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Kraft Foods can make it big in the Indian market

Kraft Foods can make it big in the Indian market
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First Published: Wed, Jan 20 2010. 12 27 AM IST

Updated: Wed, Jan 20 2010. 12 27 AM IST
The acquisition of Cadbury Plc by Kraft Foods Inc. is an important event in India’s packaged food market. A decade ago, India would have been just a footnote in a mega acquisition such as this; the market barely excited global food firms.
But that was then. India figured prominently in Kraft’s rationale for acquiring Cadbury and even in the latter’s defence argument asking for a higher price.
The confectionery market can be broadly divided into chocolate, gum and sugar confections. Cadbury had a share of about 32% of the Indian confectionery market in 2008 and a 70% share of the chocolate market. Kraft has an insignificant presence in India compared with Cadbury’s sales of £240 million (around Rs1,800 crore).
Graphics: Yogesh Kumar / Mint
In developing markets, Kraft proposes to capitalize on population growth trends and exploit scale to invest in infrastructure. It also sees a long-term opportunity of consumers trading up to its products. Kraft has a global portfolio of food brands—spanning categories such as snacks, beverages, cheese, grocery and convenient meals—that it can add on top of Cadbury’s existing portfolio.
A direct entry would have been expensive as it would have to build a marketing and distribution network from scratch.
Its attempt to sell its orange drink Tang in India met with limited success.
The Cadbury acquisition gives it a ready revenue base and a large distribution network reaching out to about one million outlets. The network of traditional grocery stores and modern trade is an especially valuable one, though the small retailers such as corner shops may not be of much use to Kraft.
The environment is right, too, because Indian consumers are willing to buy premium products and firms have in modern trade an effective platform to address this market. Many of Kraft’s products would qualify as premium products in the Indian context.
What does this mean for other Indian companies? Kraft is bound to be a little more aggressive than Cadbury due to cultural differences and also the need to prove to its shareholders that the acquisition is indeed working. More clarity will emerge later, when the changes become visible on the ground. But large food companies such as Britannia Industries Ltd, Nestle India Ltd and even Hindustan Unilever Ltd could see some competitive pressures emerging in some product segments.
While the tangible benefits of the acquisition are one aspect, Kraft’s ability to absorb Cadbury’s insights on the Indian market is more crucial. Cadbury’s transformation from a decade ago has been remarkable. It has become more aggressive, launching new products and variants, operating at several price points and thereby raising consumption, expanding distribution, tweaking its chocolates to withstand a hot climate and making a big play at capturing the festival gifting market.
Kraft’s ability to customize its products and marketing strategy to suit the Indian marketplace is crucial; otherwise the potential will remain only on paper.
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First Published: Wed, Jan 20 2010. 12 27 AM IST