Kraft will face formidable competition in Indias premium chocolate sector

Kraft will face formidable competition in India's premium chocolate sector

US food giant Kraft Foods confirmed its much-speculated launch of Toblerone into India last week. Michelle Russell takes a look at why Kraft has introduced Toblerone into India, which brands it will compete against and the projected growth for the sector.

It may have come as little surprise to many in India's chocolate industry that Kraft Foods has finally rolled out its uniquely-shaped Toblerone bar into the emerging market through its subsidiary Cadbury India. The launch had been rumoured for some time, as reported by just-food last month, and, last week, Kraft introduced Toblerone into the fast-growing economy. It will, Kraft said, be positioned as "one of the most premium gifting brands in the country".

Kraft will use the tagline 'Gift like no one else' for the roll-out as it looks to capture a share of an Indian chocolate market that has, according to Euromonitor, witnessed strong growth over the last seven years, particularly among the country's urban dwellers. And with an increase in consumer disposable incomes in the mass segment, Kraft appears keen to take advantage of this lucrative opportunity to capture a further share of this market.

Cadbury, acquired by Kraft in 2010, dominates India's chocolate market. Cadbury has around a 70% share of India's INR3.2bn (US$57.6m) category in India. Leatherhead research analyst Jonathan Thomas believes Cadbury's presence in India was central to Kraft's interest in the confectioner; India was a key target market for the company as a whole.

However, Thomas says Kraft's plan to split in two, creating a dedicated global snacks business, will help build on Cadbury's position in India.

"The key thing abut Kraft of course is that they're shortly going to split into two companies. One will focus on groceries in North America and the other one is going to encompass its snacks business, which will include products like chocolate and biscuits, and I know one of the reasons they're doing this is because of the growth potential in some of the emerging markets."

According to Euromonitor, chocolate confectionery saw year-on-year sales growth of 22.3% in 2011. By 2014, the category is expected to achieve a retail value of INR3.54bn from INR2bn last year.

Euromonitor research analyst Ina Dawar believes the launch of Toblerone puts Kraft in a good position to leverage on a booming premium chocolate market in India.

"In 2011, premium chocolate [sales] such as Ferrero Rocher grew by around 50% compared to the previous year. Such growth can be attributed to a list of drivers, most importantly, the growing trend of gifting premium chocolates to families and friends on special occasions and festivals. Additionally, the growing desire amongst consumers to buy premium chocolates that offer a rich taste and experience of indulgence is providing continuous support to sustain double-digit growth in the near future as well."

Toblerone will face formidable competition from the likes of Ferrero and Nestle in India, both of whom have placed their marker in the emerging market's growing premium chocolate sector.

While Cadbury heads the overall chocolate confectionery market in India, in the premium category Ferrero is the segment leader with an estimated 5% share of a premium market estimated at 10% of the overall market, according to The Times of India.

Ferrero has established a presence in India's chocolate gifting category with its namesake Ferrero Rocher premium brand. 

The Italian confectioner is continuing to ramp up its presence in India. In October last year the Italian confectionery giant opened a plant in Baramati. The 28,000 sq m site will produce Kinder Joy eggs and Tic Tac mints using locally-sourced raw materials and packaging.

Ferrero sees the factory as an important step for its growth in the country, as emerging markets become increasingly vital to the company. It says it is growing sales by 50% in India.

Other competition for Toblerone, alongside Cadbury's other premium brands of Celebrations, Bournville and Dairy Milk Silk brands, will come from Hershey, Lindt & Sprungli and local player Gujarat Co-operative with its Amul bar. Although the latter's confectionery portfolio caters more to low- to middle-income households in India and Hershey recently ended its five-year partnership deal with Godrej Group in India in order to go it alone.

How Cadbury has priced its Toblerone bar, however, may determine its success or failure in the category. The firm's Silk and Bournville brands are priced between INR30 and INR120, while Toblerone has a price point of INR65 for a 50g bar.

Some reports suggest the steep price points are because Toblerone is the only brand in Cadbury's premium portfolio that is imported. Both Silk and Bournville are manufactured locally giving Cadbury the liberty to price it a little more flexibly than Toblerone. And a growing preference for international chocolates in India may allow it to get away with this.

Cadbury will need to ensure sales of Toblerone donot cannibalise those of its other brands.

Thomas, however, points to a potential weakness in the launch, highlighting the lack of success Cadbury reaped with the launch of its Silk brand, positioned at the high-end of the premium market.

"The one slight caveat is Cadbury launched a version of Dairy Milk called Silk in 2010, which was targeted at the premium end of the market. Reports have suggested it hasn't performed quite as well as Cadbury might have liked. One possible reason for that is it has received quite strong competition from Ferrero, which is also positioned at the premium end of the market and is performing quite well."

Nonetheless, he is confident Toblerone has the potential for success due to Cadbury's history in India.

"Whichever way you slice it, they are the leader by quite some distance, they've been operating in India since the 1940's so they've got a very strong heritage there and Dairy Milk is far and away the biggest chocolate brand in India," Thomas said. "From that perspective, I would say the prospects for growth for Toblerone are very strong."

With Toblerone now thrown into the premium mix, however, Dawar suggests having a new entrant to the table will only serve to fire up competition further.

"With the launch of Toblerone, the premium chocolate space, which was previously limited to Ferrero, Lindt and Mars (considered to be premium in the Indian market), has expanded further to offer more options."

It appears certain Lindt and Ferrero will pick up the cue and ramp up operations in India in a bid to capitalise on the growing premium market and ensure they don't lose any market share to Toblerone.

Dawar said it was too early to comment on the potential uptake of Toblerone among Indian consumers, who she says may initially stick to Ferrero specifically for gifting purposes. However, she suggests Kraft may look to roll out gift packs over the next few months in a bid to "bring its position closer to Ferrero and make gains by cashing in on the huge gifting chocolates market in India".

Thomas, however, expresses more confidence in Cadbury's ability to succeed with the launch.

"The premium chocolate market is growing quite well in India and obviously it's one of the world's biggest markets but growth has been one of the fastest growing over the last few years, and one of the reasons for that is the rising number of more affluent urban consumers in India, the same as in other developing markets like China, which is seeing the same sort of trends. Certainly on paper, the prospects for this are quite good."