contribute to 64%of Cadbury’s turnover. Confectionery sales’,

accounting for 12% of turnover, is contributed largely by Éclairs. The

company attempted expanding its confectionery product portfolio, with

launch of sugar based confectionery Googly and Frutus, without much

success. Cadbury also has a strong brand Bourn vita in the malted health

drink category, which accounts for 24% of turnover.

Chocolate consumption: in India is extremely low. Per

capita consumption is around 160gms 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 90's when Cadbury repositioned

31



chocolates from children to adult consumption. The biggest opportunity is

likely to stem from 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% market share. Key competition in the chocolatesegment is from co-operative owned Amul and Campco, besides a host of

unorganized sector players. There exists an even larger unorganized

market in the confectionery segment. Cadbury holds 4% of the market

share in this segment. Leading national players are Nutrine, Parry's,

Ravalgaon, Candico, Parle’s, Joyco India and Perfetti. The MNC’s such as

Joyco and Perfetti have aggressively expanded their presence in the

country in the last few years.

Malted food drinks: Category consists of white drinks and

brown drinks. White drinks account for almost two-thirds of the 82,000 ton

market. South and East are large markets for food drinks, accounting for

the largest proportion of all India sales. Cadbury’s Bourn vita is the leader

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

SmithKline’s Horlicks is 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 & increasedcompetition Cadbury managed to

record a double digit (11%) top

line growth in 2005. The

company achieved a volume

32



growth of 5.2%. This was achieved through innovative marketing strategies

and focused advertising campaigns for flagship brand Dairy Milk... Net

profit rose sharply by 41.8% to Rs520mn. Reduced material and energy

costs and tighter control over working capital and capital expenditure

enabled the company to improve profitability. Company added 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 target of 12% volume growth and 20% value

growth). Coupled with inflationary price increases, this could translate into

a top line growth of 14-15%. This target also appears difficult to achieve

given the consumer slowdown and the fact that the company is dependent

on a single category – Chocolates to drive growth. In the malted fooddrinks category the company faces stiff competition from SmithKline

Beecham, and market share has been stagnant at around 14% despite the

company’s efforts and investments in repositioning the brand. Efforts at

expanding confectionery portfolio have also not yielded desired results.

The management has declared its intention to focus only on Éclairs (which

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

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

key brands such as CDM, Perk and Éclairs, which have supported growth

in the past.

CADBURY’S AD CAMPAIGN

Kuch meetha ho jaye suggests Cadbury India, its brand

ambassador Amitabh Bachchan smiling down the

hoardings lined along Mumbai's Marine Drive right down

to the company's corporate head office at Mahalakshmi.

While the chocolate major is waiting for Diwali to see a

turnaround in its business after the worms controversy, at

33



the moment it's all about driving growth for the category which has seen a

decline since the first quarter of this year.

Being the market leader in chocolates with a 70 per cent share, the

company has attempted to stretch the boundaries within chocolate

confectionery. It has also been adventurous in unleashing a brand new

category within chocolate early this year. Introducing the concept of sweet

snacking, it launched Cadbury Bytes in the south with the positioning

`Snacking ka meetha funda.' The product is a crunchy wafer pillow with a

choco-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 for innovation 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 crunchy snack."

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

obvious choice, and Bytes is unique to the chocolate major's 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 we did not have the expertise. So

the best way was to test-market the product and today we 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 believes that while its chocolates are more of indulgence

products, Bytes is about snacking when one 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 some amount of cannibalization. After all, it was simply a biscuit

34



coated in chocolate, and was perceived to be another chocolate brand in

Cadbury's portfolio.

Stresses Puri, "Cadbury Bytes is adjacent to chocolates and in the markets

that we have launched it, there has been no cannibalization. Chocolates

are largely an indulgence product while Bytes is about between-meals

snacking. A product which is consumed when one is feeling hungry or

peckish."

Another thrust area Cadbury has been re-evaluating is confectionery.

While growth rates in this segment are healthier compared to chocolates, it

has always been a difficult market to crack. Cadbury's own experiences

have led it to withdraw certain brands but now with Warner's Lambert's

international kitty under its fold, there are chances of reconsidering the

segment once again.

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

already available 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 Warner Lambert's portfolio and re-launched the

brand early this year. Adds Puri, "Halls was not doing 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 is

now doing well."

In April 2003, Cadbury India's foreign parent acquired Pfizer's interests in

the confectionery business for $4.2 billion. That included the Warner-

Lambert product portfolio, known best for Halls, Clorets and Chiclets. The

acquisition is now poised to become a growth area for Cadbury India,

whose confectionery brands include Éclairs and 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 status of its other brands. Chiclets had been discontinued

35



long before it belonged to Cadbury and Clorets continues to sell with a

small franchise. But now Cadbury is looking closely at Warner Lambert's

gums portfolio (it is one of the world's largest gum manufacturers) and is

considering its viability for the Indian market. Sugarless gum brands such

as Dentyne Ice and Trident White have been known for their functional

benefits worldwide but steep pricing may be a deterrent to their entry intothe country.

"The gum market has not done well in India. But gum has functional

properties and is not merely a breath freshener. We are now evaluating

whether there is a market for them in India 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 a tough task with its low margins. Governed by price points, one

can sell at only at a Re 1 or 50 paisa unit price. "The issue is not of

garnering volumes but making money out of those 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

its age-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 in our past numbers," claims Puri. At the same time the sugar

confectionery market is highly competitive and it's all about finding the right

consumer proposition and a business 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 Cadbury Dairy 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 revamped over the years to

generate excitement for the category. For instance, recently Perk was

rejuvenated as a crunchier wafer while CDM came up as a white-and-

brown variant in the market.

36



"The chocolates category thrives on excitement. It's all about giving the

consumer a choice and taste which they enjoy," adds Puri. For instance, in

beverages, in spite of its malted food brand Bourn vita, Cadbury decided to

introduce a milk additive brand such as Delite, just to give its consumers

the real taste of chocolate. Delite has added flavours such 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 to milk. This will apply to children for whom milk is a problem and

having an additive will make it a pleasurable experience."

Making changes in its distribution network, Cadbury split its sales and

marketing team between its mass (confectionery) and core brands last

year. "Chocolates needed to get retailed at larger and better outlets while

all the products below Rs 3 needed a different distribution network," saysPuri. Today Cadbury's distribution network reaches out to six lakhs 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 has been able to maintain prices, it is still grappling

with the upward trend in prices for its basic raw materials. But its challenge

remains that of growing the chocolate market in spite of the odds. Postinga turnover of Rs 729 crore last year, Cadbury is waiting for Diwali to make

a turnaround for both itself and the category which has been through

troubled 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 episode occurred, it should not be a tall order

to get back to those levels. The company should be able to record a

15 per cent compounded rate of growth over the next few years." That

would be a sweet recovery indeed for Cadbury.

Cadbury follows small packs strategy

37



Small has indeed proved to be beautiful for Cadbury. The company, after

finding exceptional success in the launch of small packs of Perk chocolate,

has now launched Picnic in small

packs of 26 Gms. priced at Rs

10. The 43-gm packs are still

available and are priced at Rs 15.

Cadbury has embarked on a

strategy which involves increased

consumption of its products

through enhanced reach, affordability and visibility, which it feels can be

attained by creating new markets, widening the depth of its distribution

network and working towards a comprehensive portfolio with brands across

all price segments.

On the distribution front, the company aims to increase the number of its

distribution outlets 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 been changing its product portfolio from pure chocolate items to

confectionery which includes caramel, nuts, raisins and wafers. The aim is

to bring down the price line and enter other markets than the purely urban

ones.

In line with this, it launched Googly in early 1997, and followed it up with

products like Mocka and English Toffee.

The strategy of the company has been to launch one major product and

follow it up with smaller products, for instance, the launch of Picnic was

followed by Cadbury Gold and a couple of sugar confectionery launches.

Intense competition from Nestle is one of the reasons Cadbury has

reworked its product range and made efforts to enter the mass product

segment. In 1998, the company moved into smaller sized versions of Diary

Milk and Perk and found to its delight that the introduction of economy

priced models led to more people eating chocolate. In the same year, small

38



packs increased chocolate volumes of Cadbury by 19 per cent and market

share 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 manufactures chocolates, sugar confectionery and malted drinks.

Chocolates constitute 71 per cent of the 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 with Munch, a chocolate brand meant to counter Picnic.

Cadbury’s Business

Cadbury dominates the Indian chocolate market with a 65% market share.

Besides, it has a 4% market share in the organized sugar confectionery

market and a 15% market share in milk/ malted foods segment.

Changing product mix

Contribution to turnover

1994

Contribution to turnover

2003

39



Chocolate 59% 65%

Sugar Confectionery 9% 10%

Food Drinks 32% 24%

Current market shares

Chocolate 69.2%

Sugar Confectionery 4.0%

Food Drinks 14.2%

Expanding distribution reach

2100+ distributors

450000 retail outlets

60mn Consumers

FUTURE 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

40



• One new major product launch every year

Chocolates and confectionery products (75% of turnover) For more

than five decades now, Cadbury has enjoyed leadership position in the

Indian chocolate market to the extent that 'Cadbury ’ has become a generic

name for chocolate products. Cadbury has leading brands in all the

segments viz bars (Dairy Milk, Crackle, Temptations), count lines (5 star,

Milk Treat ), panned confectionery (Gems) and wafer chocolates (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 an estimated 30% to Cadbury’s sales. Gems and

Five Star were re-launched during the year to stem their de-growth. Perk

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

brand initiatives included the launch of Temptations in the premium

segment and Chocki a low priced chocolate confectionery targeted at

children.

Cadbury entered the hard-boiled sugar confectionery market with the

launch of Googly in 1996. In 1997, the company launched a coffee based

sugar confectionery product Mocka. Cadbury has a 4% market share in the

confectionery segment, largely contributed by Éclairs. Other confectionery

brands such as Gollum, Frutus, Nice Cream, etc launched in the last two

years did not receive a good market response and the company has

decided to minimize focus on those brands. Éclairs was re-launched with

unique packaging in cartons during 2001.

Food drinks (25% of turnover) Cadbury’s Bourn vita is the leading brand

in the brown drinks segment of milk/ malted food 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 drinks during

the last few years. Cadbury re-launched Bourn vita with a new formulation

and advertising campaign positioning it on the health benefit platform to

compete with white drinks. The brand was re-launched in the South – the

41



largest food drink market in the country, during 2001. Bourn vita sales

registered a 12% growth in value terms in 2001 to Rs, contributing 24% to

total turnover.

Cadbury’s other products include Cadbury’s Drinking Chocolate and

Cadbury’s Cocoa powder . These account for only 1% of Cadbury’s

turnover.

Distribution Cadbury's distribution network encompasses 2100

distributors and 450,000 retailers. The company has a total consumer base

of over 65mn. Besides use of IT to improve distribution logistics, Cadbury

is also attempting to improve distribution quality. To address the issues of

product stability, it has installed Visi coolers at several outlets. This helps in

maintaining consumption in summer, when sales usually dip due to the fact

that the heat affects product quality and thereby off take.

Strategy ncreasing the consumer base by focusing on the twin proposition

of affordability and availability is being followed to drive future growth.

Small affordable priced packs have been launched, which have helped

improve penetration. Also advertising for chocolates is aimed at changing

consumer perception and eating habits by creating new reasons for

consumption.

Cadbury's Market Segments he 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 of

ways, such as:

• demographic variables (e.g. consumers' age groups, gender, maritalstatus, income etc)

• the lifestyle of consumers (i.e. their interests and activities)

42



• 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. It targets 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 Cadbury's

Timeout and Snack range

• Impulse segment - these products are most often purchased on

impulse, eating there and then. They include products such as

Cadbury's 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 stage

Gift segment - boxes of chocolates and other products purchased for gift

occasions

Earnings sensitivity factors

Cocoa bean prices: Domestic as well as international prices of key raw

material - cocoa have significant impact on margins.

Excise duties: Changes in excise levied on malt and chocolate influences

end product prices and thereby volume growth as well as margins.

Changes in custom duties and foreign exchange fluctuations, as 20% of

raw material is imported.

Competition from MNCs like Nestle as well as imported brands.

Increasing competition puts pressure on advertisement budget and

margins. However on the positive side, it helps in expanding the

market.

CADBURYS FAILURES:

43



How Cadburys positioning went haywire with `gems`

Gems present an unusual case of how a textbook-perfect, ultra-sharp

positioning can actually become a disadvantage

At 34, Gems is one brand in the

Cadbury’s portfolio that refuses togrow up. Of course, that is not such a

liability now that children play a key

role as consumers.

What it does mean, however, is that Cadbury has to constantly work at

keeping its ageing brand forever young. How has it managed so far? Gems

was a sluggish performer in the late nineties and its market share slid

dramatically. Now, the brand appears to be regaining some of its toddler

energy and a campaign that is scheduled to break in 2003 is expected to

help further.

Gems presents an unusual case of how a textbook-perfect ultra-sharp

positioning can actually 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 it was 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 so sharply targeted at children below ten years that it did

not lend itself readily to brand stretch as its target audience grew older.

Even as Cadbury successfully extended its appeal from children to adults

from 1996 onwards for its regular chocolates, the company learnt 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 the Indian consumer, and more specifically the child, in terms

44



of chocolate brands, the others being CDM, Cadbury’s Five Star and Amul

chocolates.

The other major advantage that Gems enjoyed probably created problems

for Cadbury’s later — the fact that it never faced competition. Nestle and

Mars never brought their global brands — Smarties and M&M respectively.

This was because, both the international brands are not developed keeping

the climatic rigours of India in mind. So as against Gems, which is a

product formulated specifically for 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 far as Gems was concerned. Other than ads in storybooks

and comics like Champak, Tinkle and 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”

campaign was an animated commercial based on the character of James

Bond, which was used in promotional stickers. However, the campaign was

taken off in the early nineties.

It was actually the storyline and the animation that was working. Thecharacter was not for the child.

The early nineties saw the emergence of pester power. Strangely, Cadbury

did not capitalize on this trend. What made Cadbury sit up was the entry of

brands in the early nineties, 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 5 for a 20 gm pack of

Gems.

So it was no longer just chocolates vying for the child’s attention but chips,

candy, and sugar boiled sweets, bubblegum, all of which were upping their

noise levels. This was worrying for Cadbury’s, as almost half Gems’ sales

came from impulse purchase.

45



Meanwhile, international players like Nestle were expected to enter the

scene with brands like 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’s appeal to include adults, in 1996 it attempted to

extend Gems’ appeal to teenagers. The new campaign was pegged on the

baseline — “Smart, very smart” — derived from Mad magazine. The

trouble was that this campaign was not backed by product changes, so

teenagers, who were always edgy about being associated with a children’s

brand, were unimpressed.

By 1997, the overall slowdown in the fast moving consumer durables

market had affected the chocolate segment. In spite of the re-launch,

Cadbury’s net profit dropped by 5 per cent to Rs 18.6 crore. Perk had not

overtaken Kit-Kat as expected. The only Cadbury 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 slipped to 6 or 7 per cent from 10 to 12 per cent in the earlynineties.

In 1998, the company went back to Gems’ imagery of a children’s brand. A

new campaign was launched to target the urban child. It now included a

whole range of Chocogem characters, who were supposed to symbolize a

child’s partners in fun (Masti ka 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 because the brand still lacked excitement. This was when the

company decided to look at market trends abroad.

46



Internationally, brands targeted at younger children sold because they

offered value-ads like toys. Also consumer research revealed that the

chocolate flavour and CDM’s equity was not being utilized fully.

So the company decided to constantly change the packaging and include

add-ons like play 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 very difficult. 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 increase penetration. Later, tube packs priced at Rs 15 with flip tops and

a maze-ball game on the top were also introduced. Then in early 2002,

new cricket ball packs were introduced. This combined play value along

with low costs.

INDUSTRY STRUCTURE AND DYNAMICS

With 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 near total absence of unorganized sector as compared

to its substitutes like ice creams chips etc. Various internationally famous

brands such as mars Hershey etc are either imported in a very small

47



quantity or are smuggled to avoid high import duty. Other chocolates like

Toblerone Twix snickers are being imported through California foods in

India. These help in expanding the premium imported segment of the

chocolate market. As these brands have miniscule volumes and high price

they are not giving any serious competition to Indian brands.

The market has been stable over a long period of time with two major

companies Cadbury and nestle occupying the major share in the market. .

However with the threat of entry of new competitors and also the broad

basing of the market the repositioning of the entire chocolate eating

concept we foresee a lot of action in the market. This is already seen in the

war of perk and Kitkat, which had very nearly taken on the intensity of cola

wars. Nestle has started threatening the long enjoyed lead of Cadbury and

Cadbury is all set to defend its territory.

There have not been many changes in the competitive strategies,

Marketing practices product modification of different brands till 1994. All

major brands have been repositioned once or twice only. But with the

maturing market the new marketing strategy is to target a new breeds of

consumer the consenting adult rather then the indulged child. In keepingwith this market redefinition a lot of brands have been repositioned onto a

new plank the most successful plank being Cadbury diary milk which led to

an increase in 20 % of consumption.

Till now frequency of the new product development was also very low but

after the launch of Kitkat this industry is experiencing a lot of action.

Cadbury came with perk in response to Kitkat in a very share time frame.

Cadbury had also launched relish a brand in count line bar segment therehas not been significant technological development in India in chocolate.

But to create excitement and growth in the category Cadbury has launched

many new products, which led to change in consumer taste and

48



preferences. These products are based on strong international R &D

capability of the chocolate majors.

Kit Kat is manufactured in a newly commissioned plant in go and due to

cumulative production volume nestle is not likely to enjoy the benefits of

learning curve. But apart from relative cost advantage Cadbury has

pursued vigorously product differentiation strategy. Apart from

manufacturing products suitable for Indian taste and distribution Cadbury

has established strong brand equity and brand loyalty among Indian

consumers.

Seasonal factors like weather festival etc do affect the demand for

chocolates. In summers due to lack of cold chain at all places chocolate

are not able to bear the heat and humid condition. Thus retailer do not

stock them this shows high bargaining power of the retailers.

Chocolates have emerged as a gift item to be used during traditional Indian

festivals like deepawali and New Year. Companies like Cadbury come with

special gift packs thus demands shoot up during festival season Demand is

also sensitive to economic factors like recession in economy or substantial

increase in price of chocolates. However in the year 1997, chocolate

manufacturers were spending only 80 % of the festival budget ascompared to the previous year. Advertisements spent across corporate

India were pruned in the last festival seasons which led to a fall in demand.

Companies are hopeful of being able to reverse the trend for the current

year.

Entry barriers

• Brand image

• Requirement of specialized machinery

• Lack of raw materials (cocoa) in sufficient quantities

49



• Government regulation in the form of excise duties

50



RESEARCH METHODOLOGY

For comparative study of chocolate market in India:

A good research work requires a clean scientific methodology

51



because only through the application of correct methodology in selection of

sampling techniques, appropriate tools of data collection a well-defined

conclusion can be drawn on the phenomenon under consideration.

PROBLEM DEFINITION

The major objective is comparative study of chocolate market in India

and study the Marketing Share of Chocolate and:

To find out what is the potential market of each brand and mostly

consumers belong to which class like lower, middle and upper class. What

are their preference about each brand and who mostly influence their

buying decision.

To understand the Consumer Buying Behavior of Chocolate

And also to study the Industry Structure and Dynamics

.

Sample Units: Three of the Number One brands in India namely Cadbury,

Nestle and Amul respectively, were chosen on the basis of their market

shares. These three industries were chosen on the basis of the usage of

the products, as the usage of FMCG’s and is high and noticeable

52



Sample Design: Non-probability sampling was resorted to and the

methods used is Convenience sampling and Judgment sampling.

Data Collection: Data was collected from Secondary data. Secondary

data was soured from various published sources which include magazines

like Business India and Business World. Newspapers like Brand Equity,

Brand Wagon and The Times of India were also used. Annual Report of

Cadburys and Nestle were also referred

Data Analysis Techniques used are:

Modal Value

Correlation

Simple Average

Percentage

Data was analyzed manually and with the help of computer.

Research Design

The design in such studies is rigid and not flexible and must focus

attention on the following:

1) Formulating the objective of the study.

2) Designing the methods of data collection.

3) Selecting the sample.

4) Collecting the data.

5) Processing and analyzing the data.

6) Reporting the findings.

Data Sources:

53



Secondary Data: - several magazines, newspapers, press monitors

and other secondary sources of data were referred. The Manuals in

the organiazation were also consulted.

ANALYTICAL TOOLS USED

The term analysis refers to the computation of certain measures along

with searching for patterns of relationship that exists among data group.

Analysis is essential for a scientific study and for ensuring that we have all

relevant data for making contemplated comparisons. Therefore, I have

used Tabulation, Graphs & Charts in my project.

54



Analysis of data:

55



Age Group:

5-14 15-19 20-24 25-35

23%

32%

35%

10%

5-14,

23%

15-19,

32%

20-24, 35%

25-35, 10% 5-14

15-1920-24

25-35

Gender :

56



Male Female

23% 77%

0%

20%40%

60%

80%

PERCENT

AGE

Male

Female

GENDER

Series1

OCCUPATION:

57



Student Employee Businessman Other

22%

27%

18%33%

0

0.05

0.1

0.15

0.2

0.25

0.30.35

Student Businessman

Series1

Series2

Status :

58



Lower class Middle class Upper class

28%

17% 37%

Lower

class, 28%

Middle

class, 17%

Upper

class, 37%

Lower class

Middle class

Upper class

1.Do you like to consume chocolate?

59



(A)Yes…………………,(B)No……………………

0

20

40

60

80

Yes No

Series1

2.If yes, which brand you prefer?

Yes No

70 30

60



(A)Foreign……………,(B)National………………

Foreign,

23%

National,

77%

Foreign

National

Foreign National

23% 77%

61



3.If national which one of below?

(A)Amul……….....,(B)Cadbury………….,(C)

Nestle…………

Amul Cadbury Nestle

32% 48% 30%

0%

10%

20%

30%

40%

50%

Amul Cadbury Nestle

Series1

62



4.How frequently you consume chocolate?

(A)Daily……….,(B)Weekly…………,

(C)Monthly…………..,(D)Occasionally…………..

Daily Weekly Monthly Occasionally

22% 20% 18% 40%

Daily

Weekly

Monthly

Occasionally

63



5.On what basis you select the chocolate brand?

(A)Brand…………,(B)Taste…………,

(C)Price…………..,(D)Quality……………

Brand Taste Price Quality

22% 27% 18% 33%

Brand

Taste

Price

Quality

64



6.Which type of chocolate you prefer?

(A)Wafers………….,(B)Milky…………..

0%

20%

40%

60%

80%

Wafers Milky

Series1

Wafers Milky

33% 67%

65



7.How do you come to know about particular brand?

(A)TV Advertisement…….,(B)Newspaper……..,

(C)Print media…….,(D)Word of mouth................

TV

Advertisement

Newspaper Print Media Word of

Mouth42% 27% 18% 13%

TV

Advertisement

Newspaper

Print Media

Word of

Mouth

66



8.You consume chocolate for the purpose of?

(A)To fulfill a snack need……………

(B)Just for taste………………

(C)Source of energy………………..,

(D)gift for all age……………..

To fulfill a

Snack need

Just for

taste

Source of

energy

Gift for all

ages22% 27% 28% 23%

0

0.05

0.1

0.15

0.2

0.25

0.3

To fulfill

a

Just for Source

of

Gift for all

ages

Series2

Series1

67



9.Who mostly influence the selection?

(A)Myself…,(B)Children……..,

(C)Seller……,(D)Friend…………

Myself Children Seller Friend

22% 37% 18% 23%

WHO INFLUENCE

Myself

22%

Children

37%

Seller

18%

Friend

23% Myself

Children

Seller

Friend

68



Analysis and Interpretation:

1. The person who mostly consume chocolate is age between 20-

24 at second position children age between 5-14 and after that

teenagers and the percentage of adults is very few which is 10%.

2. The percentage of female in consumption of chocolate is 77%

and of male is 23%.

3. Mostly others like student and housewife purchase the

chocolate and after that employee and at third place student and

businessman has lowest percentage.4. Upper class people who have higher income level have highest

percentage to purchase chocolate and after that6 middle class

and at the last lower class

5. 70% people like to consume chocolate and rest 30% not

because4 of some personal reason.

6. Mostly people like to purchase national brand that is 77% and

rest 23% purchase foreign brand because of status and other

reason.

7. peole mostly like Cadbury because of taste and qualitythat6 is

48% and after that they like Amul that is 32% and Nestle capture

the little market segment that is 30%

8. Mostly people consume chocolate occasionally that is 40% ,daily

22% weekly 20% and monthly 18%.

9. People select the chocolate brand on the basis of taste 27%,on

the basis of quality 33%,on the basis of brand 22% and on theprice is 18% .Thus pople mostly faver the taste

10.Consumer prefers the milky and temptation chocolate like 5Star

and Barone in comparison to wafers like perks and munch.

69



11.Mostly consumer come to know about a particular brand through

TV Advertisement after that through newspaper than print media

and at last through word of mouth.

12.Consumer consume chocolate for the purpose of to fulfill the

snack need is 22%,just for food is 27%, like source of energy is28% and for the purpose of gi9ft is 23%

13.Mostly children influence the buyer’s selection that has 37%

,after that friend that is 23%, myself is 22% and seller 18%.

70



71



FINDINGS• Research and Development :With increasing competition in the industry

R&D may become an important and critical factor for success in newly

emerging segments of the market. Indian players like Amul are 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 constitute 62 % of the market do not require any special R&D.

• Price Price can be used as a basis for competition in the industry. In

1995 perk was launched at a price Rs 4 less than Kitkat was. This brand

was specially produced for Indian markets and successfully competed with

internationally famous Kitkat. But low on price without brand equity may not

really help as Amul and various regional brands are priced lower then

category leaders without having much success.

• International Lineage The international image associated with

chocolates acts as a propeller for the sales considering the significance

of user imagery and aspirational aspect of this product category. The

lead can be attributed to the international lineage despite the higher

price compared to the price of perk However this has to be taken into

consonance with the price factor considering that the Indian consumer

is price sensitive.

• Product Quality Product quality per se may not be critical success

factor. But many instances prove that poor product supported with high

decibel advertising is; likely to be a failure Cadbury has constantly

improved the product quality along with rest of the marketing mix as a tool

to create growth in the category.

72



• Distribution Chocolate being an impulse purchase wide and

heterogeneous distribution channels are important so that the

consumers have it within arms length of desire. In India distribution of

chocolates gain special significance due to very hot weather condition

during summer months

73



SUGGESTIONS

Looking at the Future

The consumption of chocolates in India is among the lowest in the world. A

comparison with the world wide industry average is an eye opener. In India

the average per capita consumption is a mere 20 gm compared to the

world average per capita consumption of 2.24kg. Moreover data on world

wide chocolate consumption indicates that – in the mature markets this

figure is as high as 9.36kg, while even the emerging markets total up to

1.16 kg. While looking at the consolidated averages –would be misleading,

even the consumption among the potential consumers of chocolates is

extremely low as compared to the world average.

Potential Chocolate Consumers

Income

Groups

(Rs`000 p.a.)

Age Groups

Total5-14 15-19 20-24 25-34

Rural

(Millions)

62-86 2.2 0.8 0.7 1.2 4.9>86 13.5 4.8 4.3 7 29.6

Total 15.7 5.6 5 8.2 34.562-86 7.0 2.5 2.2 3.7 15.4>86 18.8 4.9 4.4 7.2 30.2Total 20.8 7.4 6.6 10.8 45.7

Total 36.5 13.0 11.7 19.0 80.2

Using the figures as mentioned in the table above one can arrive at a

rough estimate of the potential consumers of chocolate in the country. For

this purpose the populations in the age groups of 5 yrs to 35 yrs falling in

the income groups having an annual household income of Rs 62000and

above have been reconsidered. The total population in this group is about

80 million split into 45 million urban consumers and 35 million rural

consumers.

74



As the consumption of chocolates is skewed towards the urban

consumers, it can be estimated that 80 % of the chocolate consumed is in

urban areas. Using these figures the per capita consumption for the

relevant target population is as given in the table below

Chocolate Consumption

Share of

market

Tonnag

e

Relevant target

population

(millions)

Gms. per

consumer

Urban

Sales

80 % 12800 45.7 280

Rural

Sales

20 % 3200 34.5 40

Total 100 % 16000 80.2 200

As eating habits of large parts of Indian society are becoming consistent with the

rest of the world; the category is poised for a significant growth. The wafer wars

between Perk and Kit Kat is an interesting indication of the times to come and it

has reached almost the same intensity as the cola wars!! As these new players

and existing companies introduce new type of chocolates, distinction between

chocolates, biscuits, ice-cream will become less and many hybrids product will

grow. Along with this the potential to expand the consumer base by incorporating

a wider array of taste and needs of the consumers. Segmentation of market

based on consumer age is increasingly becoming irrelevant. There are expected

to be many products target at specific new segments. This is very obvious with

the emerging segmentation policy of using the ego states. A shift in media

strategy of various companies can also be estimated. Instead of present use of

mass media, specialized media targeted at different segment will catch the fancy

of media planners. At the same time one can see an increasing association

between the brands and various highly published events in order to increase the

brand equity in the minds of all the stake holders .Further there will be lot of

improvement in packaging and modification of products as per Indian

conditions.

75



CONCLUSION

The objective of the study was to study the Marketing Segmentation of

Amul, Nestle, and Cadbury, Consumer Buying Behavior of Chocolate

Industry and also 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

should adopt the above findings in their brand building exercise. However

for generalization of the results, a study needs to be undertaken based on

a larger sample across different industries.

76



LIMITATIONS

• Due to shortage of time , it was not possible for me to

pass more time on collecting & analyzing the data.

• Limitation of non responsiveness of customers..

• Company do not provide all real & complete

information so all data is considered as accurate.

77



QUESTIONNIER

Name:

Age: 5-14……..,15-19……….,20-24………..,25-

35……….

Sex: Male………… , Female………………

Occupation:

Student……….,Employee…………..,Businessman……

……,Other……...

Status: Lower class……….,Middle

class………….,Upper class…………….1.Do you like to consume chocolate?

(A)Yes……………,(B)No………………

2.If yes, which brand you prefer?

(A)Foreign……………,(B)National………………

3.If national which one of below?

(A)Amul……….....,(B)Cadbury………….,(C)

Nestle…………

4.How frequently you consume chocolate?(A)Daily……….,(B)Weekly…………,

(C)Monthly…………..,(D)Occasionally………

78



5.On what basis you select the chocolate brand?

(A)Brand…………,(B)Taste…………,

(C)Price…………..,(D)Quality……………

6. Which type of chocolate you prefer?

(A)Wafers………….,(B)Milky…………..

7.How do you come to know about particular brand?

(A)TV Advertisement…….,(B)Newspaper……..,

(C)Print media…….,(D)Word of mouth................

8.You consume chocolate for the purpose of?

(A)To fulfill a snack need……………,(B)Just for

taste………………

(C)Source of energy………………..,(D)gift for all

age……………..

9. Who mostly influence the selection?

(A)Myself………,(B)Yourself…………..,

(C)Seller……….,(D)Friend…………

79



BIBLIOGRAPHY

• 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

http://www.cadbury.co.in/

http://www.business-standard.com/

http://www.financialxpress.com/

http://www.economictimes.com/

http://www.hinduonline.com/

http://www.indiaserver.com/

http://www.indiainformer.com/

http://www.india-today.com/

http://www.cadbury.co.in/

http://www.business-standard.com/

http://www.financialxpress.com/

http://www.economictimes.com/

http://www.hinduonline.com/

http://www.indiaserver.com/

http://www.indiainformer.com/

http://www.india-today.com/

saurabhsrivastava”

Documents