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Business Today,  April 22, 2007

In A Sweet Spot
Cadbury India wants to achieve in the next four years what it has in the last 50. New competitors- both Indian and foreign-will do their best to ensure it takes longer.
Not celebrating yet: With Anand Kripalu at helm, Cadbury wants to double its turnover by 2010

Ensconced in his 2nd floor sprawling office in Cadbury House in upscale Central Mumbai, Anand Kripalu reaches out for the bowl of candy on the table in front of him, and picks out a Halls. The cough drops brand is what the uk parent of Cadbury India, Cadbury Schweppes, inherited four years ago following the global acquisition of Adams from Pfizer Inc. Kripalu, who took over as Managing Director of the chocolate maker's domestic operations in October 2005 (before that he was MD for Unilever's East Africa region), is excitable and talkative-unsurprisingly, as it is his first exclusive media interaction since he took over the reins at Cadbury India. If he's picked out the Halls candy-from a bowl of assorted Cadbury goodies, including Cadbury Milk Chocolate, Perk, Five Star, Eclairs and Gems-it's with good reason. A couple of months ago, the company launched a new television commercial for Halls, with the slogan 'Khulke Bol', or 'Speak Freely'. "If what you want to say is not coming out, have a Halls and speak your mind…I am having it now to aid the process," Kripalu joked with this correspondent last fortnight.

Kripalu's got enough to shout about from the rooftop of Cadbury House. For one, revenues and profits have been on a roll in 2005 and 2006 (calendar years). Over the past two years, turnover has averaged a cumulative growth rate of 38 per cent, and the bottom line has burgeoned by 79 per cent. For another, the company is sitting pretty in its flagship business of chocolates with a share of a little under 72 per cent of that pie that's valued at Rs 1,400-1,500 crore. Nearest competitor Nestle is a distant second with a share of 24.7 per cent. Whilst you'd expect Cadbury to lord over the Indian chocolate market-considering it's been around in India since 1948-the significant part is that it's regained a vital few market share points it had lost since 2004 (see The Sweet with the Sour). Even better, in the overall Rs 2,300-crore confectionery market, Cadbury is head and shoulders above the rest of the pack, with a share of 30.2 per cent-a 4.2 per cent gain since 2004.

Kripalu is, of course, not resting on his oars. The sweet spot that he is in provides a perfect launching pad to raise the bar, and chase growth aggressively. "We would like to achieve in four years what we achieved in 50," he reveals. "The tailwind in the economy, coupled with more investments, should make it possible." Cadbury has set out to double its turnover-which stood at Rs 1,058 crore in 2006-by 2010. That shouldn't be difficult, as the company is already growing at over 20 per cent annually. The formula for getting to Rs 2,000 crore is fairly simple: set up new capacity, and increase volumes.

"We have a very tight brand portfolio today, apart from a big focus on innovation"
Sanjay Purohit
Executive Director (Marketing)

For his part, Kripalu will have the full backing of the UK parent. In 2003, Cadbury de-listed from the Indian stock exchanges, and today Cadbury Schweppes owns 98 per cent of the shares of the Indian operations. So investments are hardly an issue, not when Cadbury has shortlisted India as one of its battleground markets (China, Mexico and the UK are a few other such geographies that have been identified for sharper focus). India is the second-largest contributor to Cadbury's Asia-Pacific revenues, after Australia/New Zealand (which are looked at as one market), and the top brass in the UK clearly sees potential to squeeze more growth out of India.

Indeed for Cadbury, which already controls over two-thirds of the chocolate pie, growing the market is an imperative. That can happen by simply making more Indians eat more chocolate. This calls for making it more affordable, weaning consumers from traditional sweetmeats like barfi and rasgullas with innovative variants, and also targeting higher-end segments, which are currently the purview of imported brands in modern trade (or organised retailing).

Over the past few years, Cadbury has been attempting just that. For instance, it forayed into the 'bag product' segment with a sweet snack, Cadbury Bytes, in 2003. Today, Bytes is a key extension in the India portfolio. More recently, the company launched Cadbury Dairy Milk in a tie-up with Disney (a white and brown chocolate with Disney characters) and a new variant of Gems (fruity flavoured), and is currently test-marketing Ulta Perk (wafer outside, chocolate inside) in Tamil Nadu. In terms of new price points, Cadbury, whose products begin at 50 paise, has launched gift packs that go up to Rs 400, in a bid to attract higher-end consumers.

The innovation is also evident in the malted food drinks (MFD) segment, where GlaxoSmithKline is a leader by far, with its Horlicks and Boost brands, which lord over three- fifths of the market; Cadbury, with Bournvita, is a distant second with a 14.8 per cent share. Sanjay Purohit, Executive Director (Marketing), points out that the cocoa beverages segment-where Bournvita is present-is "an exciting category". Over the last couple of years, the company has withdrawn Delite (a chocolate drink mix) from its portfolio, with the focus sharpening on Bournvita. A recent extension is Bournvita 5 Star Magic, a chocolate-caramel combination. "We have a very tight brand portfolio today apart from a big focus on innovation where Bytes is a good example," says Purohit.

» It wants to double its turnover by 2010, which calls for a growth rate of over 20 per cent annually
» It wants to get more people to eat more chocolate, which calls for making it more affordable and being more innovative
» Could get into new product categories like gums where the global portfolio is impressive
» Aiming for a larger footprint in the confectionery space and to be stronger in health drinks
» Large foreign brands like Hershey's have entered the market, and local competitors like ITC are treading into Cadbury turf
» Imported chocolates are available via modern trade in higher-end segments where Cadbury's presence is arguably weaker
» Cadbury has to stick to its low price points even as input costs keep increasing. Price hikes could erode volumes
» With a 70 per cent market share, it's perhaps inevitable that competitors will nibble into its share of the pie

Needed: New Products

Brand variants are welcome, but surely what could aid Cadbury in growing the market faster are new products and categories-which are available in plenty with the parent. For instance, the global portfolio includes well-established names like Dr Pepper, which is a big player in the beverages category. Brands like Trident and Dentyne in the chewing gum category (besides Halls) came in through the global acquisition of Adams. "We are not ruling out bringing in more brands from our global portfolio, though I think we have our hands full today. Besides, India is a Cadbury legacy market (as opposed to an Adams legacy market)," says Kripalu. "The objective over time is to have a footprint in the total confectionery market, apart from continuing to strengthen our position in the health food drinks segment," sums up Kripalu.

For the time being, though, the game plan is clear-cut: Leverage further the Cadbury label, which is what the company has been doing with aggressive advertising and promotions (these costs account for 12-13 per cent of sales, with 30 per cent of that spend being below the line). True, Cadbury is still in many sections of Indian society almost generic for chocolates, but it may not stay that way for long, if a clutch of high-end brands has its way. Consider, for instance, the $5 billion global brand Hershey's, which last fortnight inked a joint venture with Godrej Beverages & Foods, to create a new company, Godrej Hershey Foods & Beverages (GHFB). Hershey's will hold a 51 per cent stake in the JV. And GHFB's mandate isn't too different from Cadbury's. "The category is too small for a country of India's size and there is room for at least one more player. I see the pie certainly becoming bigger over time," says A. Mahendran, Mentor Director, GHFB.

Like most players with near-monopoly shares, Cadbury runs the risk of losing share to new players like Hershey's, ITC (with brands like mint-o and Candyman) as well as to premium imported chocolates. But that may not be much of a worry if Cadbury succeeds in growing the market. "They could, for instance, hold a 50 per cent share but of a much larger pie," adds Mahendran.

Another challenge for Cadbury is to maintain its price points in an inflationary regime. For, as Kripalu points out, a price hike could wreck the company's volumes growth, a risk that's totally avoidable. "It's a tightrope walk," says Girish M. Bhat, Director (Finance & Commercial). "Cost-control is vital, but there's no fooling around with the recipe," adds Kripalu. For, that would tantamount to fooling around with growth.

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