Chocolate Industry free essay sample

Chocolate dates back to ancient America when the Mayans, and later the Aztecs, ground the beans of the Theobroma cacao tree into a bitter beverage, which they prized for its mystical and medicinal attributes. Chocolate’s name comes from the Aztec word, xocalatl, which means bitter water. Cortes, the conqueror of the Aztecs, brought the beans to Europe in the 1500s, where they were used to treat anemia, fever, gout, hemorrhoids, poor digestion, depression, and heart ailments. Today, chocolate is usually a highly processed blend of chocolate liquor, cocoa butter (all fat), cocoa powder, sugar, emulsifiers, and milk—far different from its origins. White chocolate contains no real chocolate at all—it’s just cocoa fat, sugar, and flavorings. Chocolate market in India The size of the chocolate market in India is about 4,000 tonnes and is valued at Rupees 6500 million (US$ 130 million). Cadbury India has the biggest market share at 70 per cent while Nestle is the second largest at 20 per cent. Traditionally, this is how products are positioned within the impulse category. First come soft drinks, which is a major market. They are followed by biscuits, sugar confectionery, ice creams and salted snacks. In the past, chocolate companies used to consider only the different brands in the chocolate market as their competitors. That was a mistake. In real life, chocolate products are fighting for a share of the consumers pockets. They are facing competition not only from chocolates but also other impulse products such as soft drinks, biscuits, salted snacks and ice-cream. To maintain the share of the chocolate market in the impulse market, the chocolate industry has to make sure that it grows in line with the impulse market or grows faster than that. Since the share of chocolates in the impulse category is just six per cent, the opportunities are plenty here. Despite the fact that Indians have strong affinity for sweets, the size of domestic confectionery market is small on account of traditional consumer tastes and habits. The Chocolate market in India is a niche market penetrated largely in urban areas and per capita consumption is low as compared to those in developed countries of the West. SWOT ANALYSIS of chocolate industry Strengths †¢Customers of chocolates are not price sensitive The consumer is not price sensitive. But the category is price sensitive. Downgrading does happen in other FMCG products. Chocolate demand is however more a function of affordability. Demand growth depends on shifts in income pyramid. When the economy grows at a lower pace, the upward shift in income pyramid is slower. This affects the rate at which new consumers are added. But existing consumers, who can afford the product do not downgrade. When we introduce lower priced products in smaller sizes, we add to the consumer base. Our existing consumers do not start buying the smaller chocolates. Weakness †¢Building a direct network of retailers i. e weakness of storage and logistics Chocolate needs to be distributed directly, unlike other FMCG products like soaps and detergents, which can be sold through a wholesale network. 0% of our products are sold directly to retailers. Building such a direct network in for distribution is a daunting task. †¢Chocolates are not viewed as a snack food Behaviorally, chocolates are still consumed as a chocolate and not as a filler. Perk still competes with a Dairy Milk and not with biscuits/ other snack foods. India is still far away from using chocolates as a snack food. The chocolate consumers need to have an offer that adds value before accepting chocolates as a snack. Because at the end of the day, how many Indians can afford a snackfood priced at Rs16-17 for 50gms? Low levels of consumption Compared to Western countries, chocolate consumption in India is considered to be on the low side. Whilst per capita chocolate consumption is a buoyant 8 kilograms in the UK, it stands at a rather modest 165 grams in urban India. Opportunity †¢Huge untapped urban population (middle class population) Chocolate consumption in urban India itself is low. There is a large untapped demand in urban market alone. Only 60mn people out of the urban middle class population of about 280mn consume chocolates. Threats †¢Threat from free availability of imported brands The premium brands, which come through official channels, do not pose a threat to the chocolate market, as these cater to a small niche market. However there is a lot of dumping from neighboring countries like Dubai, Nepal, etc of inferior brand of imported chocolates. These are not only of low quality, but are brought very near to their expiry dates. Most of the cheap chocolate brands that are available do not meet Indian Food Regulations. A legislation is required for these brands to conform to Indian disclosure norms on price, manufacture date, ingredients, etc which has already been issued. The origin of the group goes back to over two centuries. Some of the popular international brands of the company are Cadbury Dairy Milk, Dr Pepper, Flake, Trebor Basset, Snapple and Motts. The company also has Halls, Clorets, Trident, Dentyne and Bubbas bubble gum range in its portfolio with acquisition of Adams in December 2002. Since 1969, Cadbury Schweppes’ has focused on confectionery and non-alcoholic beverages In 2004, 60 per cent of the Group’s net sales came from confectionery and 40 per cent from beverages. The company employees around 55,000 people in over 200 countries around the world. Cadbury in India Cadbury India is a wholly owned subsidiary of Cadbury Schweppes which has operated in the country for more than 55 years. It was originally incorporated as a wholly owned subsidiary of Cadbury Schweppes Overseas Ltd in 1948. The company today employs nearly 2,000 people across India. Cadbury India is the No. 1 confectionery company with a 70 per cent market share in India. It is a dominating player in the Indian chocolate market with strong brands like Dairy Milk, Five Star, Perk, Gems, etc. Dairy milk is the largest chocolate brand in India. Cadbury is mainly into three segments Chocolates Cadbury India is the market leader in the chocolate confectionery market in India with over 70 per cent market share. The leading brands in this category are Cadbury’s Dairy Milk, Fruit Nut, Crackle, Temptations, 5 Star, Perk Celebrations Gift boxes. For more than five decades now, Cadbury has enjoyed leadership position in the Indian hocolate market to the extent that Cadbury’ has become a generic name for chocolate products. Cadbury has leading brands in all the segments viz bars (Dairy Milk, Crackle, Temptations), count lines (5 star, Milk Treat), panned confectionery (Gems) and wafer chocolates (Perk), eclairs (Cadburys Eclairs), tofees (English Toffee). Sugar Confectionery – Cadbury Dairy Milk Eclairs is one of the leading brands in this category. It is amongst the largest eclair brands in the market in terms of value share. Cadbury also owns Halls (which was acquired as a part of the global acquisition of the Adams business from Pfizer in 2003). Halls is amongst the largest brands in its segment of Minty/ Breath freshness brands in India. Food Drinks – Cadbury’s Bournvita is a leading brand in the brown drinks segment of milk/ malted food products. Cadbury’s other products include Drinking Chocolate and Cocoa powder. Overall share in the malted food drinks market is estimated to be around 19 per cent. The company has recently made a foray into snacking category with Cadbury Bytes, its sweet snacking brand. The company has been performing well in India. The net sales of the company have increased from around US$ 131. million in 2000 to US$ 166. 3 million in 2004. Factors for Success †¢Extensive distribution network Cadbury’s brands are available in over a million outlets across the country. The distribution network directly covers almost the entire urban population. The company has invested significantly in building such an extensive network. The company uses Information Technology to improve its logistics and distribution competitiveness. Cadbury has improved the distribution quality of its products with the installation of refrigerators at several outlets. This helps in maintaining product quality in summer, when sales usually dip due to the fact that the heat affects product quality and thereby consumption. †¢Creation of strong brands Cadbury owes its success to strong brand equity and resultant consumer preference that it enjoys in India. The company has built strong brand equity through consistently high product quality, relevant, insightful and entertaining communication. Cadbury has developed new channels for marketing its brands such as Gifting and Snacking. The company places great emphasis in ensuring display dominance at the point of purchase †¢Customisation of products for India Cadbury India has spent time in understanding the Indian consumers. Leveraging its 55 years of experience in India, the company has customised its products to the Indian markets. It also offers products at affordable price points so as to increase its market penetration. †¢Leveraging the India Advantages Though, India contributes to less than 5 per cent of the global revenues today, India is critical to the global strategy of the company †¢Managerial Talent Cadbury has begun recruiting management graduates in India to serve its global operations. †¢Huge market potential India offers huge market potential and is a priority market for Cadbury. The company also leverages India as a manufacturing base for producing products for the overseas market. Cadbury India has 4 company owned factories and as many third party manufacturing contractors. It also has a wide Sales Distribution infrastructure consisting of 33 depots managed by 4 regional sales branches across India. Future Plans Cadbury India expects strong growth in India in future. The company plans to increase the franchise of its existing brands and continue to explore new product opportunities including adjacent market opportunities. Cadbury India is also looking for more opportunities in the SAARC region. Nestle India limited Nestle India Ltd, 51% subsidiary of Nestle SA , is among the leading branded food player in the country. It has a broad based presence in the foods sector with leading market shares in instant coffee, infant foods, milk products and noodles. It has also strengthened its presence in chocolates, confectioneries and other semi processed food products during the last few years.