The Hindu Business Line : The K cereal strategy

Want to stick to your new-year resolution of losing weight this year? Kellogg’s India is going to make it easier with its new brand of cornflakes, Special K. Focusing on getting its strategy right for the ready-to-eat cereal market, the $11-million American multinational believes it now has a product to enter a new category and set of consumers - women aiming for weight management. Anupam Dutta, Managing Director, Kellogg’s India, says, “In today’s fast-paced environment, women are looking for a simple and tasty solution to their weight management concerns. Kellogg’s understands these concerns and for this reason has decided to introduce the new brand.”

Dutta says, “Our India strategy is going to be all about finding the elements that will understand the needs of consumers. This also does not necessarily mean that we would be bringing in just our international products.” Special K has been formulated specifically for the Indian market while continuing with its international positioning of being a weight management product. The fact that it is starting off with a challenge to consumers to lose 2.5 kg within two weeks and claims to be 98 per cent fat-free with its whole wheat composition are all modifications for the Indian market.

Kellogg’s is now segmenting the breakfast cereal market, growing at over 20 per cent, with Special K. “We believe we have created a new category with Special K in the area of foods,” says Dutta. With no other breakfast cereal brand offering the same benefit of weight management, Kellogg’s believes it has got the first-mover advantage. While its mother brand of Kellogg’s cornflakes and its variants were meant for everyone, sub-brands such as Chocos and All Bran wheat flakes have been addressing children and adults. With Special K, Kellogg will target the urban women. “Research has shown that that there are nearly 12 crore obese urban women,” says Dutta. In fact, Kellogg’s has test-marketed the product in Bangalore to gauge its acceptability and the results were extremely positive, says the company. Claims Dutta, “Eighty per cent of the consumers observed weight reduction and also felt Special K helped keep them fit. It easily fits into one’s daily routine without any substantial time and money commitment.” It is priced Rs 45 for a 140 gm pack and Rs 90 for a 290 gm pack.

In the past, Kellogg’s introduced Basmati flakes. Its honey and mango variants under cornflakes were made for this market. Dutta is not ruling out more ‘ethnic’ products but being in the cereal market is going to be the company’s agenda. Entering new product categories is not a gamble it is ready for. It had earlier ventured into new categories such as snacks (Cheez-It) and biscuits (under Kellogg’s). As Dutta says, “There is nothing that is going to hold us back from focusing on the cereal business in India. The past year has seen reasonable growth and that is our current focus.”

Kellogg’s is staying away from the overcrowded categories and wants to offer differentiated products. “Biscuits already had strong players such as Parle and Britannia and we don’t believe in being small players in this category,” says Dutta, who has been with companies such as Cadbury and Britannia. Even in snacks, bringing in Cheez-It turned out not to be a good idea. In fact, Cheez-It was acquired by Kellogg’s from Keebler Foods in May 2001 and brought to India in 2002. However, industry analysts then said Kellogg’s was caught in a bind. The company realised cornflakes could make money only in the long haul and so it needed a product to give it some accelerated growth. However, worldwide its strength was in breakfast cereals and not in snacks. According to analysts, “Kellogg’s had hoped to create a new category of branded snacks which would have brought in the immediate volumes it was looking for. Since its cereals and snacks could never ride on the same distribution chain, Kellogg’s had even taken the pains to set up a fresh distribution network.”

In the case of biscuits too, getting volumes was not an issue, but there were no profits. Kellogg’s venture into biscuits was a surprise for industry observers, as biscuits required a different kind of distribution network and Kellogg’s had limited itself to the upmarket outlets with its premium-priced cereals. According to analysts, biscuits is a distribution-driven business and in Kellogg’s case, its entry was a self-limiting proposition. Most brand extensions into biscuits have been due to the popularity of the basic brand, including Complan, Horlicks and Boost, and most have seen limited volumes and growth. Even Cadbury’s foray with a brand under Bournvita failed to make an impact.

Kellogg’s is once again betting on its core category to make an impact. Realising the market is price-sensitive, it launched a new sub-brand under KPak in lower SKUs of Rs 10. “With this, we have increased our distribution reach by 100 per cent last year. This year we are looking at adding 60-70 per cent more reach,” states Dutta. In spite of inadequate distribution, Kellogg’s has built its equity for the past 14 years in India. As Dutta says, “Our distribution reach is half of the brand’s equity reach across the country.” Claiming to grow at a higher rate than the market, Kellogg’s is still not officially disclosing whether it has managed to break even in the business in India. Bringing in the $1.5-billion Special K brand, the company’s largest, will hopefully make a difference.

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