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Bitter competition could kill the sweetness - Views on News from Equitymaster
 
 
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  • Dec 25, 1999

    Bitter competition could kill the sweetness

    If the dog is man's best friend, and diamonds are a woman's best friend, then it must be the chocolate that is a child's best friend. The sweetness of chocolates is the weakness of many, and chocolate manufacturers aren't complaining.

    The Indian chocolate industry is extremely fragmented with a range of products catering to a variety of consumers. We have the bars/slabs, jellies, lollipops, toffees and sugar candies.

    Given India's mammoth population, it comes as a surprise to most people that per capita chocolate consumption in the country is dismally low - a mere 20 gms per Indian. Compare this to over 7 kgs in most developed nations.

    The Indian chocolate bazaar is estimated to be in the region of 22,000-24,000 tonnes per annum, and is valued in excess of US$ 80 million. Traditionally, chocolates were always targeted at children. But stagnancy in growth rates made the companies re-think their strategies. Cadbury was the first chocolate company that took the market by storm by repositioning brands at adults, as opposed to children.

    Chocolate penetration in the country is a little over 4 percent, with India's metros proving to be the big draw clocking penetration in excess of 15 percent. Next comes the relatively smaller cities/towns where consumption lags at about 8 percent. Chocolates are a luxury in the rural segment, which explains the mere 2 percent penetration in villages. A peculiar problem that hinders the distribution to far-off places is the tendency of chocolates to melt under even moderate heat. Manufacturers have to take precautionary measures to ensure the preservation of chocolates especially in summer.


    As on FY99

    The chocolate industry as it stands today is dominated by two companies, both multinationals. The market leader is Cadbury with a lion's share of 70 percent. The company's brands (Five Star, Gems, Eclairs, Perk, Dairy Milk) are leaders their segments. Till the early 90s, Cadbury had a market share of over 80 percent, but its party was spoiled when Nestle appeared on the scene. The latter has introduced its international brands in the country (Kit Kat, Lions), and now commands approximately 15 percent market share. The Gujarat Co-operative Milk Marketing Federation (GCMMF) and Central Arecanut and Cocoa Manufactures and Processors Co-operative (CAMPCO) are the other companies operating in this segment. Competition in the segment will get keener as overseas chocolate giants Hershey's and Mars consolidate to grab a bite of the Indian chocolate pie.

    One of the most popular brands in the country is Cadbury's Five Star. Launched in the late 60s, this brand has come to dominate the chocolate segment and towers over the competition Nestle (Bar One) and GCMMF (Badam Bar). The mid 90s witnessed a new phenomenon in the chocolate industry with the launch of Kit Kat, Nestle's wafer-based chocolate. Cadbury retaliated by launching the Perk. Before the launch of wafer-based variants, chocolates were something of a luxury. The introduction of Kit Kat and Perk ushered in a new era as Indians began consuming chocolates as snack-food, which is in line with the trend prevailing in western countries.

    As the competition heats up the industry will turn into a battleground of new strategies and products. One area that will rank high on the agenda of chocolate companies is penetration in the small towns/cities. This segment has taken a backseat for long, and as urban markets saturate, companies will be looking at consolidating in this area. Intense competition will also see companies launching new products, lower price points (chocolates in smaller packages) to boost sales. All in all, the scene is set for a battle between some of the world's biggest chocolate brands. From the looks of it, it appears to be sweet fight to the finish.

     

     

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