Sugar confectionary has seen a transformation with the conventional chocolate Eclair complemented by a host of fruit-filled, soft-centred, coffee, cream and caramelized candies. Broadly, the entire confectionary market can be divided into seven major categories, namely hard boiled (HBC), toffees, eclairs, chewing gum, bubble gum, mint and lozenges. The entire confectionery market in India is estimated to be 80,000 tonnes in volume and INR 7 billion in value terms.
The Indian chocolate market grew at the rate of 10 per cent per annum in the 1970s and 1980s, mainly among the children segments. However, in the 1990s the industry witnessed a growth of 12 per cent. ORG-MARG estimates that the chocolate penetrated just about 5 per cent of the Indian households in 2000 as against sugar-boiled confectionary that reached 15 per cent of households. Even considering the urban market alone, this category reached just 22 per cent of the urban consumers. Of the total market, chocolate segment constitutes 22,500 tonnes, which is INR 400 crores and is dominated mainly by Cadbury and Nestle.
In the late 1980s when the market started stagnating, Cadbury repositioned its Dairy Milk to an “anytime product” rather than an “occasional luxury.” Its advertisement focused on adults rather than children. Cadbury’s Five Star, the first count chocolate was launched in 1968. Due to its resistance to temperature, the Five Star has become one of the most widely distributed chocolates in the country. Other competing brands, such as GCMMF’s Badam Bar and Nestle’s Bar, have minor shares. In the early 1990s, high cocoa prices compelled manufacturers to raise product prices and reduce their advertisement budget affecting volumes significantly. The launch of the wafer Kit Kat and Perk spurred volume growth in the 1990s. These chocolates were positioned as snack food rather than on indulgence as a platform, compete with biscuits and wafers.
Chocolates in India are consumed as an indulgence and not as snack food.
The consumption of chocolate in India is extremely low compared to the foreign countries. In India it is around 160 g in urban areas compared to 8-10 kg in the developed countries. In the rural areas it is still less.
Cadbury, a subsidiary of Cadbury Schweppes, is a dominating player in the Indian chocolate market with brands like Dairy Milk, Five Star and Perk. Dairy Milk is in fact the largest selling chocolate brand in India. Chocolates contribute 64 per cent to the Cadbury sales turnover. The confectionery sales account for 12 per cent of the turnover. Cadbury is attempting to expand its confectionary product portfolio with the launch of sugar-based confectionary such as Googly and Fruitus. But it is not a success story. In malted health drink Cadbury has a strong brand Bournvita, which accounts for 43 per cent of the sales turnover.
Cadbury continues to dominate the chocolate market with about 70 per cent market share. Nestle has emerged as a significant competitor with about 20 per cent share. The key competition in chocolate is from Amul and Campco, besides a host of unorganized sector players. Cadbury enjoys 4 per cent market share in confectionary product segment, wherein the leading national players are Nutrine, Ravalgaon, Cadico, Parle’s, Joyco India and Perfetti. The MNCs such as Joyco and Perfetti have aggressively expanded their presence in the country in the last few years.
The malted drink category covers white and brown drink. White drink accounts for two-thirds of the 80,000-tonne market. The south and the east are the largest consuming regions in India for food drinks. Cadbury Bournvita is the leader in the brown drink (cocoa-based) segment. In the white drink segment SmithKline’s Horlicks is the leader. The other significant players are Heinz (Complan), Nestle (Milo), GCMMF’s (Nutramul) and other Smithkline brands (Boost, Maltova and Viva). Cadbury holds 14 per cent share in the health drink market.
Despite tough market conditions and increased competition, Cadbury managed to record 11 per cent top-line growth in 2000. The company achieved a volume growth of 5.2 per cent. This was achieved through innovative marketing strategies and focused advertising campaigns for the flagship brand Dairy Milk. The net profit of the company rose by 41.8 per cent to INR 520 million in 2000. The reduced material cost, effective and efficient logistics operations and tight controls on working capital enabled the company to grow. The company added 6 million consumers and saw the growth of its outlets to 4.5 lakhs and consumers to 60 million.
The Cadbury management has cut down on its growth target by setting a 10 per cent average volume growth for the next three years (as against 12 per cent growth in volume and 20 per cent in value earlier targeted). Coupled with inflationary price increases, this could translate into a top-line growth of 14-15 per cent. This target is also difficult to achieve due to consumer slowdown and the fact that company is dependent on a single category of chocolate to drive growth. In the malted food drinks category, the company faces stiff competition from Smith- Kline Beecham and market share is stagnant around 14 per cent despite company’s efforts and investments in repositioning the brand. Efforts at expanding the confectionery portfolio have also not yielded the desired results. The management has declared its intension to focus on Eclairs in this category for the time being. In chocolate the onus is on 2-3 brands, which have supported growth in the past. Cadbury dominates the Indian chocolate market with 70 per cent market share.
Cadbury’s main manufacturing facilities are at Thane (Maharashtra), Gwalior (Madhya Pradesh), Hydrabad (Andhra Pradesh) and Pune (Maharashtra). Cadbury also outsources manufacturing to third parties (vendors) located at Phalton, Warna and Nashik in Maharashtra. The raw material is procured from Uttar Pradesh, Gujarat and Maharashtra.
The company controls its marketing operations through four regional offices located at Mumbai, Delhi, Kolkata and Chennai. Under each branch there are four to six depots managed by carrying and forwarding agents (CFAs). There are 27 CFAs located across the country. The material is supplied to CFAs from four warehouse hubs located at Thane, Gwalior, Hydrabad and Pune. These CFAs supply the material to 2100 stockists, which in turn serve 4,50,000 retailers. The company has a total consumer base of 60 million.
As the product melts above 35°C, the Cadbury warehouses are installed with temperature- controlled facilities. The CFAs store the products in cold storages with the storage area varying from 2000 to 5000 sq ft. The hub warehouses are bigger with the area varying from 20,000 to 45,000 sq ft, depending on the demand in the region. The product is transported through refrigerated vehicles.
The average pack size is 2′ X 2′ X 2′ with a maximum weight of 20 kg. Cadbury has excellent connectivity with branches, CFAs and stockists. The company has a well-developed and extended IT support for the distribution network. Cadbury is attempting to improve the distribution quality. To address the issue of product stability, they have installed Visi coolers at several retail outlets.
For product transportation, Cadbury uses two types of vehicles—the insulated (for chocolates) and the non-insulated (for other products that are not temperature sensitive). In 85 per cent of the cases they go in for containerized vehicles, while in the remaining 15 per cent they use open trucks. All consignments are full-load trucks.
Currently, the company is outsourcing transportation to various parties. In the insulated vehicle category are included NFT, Fresh Express, Assam Transport, Haryana FC, Interstate and others, while the dry-type vehicle category includes Best, DRS, Shivalaya, East India Transports and TCI. The logistics cost on the distribution side is around 10.5 per cent of the sales value. The contribution of transportation cost and warehousing cost in the logistics cost is to the extent of 45 and 55 per cent, respectively.
Cadbury is presently maintaining 15 days finished goods inventory at its various warehouses and 18/20 days at the CFA’s place. For cost reduction the management is planning to reduce the inventory level further down to 8/10 days at warehouse hubs and 15/16 days at CFA’s place, without losing on the market front. The major deciding factor is the demand accuracy. Although the firm has excellent connectivity with the warehouses and CFAs, it has no direct interaction with the retailers and the customers.
Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.