1. A dissertation report on indian chocolate industry —
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1. DESSERTATION REPORT ON INDIAN CHOCOLATE INDUSTRY Submitted in
the partial fulfillment of the award of the degree of Submitted by: (MBA IV SEM)
ENROLLMENT NO.AMITY INTERNATIONAL BUSINESS SCHOOL (AMITY
UNIVERSITY,NOIDA, Sec-44.)
2. ACKNOWLEDGEMENTI would like to pay my gratitude to ………………….., and
also wish thanks to………………………. AMITY BUSINNESS SCHOOL International
Businessprogramme. Again, I greatly appreciate the diligent support provided by all my
colleagues, bothacademic and professional and the faculty members if AMITY for their
wholeheartedsupport and co-operation.Last but not the least, I would like to thank
……………………., my project guide for hisvaluable insight and unending
guidance.Above all, I thank God for giving me courage and wisdom to complete this
piece of worksuccessfully in time.
3. Contents Titles1. Introduction2. Objective3. Research Methodology4. Chocolate
Industry5. Chocolate in a Bloom6. Chocolate Industry in India7. Major Players8. Amul9.
Nestle10. Cadbury11. SWOT analysis of Cadbury12. Market Segmentation13.
Psychographics and Demographics14. Product Positioning15. Product Market
Boundary16. Price Sensitivity17. Consumer Buying Behavior14. Industry Structure and
Dynamics15. The Rural Conundrum16. Key Success Factors17. Product Life Cycle18.
Positioning19. Procters 5 Force Model18. Rural Market Initiatives20. Suggestions21.
Conclusion22. Bibliography
4. EXECUTIVE SUMMARYThe Cadbury‘s India‘s number one chocolate is able to
share with their market insightsbased upon unparalled breath of chocolate experience.The
merge in 1969 with Schweppes and the subsequent development of the business haveled
to Cadbury Schweppes taking the led in both, the confectionery and soft drink
marketintech UK and becoming a major force in the international market. Cadbury
Schweppestoday manufactures product in 60 countries and a trade in staggering 120.This
project is a sincere effort to look for the market potential in chocolate andconfectionery
industry. A descriptive research procedure had been applied to come to theconclusions of
the project. The project later concluded in recommending the marketpotential of the
chocolate and confectioneries.
5. INTRODUCTIONChocolates had its beginning in the times of the Mayas and the
Aztecs when they beatcocoa into a pulp and made bitter frothy chocolate out of them.
They first becamepopular in Europe in a highly unrefined form. Then the Hershey Food
Company was thefirst to bring out chocolates in the currently popular solid form. The
main ingredients ofchocolate is cocoa grown mainly on equatorial zones and of the
consumers looks forvariety he goes in for some of that company‘s own sugar milk solids
and permittedemulsifiers. Cocoa constitutes nearly 40% of the total raw material cost.The
following report studies the chocolate industry in India and in particular the positionof
the chocolate brand - Cadbury. The brand name chosen is the umbrella brand as itwas felt
that the corporate name is recognized as brand not so much its individualproducts. The
study focuses on the marketing and the advertising, employed by Cadburyin the context
of the Indian macro environment and industry structure. The advertisingstrategy is

2. studied with respect to Cadburys business and marketing objectives. Thestrategies
adopted are then analyzed for each product offering. Considering the strategiesof
Cadburys major competitor follows the analysis, nestle India ltd. to get anunderstanding
as to where Cadburys stands.The report initially focuses on an examination of the
industry environment and theproduct class. The product then goes on to analyze the
corporate, marketing andadvertising strategies adopted by the selected company and its
main competitor. Itconcludes by looking at the future challenges for the industry and the
companyIt is also to be noted that the data used for analysis is of 2001-2003. This was the
mostrecent data available under whose purview the companies marketing and the
advertisingstrategies are studied.
6. OBJECTIVE OF THE PROJECTThe major objective is to study the Marketing
Segmentation of Chocolate and: To understand the Consumer Buying Behavior of
Chocolate. And also to study the Industry Structure and Dynamics.
7. RESEARCH METHODOLOGYSample Units: Three of the Number One brands in
India namely Cadbury, Nestle andAmul respectively, were chosen on the basis of their
market shares. These threeindustries were chosen on the basis of the usage of the
products, as the usage of FMCG‘sand is high and noticeable.Sample Design: Non-
probability sampling was resorted to and the methods used isConvenience sampling and
Judgment sampling.Data Collection: Data was collected from Secondary data. Secondary
data was souredfrom various published sources which include magazines like Business
India andBusiness World. Newspapers like Brand Equity, Brand Wagon and The Times
of Indiawere also used. Annual Report of Cadburys and Nestle were also referredData
was analyzed manually .
8. Emerging markets drive growth for malt and chocolate drinksMalt- and chocolate-
based drinks are often seen as relatively unsophisticated indeveloped markets in the west,
but in many countries, in particular in Latin America, theyare big business indeed,
marketed mostly as an excellent source of nutrition in countrieswhere food quality is
often poor. But improving sales in other countries will depend onfinding premium
positioning.
9. Global retail volume sales of both malted and chocolate-based hot drinks
reached956,702 tones in 2003, according to a recent report from market analysts Euro
monitor,with Latin America alone accounting for over one third of total sales.Indeed,
Latin America accounts for two of the top three markets for chocolate-baseddrinks
(Brazil and Mexico, the third being Spain), and manufacturers are increasinglyfocusing
their marketing efforts on young people in these countries, according to thereport.This
goes hand-in-hand with the widespread introduction of value-added products inthese
markets. In recent years, for example, the Mexican market saw the launch of anumber of
chocolate-based powders in new packaging, formats and formulas - often withnew
flavors. These products generally targeted consumers prepared to pay a premium,though
some were aimed at low-income segments of the population, according to
Euromonitor.Brazilian manufacturers also met consumer demand by offering premium
chocolate-based products, helped by the fact that Brazilian consumers are more aware of
healthissues than many of their Latin American counterparts. Brazilian consumers
oftenupgrade by purchasing healthier chocolate-based products such as low-calorie
anddiabetic-friendly alternatives, Euro monitor said, highlighting the 2003 launch of
ToddyLight by PepsiCo as an example of this trend.Malt drinks, meanwhile, are most

3. popular in India, which accounts for 22 per cent of theworld‘s retail volume sales. They
are traditionally consumed as milk substitutes there andmarketed as a nutritious drink,
mainly consumed by the old, the young and the sick. Saleshave also been aided by
improved retail and distribution in recent years, combined with alarge child and youth
consumer base, the report said.India also recorded the highest growth (53 per cent in US$
terms) during 1998-2003,again spurred by consumers trading up to value-added products.
In 2003, for example,Glaxo Smith Kline re-launched Horlicks for Kids, specifically
targeted at young children,as well as launching Horlicks in three new flavors.
10. With its Horlicks brand (often seen as an old-fashioned drink in its home market in
theUK) Glaxo Smith Kline in fact accounts for 70 per cent of malt-based hot drinks,
withIndia alone contributing nearly 60 per cent of the company‘s global sales of the
product.Other major players include Cadbury Schweppes and Nestlé.But if developing
nations have a growing taste for malt- and chocolate-based drinks,other more
sophisticated markets have yet to catch on. Indeed, the report shows that theperformance
of malt- and chocolate-based drinks in mature western markets wascharacterized by of
stagnation and decline during 1998-2003.The US, for example, has seen a sharp decline
in value sales of both malt- and chocolate-based drinks over the past few years, mainly as
these products largely remained outsidethe overarching consumer trend for premium and
healthy products. In fact, malt-baseddrinks have an almost negligible presence in the US,
with manufacturers largely failing toattract the important child and youth consumer
groups – a category more interested insoft drinks.The performance of malt- and
chocolate-based drinks in Western Europe was morepositive than that of the US, but
nonetheless there was little in the way of growth during1998-2003. A relative lack of
innovation and marketing activities, allied to demographicfactors such as falling birth
rates, saw important western European markets such asGermany record modest growth,
according to Euro monitor.The warmer winters experienced in Western Europe in recent
years also contributed tothe lower demand for chocolate- and malt based drinks. The UK
experienced sharpdecline of 13 per cent in retail volume terms in malt-based drinks and
only moderategrowth in chocolate drinks during 1998-2003.Looking forward, the
emerging markets will, not surprisingly, continue to provide thebest opportunities for
growth in this category, Euro monitor suggests. Market such asIndonesia and Mexico are
expected to see strong growth in both malt- and chocolate-based drinks by 2008, with
large youth populations and a rising number of middle classconsumers as the key driving
factors.
11. Among major markets, China is forecast to be the fastest growing market in
bothchocolate-based (up 35 per cent by value) and malt-based (up 29 per cent by value)
up to2008. China‘s booming economy along with rising levels of disposable income
andincreased availability of quality products will encourage further consumption,
theanalysts predict. Following China‘s accession to WTO, multinationals are also
expectedto penetrate the country further, driving up demand and in turn prompting more
localmanufacturers to get involved in production.
12. Chocolate in a BloomIs a white bloom enough to put you off your chocolate?
Scientists are hard at work to findout exactly how this bloom forms and how to stop it, as
Emma Davies finds outNext time you reach out for your favorite chocolate bar you will
probably pay littleattention to its fat crystals. However, should you be unfortunate enough
to peel back thewrapping to reveal a chocolate covered in a mouldy-looking white bloom,

4. and thenperhaps you might spare a thought for its crystal structure? The chocolate
industryploughs a lot of money into investigating chocolate crystals and bloom.The
industry takes bloom seriously - not only because it is unsightly, but also because itcan
change the texture and the flavor release properties of the chocolate. Manufacturersare
keen to invest in research, using expensive techniques such as X-ray scattering andatomic
force microscopy (AFM), to help understand exactly how bloom forms and howto stop it
forming. With the average person in the UK eating 10kg chocolate each year(according
to Cadburys confectionery review of 1999), it is easy to see why the industrywants to
create a perfect chocolate bar that stays temptingly glossy with a good snap.
13. Chocolate bloom develops naturally Temper, temperwith time, but it can be brought
onprematurely. How many of us have lefta chocolate bar on the car dashboard inthe sun
and been disappointed to find Tempering is a crucial stage of chocolatethat it has been
spoilt by a bloom? In manufacture, which ensures that the fat in thethis case, the bloom
develops because chocolate crystallizes in a thermodynamicallythe crystals melt and then
re-crystallise stable crystal form.in a different form when thetemperature drops again.
Chocolate The process generally involves cooling thebloom can also form if the molten
chocolate (held at about 45°C) to amanufacturing process doesnt include a temperature
(about 27°C) that inducestempering step (see Box 1), when the crystallization in both
stable and unstabletemperature is carefully raised and crystal forms (polymorphs).
Raising thelowered to ensure that fat crystals grow temperature slightly (to about 30°C)
then meltsin the correct form, size, shape and out the unstable crystal forms leaving only
thenumber. stable crystals to seed the crystallization of the bulk chocolate in a stable
polymorphic form.Chocolate crystalsCocoa butter, perhaps the most To help crystals to
grow, the chocolate isimportant ingredient of chocolate, is usually stirred as it is cooled
using scrapingcomposed of a mixture of saturated and and mixing blades.unsaturated fats
(triglycerides), therelative proportions of which depend on The temperatures needed to
temper a chocolatethe country of origin. Some of the depend on the composition of its fat
phase.unsaturated triglycerides in cocoa butter Manufacturers need to find the righthave
low melting points, making it combination of stirring forces and temperaturespartly liquid
at room temperature. for their ingredients.Adding milk fat to chocolate raises thelevel of
unsaturated triglycerides and
14. increases the proportion of liquid fat, which explains why milk chocolate is so
muchsofter than its dark counterpart.The fat crystals in cocoa butter pack together in six
different formats (polymorphs). Thechocolate industry labels these polymorphs forms I to
VI (form I being the least stable)and aims to get the cocoa butter to crystallize in a stable
form V to give the chocolate aglossy appearance and a good snap. Table 1. What goes
into a typical milk chocolate? Ingredient Per cent Cocoa mass 11.78 Milk powder 19.08
Sugar 48.73 Added cocoa butter 19.98 Lecithin 0.35 Vanillin 0.08Surface scienceThe
surface of a good quality chocolate contains lots of tiny fat crystals that can reflectlight,
giving it a glossy appearance. Any cracks or crevices (or even fingerprints) on thesurface
of the chocolate can encourage small, spiky fat crystals to grow. When thecrystals reach a
size that can diffuse the reflection of light from the surface they give it adull
appearance.Although the exact mechanism of bloom formation remains disputed, most
scientistsagree that it involves fat crystals transforming from form V to form VI. Because
form VIcrystals are more stable than form V, chocolate should inevitably form a bloom at
somestage, unless preventive measures are taken.

5. 15. Richard Hartel at the department of food science in the University of Wisconsin,
US,believes that although the form V to form VI transformation always accompanies
bloomformation, it does not necessarily cause it. With John Bricknell at Mars in New
Jersey,US, he has analyzed a model chocolate using X-ray spectroscopy, to identify the
typesof fat crystals that develop. Their model chocolate contains amorphous sugar
particles -created by spray drying a mixture of corn syrup and sucrose and sieving the
mixture toensure that all the particles are the same size. The chocolate is made by
blending andtempering a mixture of cocoa butter, lecithin (an emulsifier), sieved cocoa
powder, milkfat and the amorphous sugar.Because the model chocolate contains no
crystalline sucrose, the researchers were able tosee clearly the changing polymorphic
forms of the cocoa butter. They also used acolorimeter to measure the amount of white
bloom that developed on the chocolatesamples, enabling them to link changes in
polymorphic form to the onset of visual bloom.They discovered that the form V to form
VI crystal transformation took place not only inall of the samples that developed a visual
bloom but also in some of the samples thatremained bloom-free. Hartel says that most
people thought they understood bloomformation in chocolate to be the polymorphic
transition of cocoa butter. What our resultsshow is that the polymorphic transition indeed
occurs, but that something else is neededto create visual bloom.Hartels research team has
come up with a theory to explain how visual fat bloomdevelops in well-tempered
chocolates. They suggest that, first of all, liquid fat must beable to get to the surface of
the chocolate. The pumping action required to do this couldbe induced by temperature
fluctuations, which cause the fat crystals to melt and then tore-crystallise. Fat crystals
with high melting points dissolve in this liquid fat and aretaken along to the surface
where they can re-crystallise as spiky crystals. Any cracks andcrevices can help the liquid
fat get to the surface. The way that the spikes grow from thesurface of the chocolate, says
Hartel, is open for debate although the nature of the sitesavailable for growth
undoubtedly plays a role in their formation.
16. An interesting and unexpected result emerged from Hartels study: the amorphous
sugarused to make the model chocolate seemed to be able to prevent a visual
bloomdeveloping. When the researchers looked at the samples through a microscope,
they sawthat the fat crystals on the surface of the model chocolate were smooth, rounded
and flat,causing little more than a slight dulling of the surface. These crystals were
markedlydifferent to the spiky, needle-like crystals of real chocolate that can take away
its gloss.Hartel thinks that, because the smooth, spherical sugar particles pack together
moretightly than the irregular-shaped sugar crystals in commercial chocolate, this reduces
boththe rate of liquid fat migration and hence the rate of bloom formation.Despite the
success of the amorphous sugar at inhibiting fat bloom, Hartel says that itcould not be
used in commercial chocolate because the sugar picks up moisture easilyand gives a
gummy texture in the mouth.By adding high melting point milk fat fractions to their
chocolate mix, Hartel and histeam have been able to delay substantially the transition
from form V to form VI. Indeed,milk fat is commonly used to inhibit fat bloom, and
skimmed milk powder is better thanwhole milk at preventing bloom formation.How milk
fat reduces bloom formation remains a mystery, but minor lipids in the milkfat (e.g.
mono- and diglycerides) are generally thought to influence the kinetics of cocoabutter
crystallization. The denser crystal structures that form could potentially stop liquidfat
from moving to the surface and re-crystallising. The minor lipids could also affect

6. theamount and type of high-melting lipids that dissolve in the liquid fat and could even
slowdown the transformation of crystals from form V to form VI. Another theory is
thatbecause milk fat can decrease the rate of fat crystallization, the chocolate contracts
lesson cooling. Fewer microscopic cracks appear, reducing the likelihood of liquid
fatreaching the surface.Hartel predicts that understanding how the chocolate
microstructure influences the rateof bloom formation will ultimately allow the chocolate
manufacturer to produce highquality chocolates with enhanced resistance to bloom.
17. Making chocolateAn even temperResearchers at the University ofLeeds have been
working withCadbury to help make its temperingprocess more efficient and reduce
theamount of money it spends on heatingand cooling vast quantities ofchocolate during
tempering.Industrial tempering usually involvesapplying shear forces (stirring)
whilechanging the temperature. The shearrate has to be chosen carefullybecause if it is
too low then notenough crystals will be generated, andif its too high the crystals could
melt.Scott Macmillan and Kevin Roberts,from Leeds chemical engineeringdepartment,
have developed a methodthat enables them to look at crystal changes during tempering,
with the aim of optimizingthe process in order to guarantee the growth of form V fat
crystals. They have designed atemperature-controlled shear cell, similar to the cone and
plate system commonly usedin rheometers, placing the fat sample on the bottom plate
and rotating the top cone. Thisset-up allows the researchers to heat and cool fat mixtures
while at the same time varyingthe shear rate. Using the small angle X-ray scattering
(SAXS) facility at dares bury, theyhave been able to monitor changes in crystal structure
in the shear cell during tempering.When no shear stress was applied to cocoa butter
samples, the fat crystals transformedslowly from form III to form IV. However, on
shearing the samples, the crystalstransformed from form III to form V. Macmillan
believes that because the results give astrong indication of the inherent mechanisms
taking place, they should be able to help
18. Cadbury determine the optimum shear rate and temperature to ensure that the
chocolatecrystallizes in form V.Soft in the middleThose of you with sufficient self-
restraint to put aside a half-eaten selection box ofchocolates may have noticed, on
reopening the box, that the pralines are generally thefirst to develop a bloom. The nut-
based filling contains fat that is liquid at roomtemperature and, as this fat migrates from
the filling to the chocolate exterior, some of thecocoa butter in the chocolate moves in the
opposite direction. The appealing texturecontrast between the inside and the outside of
the praline can then be lost as the liquid fatsoftens the chocolate exterior and the cocoa
butter hardens the soft centre. The liquid fatthat moves to the surface of the chocolate can
also drag some of the cocoa butter with it,which can re-crystallise at the surface and form
a bloom.These problems can be solved to a certain extent by adding a layer of a harder fat
(moresaturated triglycerides) in between the outer chocolate layer and the soft interior,
oralternatively to the centre where it can act as a sponge for the liquid fat.Paul Smith and
researchers at the Institute for Surface Technology in Stockholm,Sweden, are working on
the problem of fat bloom in soft-centered chocolates and havedeveloped a technique
using radiolabel led (14C) triglycerides to study the fat exchangeprocess. They use
differential scanning calorimetry (DSC) to determine the polymorphicform of the
triglyceride crystals and a 14C radio detector to follow the movement of theradiolabelled
compounds. So far, they have worked mainly on model fat systems, adding 14unlabelled
fat crystals to an oil saturated with a C labelled triglyceride and gentlystirring the

7. mixture. At regular intervals they remove samples and measure how many ofthe 14C
triglycerides in the liquid oil phase crystallize out. Preliminary results suggest thatthe
exchange rate between fat crystals and dissolved fat is relatively fast when thecrystals are
small but slow when the crystals are large.Smith is currently using atomic force
microscopy (AFM) to study the changes in thestructure of the surface of the chocolate
that occur when bloom forms. The diamond tip
19. of the AFM probe moves over the surface of the chocolate and deflects as it passes
overany undulations. Smith has chosen the technique over the standard methods of
scanningelectron microscopy or optical microscopy which can generate artifacts, he says.
Opticalmicroscopy, explains Smith, is difficult to use with chocolate because of its dark
Colour.In addition, the limit of resolution means that only the large crystals can be picked
up.Smith has yet to release the results of the study but hopes to use them to help
understandthe methods of bloom formation and to observe the early onset of bloom.There
is clearly more work to be done on bloom but new techniques and R & Dinvestment
should lead the chocolate industry to its holy grail: a long-lasting chocolatethat doesnt
lose its gloss with storage.
20. THE CHOCOLATE INDUSTRY IN INDIAThe chocolate industry in India has a
size of 20000 tones and is worth about Rs 400crores. The chocolate market has been
growing by nearly 35 %. However there has beensome slowdown in the last two
years.The chocolate market is predominantly urban with coverage of 95 %. The sales
volumehas decreased by 5% in the last year and the chocolate market had declined with
theaverage consumption coming down by 25% from 16000 tones to the current level
of125000 tonesChocolate consumption in India is extremely low. Per capita consumption
is around160gms in the urban areas, compared to 8-10kg in the developed countries. In
rural areas,it is even lower. Chocolates in India are consumed as indulgence and not as a
snack food.A strong volume growth was witnessed in the early 90s when Cadbury
repositionedchocolates from children to adult consumption. The biggest opportunity is
likely to stemfrom increasing the consumer base. Leading players like Cadbury and
Nestle have beenattempting to do this by value for money offerings, which are affordable
to the masses.Cadbury, a subsidiary of Cadbury Schweppes is a dominating player in the
Indianchocolate market with strong brands like Dairy Milk, Five Star, Perk, and Gems
etc.Dairy milk is the largest chocolate brand in India. Chocolates & Confectionery
contributeto 75% of Cadbury‘s turnover. Cadbury also has a strong brand Bourn vita in
the maltedhealth drink category, which accounts for 24% of turnover. The parent
CadburySchweppes during 2001 made an open offer for acquiring the 49% non-promoter
holdingin the company. It has already acquired over 90% of the equity and proposes to
buy backthe balance equity and delist the stock from Indian bourses.
21. THE MAJOR PLAYERSThe major national players in the chocolate market in India
are:Cadbury India Ltd.Nestle India Ltd.Gujarat Cooperative milk marketing federation
limited (Amul)The combined chocolate and éclair market is dominated by two giants –
Cadbury andnestle together they have 90 % share of the entire market. Amul holds a 5%
share and ispresent only in the molded chocolate segment of the marketThe CHOCLATE
CHRONOLOGY1956 - Cadbury milk chocolate launched1957 - Cadbury 5 star
launched1970 - Cadbury éclairs launched1974 - Amul chocolate launched1986 - Cadbury
milk chocolate re-launched as Cadburys dairy milk1990 - Cadbury launches premium
chocolate brand overtures1991 - Nestle chocolates launched. Cadbury counters nestles

8. entry with all silk andunfurls huge consumer promotion campaign. Cadbury diary milk
revamped. Nestlelaunches Milky bar: Cadbury counters creamy bar1994 - Cadburys real
taste of life and 5 star reach for the stars campaign launched éclairsrevamped and
renamed diary milk éclairs1995 - Cadbury launches perk, preempting nestles Kitkat
Overtures is withdrawn1997 - Cadbury launches truffle1998 - Cadbury launches Gold,
Picnic (all these launches took place in the month ofDecember i.e. Dec 96 and dec-97 to
be more precise in keeping with the company policy
22. of launching new brands at the new year eve. However the hit the market at the
month ofJanuary only
23. AMUL: THE FLIGHT WHICH FAILED TO TAKE OFFGujarat cooperative milk
marketing federation limited (Amul)Amul is the third player in the chocolate market in
India. The brand doesn‘t have anyinternational lineage and is miniscule in terms of
market share in chocolates andcompared to the two other players Cadburys and
nestle.Amul had an extremely focused positioning of a giftfor someone you love albeit
not target to a singlegroup however Amul failed to capitalize on itseemingly due to the
following reasons.a. Chocolates have never been Amul‘s main products and hence there
was lack of organizational commitment. The company has never really supported or
pushed its chocolates. This reflects on the drastic cutback on advertisement expenditure
for its chocolates which has negatively affected its top of the mind awareness levelb. The
company has enjoyed a high customer equity and pulls in butter and so it offered a very
low retailer margin of 3.1 % as against the industry average of around 7-8 % Amul tried
the same technique in chocolates too. However since it was neither leader nor enjoyed a
customer pull like in butter the company got very little support for its chocolatesc. Amul
chocolates have shown a very limited product differentiation and have not really given
any important additional benefit to the consumers. The product line also
24. suffered in comparison to the portfolios of the competitor Cadbury and nestles. Its
only strength was its low priceFollowing are the major brands ofAmul♦ Amul premium
Milk♦ Amul badam bar♦ Amul orange♦ Amul fruit and nut♦ Amul crisp
25. NESTLE: A BRIEF INTRODUCTIONNestle India limitedNestle is a strong player in
the chocolates world wide but it entered the Indian marketmuch later in (1991) than one
of its global competitor Cadbury. Nestle initial foray intothe Indian market was not very
successful. The problem was in the formulation of theproduct. They were soft chocolates
with high fat content which were unsuitable to theIndian climate. Also the distribution
focus has been on the larger cities and urban areaswhich limited their customer base.It
was with the launch of Chitchat that the company‘s strategy changed with respect toboth
product and distribution. It increased its distribution network to cover small townsand
interiors as well so as to increase the customer base .It also modified the formulationof
Moulded chocolate to suit the Indian condition. The company used three layers of
foilpackaging so that Kitkat could survive the summer heat.Today nestle poses a
formidable threat to Cadbury. Kitkat has captured a sizeable chunkof the market within a
short span of launch. Nestle, as in 2002-2003 has around 24 %market share with Kitkat
alone accounting for 12% market share points. Nestle Bar Oneis another brand with a
market share of 6%. Nestle recently withdrew its Nestle bitterchocolate brand. The other
brands of nestle are nestle milky bar and nestle crunch.Nestle have also entered the sugar
confectionery market in direct Compton with Cadburyby offering Allen‘s splash and
Allen‘s coffees and Allen‘s Butterscotch. Amul has alsoentered into another foray of the

9. confectionery team that being ice creams. Thedistribution of this has been pretty good
with Amul ice-cream being available all aroundIndia.The advertising for the company in
India is being handled by love lint‘s. Nestle has beenincreasing its adverting figure the
latest being in 2002 RS 25 crores.Major Chocolate Products
26. Crunch: Crunch Chocolate is one of the best-loved foods everywhere in the world. It
isone of lifes little pleasures. The attractive tastes and textures of chocolate and
chocolateproducts delightthe senses of allages.Introduced in 1938,today Crunch
isNestlé‘s third largestconfectionary brand sold in about 40 countries worldwide. Nestlé
Crunch is available inthe following varieties: Nestlé Crunch, Nestlé White Crunch,
Nestlé Crunch Pieces,Nestlé Bunch Crunch and new products Nestlé Crunch with
caramel and Nestlé Crunchassorted minis.Launched in 1938 in the USA, Crunch was the
first chocolate bar to combine milkchocolate and crunchy crisps. Crunch is a unique
combination of smooth Nestléchocolate and crisped rice, which delivers an exciting
eating sensory experience ofdistinctive taste, texture and sound.Kitkat: Kitkat Chocolate
is one of the best-loved foods everywhere in the world. It is oneof lifes little pleasures.
The attractive tastes and textures of chocolate and chocolateproducts delight thesenses of
all ages.The product,developed as WaferCrisp, was initiallylaunched inLondon, UK in
September 1935 as Rowntrees Chocolate Crisp. It became Kitkat in1937, two years
before the Second World War.Within two years of launch Kitkat was established as
Rowntrees leading product, aposition that it has maintained ever since. During the
Second World War RowntreeKitkat was seen as a valuable wartime food and advertising
described the brand as Whatactive people need.
27. For most of its life Rowntree Kitkat has appeared in the well-known red and
whitewrapper. It did, however, change to a blue wrapper in 1945, when it was produced
with aplain chocolate covering due to a shortage of milk following the war. This
bluepackaging was withdrawn in 1947 when the standard milk chocolate Kitkat
wasreintroduced.No one can be absolutely sure where the name Kitkat came from but it
is believed to befrom the famous 1920s Kitkat Club in South East London which had
some influence. Asthe building had very low ceilings, it could only accommodate
paintings which werewide and not very high. In the art world, these paintings were
known as Kats. Itsbelieved that Kitkat derived its name from paintings, which had to be
snapped off to fitinto the rooms with the low ceilings.Reinventing NestleA detail analysis
by the companies management to turnaround nestleTop line growth, bottom-line
contribution, difficult market situations. Nestle Indiastrademark `renovate and innovate
strategy is churning with action. Catalyst finds outmore.JUST how much can a housewife
influence a Rs 1,688-crore company? Shes someonewhose needs we anticipateTake, for
example, the exhaustive experimental kitchen and sensory laboratory at theplush
corporate headquarters of Nestle India at Gurgaon. Its obviously a first-of-its-kindfacility
and research centre for any food company in India.The objective? Consistent product
development. Also, achieving a preference ratio of60:40 for every Nestle product as
opposed to competition. The kitchen comprises a panelof application groups and 15
professional tasters checking out new products forconsistency in quality and product
evolution on a regular basis.The exercise, has resulted in the creation of two different
flavors of Maggi noodles (curryand tomato), Fruitips candy, besides new formulations of
Nescafe and Bar One chocolatein recent months. "And this research model isnt a
substitute for consumer research, orregular test-marketing with the real consumer.

10. 28. Based on an international research and development model proprietary to Nestle SA,
thekitchen is just one component of the Rs 3,000 crore allocated for a centralized
researchand development cell for the foods conglomerate worldwide, against Rs 2,500
crore spenton the same earlier. Another component is the third in a series of multi-cuisine
recipecollections cutting across all Nestle products, in place of the two earlier ones
whichcentered on Milkmaid and Maggi.The Nestle `renovate and innovate mantra,
meanwhile, is on in full swing.Four existing brands - Nescafe, Milo, Bar One chocolates
and Maggi super seasonings -have been re-launched in new tastes, packaging and pack
sizes. And another variant ofKitkat - white chocolate - has just been rolled out.On the
launch block a month from now are 10 new product variants spread across theculinary
and confectionery segments. The restructuring exercise of Excelcia Foods Ltd -the joint
venture company in which Nestle acquired management control followingDabur Indias
decision to exit non-core areas - has neared completion. Following that,Nestle proposes
to enter fresh product categories such as biscuits in the forthcomingmonths.Beverage
Partners Worldwide (BPW), the joint venture between Nestle SA and the CocaCola
Company too is looking to tap the Indian market for possible coffee and teavariants.But
its the food majors most keenly awaited venture - ice-cream - thats got the
FMCGindustry abuzz. They are very much interested in the domestic ice-creams market.
Ofcourse, that requires putting in place a cold chain, besides stabilizing its milk and
UHTbusinesses first. Meanwhile, though theres no confirmation from Nestle, the
industrygrapevine suggests that Nestle has begun negotiations with Vadilal for
manufacturing andmarketing ice-cream.Another category where Nestle could give
Hindustan Lever a run for its money is candy.The company has recently rolled out a
candy brand by the name of Fruitips.On the beverage front, following the introduction of
chocolate-and-coffee formulationChoc Cafe and Frappe under the Nescafe umbrella,
Nestle has been setting up slosh-typevending machines for iced tea in two flavors - peach
and lemon. In an economy thats in a
29. downturn, Nestlé‘s performance has been impressive. Net sales for third quarter this
yearwere Rs 533 crore against Rs 469 crore in the same period last year, recording a
growthof 13.5 per cent. While domestic sales grew at 11.4 per cent in value terms, export
salesfor the quarter increased by 24.6 per cent. Sales during the first nine months of the
yearimproved by 17.4 per cent, with a net profit increase of 28.6 per cent over the
sameperiod last year.Despite excellent top line and impressive bottom-line contribution,
the uncertain anddifficult domestic and international market environment, coupled with
seasonalityfactors, will affect their performance in the fourth quarter. Market analysts
warn thatincremental selling and advertising expenditure on new launches would dampen
marginsand that it would take time before the new products begin contributions to
turnover orprofitability.While the success of the new variants is yet to be gauged,
Nestlé‘s star performers remainNescafe, baby food Cerelac, Maggi and Everyday.
Nestlé‘s biggest strength lies increating brands with distinct positioning. Hence, Nescafe
is generic to coffee, just theway Maggi has become generic to instant noodles. Maggi
noodles face no directcompetition, with Top Ramen barely managing to hold ground in
the instant noodlescategory. Another winner has been Maggi ketchup, which, FMCG
analysts say, has beenbuilt from scratch to market leadership position, outperforming
Kissan.While Nestle has done exceptionally well in Western food categories such as
ketchup,condensed milk, noodles, coffee and weaning foods, the company hasnt been

11. able tohandle Indian product categories such as pickles and tea too well. No one is
reallymaking money in pickles. Not only is the unorganized and made-at-home sector too
well-entrenched, even the consumer shows no brand loyalty towards pickles. What drives
herpurchase pattern is new taste and not brand preference.The market for ready-to-cook
mixes and soups too has been largely fragmented with adistinct skew towards the
unorganized sector.In chocolates, while Cadbury India continues its stranglehold of the
market, Nestlé‘sKitkat, Bar One, Munch and Classic have been performing reasonably.
Two recent
30. entrants to this category have been ChocoStick and Milky bar Chocolate, the latter
softchewy fudge in stick format priced at Rs 5.In the chilled dairy segment, Nestle dahi
has recently been extended to Mumbai andPune. While the market for this continues to
be very small with only Mother Dairy andAmul giving Nestle competition in the
organized sector, milk in cartons is a conceptthats yet to go down well with the Indian
consumer. Apart from being expensive, theIndian consumer is still not ready to consume
milk without boiling it. And research hasproved that three-fourths of Indians prefer hot
milk. On the pricing front, Nestlecontinues to target the premium segment. They make
inroads into markets whichrepresent not only potential for consumption, but also
potential for bottom-line. Nestlé‘spremium pricing strategy is a strength thats worked in
most categories it operates in.Fruitips, therefore, occupies price points of 50 paisa and Re
1 per unit against HLLs Maxwhich attacks the unorganized sector with an extremely
aggressive 25 paisa per unitprice.Its the association with quality that works in Nestlé‘s
favour in most product categories.That this hasnt really worked in case of Nestlé‘s bottled
water brand, Pure Life, is moredistribution-related, feel industry watchers. Pure Life,
launched earlier this year at a pricepoint of Rs 12, has been a lukewarm performer
compared to Coca-Colas Kinley andPepsi Aquafina besides, of course, market leader
Bisleri. Discounting at the trade levelhas been a problem area with bottled water.And
while spends on advertising have been raised at a macro level, brand-wise spendshave
been re-allocated accordingly.According to the A&M Annual survey on Indias top 200 ad
and marketing spenders,Nestle was the countrys sixth largest advertising spender in
2000-01, recording an adspend of Rs 128.46 crore which amounts to a 13.6 per cent
growth over the previousyear.Nestle Business
31. Nestle has a presence in the following categories - Baby Food, Milk products,
Beverages(Coffee, malted beverage), Chocolates & confectionery and other processed
foodproducts. Category wise turnover breakup and growth % contribution 2001 2000 to
turnover Rs mn. Rs mn. % yoyMilk Products 43 8159 7375 10.6%Beverages 29 5627
4903 14.8%Culinary Products 14 2764 2310 19.7%Chocolate & Confectionery 14 2646
2179 21.5%Total 19197 16768 14.5%BeveragesBeverages like coffee, tea and health
drinks contribute to about 30% of Nestlé‘s turnover.Beverage sales registered a 15% yoy
growth during 2001. While about 14% of salescome from domestic market, exports
contribute to about 16% of sales.Nestlé‘s Nescafe dominates the premium instant coffee
segment. Nestlé‘s other coffeebrand Sunrise has also been re-launched under the Nescafe
franchise to leverage on theexisting equity of the brand. Nestle has focused on expanding
the domestic marketthrough price cuts and product repositioning. However it has been
losing share in thedomestic market, where it has a 37% market share. Milo, a brown-
malted beverage waslaunched in 1996. It has an estimated volume share of about 3% in
the malted food drinksegment. Nestle has launched non-carbonated cold beverages such

12. as Nestea Iced Teaand Nescafe Frappe during 2001.Nestle is one of the largest coffee
exporter in the country. Key export market is Russia,besides Hungary, Poland and
Taiwan. Nestle has received an award for highest export ofinstant coffee and highest
export of coffee to Russia and CIS for FY00 and FY01.Turnover contribution from
exports registered a 17.5% volume growth in F12/01.Nescafe sales to Russia accounts for
80% (Rs2.5bn) of Nestlé‘s Rs3bn export turnover.Infant food/ milk products
32. Milk based products and baby food contributes to 43% of Nestlé‘s turnover. For
ensuringregular procurement of good quality milk, Nestle has developed a network
around itsMoga factory for collection of fresh milk everyday from the farmers. Nestle has
adominating 87% market share in the baby weaning foods with its Cerelac and
Nestumbrands. Infant milk powder is sold under the Lactogen and Nestogen brands.
Brandloyalties are very high in categories such as infant food and weaning cereals,
enabling thecompany to command a price premiumOther milk products include dairy
whiteners (21% market share) sold under theEveryDay and Tea Mate brands, sweetened
condensed milk and ready to cook mixes fortraditional Indian sweets sold under the
Milkmaid brand. The company also markets ghee(6% market share) under the EveryDay
brand. Nestle has expanded its milk productportfolio with the launch of new dairy
products such as UHT milk, Curd and Butter.Huge investments are being made in
building a diversified dairy business and thedistribution infrastructure for the same. Milk
products sales registered a 10.6% yoygrowth during 2001.Chocolates &
ConfectioneryNestle forayed into chocolates & confectionery in 1990 and has cornered a
fourth shareof the chocolate market in the country. The category contributes 14% to
Nestle‗sturnover. It has expanded its products range to all segments of the market The
Kitkatbrand is the largest selling chocolate brand in the world. Other brands include
Milky Bar,Marbles, Crunch, Nestle Rich Dark, Bar-One, Munch etc. The sugar
confectioneryportfolio consists of Polo, Soothers, Frootos and Milkybar Éclairs. All
sugarconfectionery products are sold under the umbrella brand Allens. Nestle has also
marketssome of its imported brands like Quality Street, Lions and After Eight. New
launchessuch as Nestle Choco Stick and Milky Bar Choo at attractive price points to woo
newconsumers. Chocolate confectionery sales registered a strong 21.5% yoy growth in
2001aided by good volume growth in Munch, Kitkat and Classic sales. Nestle re-
launchedBar-One during the yearCulinary products
33. Ready to cook food/ cooking aides are sold under the umbrella brand name
Maggie.Culinary product account for about 14% of Nestlé‘s turnover. Maggie is the
marketleader in the noodles (45% market share) and the ketchup (43% market share)
categories.Other products, sold under the umbrella brand Maggie, are ready-to -cook
gravy/sauces,soups, seasonings, as well as traditional Indian foods such as pickles and
instant snackmixes. New taste variants are continuously launched to add variety to the
productofferings. Culinary product sales registered a 20% yoy growth during 2001.Future
prospectsNestle is focused on product expansion and improvement of distribution
efficiency. TheDairy business is being expanded and is expected to drive growth in the
long run,although short-term profitability may be impacted in the investment stage.
Thecompany‘s entry into the mineral water segment is a concern, as the segment is
alreadyovercrowded and the company faces stiff competition especially from the
Colamanufacturers. Acquisition of an established brand could catapult Nestlé‘s position
in thesegment. In categories like beverages, culinary products and chocolate

13. confectionery, thecompany is looking at driving growth through launch of smaller
SKU‘s, thus enablingaffordability to a wide section of the population.Earnings sensitivity
factors ♦ Success of new category launches (Milk and Mineral Water) which involve
considerable investment for promotional schemes and ad-spend and yield returns only
after a few years. ♦ Continued exports to Russia, Nestlé‘s main market for coffee exports.
♦ Good monsoon ensures adequate availability of raw materials, which are mainly
agricultural in nature. Raw material prices have significant influence on margins. ♦
Government policies in terms of licensing, duties, movement of agricultural commodities
etc. ♦ Market growth driven by overall economic growth and urbanization.
34. ♦ Rupee depreciation improves export realizationsDIRECTORS REPORT (7th
March, 2001)1. Operations:Domestic Sales grew by 7% in value and 15% in volume
terms, during the year. ExportSales grew by 16% in value and 32% in volume. Profit
after Tax grew by 20% fromRs985mn to Rs1186mn.The market and economic growth
continued to be sluggish during 2000. Concertedefforts of the management to maintain
the price of products (in some cases evenreduction of prices), better working capital
management, continuous improvement ofsupply chain and a focus on flagship brands,
contributed significantly towards the aboveprofitability. The favourable impact of the
commodity prices during parts of the year andthe product mix, also contributed
significantly towards improvement in profitability.During the year, the Company retired
certain fixed assets from active use at variouslocations and the impairment loss on such
fixed assets has been charged to the Profit andLoss Account.Out of business prudence,
the Company supplemented the Contingency Provision withfurther amount in 2000 of
Rs295mn (net) to provide for various contingencies resultingfrom matters mainly relating
to issues under litigation, dispute and managementdiscretion.Your Companys overall
sales and profit progression during 2000 can be consideredsatisfactory and in line with
the expectations.The current year has commenced as per plan in the domestic market and
your Directorsare hopeful of continued good results. However, with the current level of
inflation andeconomic indicators pointing towards a sluggish market, it would be difficult
for the
35. Company to maintain the level of earnings unless the Company takes price increase
onfinished products which would depend on market conditions and competitor
activities.2. Exports:Export Sales for the year at Rs2655mn have grown by 32% in
volume terms, over the lastyear. This has been mainly due to the higher exports of
NESCAFE to Russia, buoyantsales of Instant Tea and good performance of the culinary
products. However, depressedgreen coffee prices in domestic and international markets
kept the export realizationslow. Measures taken for tapping new market and product
opportunities have alsocontributed to this growth. The export competitiveness of value
added instant coffeemanufactured in India continues to be adversely affected by the
purchase tax levied ongreen coffee. Efforts continue to tap new market and product
opportunities.3. Dividends:Interim dividend of Rs. 8.00 per equity share, including
Rs4.50 per equity share out ofundistributed profits of the previous financial years, was
paid during 2000.Your Directors are pleased to recommend to the Annual General
Meeting a final dividendof Rs6.00 per equity share. The dividend, if approved, shall be
payable to theshareholders registered in the books of the Company and beneficial owners
furnished bythe Depositories, determined with reference to the book closure from 16th
June, 2001.4. Business Development:In line with the Companys objective to provide

14. superior value in every product categoryand market sector, efforts were focused to
provide quality products to customers atattractive price points. While the Company
continued to generally maintain price pointsacross all the product categories, the pricing
of some products were also reduced to meetconsumer expectations.
36. MAGGI Noodles re launched in 1999 in response to popular consumer taste
preference,continued to boost sales during 2000 in the culinary segment. New flavour
profiles wereintroduced in the bouillon business.The market continued to react positively
to the initiatives taken in the recent past to growthe consumption of instant coffee in the
domestic market. The new NESCAFE pricingand bringing the popular SUNRISE brand
under NESCAFE umbrella to benefit from itsassociation continued to strengthen the
category. NESCAFE Frappe a blend of coffee,mocha and vanilla, which makes a
delicious frothy cold coffee, was launched in selectmetropolitan cities in the third quarter.
This was another strategic launch and seeks toaddress consumer with preference for cold
drinks. NESCAFE Frappe has receivedencouraging response.In the area of Chocolate and
Confectionery NESTLE MUNCH Crisp wafer biscuit withchocolayer, which was
launched in select markets in1999, was rolled out nationallyduring 2000 and had good
growth. Continuing with the efforts to meet consumerexpectation on price points, the
pricing of KITKAT was also reduced during the later halfof the year. Moulded
Chocolates and Éclairs also showed satisfactory growths. This hasalso helped in
improving the infrastructure and distribution reach of the Company in theChocolate and
Confectionery segment.In the milk and cereal categories, EVERYDAY Dairy Whitener
and cereals hadsatisfactory growth. NESTLE Growing up Milk; a new product offering
superiornutrition, launched in 1999 was rolled out nationally during the year.Your
Company has also entered the Chilled Dairy business with the recent launch ofNESTLE
Dahi in select cities of the North. The initial response has been veryencouraging and your
Company is working on plans to further leverage the internationalexpertise of Nestle
Group, Switzerland in the area of Chilled Dairy.The performances of other products were
generally in line with expectations. A fewproducts whose performance was not
considered satisfactory are under constant reviewfor corrective action.
37. Your directors are pleased to report the implementation of the two new
projectsundertaken by the Company during 2000 packaged milk and packaged drinking
water.Both the projects seek to leverage the worldwide experience and knowledge of
NestleGroup, Switzerland who are the leaders in these product categories.In line with its
objective of long term growth and entry in significant value added foodsegments, the
Company forayed into the Ultra Heat Treated (UHT) liquid milk businessin April 2000
by launch in Mumbai. Packaged UHT milk seeks to address growingconsumer concerns
on adulteration and product safety and brings with it reliability,complete hygiene and
safety. It offers convenience to the consumer, in terms of a shelflife without any
deterioration in the product quality and easy usage without refrigerationor boiling. UHT
Milk has received encouraging response and has been rolled out in selectcities of the
West, South and North.The project for bottled water was implemented at the Samalkha
factory and waterlaunched in February, 2001 under the brand NESTLE PURE LIFE and
is available inselect cities. NESTLE PURE LIFE contains a balance of essential minerals
and a lightpleasant taste and is manufactured under stringent quality control. The
packaging hasbeen specially designed to maximize safety for the consumer and protect
from possibletampering.The new categories like bottled water and liquid milk are lower

15. margin categories andwill require considerable investments. Your Company sees them as
strategic and asrequiring support on a sustained basis.The two new Sales Branches at
Bangalore and Chandigarh set up in 1999 to furtherstrengthen the flexibility of the Sales
organization and for speedier response to the marketconditions, have started showing
positive results during the year. With a view to expanddistribution and increase
penetration in smaller towns, a concerted drive was undertakento make products
affordable and accessible to consumers. An initiative taken includesmore penetrative
pricing and smaller packs covering brands such as EVERYDAY DairyWhitener, MAGGI
Noodles, MILO Chocolate Energy Drink and NESCAFE InstantCoffee. The response has
been encouraging.
38. The Alternative Trade Channel unit created in 1999 undertook initiatives to tap
theopportunities for out of home consumption, particularly for instant coffee and
chocolateand confectionery and to extend availability of product to nontraditional outlets.
Theoutcome of these initiatives has been encouraging and is being
consolidated.Availability of NESCAFE has been enhanced through an expansion of the
vendingmachine network and new consumption opportunities for Chocolates and
Confectionerywere identified and developed in areas like railway platforms, college
canteens and majorevents.On the manpower development front, programmes during the
year continued to befocused on the operational front more particularly sales and
production.To support the growth plans and distribution strategy, and simultaneously
improve theoperational efficiency, the thrust on strengthening supply chain continued to
receiveattention during the year. In addition to consolidating the improvements made
over thelast two years, significant progress was recorded in following areas:a) Reduction
in finished goods inventory pipeline to improve freshness of stocks andreduce working
capital.b) Control of distribution costs through innovative measures, despite steep
increases incost of fuel.c) Sustained improvement in customer service level to improve
product availabilityacross all geographies and channels.d) Reduction in obsolescence of
materials.5. New Head Office:The Company moved into its new Head Office at Gurgaon.
The new Head Office hasbeen designed to provide the employees with work environment
that enhances whitecollar productivity. The new Office design seeks to stimulate
improved internalcommunication and enhance transparency in working. State of the art
facilities for
39. training, tasting, and a fully equipped test kitchen, have been made available that
willfacilitate the efforts for innovation and renovation.
40. 6. Technology from Nestle:The Company being a part of Nestle Group, Switzerland
benefits from its access toproprietary technology, technical and non technical expertise
and the fruits of theextensive centralized Research and Development. The diversified
knowledge andexpertise have contributed significantly to the operations of your
Company over theyears. Some of the key areas, which have benefited are:a) Manufacture
of products of truly international quality. Product quality, whichencompasses taste,
appearance, convenience and overall value for money, is a criticalfactor in consumer
choice and in a competitive market like India could determine thevery survival of the
products. The high quality of products of your Company is borne outby the position and
image the products enjoy in the market and your Company continuingto be a leading
exporter of value added Instant Coffee in the country.b) Benchmarking of products
against competition to achieve an advantage in productquality, for increasing

16. competitiveness.c) Access to latest technological developments, such as Spear point
Technology forCocoa based products implemented during 2000 which would improve
product qualityand competitiveness and the MUCH technology for instant coffee
manufactureimplemented during 1999, which would enhance the productivity by
increased extractionof coffee solids from coffee beans.d) Implementation of project for
bottled drinking water.e) Product innovation and renovation some illustrations are
MUNCH Crisp wafer biscuitwith chocolayer; Nestle Dahi; Nestle Milk (UHT); Junior
Foods; NESCAFE Frappe;KITKAT Milky; new and improved flavours profiles of
bouillons; and re-launch ofMAGGI Noodles.f) Enhancement of skill and competence of
Company personnel due to the trainingreceived.
41. g) Implementation of environmentally sound business practices.h) Technical
expertise in various forms including Information Technology, which hasenabled the
business of your Company to grow and sustain.I) Providing assistance by way of
improved technical and quality standards to localmanufacturers, who have contract
manufacturing arrangements with your Company.Your Directors are pleased to report the
signing of the General License Agreement withthe collaborator providing license of all
intellectual property rights for the productsmanufactured and sold by the Company using
such intellectual property. The GeneralLicense Agreement which is effective 1st January,
2001 aligns the Company with theglobal practice of Nestle Group and would be
beneficial to the Company. Undoubtedly,without the know-how provided and ongoing
technical assistance, your Company wouldhave found it difficult to achieve the progress
that has been attained. Your Directors notewith satisfaction that being a part of Nestle
Group, the ongoing technology transfer andaccess to the fruits of extensive Research and
Development and authorization to useinternationally famous brands, would help the
Company significantly in its efforts toremain competitive in the market.7. Moga Milk
District:Your Company which started milk collection in Moga in 1961 with a daily
collection of510 kg of milk from 180 farmers has expanded its operations to an average
dailycollection of 540,000 kg of milk with total yearly collection of around 200 million.
Kg ofmilk from nearly 81,000 farmers in its milk district. The Company owns no farms
orcattle but through its Agricultural Services world wide initiative of Nestle Group,
worksclosely with the farmers to obtain the highest quality raw material. Recognized
as"Partners in Progress", Nestle Agricultural Services at Moga factory has contributed
itsmite to the up-liftment of the milk district. Some significant steps taken by the
Companyin the recent past are:a) Installation of farm coolers.
42. b) Milk Collection Centers provided with new and improved equipment to enable on
thespot testing of quality.c) Initiation of mechanization of large dairy farms.d) Farmer
development programmes.The Company has over the past decades been providing
facilities and support to the dairyfarmers in areas such as veterinary services, breed
improvement; balanced cattle feedmixture, feeding for dairy herds, fodder seeds and
training for improved farmmanagement practices.The milk district is a reflection of your
Companys commitment to nurturing quality,technology and improved systems in the
community and the companys initiatives toimprove living in the region.9. Information
Technology:Your Company continued to make significant investments in the Information
Services ofTechnology area to cope with the growing information needs necessary to
manageoperations more effectively in a complex supply chain environment.10.
Community Health:Recognizing its responsibility to the community in which it operates,

17. the Company overthe years has been taking initiatives in the area of community health at
locations aroundits factories. Some of the initiates taken in the recent past are:a) Provide
Government and village schools with facilities for toilets and hygiene drinkingwater
including deep bore wells, where necessary.b) Support to health officials in Pulse Polio
programmes.C) Sponsorship of treatment of TB patients at clinic runs by NGO.
43. d) Healthcare Programmes with focus being on well being of employees and
theirfamilies covering vaccination, awareness programmes and health check up.
44. CADBURY: THE LEADERCadbury, a subsidiary of CadburySchweppes is a
dominating playerin the Indian chocolatemarket with strong brands likeDairy Milk, Five
Star, Perk, etc.Dairy milk is in fact the largestchocolate brand in India.Cadbury India now
stands onlysecond to Cadbury UK in sales of Dairy Milk. The company is pushing the
giftingsegment, through occasion linked gifts. Chocolates contribute to 64%of
Cadbury‘sturnover. Confectionery sales‘, accounting for 12% of turnover, is contributed
largely byÉclairs. The company attempted expanding its confectionery product portfolio,
withlaunch of sugar based confectionery Googly and Frutus, without much success.
Cadburyalso has a strong brand Bourn vita in the malted health drink category, which
accountsfor 24% of turnover.Chocolate consumption: in India is extremely low. Per
capita consumption is around160gms in the urban areas, compared to 8-10kg in the
developed countries. In rural areas,it is even lower. Chocolates in India are consumed as
indulgence and not as a snack food.A strong volume growth was witnessed in the early
90s when Cadbury repositionedchocolates from children to adult consumption. The
biggest opportunity is likely to stemfrom increasing the consumer base.Competition:
Cadbury continues to dominate the chocolate market with about 69%market share. Nestle
has emerged as a significant competitor with about 20% marketshare. Key competition in
the chocolate segment is from co-operative owned Amul andCampco, besides a host of
unorganized sector players. There exists an even largerunorganized market in the
confectionery segment. Cadbury holds 4% of the market sharein this segment. Leading
national players are Nutrine, Parrys, Ravalgaon, Candico,
45. Parle‘s, Joyco India and Perfetti. The MNC‘s such as Joyco and Perfetti
haveaggressively expanded their presence in the country in the last few years.Malted
food drinks: Category consists of white drinks and brown drinks. White drinksaccount for
almost two-thirds of the 82,000 ton market. South and East are large marketsfor food
drinks,accounting for the largestproportion of all India sales.Cadbury‘s Bourn vita is
theleader in the brown drink(cocoa based)segment. In the white drinksegment,
SmithKline‘s Horlicksis the leader. Other significant players are Heinz (Complan), Nestle
(Milo), GCMMF(Nutramul) and other SmithKline brands (Boost, Maltova, Viva).
Cadbury holds 14%market share in food drinks segment.Performance: Despite tough
market conditions & increased competition Cadburymanaged to record a double digit
(11%) top line growth in 2000. The company achieveda volume growth of 5.2%. This
was achieved through innovative marketing strategies andfocused advertising campaigns
for flagship brand Dairy Milk... Net profit rose sharply by41.8% to Rs520mn. Reduced
material and energy costs and tighter control over workingcapital and capital expenditure
enabled the company to improve profitability. Companyadded 8mn new consumers and
saw its outlets grow to 4.5 lakhs and consumers to 60mn.Outlook: The Cadbury
management has cut down on its growth target by setting a 10%average volume growth
target for the next three years (as against previous growth targetof 12% volume growth

18. and 20% value growth). Coupled with inflationary priceincreases, this could translate into
a top line growth of 14-15%. This target also appearsdifficult to achieve given the
consumer slowdown and the fact that the company isdependent on a single category –
Chocolates to drive growth. In the malted food drinkscategory the company faces stiff
competition from SmithKline Beecham, and marketshare has been stagnant at around
14% despite the company‘s efforts and investments inrepositioning the brand. Efforts at
expanding confectionery portfolio have also not
46. yielded desired results. The management has declared its intention to focus only
onÉclairs (which form a major portion of its 4% share in the confectionery segment) for
thetime being in this category. In chocolates too, the onus remains on the 2-3 key
brandssuch as CDM, Perk and Éclairs, which have supported growth in the
past.Cadbury‘s Ad CampaignKuch meetha ho jaye suggests Cadbury India, its
brandambassador Amitabh Bachchan smiling down thehoardings lined along Mumbais
Marine Drive rightdown to the companys corporate head office atMahalakshmi. While
the chocolate major is waitingfor Diwali to see a turnaround in its business after
theworms controversy, at the moment its all about drivinggrowth for the category which
has seen a decline since thefirst quarter of this year.Being the market leader in chocolates
with a 70 per cent share, the company hasattempted to stretch the boundaries within
chocolate confectionery. It has also beenadventurous in unleashing a brand new category
within chocolate early this year.Introducing the concept of sweet snacking, it launched
Cadbury Bytes in the south withthe positioning `Snacking ka meetha funda. The product
is a crunchy wafer pillow with achoco-cream centre and is being rolled out
nationally.Explaining the need to introduce this new category, Bharat Puri, Managing
Director,Cadbury India, says, "While we were sure of our core competencies, there was
need forinnovation to deliver double-digit growth. What we found was that we were
under-represented in the area of snacking on the go and that there was a need for a light
crunchysnack." While entry into salted snacks was ruled out, sweet snacks were the
obviouschoice, and Bytes is unique to the chocolate majors Indian portfolio.Getting the
right product and packaging was a challenge for the company. It has sub-contracted the
product to get the volumes and is poised for a national launch. Adds Puri,"After all this
was the first category anywhere in the world that Cadbury was entering and
47. we did not have the expertise. So the best way was to test-market the product and
todaywe find that it has already bagged five per cent of the chocolate market."The
company has no apprehensions of cannibalization of its chocolate brands. It believesthat
while its chocolates are more of indulgence products, Bytes is about snacking whenone is
hungry and can be treated as a snack in between meals.In the past when Cadbury tried out
a biscuit brand, Chocobix, there was fear about someamount of cannibalization. After all,
it was simply a biscuit coated in chocolate, and wasperceived to be another chocolate
brand in Cadburys portfolio.Stresses Puri, "Cadbury Bytes is adjacent to chocolates and
in the markets that we havelaunched it, there has been no cannibalization. Chocolates are
largely an indulgenceproduct while Bytes is about between-meals snacking. A product
which is consumedwhen one is feeling hungry or peckish."Another thrust area Cadbury
has been re-evaluating is confectionery. While growth ratesin this segment are healthier
compared to chocolates, it has always been a difficult marketto crack. Cadburys own
experiences have led it to withdraw certain brands but now withWarners Lamberts
international kitty under its fold, there are chances of reconsideringthe segment once

19. again."Through the acquisition of Warner Lambert, there is a great set of brands
alreadyavailable to us. We are still examining which are the right brands for the Indian
market,"says Puri. Cadbury has already identified Halls as the strongest brand in
WarnerLamberts portfolio and re-launched the brand early this year. Adds Puri, "Halls
was notdoing well for a while so we re-launched it this year. When you have the existing
assets,it is necessary to get them right first. Halls is the first brand that we have revived
and it isnow doing well."In April 2003, Cadbury Indias foreign parent acquired Pfizers
interests in theconfectionery business for $4.2 billion. That included the Warner-Lambert
productportfolio, known best for Halls, Clorets and Chiclets. The acquisition is now
poised tobecome a growth area for Cadbury India, whose confectionery brands include
Éclairs and
48. Googly. But instead of selling confectionery through its existing chocolate
network,Cadbury has set up an entirely new network.While Halls has been revived with
new packaging, there has been no change in the statusof its other brands. Chiclets had
been discontinued long before it belonged to Cadburyand Clorets continues to sell with a
small franchise. But now Cadbury is looking closelyat Warner Lamberts gums portfolio
(it is one of the worlds largest gum manufacturers)and is considering its viability for the
Indian market. Sugarless gum brands such asDentyne Ice and Trident White have been
known for their functional benefits worldwidebut steep pricing may be a deterrent to their
entry into the country."The gum market has not done well in India. But gum has
functional properties and is notmerely a breath freshener. We are now evaluating whether
there is a market for them inIndia and whether it is going to be worth our while," says
Puri.The confectionery market may be huge in volumes but making money on it remains
atough task with its low margins. Governed by price points, one can sell at only at a Re
1or 50 paisa unit price. "The issue is not of garnering volumes but making money out
ofthose volumes. The offer should be one which can get you both top and bottom
lines,"states Puri. Having shifted focus from Googly, Cadbury had been tasting success
with itsage-old Éclairs which continue to bag almost 50 per cent of the market."There is
scope in the market. Our Éclairs has been growing and this has been evident inour past
numbers," claims Puri. At the same time the sugar confectionery market ishighly
competitive and its all about finding the right consumer proposition and abusiness model
that can deliver both top line and bottom-line growth.In spite of the new categories being
explored by Cadbury, its star brand remains CadburyDairy Milk (CDM) which continues
to corner almost 30 per cent of the chocolate market.It is followed by brands such as 5-
star, Perk and Gems. Each of these has been revampedover the years to generate
excitement for the category. For instance, recently Perk wasrejuvenated as a crunchier
wafer while CDM came up as a white-and-brown variant inthe market.
49. "The chocolates category thrives on excitement. Its all about giving the consumer
achoice and taste which they enjoy," adds Puri. For instance, in beverages, in spite of
itsmalted food brand Bourn vita, Cadbury decided to introduce a milk additive brand
suchas Delite, just to give its consumers the real taste of chocolate. Delite has added
flavourssuch as strawberry and mango and is not expected to encroach upon Bourn vita‘s
shares.According to Puri, "There is still a large section of people who do not add
anything tomilk. This will apply to children for whom milk is a problem and having an
additive willmake it a pleasurable experience."Making changes in its distribution
network, Cadbury split its sales and marketing teambetween its mass (confectionery) and

20. core brands last year. "Chocolates needed to getretailed at larger and better outlets while
all the products below Rs 3 needed a differentdistribution network," says Puri. Today
Cadburys distribution network reaches out to sixlakhs outlets each for its confectionery
and chocolate brands.With the worm‘s episode behind it, there are other issues bothering
the company,especially which of the rising input costs of cocoa sugar and milk. Although
Cadbury hasbeen able to maintain prices, it is still grappling with the upward trend in
prices for itsbasic raw materials. But its challenge remains that of growing the chocolate
market inspite of the odds. Posting a turnover of Rs 729 crore last year, Cadbury is
waiting forDiwali to make a turnaround for both itself and the category which has been
throughtroubled times.Getting growth should not be an issue, according to analysts
tracking the company.As Nikhil Vora, Senior Vice-President (Research), SSKI
Securities, observes,"Considering the company was getting growth before the infestation
episodeoccurred, it should not be a tall order to get back to those levels. The
companyshould be able to record a 15 per cent compounded rate of growth over the next
fewyears." That would be a sweet recovery indeed for Cadbury.
50. Cadbury follows small packs strategySmall has indeed proved to be beautiful for
Cadbury. The company, after findingexceptional success inthe launch of small packs
ofPerk chocolate, has nowlaunched Picnic in smallpacks of 26 Gms. priced atRs 10. The
43-gm packs arestill available and are pricedat Rs 15.Cadbury has embarked on a strategy
which involves increased consumption of itsproducts through enhanced reach,
affordability and visibility, which it feels can beattained by creating new markets,
widening the depth of its distribution network andworking towards a comprehensive
portfolio with brands across all price segments.On the distribution front, the company
aims to increase the number of its distributionoutlets from the present 4 lakhs to 5 lakhs
by the year 2000.To attain the objectives of affordability, over the past two years
Cadbury has beenchanging its product portfolio from pure chocolate items to
confectionery which includescaramel, nuts, raisins and wafers. The aim is to bring down
the price line and enter othermarkets than the purely urban ones.In line with this, it
launched Googly in early 1997, and followed it up with products likeMocka and English
Toffee.The strategy of the company has been to launch one major product and follow it
up withsmaller products, for instance, the launch of Picnic was followed by Cadbury
Gold and acouple of sugar confectionery launches.
51. Intense competition from Nestle is one of the reasons Cadbury has reworked its
productrange and made efforts to enter the mass product segment. In 1998, the company
movedinto smaller sized versions of Diary Milk and Perk and found to its delight that
theintroduction of economy priced models led to more people eating chocolate. In the
sameyear, small packs increased chocolate volumes of Cadbury by 19 per cent and
marketshare to 70 per cent from 69 per cent in the previous year.Cadbury now has a
market share of 70 per cent of the chocolates market. It manufactureschocolates, sugar
confectionery and malted drinks. Chocolates constitute 71 per cent ofthe total turnover,
malted drinks 22 per cent, and sugar confectionery 7 per cent.Nestle, with a 20 per cent
share in the chocolates market, is expected to respond withMunch, a chocolate brand
meant to counter Picnic.Cadbury‘s BusinessCadbury dominates the Indian chocolate
market with a 65% market share. Besides, it hasa 4% market share in the organized sugar
confectionery market and a 15% market sharein milk/ malted foods segment.Changing
product mix Contribution to turnover Contribution to turnover 1994 2001Chocolate 59%

21. 65%Sugar Confectionery 9% 10%Food Drinks 32% 24%Current market sharesChocolate
69.2%
52. Sugar Confectionery 4.0%Food Drinks 14.2%Expanding distribution reach2100+
distributors450000 retail outlets60mn ConsumersFuture strategy • Maintain dominance in
chocolate confectionery and market leadership in brown drinks. • New channels such as
Gifting, child connectivity and Value for Money offerings to be the ley growth drivers •
Grow volume sales at 10% pa over the next three years. • Achieve the goal of best
manufacturing location in Cadbury Schweppes world for Dairy Milk and Éclairs • One
new major product launch every yearChocolates and confectionery products (75% of
turnover)For more than five decades now, Cadbury has enjoyed leadership position in the
Indianchocolate market to the extent that Cadbury‘ has become a generic name for
chocolateproducts. Cadbury has leading brands in all the segments viz bars (Dairy Milk,
Crackle,Temptations), count lines (5 star, Milk Treat), panned confectionery (Gems) and
waferchocolates (Perk), éclairs (Cadburys Éclairs), toffees (English Toffee).During 2001,
Cadbury‘s chocolate sales (65% turnover) registered a 9% value growth,aided primarily
by growth in the flagship brand Dairy Milk. Dairy Milk contributes anestimated 30% to
Cadbury‘s sales. Gems and Five Star were re-launched during the yearto stem their de-
growth. Perk registered a de-growth during 2001 despite launch of new
53. variants. New brand initiatives included the launch of Temptations in the
premiumsegment and Chocki a low priced chocolate confectionery targeted at
children.Cadbury entered the hard-boiled sugar confectionery market with the launch of
Googly in1996. In 1997, the company launched a coffee based sugar confectionery
product Mocka.Cadbury has a 4% market share in the confectionery segment, largely
contributed byÉclairs. Other confectionery brands such as Gollum, Frutus, Nice Cream,
etc launched inthe last two years did not receive a good market response and the
company has decided tominimize focus on those brands. Éclairs was re-launched with
unique packaging incartons during 2001.Food drinks (25% of turnover)Cadbury‘s Bourn
vita is the leading brand in the brown drinks segment of milk/ maltedfood products.
Overall share in the malted food drinks market is estimated at 15%.Brown drinks earlier
positioned as taste enhancers were losing market to white drinksduring the last few years.
Cadbury re-launched Bourn vita with a new formulation andadvertising campaign
positioning it on the health benefit platform to compete with whitedrinks. The brand was
re-launched in the South – the largest food drink market in thecountry, during 2001.
Bourn vita sales registered a 12% growth in value terms in 2001 toRs, contributing 24%
to total turnover.Cadbury‘s other products include Cadbury‘s Drinking Chocolate and
Cadbury‘s Cocoapowder. These account for only 1% of Cadbury‘s
turnover.DistributionCadburys distribution network encompasses 2100 distributors and
450,000 retailers. Thecompany has a total consumer base of over 65mn. Besides use of
IT to improvedistribution logistics, Cadbury is also attempting to improve distribution
quality. Toaddress the issues of product stability, it has installed Visi coolers at several
outlets. Thishelps in maintaining consumption in summer, when sales usually dip due to
the fact thatthe heat affects product quality and thereby off take.
54. StrategyIncreasing the consumer base by focusing on the twin proposition of
affordability andavailability is being followed to drive future growth. Small affordable
priced packs havebeen launched, which have helped improve penetration. Also
advertising for chocolates isaimed at changing consumer perception and eating habits by

22. creating new reasons forconsumption.Cadburys Market SegmentsThe marketplace for
any product is comprised of many different segments of consumers,each with different
needs and wants. Market segmentation can be defined in a number ofways, such as: •
demographic variables (e.g. consumers age groups, gender, marital status, income etc) •
the lifestyle of consumers (i.e. their interests and activities) • The benefits which
consumers look for in a product or n the occasions when the product might be
consumed.Cadbury takes into account all of these factors when producing a range of
products. Ittargets different segments within the market, such as the: • break segment -
products which are normally consumed as a snatched break and often with tea or coffee,
for example Cadburys Timeout and Snack range • Impulse segment - these products are
most often purchased on impulse, eating there and then. They include products such as
Cadburys Twirl, Moro, Star bar, Crunchie, Fuse and Dairy milk • take-home segment -
this describes products that are normally purchased in supermarkets, taken home and
consumed at a later stageGift segment - boxes of chocolates and other products purchased
for gift occasions
55. Earnings sensitivity factorsCocoa bean prices: Domestic as well as international
prices of key raw material - cocoahave significant impact on margins.Excise duties:
Changes in excise levied on malt and chocolate influences end productprices and thereby
volume growth as well as margins.Changes in custom duties and foreign exchange
fluctuations, as 20% of raw material isimported.Competition from MNCs like Nestle as
well as imported brands. Increasingcompetition puts pressure on advertisement budget
and margins. However on thepositive side, it helps in expanding the market.
56. CADBURYS FAILURES:How Cadburys positioning went haywire with
`gems`Gems present an unusual case of how a textbook-perfect, ultra-sharp positioning
canactually become a disadvantageAt 34, Gems is one brand in theCadbury‘s portfolio
thatrefuses to grow up. Ofcourse, that is not such aliability now that children playa key
role as consumers.What it does mean, however, is that Cadbury has to constantly work at
keeping its ageingbrand forever young. How has it managed so far? Gems was a sluggish
performer in thelate nineties and its market share slid dramatically. Now, the brand
appears to beregaining some of its toddler energy and a campaign that is scheduled to
break in 2003 isexpected to help further.Gems presents an unusual case of how a
textbook-perfect ultra-sharp positioning canactually become a disadvantage. Of course,
Cadbury doesn‘t consider this a problem yet.Cadbury actually consider Gems one of our
power or advantage brands simply because itwas specifically developed for the kids
segment. And it has no competition at all in India.Cadbury‘s problem is that Gems —
which is technically called a ―sugar-panned‖confectionery item that comes in colourful
little buttons — has traditionally been sosharply targeted at children below ten years that
it did not lend itself readily to brandstretch as its target audience grew older. Even as
Cadbury successfully extended itsappeal from children to adults from 1996 onwards for
its regular chocolates, the companylearnt a bitter lesson when it tried doing the same with
Gems.Through the seventies and eighties, Gems was one of the few options available to
theIndian consumer, and more specifically the child, in terms of chocolate brands, the
othersbeing CDM, Cadbury‘s Five Star and Amul chocolates.
57. The other major advantage that Gems enjoyed probably created problems for
Cadbury‘slater — the fact that it never faced competition. Nestle and Mars never brought
theirglobal brands — Smarties and M&M respectively.This was because, both the

23. international brands are not developed keeping the climaticrigours of India in mind. So as
against Gems, which is a product formulated specificallyfor India, the sugar shells of
Smarties and M&M cracked easily in a tropical climate.The result was that Cadbury‘s
never had the chance to benchmark its performance as faras Gems was concerned. Other
than ads in storybooks and comics like Champak, Tinkleand Amar Chitra Katha, there
was little focus on advertising till the late eighties.The first significant commercial for
Gems broke in 1989. This ―Gems Bond‖ campaignwas an animated commercial based on
the character of James Bond, which was used inpromotional stickers. However, the
campaign was taken off in the early nineties.It was actually the storyline and the
animation that was working. The character was notfor the child.The early nineties saw
the emergence of pester power. Strangely, Cadbury did notcapitalize on this trend. What
made Cadbury sit up was the entry of brands in the earlynineties, like Wrigley‘s,
Freshmint, Boomer‘s, Big Babool and candies from Perfetti,Candico and Parle Products,
all of which were priced at Re 1 or Rs 2 compared with Rs 5for a 20 gm pack of Gems.So
it was no longer just chocolates vying for the child‘s attention but chips, candy, andsugar
boiled sweets, bubblegum, all of which were upping their noise levels. This wasworrying
for Cadbury‘s, as almost half Gems‘ sales came from impulse purchase.Meanwhile,
international players like Nestle were expected to enter the scene with brandslike Kit-Kat
and Milkybar. In 1994, Cadbury re-launched Dairy Milk with the theme line―The real
taste of Life‖, positioning it as chocolate with universal appeal.Just as Cadbury flanked
Perk to target young adults and reworked Cadbury Dairy Milk‘sappeal to include adults,
in 1996 it attempted to extend Gems‘ appeal to teenagers. Thenew campaign was pegged
on the baseline — ―Smart, very smart‖ — derived from Madmagazine. The trouble was
that this campaign was not backed by product changes, so
58. teenagers, who were always edgy about being associated with a children‘s brand,
wereunimpressed.By 1997, the overall slowdown in the fast moving consumer durables
market hadaffected the chocolate segment. In spite of the re-launch, Cadbury‘s net profit
dropped by5 per cent to Rs 18.6 crore. Perk had not overtaken Kit-Kat as expected. The
onlyCadbury brand doing reasonably well was the low-priced sugar boiled confectionery
—Googly — which went on to become a Rs 15-crore brand in its first year.Gems had
staggered down to a growth rate of 3 to 5 per cent and its market share slippedto 6 or 7
per cent from 10 to 12 per cent in the early nineties.In 1998, the company went back to
Gems‘ imagery of a children‘s brand. A newcampaign was launched to target the urban
child. It now included a whole range ofChocogem characters, who were supposed to
symbolize a child‘s partners in fun (Mastika partner). Also, for the first time, the
communication emphasized the chocolate content.However, this re-launch did not really
contribute to the brand‘s revival simply becausethe brand still lacked excitement. This
was when the company decided to look at markettrends abroad.Internationally, brands
targeted at younger children sold because they offered value-adslike toys. Also consumer
research revealed that the chocolate flavour and CDM‘s equitywas not being utilized
fully.So the company decided to constantly change the packaging and include add-ons
likeplay value around Gems core proposition. The problem was that in the Indian
market,promotions like toys on smaller stock keeping units (SKUs) at low cost can be
verydifficult. So the company had to opt for innovations on pack sizes and formats
first.In early 2001, the company introduced Re 1 packs, with four buttons, solely to
increasepenetration. Later, tube packs priced at Rs 15 with flip tops and a maze-ball game

24. on thetop were also introduced. Then in early 2002, new cricket ball packs were
introduced.This combined play value along with low costs.The innovation seems to be
paying off: This is equal to that of Rs 5 pouches, whichwere the highest contributors to
the total sales. The Re 1 packs now contribute to about
59. 20 per cent of sales. The company claims that these SKUs have now enabled Gems
tostabilize its market share.But this does not mean Gems‘ problems are over. For one, the
competition to Gems hasextended to a further range of low-priced impulse purchases,
which are crowding retailstores.For another, CDM, with a wider network of SKUs, and
Perk are having the biggest biteof the consumer mindshare. So Cadbury seems to be lying
low on Gems, especially onthe advertising front. The brand has been losing out to its
portfolio siblings when itcomes to retail visibility and booking order size — as the
number of SKUs of otherCadbury brands have increased. External face of the brand has
been far less glamorousthan other Cadbury brands.But all this is being compensated for
by promos and innovations in packaging — forinstance; Cadbury has introduced new
stand-up trays for the tube packs to ensure countervisibility.However, as Gems picks up
lost growth rates, there is a new movement that could createproblems — one that is partly
Cadbury‘s creation. The newly-launched popsicle Chocki— launched to counter Nestlé‘s
ChocoStick — priced at Rs 2, has started eating intoGem‘s equity. In fact, this segment
has grown to 11 to 12 per cent of the chocolatemarket — at the cost of Gems.Unless
Cadbury‘s is able to come up with more gems of innovation it may find one of itsoldest
―young‖ brands succumb to old age.TEMPTATION CHOCOLATE GIANT LIVED TO
REGRETIt is a problem faced by multinational companies: how do they tap into the
concerns oflocal consumers to make their advertising more relevant?The marketing
people at Cadburys India thought they would try to sell more chocolateby playing on the
biggest issue facing the worlds largest democracy. That is Kashmir,which continues to
threaten to plunge India and its neighbour, Pakistan, into nuclear war.
60. Newspaper advertisements for the Temptations range of chocolate showed a map
ofKashmir alongside the riddle: "Im good. Im tempting. Im too good to share. What am
I?Cadburys Temptations or Kashmir?"To make matters worse, the ad was timed to
coincide with Indian Independence Day,when nationalist feelings were running at their
highest.Cadburys India is a wholly owned subsidiary of Cadbury Schweppes which has
operatedin the country for more than 50 years. It apologized after protests against
theadvertisement whipped up by the ruling Bharatiya Janata Party (BJP), which plays
onHindi nationalismSWOT ANALYSIS OF CADBURY INDIAStrengths• Strong Brand
names like Cadbury dairy milk, Five Star and Éclairs• Rich Product Mix• Support from
the parent Cadbury SchweppesWeakness• Ltd. Key products, only one central brand
(CDM). Pralines range totally wising in India.• Lack of launching products in rural
IndiaOpportunity• The Indian market and more specifically the urban areas where the
penetration of Chocolates is low can be developed as a future market through
affordability and availabilityThreat• Stiff competition in confectionary segment• The
company has large exposure to foreign currency exchange rate risk mainly on account of
imported cocoa beans and cocoa butter in US Dollar and Pound Sterling
61. MARKET SEGMENTATIONThis can be done in two ways, product forms and
customer basedWith respect to product formsThere are four major segments in the
chocolate industryA. Moulded chocolate segmentThis segment constitutes 50 % of the
total market Cadbury diary milk Cadbury s flagshipbrand has 50 % of this segment

25. market .To position CDM in this segment Cadbury usedthe traditional demographic
variables of age, socio economic groups and usage intensity.CDM was positioned as a
product that elders brought for their children and recently it hasshifted this positioning
and has not only included parental love but has said that it is giftfor someone you love
and that can be anybody not only parents and children Cadbury hasassociated itself to
enduring and emotional values of love sharing and affection andreward considering that
CDM acts as a trendsetter for all the brands in this segment.Amul tried to be different and
at its initial product launch as Cadbury had targetedchildren they had targeted teenagers
but unfortunately they were unsuccessful.The Cadbury brands in this segment are
Cadbury diary milk, Cadbury fruit and nut andCadbury temptation CDM is the leading
brand here and others act as an endorser of thebrand here.From around 1993 this segment
began showing signs of maturity. This was hurtingCDM. This led to Cadbury attempting
to rejuvenate the segment. They changed their corecustomer from children to that of the
universe, which means from children to adults thisattempts to redesign the market to
enticing all age groups, helped bring about changes inthis segment. Today the notion
associated with the consumption of chocolates is that ofcasual ness instead of just product
consumption. Today this segment grows at 40 % perannum and is likely to remain an
important segment for further growth.B. Count line Bars SegmentThis segment forms 33
% of the chocolate market. This segment is mostly targeted to theteenagers. Major
Cadbury brands are 5 star, break, crisp, and double decker, perk. 5 star
62. in doing well here about 50 % of the segment while the rest of the brands acts as
endorsernestle has a minor presence in this product category with bar one.Growth of a
sub segment chocolate wafers: Chocolate wafers are the new productsbeing offered by
the chocolate companies today in order to expand the market. In 1995Cadbury and nestle
launched perk and Kit Kat respectively. These were wafer-enrobedchocolates in a new
context and a different benefit offering. Both chocolates had a snackpositioning. Perk
offered the anytime anywhere snack proposition thodi se pet pujawhereas Kitkat tried to
promote snacking through have a break have a Kitkat the growthrate of this segment is 15
%- 20 % annually and is estimated to be worth over Rs 100crores making it a very
lucrative segment.Internationally confectionery products like wafer chocolates have a
very high tonnageand have a much bigger future than plain chocolates. Market research
and succeeds ofthese two brands suggest that Indian consumers and ready to accept wafer
chocolateproposition. This conviction of both Cadbury and nestle towards this segment
can begauged from the fact that both brands are seeking unprecedented allocation of
funds tothe tune of 60 to 70 % of the total advertisement budget of both companies
andchocolates.A new entrant in this category is Cadburys Picnic it is three layered
chocolate coatedwafer bar with dry fruits and caramel and crispies priced at Rs 14 for
40gm bar. Picnicwill be used not only to expand the functional segment of the market but
also to counterkit Kat and other important bars (Snickers, Mars, and Lion) as against perk
which ispositioned as a light snack picnic is positioned as a heavy near meal substitute.
Inkeeping with the company new strategy of expanding the market this product has
beenlaunched to develop the snacking area in the chocolate market.C. Choco-panned
segmentsThis segment forms 4 % of the total market and Cadbury has 100 % of the
market in thissegment. The major brands are nutties caramels butterscotch band tiffins.
All of thesebrands have been used by Cadbury to drive variety induce gifting practices

26. and serve tosome specific taste preferences. Cadbury doesn‘t advertise these brands they
have beenused as flanker products.
63. The opportunity for growth in this segment is high with the imminent entry
ofmultinationals like mars and Hershey‘s. This is also likely to pose a threat to
Cadburywhat with its complacency.D. Sugar panned segmentThis segment forms 15 %
of the total and Cadbury has about 98% of this .Its majorbrands being gems and éclairs.
Éclairs has been used strategically to foster chocolateconsumption among children as
well as adults by offering ` guilt free eat no more than abite full at a convenient price
point (65% of éclairs eaters are from the householdearnings less than RS 4000 per
month)E. A gem is still Cadburys primary tool to protect its franchise in the child
segment. It‘s been previously associated in its commercial with the international spy
character James bond. Around 1995 gems were repositioned to broad base its appeal from
3 to 6 yr. olds to teenagers as well. However this failed due the product form which has
become deep-rooted with kids and hence the company has reverted back to its target
segment of kids with a new offering of choco gemsMarket Segmentation with respect to
the consumer buying powerThese are• High-income customers (price greater than Rs 25
for 40gm) who will go in for premium chocolate brands.• Middle income customers
(Price between Rs 10-25) who are price sensitive• Children who are mostly price driven
and will consume more of toffees in the price range of Re 0.50 – Re
1PSYCHOGRAPHICS AND DEMOGRAPHICSThis is attempted in terms of the
consumersa. High income customers
64. It is estimated the age group buying the chocolates would be 232 on wards the
incomelevel is estimated to be Rs 8000 per month. The customer are mostly urban and
aremostly professional (engineers doctors executives)The psychographic profile: They
can either be individuals indulging themselves or theycould be indulging their children.
They are inner-directed people who form their ownvalues and norms and believe in not
adhering to the social norms. They are some whatoccasion driven in their buying
behaviorb. Middle income customersThe age group of this segment will be 15 plus. The
income level is estimated to bearound Rs 5000 a month. The consumers can be urban
semi urban and is currentlyspreading to rural areasThe Psychographic profile: They are
likely to be variety seeking in their behavior. Theyare self expressing by nature and inner
directed to the extent. They like to indulgethemselves but with a little bit of cushion
support.c. ChildrenThe upper age limit is estimated to be 12 yrs. They mostly purchase
their chocolates withtheir pocket money or get as gifts from elders. The consumers can be
urban, semi urbanand rural though there is somewhat greater emphasis on urbanThe
psychographic profile: There is novelty seeking in their behavior. They are also
funloving. PRODUCT POSITIONINGThe differentiation planks used in the Indian
chocolate market areProduct quality (levels of fat /cocoa) e.g. Kit Kat though priced
higher then perk sellsmore due to better quality.Chocolate with additives likes fruit and
nut.
65. Packaging: A chocolate being predominantly an impulse driven purchase
category,packaging is an important mode of attracting attention at the display counter•
International heritage of its product• Functional attributes like the energy bar• As a gift
item• As a snack the positioning of a chocolate as a gift item is receding now it more
itself being positioned as a snack or a quick meal substituteSize small sizes to increase
trial rates this is gaining tremendous today since thecompanies in a bid to offer chocolates