In a two-part look at India’s chocolate market, Raghavendra Verma surveys the state of play in a growing industry.
India may be a populous and diverse country with its 1.36bn potential consumers who speak 22 languages, but one company maintains a strong, even dominant, position in India’s fast-growing chocolate market that saw sales of US$1.8bn in 2018, according to GlobalData – Mondelez International through its Cadbury brand.
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Cadbury’s almost ubiquitous presence in commercial food retailers across India poses a major challenge for new entrants aiming to build a nationwide distribution network tapping a market that GlobalData predicts will grow annually at an average of 8.6% until 2023.
A key issue for chocolatiers to consider, however, is that – at present at least – there is not much evidence that Indians have developed cravings for the taste of chocolate, per se, rather consumers like to eat something sweet, and chocolate delivers sweetness, as does other confectionery.
‘Kuch meetha ho jaye’ (‘Let’s have something sweet’) is a slogan used in advertising for Mondelez’s Cadbury Dairy Milk, the leading Indian chocolate brand and, according to L Nitin Chordia, a chocolate taster and founder of Cocoatrait, a Chennai-based firm promoting fine chocolates in India, this explains the market well. “Indians are not aware of what a chocolate craving is and they mostly eat chocolates to satisfy their sugar craving,” Chordia tells just-food. This insight, he says, is gained from 500 tasting sessions he has conducted over five years in different parts of the country.
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Anil Viswanathan, director of marketing for chocolate brands of Mondelez in India, says his company has a 66% share of the nation’s chocolate market – serving it with its major manufacturing and distribution muscle. “We have grown our portfolio to ensure that there is a chocolate of every size and price,” Viswanathan tells just-food.
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By GlobalDataSo far in 2019, Mondelez has launched several chocolate products, including Cadbury Dairy Milk – 30% Less Sugar, Cadbury Dairy Milk Silk Oreo Red Velvet (red velvet cream-filled Oreo cookie pieces covered in Cadbury milk chocolate), Cadbury Dark Milk (a combination of plain and milk chocolate) and the limited-edition Cadbury Unity Bar (a multicoloured chocolate slab designed to celebrate India’s independence). The company has also taken the Cadbury brand into another product segment with the launch of a spread, Cadbury Dairy Milk Spready.
Himanshu Manglik, president of Gurgaon-based consultancy firm Walnutcap and formerly a senior executive at Nestlé’s operations in India, argues one of the major factors behind Mondelez’s success is its distribution and marketing network. Manglik says that network gives the company a big advantage over most other chocolate companies. Most chocolate sold in India is made in India, with international trade data indicating that just US$75m’s worth of chocolate and other cocoa-based products were imported into the country in 2018, with local distribution networks being a critical component of success.
“India is almost an agglomeration of somewhat distinct markets, while also exhibiting climatic variations across the country,” Manglik tells just-food. “The complexity of its huge urban-rural divide and the uneven distribution of incomes makes mass distribution difficult to achieve.”
The importance of building a comprehensive distribution chain can be illustrated by examples of two Indian chocolate brands, the Rajhans Group’s Schmitten and Global Consumer Products’ Luvit, launched in 2014 and 2015 respectively, says Chordia. “Both of them realised within a year-and-a-half of starting operations that they could not withstand competition from Cadbury,” he said, “It was not because their product was inferior, but it was very difficult to set up a supply chain.” Both brands have largely remained as regional players – Schmitten in the north and Luvit in the south – and are targeting only rural markets now, says Chordia. “It is purely a distribution game,” he added.
Marketing is also a challenge, especially for smaller players. Mangalore-based The Central Arecanut and Cocoa Marketing and Processing Co-operative Ltd, also known as Campco Ltd, holds less than 2% of the market and has to spend 48% of its retail earnings from chocolate on marketing, which, notes managing director Suresh Bhandary, is a very high percentage for food brands. “Each of our sales representatives sells only about 150,000 kg of chocolates per month, while those of Nestlé or Cadbury must be selling more than 600,000 kg per month,” he says. “So, their cost per tonne will be less than ours.”
In addition to salaries and other expenses for the 300 people in the sales department, Campco pays 11% to 16% of the selling price to the retailers, 5% to wholesalers and 7% to distributors, Bhandary notes.
Larger peers can better absorb marketing expenses. The marketing costs for Gujarat Cooperative Milk Marketing Federation’s Amul brand, for instance, only accounts for between 20% and 25% as chocolates are bracketed together with several other milk-based products manufactured by the company, managing director Rupinder Singh Sodhi says. Amul is a big name in India because of milk and Amul chocolates are available at more than 60,000 retail outlets, he points out.
The pricing of products is also a factor and Amul mainly works as a cooperative on small profit margins, selling its Amul Bitter 90% chocolate at INR125 (US$1.80) for a 150-gramme bar. On the other hand, an 80-gramme bar of Cadbury Bournville – 50% Dark costs INR100 and Nestle’s Alpino dark chocolate is priced at INR150 for a 90-gramme pack.
Chocolate companies also face the problem of extreme temperatures in India, which can surpass 45°C during Indian summers, as most retail outlets are not air conditioned. Big companies can afford to distribute small refrigerators to retailers. “We are investing heavily in rural infrastructure through our Visicoolers to build a cold chain to supply our premium products,” Mondelez’s Viswanathan says. It also controls chocolate conditioning in the premium segment of the market by creating chocolate gifting deliveries across several price points, notably through the direct-to-the-consumer portal CadburyGifting.in, he says.
Nestlé, which has key Indian chocolate brands include KitKat, Bar One, Munch and Classic, employs similar point-of-sale tactics, with a spokesperson telling just-food: “We invest in both permanent and temporary POPe [point of purchase execution] solutions, like visi-coolers, counter-tops and self-dispensing units, to ensure our range is visible to the shoppers and product is maintained in fresh condition.”
Smaller companies change ingredients to help chocolate able to resist heat, for instance, in some of its chocolates, Campco replaces cocoa butter with compounds of palm oil that melt at higher temperatures, notes Bhandary. “If the temperature is below 35°C, then it is OK for the chocolates,” he says, “We cannot afford our own refrigerators at the shops as we sell smaller quantities.”
Given the size of this market, it is no surprise that India’s chocolate manufacturers consume a lot of cocoa – more than 30,000 tonnes of beans a year, for both retail and industrial-use chocolate, although local production is only between 12,000 tonnes and 14,000 tonnes-a-year, Bhandary says.
In the year ending March 2019, India imported $263m’s worth of cocoa products, including chocolate confectionery, cocoa beans, cocoa butter, cocoa paste, cocoa powder and food items containing cocoa, mainly from Indonesia, the Ivory Coast and Singapore, according to data issued by the Indian ministry of commerce and industry.
While cocoa beans from Ghana are of premium quality with a mild flavour and high yield, Indian beans have a strong flavour and a very high fat content, says Bhandary, which Campco uses to make chocolates, cocoa powder, cocoa butter and drinking chocolate powder, some of which are exported. “There is no other [large] factory in India that has this link from cocoa bean to chocolate bar under one roof,” he says.
The second part of Raghavendra Verma’s deep dive into India’s chocolate market, looking ahead to the possible drivers of future growth, can be found here.
