Revenue growth fell to single digits as Indians consumed fewer chocolates in the first half of 2015
New Delhi: With value-driven metro markets already in its grip, chocolate maker Mondelez India Foods Pvt. Ltd is looking at expanding its rural reach to boost sales volumes.
Mondelez India, formerly known as Cadbury India Ltd, is seeking to boost growth, which has fallen to single digits despite price hikes as Indians consumed fewer chocolates in the first half of 2015. Chocolate consumption declined 2% in terms of volume in the first half of 2015, according to industry analysts.
Slower growth has already raised concern at Mondelez’s US headquarters. Mondelez International Inc.’s chief executive officer Irene Rosenfeld, in an investor call earlier this month, singled out the Indian unit and said it needed to return to the double-digit rate of growth.
Mondelez India will now focus on reaching rural retail outlets across the nine top states where it has a presence to tap under-penetrated markets, and will push premium chocolates in metros and other top cities to boost value growth, said Prashant Peres, director (marketing - chocolates).
“Rural is a focus for Mondelez and it is emerging fast. With affluence and changing lifestyle, there are aspirations, and consumption of chocolate is rising. Not just for the lower end of product segment, but even there’s demand for premium products," said Peres.
To be sure, rural India is a relatively new market for Mondelez, which derives a substantial portion of revenue from the cities. Consumer demand in rural India has been tepid after deficient monsoon rains last year led to lower farm production and unseasonal rain this year damaged standing crops.
Mondelez India started tapping rural markets in a pilot programme that was launched in 2012 in two states—Maharashtra (Sangli) and Andhra Pradesh (East Godavari).
“We are now in (rural areas of) nine states. We’ll go deeper in the existing states where we are present. The key is to get into the right villages. The infrastructure development cost for chocolate retailing is high given the power supply situation in rural India. Entry into new villages should justify the return on investments," said Peres.
Manufacturers of perishable products such as chocolates have to spend money on cooling systems in rural areas, where power supply tends to be more erratic. Supply costs are higher because of the larger distances manufacturers have to cover to distribute their goods.
According to research by consulting firm Value Notes, Mondelez is working on tapping about 80% of all the nine states it is present in, reaching villages with a population of between 5,000 and 10,000. This should be completed within the next couple of years.
As part of the rural innovation, Mondelez has introduced smaller packs, priced at ₹ 1, ₹ 2 and ₹ 5 across its mass brands—Cadbury Dairy Milk, 5 Star, Munch, Cadbury Gems and Cadbury Perk. The company has also started test-marketing semi-premium brands in promotional packs, especially for gifting occasions, even in rural areas.
In metro and top city markets, Peres said premium products are moving faster, led by sales at supermarkets.
“Premium is just about a fifth of the total market but is growing faster. It’s identified as a key growth platform for Mondelez International’s long-term chocolate strategy and Mondelez India’s vision is to be the undisputed leader in the premium chocolate market. It ensures faster value growth," said Peres.
Mondelez, which recently launched its first aerated chocolate brand, Cadbury Dairy Milk Silk Bubbly, is likely to bring a few more of its global brands to India to reinforce its market share in the premium and super-premium segments as the market develops.
Global brands that are not sold in India include Milka, Cote D’Or, Marabou, LactaFreia, Cadbury Crème Egg, Cadbury Roses and Alpen Gold.
Mondelez dominates the chocolate market in India with a 55.5% share in value terms in 2014, according to a report by market research firm Euromonitor International. Nestle India is the second largest chocolate company, with a 17% market share by value. The chocolate market in India was worth ₹ 10,000 crore in 2014, according to the study.
After Kraft Foods in 2009 acquired Cadbury India, which is now Mondelez India Foods, the firm reported growth of more than 30% in the initial years. Before the acquisition, its growth was around 20-23% annually.
An analyst with Euromonitior International said the company’s product portfolio is varied, ranging from mass-market brands to premium brands, catering to all segments. The market is under-penetrated and Mondelez, being the market leader, shouldn’t find it difficult to expand, said the analyst, who spoke on condition of anonymity.