India’s love for all things sweet is making a global impact in one of the most talked about hostile takeover bids in recent times. In its defence against Kraft Foods Inc.’s takeover bid, Cadbury Plc has cited its emerging market footprint as a key reason for better growth prospects. The company held an analyst meeting on 14 December where the top management presented revised long-term targets, making a case for a better offer price. It expects sales to grow at about 5-7% per annum, with emerging markets growing much higher at about 10-12%.
In its presentation, India figured prominently in the emerging markets category. Revenue from the Indian market during 2009 are estimated at £240 million (Rs1,821.6 crore), growing at a compound annual rate of 20% from 2004. That is 4% of Cadbury’s overall revenue and about 11% of emerging market revenue. The company expects contribution from emerging markets to increase to 45% in 2013 from about 38% at present, and India to play a significant role in this transition. Kraft’s move will have a significant impact on the Indian confectionery market.
Also Read | The Sugar Coating (Graphics)
One outcome is Cadbury standing on its own, with its shareholders voting against any sale. While the structure will remain the same, the company will adopt a more aggressive approach in its key markets, since it has faced criticism for not growing fast enough. In India, it has a 70% share of the chocolate market with a reach of 30% of the population and retail coverage of about one million outlets. Its Cadbury Dairy Milk Shots, a product priced at Rs2, has got a 3% value share of the market in one year. By keeping the price points low, penetration has improved, even as it eyes the rural markets, which are under-penetrated at just 10%. A more aggressive Cadbury will turn the heat on other companies, notably Nestle India Ltd, which is the second largest firm, with a market share of around 25%.
But Cadbury getting sold presents a more interesting situation. If Kraft emerges victorious, it will get a strong foothold in India, where it has a very limited presence at present. It will be sure to expand its offerings in other food categories, too. Other companies whose names have been reported as interested parties are Hershey Co. and Nestle SA. If Nestle succeeds, it will hold a 95% share of the chocolate market in India. Now that may pose a problem as it will get a near monopoly on the Indian chocolate market, leading to concerns on competition. The outcome of the Kraft offer for Cadbury may thus lead to unintended consequences for the Indian market.
Write to us at email@example.com
Graphics by Yogesh Kumar/Mint