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BW Businessworld

Sweetening The Market

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A garden umbrella seen from the glass window of the managing director's office is the only obvious giveaway of Cadbury's connection with Kraft, for someone who walks into the Cadbury India headquarters from Mars (the planet, not the rival chocolate company). A year after US giant Kraft Foods acquired British confectionery major Cadbury for $19 billion, the Cadbury flavour still lingers strong in India.

And it is likely to remain that way in the near future. Anand Kripalu, president, South Asia & Indo-China at Kraft Foods and managing director of Cadbury India, confirms that there are no immediate plans to change the corporate name from Cadbury India.

Those expecting to stock up their cabinets with a made-in-India range of Oreo cookies, Toblerone chocolates, Kraft Philadelphia cheese, Kool-Aid drinks and Jacobs coffee are also likely to sulk. Kraft Foods is in no hurry to roll out the wide range of brands from its global portfolio, barring powdered beverage Tang, which has already been selling in India for some time now.

Kraft might be on the business-as-usual mode in India, but even that seemingly innocuous act goes against the norm. Traditionally, the acquirer has  always pushed his own brand and downplayed the brand that got taken over.

"Most acquiring companies use the engine of the acquired entity to ride in with their own brands, diversify their portfolio and consolidate their distribution," says Viren Razdan, managing director of brand consulting firm Interbrand India. So, many acquired brands get reduced to ghosts of their illustrious past. Some are even exorcised. For every Cadbury that survives, there are others such as a Kwality Ice-Cream, a Captain Cook, Air Deccan or a Daewoo Matiz that don't make it, despite having been eminent brands before they got acquired.

However, one example most marketing consultants quote is cola beverage ThumsUp. That's because this brand lived to tell its story. When global beverage giant Coca-Cola acquired ThumsUp from Ramesh Chauhan's Parle in India, its first reaction was to push Coca-Cola through ThumsUp's distribution network and suffocate ThumsUp by not providing it with adequate marketing support. What Coca-Cola underestimated was ThumsUp's huge consumer base. Coca-Cola had to reverse its India strategy. ThumsUp still sells more than Coca-Cola in the Indian market.

But Kraft's position strikes a contrast. In a textbook-like  marketing approach, it plans to pay due respect to the strength of the Cadbury brand — at least for now. Kraft is pushing Cadbury for all its worth, even if it means temporarily going slow on the Kraft portfolio in India where Kraft's own presence is negligible.

In fact, Kraft is so conscious about getting it right at first shot that it is overlooking attractive categories such as biscuits or cheese, where it has a strong presence globally. In biscuits, this will be the second time that Kraft lets the India opportunity pass. The first was in 2007, when it acquired the global biscuit portfolio of Groupe Danone, but left out India where Groupe Danone was engaged in a bitter battle over Britannia Industries with the Indian promoters, the Wadias. "Biscuits is a very exciting category but not easy to enter," says Kripalu.

Fast Growing Consumer Business
One reason Kraft is so confident about the Indian operations of Cadbury is the rate of growth. With sales of Rs 1,934 crore (about $400 million) in 2009, the Cadbury India business was delivering a compounded annual growth rate (CAGR) of 22 per cent for a four-year period.

In the first half of 2010, Cadbury India grew at 25 per cent. In comparison, other regions such as Kraft's North American business are showing an organic growth of 3-4 per cent, Europe moves at 2-3 per cent, while the developing markets are pacing ahead at 10 per cent — they operate on a much larger base, though. With Kraft aiming for organic revenue growth of more than 5 per cent and high double-digit margins, "it would want to milk markets where Cadbury is stronger like India for all its worth," says an analyst.

The track record of Cadbury India made it more compelling for Kraft to stick to the tried-and-tested formula. "This is proven for five years. Why do you want to move the business into a high-risk area overnight?" asks Kripalu.

While Kraft might agree to concentrate only on the Cadbury franchise in India, they believe that the Indian operations can run faster. "The core business of Cadbury was underfed and the portfolio was not being driven enough for legacy reasons," says Pradeep Pant, president, Asia-Pacific, Kraft Foods.

One of the first things Kraft Foods executives who flew into India three weeks after the acquisition in January 2010 — led by the head of developing markets Sanjay Khosla — told Cadbury India executives was, "We are here to help you grow faster." For that the business had to clear up bottlenecks and drive the key brands harder. Cadbury was already doing some of that as a part of its Vision 2010 strategy.

Real-Time Replenishment
In supply chain and manufacturing, previously, everyone looked backwards in the chain — marketing created consumer demand and then looked at sales to deliver; sales in turn looked at supply chain, and so on.

Cadbury has now flipped the process and created a forward-looking chain where procurement is measured on the service it delivers to manufacturing, the manufacturing facility gets measured on the service delivered to the distribution centre, which in turn delivers service to the redistributor. Jaiboy Phillips, executive director (operations) of Cadbury India, says the results were "best exemplified by the launch of the Cadbury Dairy Milk (CDM) Shots" in 2008.

In the past, a new product launch in the company would have a service level measured as ‘On Time In Full' of about 40 per cent. But the CDM Shots launch was governed by specific service-level measures for procurement, manufacturing, logistics, clearing and forwarding agents, and redistributors.
The replenishment right up to the retail shelf was synchronised with the start of the television campaign and the distribution channel inputs. The service level climbed to 98 per cent. "This enabled CDM Shots gain high trials and repeat purchases," claims Phillips.

Retailers agree. They say that the response time for replenishing stocks is definitely improving. Sunil Sethi, executive director of sales and international business at Cadbury India, attributes a large part of retailer satisfaction to the implementation of Meranet, an online system that tracks stock position movement from the distributor to retailers, which has helped in significant improvement in fill rates.
In the case of Cadbury, 1,200 distributors serve 550,000 retailers. While whatever is sold from the company to distributors is captured on SAP software and retail sales to the end-consumer is picked up through retail audits such as Nielsen, there was a complete gap in tracking distributor to retailer sales.

"We had to understand what distributors sell to every retailer on a day-to-day basis. Today, we have that capability," says Sethi who attributes a large part of Cadbury's growth in the past three years to initiatives like these.

Now Kraft is helping build upon that by providing models on two-way profitability in modern trade and delivering win-win business plans between large format retailers and the company. This is being rolled out.

The other major intervention by Kraft is in increasing the number of outlets selling chocolates through visicoolers. The delivered-eat experience of chocolates is far better when served from a visicooler as most chocolates collapse in Indian climatic conditions. It took Cadbury nearly four years to put up 20,000 visi-coolers. But after the acquisition, Kraft has doubled the number of outlets having visicoolers to 40,000 in a year. Outlets with visicoolers have shown incremental sales of 18 per cent, says Sethi.

"If we have the ideas and the right portfolio, nobody can stop us from growing. We have the might now," says Sethi. In picking the right portfolio, Kraft's 5-10-10 strategy (see ‘Customised Strategy') for developing markets became the manual.

After the Cadbury acquisition, Kraft added gum and candy to its focus category list for developing markets as Cadbury came with a respectable presence in that category. So brands such as Halls lozenges and Trident gum automatically qualified for the required marketing support.

In India, Halls was a brand with high recall, so backing it up was a no-brainer. But instead of Trident gum, the Indian operation put its money behind its bubble gum brand, Bubbaloo. Again, no rocket science at work — the category of bubble gum is bigger than chewing gum by a ratio of 60:40.

Chocolate was another focus area. If Kraft would bestow ‘power' status on a brand from the Cadbury portfolio, it had to be Cadbury Dairy Milk (CDM). While the cup-and-a-half-of-joy chocolate bar continues to dominate the chocolate segment in the country, in the past two years the brand has been extended to the lower-end with a single serve weather-proof offering called CDM Shots and a more smoother, but weather-sensitive chocolate CDM Silk for the top end of the market.

"We think our market is three Indias and not one," says Kripalu. And while the top end has shown promise in the past couple of years, partly aided by the large format stores, Cadbury is driving deeper into the bottom end of the market — the below Rs 5 segment makes up more than half the chocolate category.

Till 2006, CDM Eclairs was delivering a zero-to-low-single digit growth. After the re-launch with a squirty centre and backed by heavy advertising, CDM Eclairs is growing in excess of 25 per cent. Company executives claim that its share in 2010 has jumped from 10 to 13.5 per cent. "We can take a pretty good shot at market leadership," says Narayan Sundararaman,  executive director of powdered beverages, candy and gum at Cadbury India.

"India might be low per capita chocolate, but it's not low per-capita sweets," says Chandramouli Venkatesan, executive director, snacking & strategy, Cadbury India. With sweet shops dominating the landscape across the country, it is obvious that India has a sweet tooth. Only that most of the craving is for the local mithai, rather than for the acquired taste of chocolate, especially as you go lower down the pop strata. Replacing the thali of mithai with chocolate is what sparkled the campaign Kuch Meetha Ho Jaaye. A similar thought trail finds rendition in the Shubh Aarambh (auspicious beginning) campaign, which talks about unwrapping a bar of chocolate while starting something new.
Picking Tang as the first product to be launched from Kraft's portfolio was also an easy task — it was already there in the marketplace. "Rather than make a business plan that starts from scratch, we had something in hand. Let's make it bigger," was the rationale, says Sundararaman.

The total market space of cold refreshment beverages where Tang operates in was also attractive — from coke to fruit-based drinks to even home-made solutions — the market is estimated to be in the range of $2 billion. Within that, the segment of powdered beverages is in the range of Rs 250-odd crore, according to market research agency Nielsen.

So growing with the market was a certain draw. Then, Tang has been a star performer in emerging markets growing at 30 per cent. An analyst adds, "Tang is a low-unit price, but high-margin product." That makes it perfect for emerging markets where value-pricing plays a key role and also helps show a healthier growth.

Says Pant: "The single biggest competition across the region is non-consumption. There is a lot of play left there." To boost consumption, Cadbury is spending heavily on advertising.

In 2009, it hiked ad spends by more than 27 per cent over the previous year. "We see a direct correlation between ad spends and growth," says Kripalu. If anything, Kraft is only going to invest more behind its brands than the previous years. The men from Mars (the company, not the planet) must be watching.


(This story was published in Businessworld Issue Dated 31-01-2011)