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(http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4451)
Sweet Surrender: Can Kraft's Cadbury Acquisition Help It Tap the Indian
Market?
Published : February 25, 2010 in India Knowledge@Wharton
All materials copyright of the Wharton School of the University of Pennsylvania. Page 1 of 4
Sweet Surrender: Can Kraft's Cadbury Acquisition Help It Tap the Indian Market?: India Knowledge@Wharton
(http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4451)
All materials copyright of the Wharton School of the University of Pennsylvania. Page 2 of 4
Sweet Surrender: Can Kraft's Cadbury Acquisition Help It Tap the Indian Market?: India Knowledge@Wharton
(http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4451)
huge growth potential -- Cadbury estimates that per capita consumption of chocolate in India is 54 grams,
compared with 11 kilograms in the U.K. -- India has its own formidable confectionery industry. For sure,
Cadbury and the raft of other Western confectioners in India are competing not only with each other, but
also with the ubiquitous assortment of traditional milk-made Indian sweets, or mithai, consumed at home
and on special occasions. "Indians have a massive sweet tooth, but it's fulfilled by mithai, not chocolates,"
says Ramesh Srinivas, executive director of KPMG Advisory Services India, who oversees the consumer
business practice.
Even mighty multinationals like Cadbury have been unable to crack that market. According to a former
marketing head at the company, "We always grappled with the question of how to take on mithai." Some
years ago, he says, Cadbury worked with local brand Amul, which is owned by a dairy cooperative in
Anand in the western state of Gujarat, to make mithai to add to its chocolate. But the Indian-Western
medley ultimately failed to excite consumers.
Snack Attack
The good news is that India is a snacking haven, with every state having its own vast array of sweet and
savory treats. "The snacking market is driven by unorganized players, leaving enough room for
established companies to grow," says Vijay Chugh, vice president of research at Mumbai-based Ambit
Capital.
Kraft is hoping to make the most of that opportunity. The American food giant entered India in 2003 in a
joint venture with Chennai-based Kothari Group to manufacture Tang, its powdered orange drink. The
launch of the premium-priced drink mix coincided with the introduction of 10-cent 200 milliliter bottles
by U.S. soft drink manufacturers Coca-Cola and PepsiCo. With Tang making little headway in a
price-conscious market, Kraft beat a hasty retreat a year later.
Even so, Kraft is a known brand name in India: Products like Kraft cheese and Toblerone chocolate are
imported and prominently displayed on shelves in many of India's new supermarkets and hypermarkets.
"Kraft's portfolio is what I call 'higher order' products," says Aditya Birla's Chandna.
Now, with the Cadbury acquisition sealed, "Kraft's success will require a lot of brand-building activities
to position [other] brands among Indian consumers," says ISB's Samu. Pivotal to Kraft's success in India
will be its ability to forge an "adapt-and-adopt" strategy, says Chandna. "It needs to be very selective
[about] which products in its portfolio it wants to sell and has to know what the local market is ready for.
The key is not where to introduce its products, but what to introduce." Kraft's Khosla echoed this approach
during his Mumbai visit. It's "about being 'glocal' [that is, both global and local]," he said. "We are now
empowering local leaders and listening to local consumers."
In that respect, Kraft might want to take a leaf from PepsiCo's book. With a 20-year track record in the
country, the US$43 billion snack food and beverage multinational is now one of the largest consumer
products companies in India. Its flagship India brand -- Frito Lay's Kurkure snack -- was created
specifically for the Indian palate. Kurkure flavors include "masala munch," "green chutney Rajasthani
style," and "xtreme risky chili," and three years ago, a special edition flavor -- "jaljhalo hit" -- was
launched during the traditional puja festival in the eastern state of Bengal. On the back of Kurkure's
success, Frito-Lay India launched Aliva crackers, which are made with local spices, wheat and other
ingredients, in June last year. As Cadbury's former marketing executive notes, "We need to see if Sanjay
Khosla can do for Kraft what [PepsiCo CEO] Indra Nooyi did for Pepsi India."
Perhaps because of its earlier experience in India, Kraft has been busy honing its "localization" skills in
other emerging markets. Sometimes, it has been a matter of trial and error. In China, for instance, after it
launched the American version of its Oreo cookies, sales were flat initially. Research showed that both the
product and price were problems: The cookies were too sweet for the Chinese palate, and the 72-cent
pack was considered too expensive. Kraft then developed less sweet Oreos in smaller packs costing 29
cents. Also, a new Oreo variant was launched soon after. The four-layered Chinese Oreo -- with vanilla
and chocolate cream coated in chocolate -- soon became the best-selling biscuit in China, racing ahead of
the original Oreos.
However, Cadbury India has been slower to tailor its products to Indian tastes. "Cadbury never thought of
localizing its products until recently," notes Srinivas of KPMG. But it has been making up for lost time. In
All materials copyright of the Wharton School of the University of Pennsylvania. Page 3 of 4
Sweet Surrender: Can Kraft's Cadbury Acquisition Help It Tap the Indian Market?: India Knowledge@Wharton
(http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4451)
localizing its products until recently," notes Srinivas of KPMG. But it has been making up for lost time. In
the last year, Cadbury has been changing recipes to improve the shelf life of some of its chocolate bars.
For example, mini-packs of Dairy Milk are now made to withstand India's heat -- which is useful in a
country with many retailers who do not have refrigeration units and who have to contend with regular
power outages -- and are sold in packs costing 4 cents, compared with nearly 50 cents earlier. Distributors
say that the strategy has not only helped Cadbury increase chocolate penetration, but consumers are also
buying more.
Amid all this, Kraft will have to keep an eye on the usual post-merger integration issues, says Wharton's
Hrebiniak, including production, possible structural change, distribution and communication externally
and between the two companies. "Will Kraft try to change anything at Cadbury India?" he asks. Perhaps
not initially. After all, "it needs to learn what the impediments are; what it can and can't do in India. For
that, it needs Cadbury." But given a few years, "I have confidence that they're going to work this out," he
says. "They're going to be big."
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