New Delhi: In a bid to improve falling market share in the chocolates category, food and beverage company Nestle India Ltd said it will bring premium brands to the Indian market over the next few years, apart from increasing distribution of existing brands such as Kit-Kat and Munch.

The food and beverage company recently launched chocolate brand Alpino, priced at Rs25 for a pack of two bite-sized chocolates, in metro cities across India targeted at older consumers.

Keen to tap the rising affluent urban demographic likely to increase spending across consumer categories, companies such as Nestle are introducing premium or higher priced products into the market.

“In the consumption pyramid, premiumization will clearly happen," Mayur Bhargava, general manager, chocolates and confectionery, Nestle India, said in a recent meeting at the company’s head office in Gurgaon.

Nestle India, which reported net sales of Rs8,302 crore in 2012, spent over 18 months developing the Alpino that it borrowed from its counterpart in Brazil. Nestle’s chocolate business in India is currently worth Rs1,200 crore.

Over the next couple of years, Nestle may bring more premium products to India from its international portfolio in a phased manner, Bhargava said.

Nestle’s focus on premium chocolates in India has been sluggish until now, as it focused on catering to a bulging mass market with brands such as Kit-Kat.

In March, Nandu Nandkishore, executive vice-president and head of Asia, Africa, Middle East and Oceania at Nestle, said the company will make more premium products available in the country “and start to tackle this premium opportunity, which is huge".

Nestle India’s market share in chocolates dropped from 26.1% in 2008 to 23.6 % in 2012, according to market researcher Nielsen Co. In the same period, Cadbury owner Mondelez India’s market share fell from 70% to 64.5%.

Both Nestle and Mondelez lost market share to Mars International India Pvt. Ltd and Ferrero India, which are gaining ground in chocolate confectionery driven by new products, according to a March report by research firm Euromonitor.

In July 2012, Mondelez, the maker of Dairy Milk chocolate, launched the premium Toblerone chocolate brand in India. The company also has been actively launching variants of its Bournville brand in the market. Mars International India, a subsidiary of Mars Inc., in June announced the launch of its vegetarian Snickers chocolate in the country.

According to the Euromonitor report, value sales of chocolate confectionery increased to about 6,340 crore growing at 30% CAGR. Across the category, premium chocolates are increasingly gaining acceptance among consumers and growing at a rapid rate, it said. Premium chocolate confectionery brands such as Ferrero Rochers, Mars and Toblerone outperformed overall chocolate confectionery in terms of growth in 2011 and 2012, according to the report.

“The premium play also suggests better margins, especially in time of persistent inflation and stressed margins for consumer companies," said Ankur Bisen, vice-president at consulting firm Technopak Advisors Pvt. Ltd. “When categories mature, fragmentation is bound to happen."

While Nestle is actively pushing the premium portfolio, growth will also continue to come from popular brands such as Munch and Kit-Kat, for which the company is increasing distribution. “Growth for these brands will primarily be driven by expansion in distribution in cities apart from the top 50 in the country," Bhargava said.

Nestle has launched smaller priced units for its existing brands at Rs2 and Rs5 each to push sales in rural markets. “The number of consumption occasions is increasing in urban developments and cities, while in smaller town it’s driven by distribution and availability," Bhargava said.