The Indian Confectionery Industry.docx

The Indian Confectionery Industry Overview of Indian I ndian Confectionery: The Indian population represents roughly one-fifth of the global population. India has attracted the interest of many seeking new investment and market opportunities in food and agriculture. However, consumption of confectionery products is relatively low and product penetration pe netration is still very limited. At the same time, observers have noticed opportunities for growth of the market and increasing potential for imported chocolate and other confectionery products.The global confectionery market has been forecast to increase at a compound annual growth rate (CAGR) of 3% for the five-year period 2011 - 2016, rising from a valuation of $157,640 million in 2011, to hit an industry value of $182,697.1 million by the end of 2016. The Indian confectionery market is expected to grow at a CAGR of more than 18% during 2012-15. Confectionery is related to the food items that are rich in sugar and often referred to as a confection. Modern usage may include substances rich in artificial sweeteners as well. With consumers staying at home to save money because of the economic crisis, demand for this format has significantly increased. As a result, rather than introducing new products in an already saturated market, manufacturers are increasingly introducing sharingformat variations instead. Historically, the chocolate confectionery market has been characterized by the dominance of a number of well established brands, such as Cadbury's Dairy Milk, Mars Bar and Kit Kat. Although some brands enjoy a rich heritage, the key need in a busy and developed market sector is innovation, not just of existing brands but also in the development of completely new brands. Over recent years, competitors in the confectionery market have made significant investments in new product development. Despite its vast population, India’s confectionery market is still very small. It is valued at close to US $450 million, and is estimated to be 138,000 MT. Sugar confectionery (candies and toffees) has the largest share (50%), followed by chocolate, (16%), and bubble gum, (10%).

History The confectionery market in India has undergone major changes and growth since the opening up of the economy and liberalization of the investment regime in 1991. India became an

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attractive place for foreign investment and several large multinational companies entered the market for confectionery products. This resulted in its steady growth and gradual transformation from a commodity market to a branded products market dominated by multinational companies.Over the 1998 - 2003 period, confectionery retail sales have grown more than 55% in value terms and 46% in volume terms, at an average annual rate of 9.5% and 8% respectively. There is a clear trend of faster sales growth in value terms, indicating that consumers are increasingly ready to pay a premium for higher value products. The chocolate segment is the fastest growing in value terms (9.8% average annual growth rate) closely followed by the gum segment (9.5%). In volume terms gums grow at the fastest rate (8.5%), followed by chocolate and sugar confectionery (7.8% each). At the same time, to put these figures in some perspective, while retail sales for 2003 in India are estimated to have been US$562 million (Rs. 26,220 million), US$26 billion worth of confectionery products were sold in the US. In volume terms these figures were 127,000 MT in India and 3.3 million MT in the US. While growth rates in general look rather healthy, and all agree that there is still large potential for further growth of the confectionery sector in India, many individual players have experienced slower growth in their sales over the last few years. This trend is partly attributed to the economic slowdown that India experienced in 2000-02 and resulting decline in consumer spending. Confectionery products are impulse purchases which would be among the first to be cut out. Companies are fighting this trend by broadening their consumer base from primarily children and teenagers, to adults as well. Most of the large multinationals active act ive in India are also actively marketing to rural India, where penetration is lower than the average for the country. The organized confectionery segment in India segment is dominated by the multinational companies; however, domestic players are increasingly finding a prominent position p osition in the market. Cadbury India, Ltd. is by far the market leader, followed by Perfetti Van Melle India, Ltd. and Nestle India, Ltd. Other important players are Lotte India Ltd, Nutrine Confectionery Co Pvt Ltd, Candico India Ltd, Parle Products Pvt Ltd,Wrigley India Pvt Ltd, Gujarat Coop., Milk Marketing Federation, ITC Foods, Hindustan Lever Ltd, CAMPCO Ltd, and Lotus Chocolates Co. Ltd.











growth rate of 100% from the previous year. Imports of bulk chocolate and chewing gum remained very small at roughly US $500,000 and US $400,000, respectively. In addition to the regular import channels, Indian also has significant gray imports. As a result, actual imports are probably larger than that shown by official statistics.

Market structure: Market size Despite its vast population, India’s confectionery market is still very small. With a population about five

times larger than the US, the volume size of its confectionery market is more than 20 times smaller. It is valued at close to US $450 million, and is estimated to be 138,000MT

THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA

Candies & Toffees Chocolates Breath Fresheners Bubble Gum Chewing Gum Other Categories

68,000 MT 22,500 MT 7000 MT 14000 MT 3350 MT 23150 MT

The market value for Indian confectionery market is1726.3 million in 2011 and it is expected to have a value of $3,060.2 million in 2016











The Indian confectionery market grew by 6.3% in 2011 to reach a volume of 213.1 million kg. In 2016, the Indian confectionery market is forecast to have a volume of 297 million kg, an increase of 39.4% since 2011.











The Indian confectionery market had total revenues of $1,727.3 million in 2011, representing a compound annual growth rate (CAGR) of 12.4% between 2007 and 2011. In comparison, the Chinese and Japanese markets grew with CAGRs of 4.7% and 1% respectively, over the same period, to reach respective values of $7,322.5 million and $10,660.8 million in 2011. Market consumption volumes increased with a CAGR of 6.2% between 2007-2011, to reach a total of 213.1 million kg in 2011. The market's volume is expected to rise to 297 million kg by the end of 2016, representing a CAGR of 6.9% for the 2011-2016 period. The gum segment was the market's most lucrative in 2011, with total revenues of $592.1 million, equivalent to 34.3% of the market's overall value. The sugar confectionery segment contributed revenues of $578.5 million in 2011, equating to 33.5% of the market's aggregate value











the Chinese and Japanese markets will grow with CAGRs of 4.9% and 1.2% respectively, over the same period, to reach respective values of $9,321.8 million and $11,315.5 million in 2016.

Market share Perfetti Van Melle is the leading player in the Indian confectionery market, generating a 22.6% share of the market's value. Kraft Foods, Inc. accounts for a further 20.5% of the market

The Indian confectionery market is concentrated, with the top four players holding 69.5% of the total market value.

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The confectionery market in India was estimated to be worth $1.27bn in 2009, growing at a compound annual growth rate (CAGR) of 10.5% during 2004-09. The market is expected to grow to a value of $2.28bn by 2014 and is estimated to grow at a CAGR of 12.4% during 2009-14.

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Increasing health consciousness, a fast evolving indulgence seeking attitude of the Indian consumers along with snacking/eating on-the-go are a few of the key trends shaping the













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India is primarily a mono-pack market while the market worldwide is a multi-pack market.

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While the trade and distribution in western countries is mostly organized, in India, retail outlets like paan shops and kirana outlets account for the bulk of the sales and organized trade still has only an insignificant share in overall confectionery sales.

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Functional products and sugar free confectionery dominate the worldwide market while this trend is yet to pick up in India.

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Sugar confectionery will remain the largest confectionery type.

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As younger children are traditionally the key consumer group for confectionery, pricing strategies play a significant role in shaping purchasing decisions.

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50 paise is the most popular price-point and around 85% of confectionery sales occur at this price point - but there are some products in the rural markets that are available at 25 paise. The Re 1 price-point is not very popular.

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Gum confectionery will be the fastest growing category, albeit from a smaller retail base.

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Instead of chewing on paan (betel nut leaf) to freshen one’s breath or using spices such as fennel to aid digestion, the local population is increasingly turning to branded confectionery products such as chewing gum and mints. Consuming products such as mint and medicated confectionery conveys a sophisticated image, which appeals to young people.

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Manufacturers are increasingly looking to create a shift from manufacturing low-margin products like toffees and boiled sweets to higher-margin products such as gum and











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The figure is lower for chocolates (about 70%), because of its increasing popularity as a gift for various occasions and during the festival season.

In their effort to increase consumption and product penetration, marketers have started to promote some products as appropriate snacks, not just an indulgence •

The country is poised to climb the rankings of world’s largest confectionery markets by value from its current 25th position to 19th position by 2014, according to a new report by Datamonitor, a London-based market research firm.

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The country’s $1.2bn conf ectionery ectionery market is expected to grow at a compounded annual growth rate of 12 per cent from 2009 to 2014.

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India is the world’s largest consumer of sugar .

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The growth rate in the market for sugary snacks and sweets was the second highest in the world in 2008-9, 2008-9, making it a lucrative proposition for the world’s largest confectioners looking to off-set dwindling sales in the west.

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Once an indulgence, sweets are becoming part of everyday life, consumed on-the-go. And western confectionery are replacing traditional Indian sweets as they have longer shelf-life and are more aggressively marketed.

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Sugar confectionery, by contrast, is the slowest growing segment of the market forecasted to grow at a compounded annual growth rate of 5.5 per cent until 2014.

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But the average Indian person’s propensity for sweetness – which has given India the dubious reputation of being the “diabetes capital” capital” of the world – has has meant that the sales of low-sugar products and dark chocolates remain low. This trend is changing, however,











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The popularity of chocolate products, particularly boxed assortments for gifts, will continue to increase.

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The sugar confectionery will remain the largest confectionery segment. We expect to see growth of new and novelty products, such su ch as mint and gum.

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Health consciousness is one trend that has certainly caught the attention of the manufacturers. As a result, cereal bars are currently the fastest growing category in the Indian confectionery market.

The Indian market is very price sensitive. There is a clear distinction between the larger mass market where price pressure is significant and the upscale niche market, where although important, price is secondary to quality and brand image •

Potential exporters should carefully select trading partners from among the Indian importers and distributors, as they will be critical to ensuring presence of their products on retail shelves.

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India remains a very price sensitive market and appropriate pricing is key to the success of new products.

Over 30% of the Indian population is in the 0 – 14 14 age group, which is the primary target segment for confectionery manufacturers. These will be the prime movers for growth in the confectionery market in India











Strategies The Indian market is highly competitive in nature and is segmented into organized and unorganized sector. To overcome huge hu ge competition the players are trying to lure the consumers by attractive pricing, customization of products in accordance with Indian taste and preferences , brand building activities such as advertising ,contesting ,pricing etc etc. The strategies strategies taken by different companies are discussed below-

Mars, Incorporated Mars primarily produces and distributes food products worldwide. The company offers chocolates, candies, chewing gums, rice, entrees, sauces, and beverages. Additionally, it provides dog and cat food. The company operates across North America, Europe, Russia and Commonwealth of Independent States countries, Asia Pacific, Latin America, and Africa, India and Middle East (AIME).

The company operates through six business segments: 1) petcare, chocolate, 2)Wrigley, 3)food, 4)drinks and 5) symbioscience.

The petcare segment offers a wide range of pet food products. The brands marketed by the segment include 1)Pedigree, 1)Pedigree, 2)Royal Canin, 3) Whiskas, 4) Kitekat, 5) Banfield, 6) Cesar, 7)Nutro, 8) Sheba, 9)Chappi, 10) Catsan, 11)Frolic, 12)Perfect Fit and

13)Greenies.











4) Gum and Candy. In the Chocolate Confectionery business, Cadbury has maintained its undisputed leadership over the years. Some of the key brands are 1) Cadbury Dairy Milk,

2) Bournvita,

3) 5 Star,

4) Perk, Bournville,

5) Celebrations,

6)Gems, 8) Éclairs, 10) Tang and

7)Halls, 9)Bubbaloo, 11) Oreo.

Cadbury India enjoys a value market share of over 70 percent in the chocolate category and the brand Cadbury Dairy Milk (CDM) is considered the "gold standard" for chocolates in India. Pricing strategy:

1)Cadbury has a very convenient prices for all it's products. 2) The price charged for a chocolate determines whether a consumer will buy it & the level of sales determine whether whether or not Cadbury Schweppes will make a profit. 3)Cadbury World works with a number of 3rd party promoters and businesses in













Brands in Beveragegs category

1.Nescafe 2. Nescafe Capuccino 3.Nescafe Classic 4.Nescafe Sunrise Premium 5.Nescafe Sunrise 6.Nescafe Sunrise Strong 7.Nestle gold 8.Nestle Iced Tea Competitive advantages 1)











Operational Pillars-

1.Consumer engagement 2.Operational Eficiency 3.Innovation and renovation. Competitive Advantages-

1.Unmatched product and brand portfolio. 2.Unmatched research and development capability 3.Unmatched geographic presence

4. People, culture, values, attitude











Perfetti has been following the simplest of pricing strategies. Most of it's products are available in the market at two basic price points, i.e. 50paisa for a monopack,which has a single tablet and Re. 1 for brands like Center Fresh, etc. The prices of different products do not vary from region to region, i.e. the part of the country they are being soldin, they are same throughout. But almost all of the products are available available in different kindsof packaging. packaging.

Perfetty lies in top left portion i.e. economy











Pefetti, very clearly lies in category D, where they produce their products for the mass customer base at a very low price, hence aiming at high market share. They have been able to achieve their target in almost 16 years and their pricing strategy has been a very important part of their campaign in India.

How do they compete? Different companies have different strategies and the firms producing choc olates, gum and sugar produce differentiated products, they differ in flavour, packaging, advertisement etc. So it can be said that monopolistic competition prevails in confectionery market.

Monopolistic Monopolistic competition and product differentiation The Confectionery industry in India follows a Monopolistic-type structure which combines features of perfect competition and monopoly. Monopolistic Monop olistic competition is a market type in which many firms compete by selling similar but slightly different product. We have many firms and free entry and exit, but because products are differentiated each firm can set its own price. Product differentiation leads to advertising and brand names.

Meaning of Monopolistic Monopolistic Competition











FIVE FORCES ANALYSIS The confectionery market will be analyzed taking manufacturers of chocolates, gum and sugar confectionery as players. The key buyers will be taken as retailers, and cocoa farmers and other raw material producers as the key suppliers

Summary























New entrants





















other firms have a given price. From demand curve, obtain MR , just like the case of monopoly. Firms maximize profits by setting MC=MR , and price is found from demand curve, as in monopoly case.











In the long run firms can change fixed costs (ignore this change, for simplicity) and firms can enter and exit. If firms make positive profits, new firms will enter, and the demand curve for each firm will shift to the left (as each firm has a smaller share of the total, with more firms). If firms make losses, firms exit and the demand curve shifts to the right. MR shifts in the same way. These changes will continue as long as profits are not zero.













Understanding Monopolistic Competition comparison with perfect competition In long-run equilibrium, with perfect competition, firms are at the minimum point of the ATC





















Country

2008/09

Brazil Ghana

157.0 161.2 199.8 190.0 -13.6 662.4 632.0 1024.6 890.0 -66.7 1223.2 1242.3 1511.3 1410.0 -159.3

Côte

2009/10

2010/11

2011/12

2008/09

2009/2010

2010/2011

2011/2012

4.2 -30.3 19.1

38.6 392.5 269.0

-9.8 -134.6 -101.3





















2000-01

16.5

2001-02

17.6

The Indian Confectionery Industry.docx

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