Cadbury is reaping the reward of a long-term commitment to India, as rising incomes and retail expansion spur growth in the confectionery category. Dominique Patton spoke with marketing director for Cadbury India Sanjay Purohit about the country's growth potential, and Cadbury's plans for this rapidly developing market.

The world's leading chocolate makers, facing modest growth in the health-conscious West, are eyeing India's sweet-toothed consumers as a major opportunity. However, while rising disposable incomes will certainly increase spending on indulgent products, companies wishing to enter India for the first time face a formidable competitor in the form of Cadbury which has been there since 1948.

Moreover, although growth in chocolate sales was slow for many years, the market has recently started to boom, on the back of increased advertising, special pack formats and retail expansion, and Cadbury is reaping the dividend from its long-term commitment to the market.

According to Cadbury India's marketing director Sanjay Purohit, the company's chocolate sales have grown by almost 20% during each of the last two years, largely a result of significant investment in marketing. But progress has been hard earned. "India is a land of people with a sweet tooth but we've had to battle against deeply entrenched cultural products like mithai," Purohit explains.

Mithai, a generic name for Indian sweets, are consumed on a daily basis as snacks eaten alone or with a cup of chai. Huge quantities are also given as gifts during festivals like Diwali, which ushers in the New Year, and mithai are also a crucial part of wedding ceremonies - the first gift of an Indian bride to her husband's family is often several kilos of high quality mithai.

By using advertising to associate chocolate with mithai, Cadbury has succeeded in opening up a huge consumer base. "Until the 90s people thought that only children eat chocolate," says Purohit. "Now we have a large portion of adults across different social segments who see chocolate as a wonderful, indulgent product, eaten at the same occasions as mithai."

Cadbury's trading update in December confirmed the impact of this behavioural shift: "India is having a particularly good year with recent performance boosted by a very strong demand during the Diwali festival," the company said.

It has also made some product adjustments to reach out to new consumers. As elsewhere in Asia, Cadbury chocolates are sold in individual single pieces in India. One of the newest individual pieces for the Indian market, Chocfuls, is a caramel candy with a hard shell and soft chocolate centre that costs just 4 cents per piece.

"If you look across the world, there is a direct correlation between per capita GDP and spend on chocolate in every country," says Purohit. "So if you are going to make chocolate present and part of everyone's repertoire, then you have to make it affordable."

He claims, however, that the company's gross margins in India "are not any worse off than other markets", despite having to increase the cocoa butter content in its milk chocolate formulations to help them withstand the Indian heat. In fact, Cadbury's 60-year presence in India has driven the growth of the country's cocoa production, and it can now meet 60% of cocoa demands at its five Indian factories from the domestic market.

This long presence also means that "Cadbury Dairy Milk defines the taste of chocolate in the country", suggesting that a different recipe may take some time to develop fans. Companies like US chocolate giant Hershey, rumoured to be looking to enter the market, should perhaps take note. "The taste palate has to be developed over a period of time," Purohit says. "Having developed the taste over 60 years we have a tremendous advantage."

Cadbury is certainly well ahead in the category, with a 72% share of India's IR12.3bn ($279m) chocolate market last year, compared to Nestlé's 24.7%, according to ACNielsen data. Cadbury also has an extensive sales network that reaches some 500-600,000 outlets directly and 1.5m outlets indirectly.

But new entrants see an opportunity in the rapid development of India's retail market and Purohit agrees that this will really help the chocolate category take off. Currently most confectionery sales in India are made through traditional outlets like kiosks or small 'mom-and-pop' stores that stock the entire range of basic groceries. But brands like Cadbury's are set to perform better in larger retail formats, where there is space to stock an entire range of products and the display is 'more appetising'. "We see double the rate of sales in these formats than traditional trade outlets," says Purohit.

In recent years, Cadbury has only made around 7% of its total sales in larger retailers but he believes this will increase to some 25% in the next five years. Euromonitor has predicted that India's retail market will grow by 28% between 2006 and 2010, with sales growing from US$80bn growing to US$103bn.

"As India continues to grow and retail formats allow excellent placement and visibility of products, the chocolate confectionery market is only going to see exponential growth," says Purohit. "And we're well poised to take a large share of the growth given our position in the market."

The company is also looking to expand in other categories where competition is tougher, with the presence of international brands Wrigley, Perfetti and Lotte.

Cadbury has increased its share of total confectionery products to 31% in the last year. About a quarter of its sales come from its Bournvita chocolate drinks while the rest is largely generated by chocolate and a few other confectionery lines. And the company is keen to add new products. Purohit concludes: "If you look at the kind of products we offer in the rest of the world that we don't already have here, this is an indication of where we want to go in India."