The Hindu Business Line : Cadbury's big Bytes

Kuch meetha ho jaye suggests Cadbury India, its brand ambassador Amitabh Bachchan smiling down the hoardings lined along Mumbai's Marine Drive right down to the company's corporate head office at Mahalakshmi. While the chocolate major is waiting for Diwali to see a turnaround in its business after the worms controversy, at the moment it's all about driving growth for the category which has seen a decline since the first quarter of this year.

Being the market leader in chocolates with a 70 per cent share, the company has attempted to stretch the boundaries within chocolate confectionery. It has also been adventurous in unleashing a brand new category within chocolate early this year. Introducing the concept of sweet snacking, it launched Cadbury Bytes in the south with the positioning `Snacking ka meetha funda.' The product is a crunchy wafer pillow with a choco-cream centre and is being rolled out nationally.

Bharat Puri, Managing Director, Cadbury India

Explaining the need to introduce this new category, Bharat Puri, Managing Director, Cadbury India, says, "While we were sure of our core competencies, there was need for innovation to deliver double-digit growth. What we found was that we were under-represented in the area of snacking on the go and that there was a need for a light crunchy snack." While entry into salted snacks was ruled out, sweet snacks were the obvious choice, and Bytes is unique to the chocolate major's Indian portfolio.

Getting the right product and packaging was a challenge for the company. It has sub-contracted the product to get the volumes and is poised for a national launch. Adds Puri, "After all this was the first category anywhere in the world that Cadbury was entering and we did not have the expertise. So the best way was to test-market the product and today we find that it has already bagged five per cent of the chocolate market."

The company has no apprehensions of cannibalisation of its chocolate brands. It believes that while its chocolates are more of indulgence products, Bytes is about snacking when one is hungry and can be treated as a snack in between meals.

In the past when Cadbury tried out a biscuit brand, Chocobix, there was fear about some amount of cannibalisation. After all, it was simply a biscuit coated in chocolate, and was perceived to be another chocolate brand in Cadbury's portfolio.

Stresses Puri, "Cadbury Bytes is adjacent to chocolates and in the markets that we have launched it, there has been no cannibalisation. Chocolates is largely an indulgence product while Bytes is about between-meals snacking. A product which is consumed when one is feeling hungry or peckish."

Another thrust area Cadbury has been re-evaluating is confectionery. While growth rates in this segment are healthier compared to chocolates, it has always been a difficult market to crack. Cadbury's own experiences have led it to withdraw certain brands but now with Warner's Lambert's international kitty under its fold, there are chances of reconsidering the segment once again.

"Through the acquisition of Warner Lambert, there is a great set of brands already available to us. We are still examining which are the right brands for the Indian market," says Puri. Cadbury has already identified Halls as the strongest brand in Warner Lambert's portfolio and re-launched the brand early this year. Adds Puri, "Halls was not doing well for a while so we re-launched it this year. When you have the existing assets, it is necessary to get them right first. Halls is the first brand that we have revived and it is now doing well."

In April 2003, Cadbury India's foreign parent acquired Pfizer's interests in the confectionery business for $4.2 billion. That included the Warner-Lambert product portfolio, known best for Halls, Clorets and Chiclets. The acquisition is now poised to become a growth area for Cadbury India, whose confectionery brands include Eclairs and Googly. But instead of selling confectionery through its existing chocolate network, Cadbury has set up an entirely new network.

While Halls has been revived with new packaging, there has been no change in the status of its other brands. Chiclets had been discontinued long before it belonged to Cadbury and Clorets continues to sell with a small franchise. But now Cadbury is looking closely at Warner Lambert's gums portfolio (it is one of the world's largest gum manufacturers) and is considering its viability for the Indian market. Sugarless gum brands such as Dentyne Ice and Trident White have been known for their functional benefits worldwide but steep pricing may be a deterrent to their entry into the country.

"The gum market has not done well in India. But gum has functional properties and is not merely a breath freshener. We are now evaluating whether there is a market for them in India and whether it is going to be worth our while," says Puri.

The confectionery market may be huge in volumes but making money on it remains a tough task with its low margins. Governed by price points, one can sell at only at a Re 1 or 50 paise unit price. "The issue is not of garnering volumes but making money out of those volumes. The offer should be one which can get you both top and bottom lines," states Puri. Having shifted focus from Googly, Cadbury been tasting success with its age-old Eclairs which continue to bag almost 50 per cent of the market.

"There is scope in the market. Our Eclairs has been growing and this has been evident in our past numbers," claims Puri. At the same time the sugar confectionery market is highly competitive and it's all about finding the right consumer proposition and a business model that can deliver both topline and bottomline growth.

In spite of the new categories being explored by Cadbury, its star brand remains Cadbury Dairy Milk (CDM) which continues to corner almost 30 per cent of the chocolate market. It is followed by brands such as 5-star, Perk and Gems. Each of these has been revamped over the years to generate excitement for the category. For instance, recently Perk was rejuvenated as a crunchier wafer while CDM came up as a white-and-brown variant in the market.

"The chocolates category thrives on excitement. It's all about giving the consumer a choice and taste which they enjoy," adds Puri. For instance, in beverages, in spite of its malted food brand Bournvita, Cadbury decided to introduce a milk additive brand such as Delite, just to give its consumers the real taste of chocolate. Delite has added flavours such as strawberry and mango and is not expected to encroach upon Bournvita's shares. According to Puri, "There is still a large section of people who do not add anything to milk. This will apply to children for whom milk is a problem and having an additive will make it a pleasurable experience."

Making changes in its distribution network, Cadbury split its sales and marketing team between its mass (confectionery) and core brands last year. "Chocolates needed to get retailed at larger and better outlets while all the products below Rs 3 needed a different distribution network," says Puri. Today Cadbury's distribution network reaches out to six lakh outlets each for its confectionery and chocolate brands.

With the worms episode behind it, there are other issues bothering the company, especially that of the rising input costs of cocoa, sugar and milk. Although Cadbury has been able to maintain prices, it is still grappling with the upward trend in prices for its basic raw materials. But its challenge remains that of growing the chocolate market in spite of the odds. Posting a turnover of Rs 729 crore last year, Cadbury is waiting for Diwali to make a turnaround for both itself and the category which has been through troubled times.

Getting growth should not be an issue, according to analysts tracking the company. As Nikhil Vora, Senior Vice-President (Research), SSKI Securities, observes, "Considering the company was getting growth before the infestation episode occurred, it should not be a tall order to get back to those levels. The company should be able to record a 15 per cent compounded rate of growth over the next few years." That would be a sweet recovery indeed for Cadbury.

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