india

The market for confectionery products

in India

A report prepared for

The National Confectioners Association

January, 2005

Promar International 1101 King Street, Suite 444 Alexandria, VA 22314 USA

Tel:(703) 739-9090 Fax:(703) 739-9098

The market for confectionery products in India

A report prepared for

The National Confectioners Association

CONTENTS

EXECUTIVE SUMMARY I

SECTION 1: INTRODUCTION 1

1.1 Objectives 1 1.2 Methodology 2 1.3 Report organization 2 1.4 Exchange rate used 2

SECTION 2: INDIA: COUNTRY BACKGROUND 4

2.1 General background 4 2.2 Economic development and reforms 5 2.3 India’s people 7

2.3.1 Population and main socio-economic indicators 7 2.3.2 Age 8 2.3.3 Income 9 2.3.4 Urbanization 11

2.4 Religion 12 2.5 Consumer spending and food purchasing behavior 13

SECTION 3: THE CONFECTIONERY MARKET IN INDIA TODAY 16

3.1 General background 16 3.2 The confectionery sector 17

3.2.1 Market size 17 3.2.2 Some specific market characteristics 19 3.2.3 Manufacturers and key players 20 3.2.4 Market snapshots for 2004 21 3.2.5 Market shares and brands 23

3.3 Market segments 26

3.3.1 Chocolate confectionery 26 3.3.2 Sugar confectionery 28 3.3.3 Chewing gum 30 3.3.4 Sugar-free confectionery 32

3.4 Confectionery imports 33 3.4.1 General trade information 33 3.4.2 Key suppliers, types and brands of imported confectionery 34

3.5 Consumption 38 3.5.1 General information 38 3.5.2 Demographic and lifestyle considerations 39 3.5.3 Brand and origin awareness and perceptions 42

3.6 Pricing 43 3.7 Seasonality 44 3.8 Market forecast 44

SECTION 4: DISTRIBUTION CHANNELS 45

4.1 Overview 45 4.2 Domestic production 45 4.3 Imports 47

4.3.1 Ports of entry for imports 47 4.3.2 Geographical and logistical considerations 47 4.3.3 Handling of imports 48 4.3.4 Business relationships along the distribution chain 48

4.4 Wholesale and retail 50 4.4.1 Role and key players 50 4.4.2 Key retail players 52 4.4.3 Industry trends affecting or altering the structure of retail food sales 54 4.4.4 Types of product promotions used 55

SECTION 5: MARKET ENTRY 56

5.1 Tariffs, import and customs regulations 56 5.1.1 Import and custom regulations 56 5.1.2 Import tariffs 56 5.1.3 An example 58

5.2 Food safety, packaging, and labeling requirements 58

SECTION 6: CONCLUSIONS AND RECOMMENDATIONS 60

6.1 General prospects 60 6.2 Recommendations 61 6.3 Success stories 62

SECTION 7: INDUSTRY CONTACT INFORMATION 64

7.1 Confectionery importer-distributors and wholesalers 64 7.2 Key retail candy accounts across marketing channels 69

APPENDIX 1: INDIAN SWEETMEATS 73

APPENDIX 2: KEY MANUFACTURERS’ PROFILES 77

Cadbury India Limited 77 Nestle India Limited 79 Lotte India Corporation Ltd. 81 Nutrine Confectionery Co. Pvt Ltd 83 Candico India Limited 85 Perfetti van Melle India Pvt Ltd 87 Parle Products Pvt Ltd 89 Wrigley India Pvt Ltd and Joyco India Pvt Ltd 90 Gujarat Co-operative Milk Marketing Federation Ltd. 92 ITC Limited 94 Hindustan Lever Limited 95 The CAMPCO Ltd 97 Lotus Chocolate Company Limited 99

APPENDIX 3: TRADE INTERVIEWS 101

THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA

Executive summary

A socio-economic snapshot of India (2004) • Total population 1.1 billion • Annual population growth 1.4% • GDP per capita (purchasing power parity) $2,900 • People below the national poverty line 25% • Life expectancy at birth (years) 64 • Literacy rate, adult male 70.2% • Literacy rate, adult female 48.3% People with access to safe drinking water 88% Labor force 472 million

• Unemployment rate 9.5% Source: CIA World Factbook, the World Bank

EXECUTIVE SUMMARY

India: country background

Diverse is the one word that describes India best. With an area approximately one-third the size of the USA, it is home to over one billion people of considerable economic, ethnic, linguistic, cultural, and religious diversity. After years of socialist-oriented economy and commercial relations oriented primarily to the Soviet block, in the mid-1980s India initiated economic reforms which started opening up its consumer markets to the western world. Overall, the country has managed to maintain economic growth even during the Asian crisis in 1998. Despite the reforms and economic growth, India continued to heavily restrict imports through the 1990s. However, in compliance with WTO commitments, in 2001 it removed all quantitative restrictions, which led to rapid increase of imports to the country. Nevertheless, the government continues to discourage imports through both tariff and non-tariff barriers.

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Despite the economic growth, a very large proportion of India’s over 1 billion population continues to live in extreme poverty. On the other hand, it has the fastest growing middle class in the world and forecasts indicate rapid growth of the consuming class. There is serious disparity between the urban and rural population in India. About 70% of the population lives in rural areas where unemployment rates are higher and incomes are significantly lower. In result, there is significant migration toward urban areas in search of work and better payment. The text box highlights some socio-economic indicators of India and illustrates the seriousness of the economic and social deprivation. Typical for poorer nations, Indian consumers spend a significant proportion of their income on food. However, consistent with the positive reports and forecasts for increasing incomes, consumer expenditure on food is increasing. The confectionery market in India

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 attractive

i


Executive summary

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. 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%). 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 slow down 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 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 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. Since import restrictions were eased in 2001, imports of confectionery products have grown rapidly, although they remain tiny and only a small part of the overall confectionery market. Put into context, India’s total imports for 2002-03 and 2003-04, combined, are less than 1% by volume and value of US confectionery imports in 2003 alone.

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Executive summary

Retail chocolates and sugar confectionery account for the greatest share of total confectionery imported into India. In 2003-04, imports of retail chocolate totaled close to US $5.7 million. Imports of sugar confectionery fell close behind, totaling US $3.3 million, but registered a 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. Nevertheless, they remain very small. In the last two years, Malaysia and Singapore have been the leading suppliers of confectionery to India in terms of both value and volume. In 2003-04, the two countries accounted for more than 20% in value and more than 30% in volume of the total confectionery import market in India. However, in the last year, imports from Singapore have shown decline, particularly in volume term, while imports from the third largest supplier, the UAE, have grown almost 60% in volume terms and almost 40% in value terms. The growing importance of the UAE and the port of Dubai as center for export and re-export of confectionery products was confirmed by our suppliers, many of who indicated this as a preferred route. The US is a relatively small supplier of confectionery to India and accounted for only 4% in value and 3% in volume of India’s confectionery imports in 2003-04. However, US confectionery exports to India experienced significant growth from 2002-03 and more than doubled in value and increased roughly 80% in volume, albeit from a tiny base. Other leading suppliers that experienced significant growth in exports to India in 2003-04 included Australia, Brazil, Spain, and the UK. Confectionery exports from Spain registered the largest growth, increasing more than 500% in value and more than twice in volume. Consumption

Confectionery products have very low penetration in the Indian market. Estimates suggest that chocolate penetration has been only 5% in 2000, and of sugar boiled confectionery, 15%. Even considering the more developed urban market alone, the category reaches just 22% of the consumers. For comparison, cookies, considered to have only modest penetration, have reached 56% of Indian households. In result, annual per capita consumption is also very low. It is estimated to be just over 300g (0.7lb) for chocolate and around 600g (1.3lb) for sugar confectionery. For comparison, per capita consumption of confectionery products in the US is around 25lb. Almost all confectionery purchases in India are believed to be impulse driven. Experts indicate that sugar confectionery and gum products consumption are driven almost entirely by impulse purchasing. 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 result, in their effort to increase consumption and product penetration, marketers have started to promote some products as appropriate snacks, not just an indulgence.

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Executive summary

Brand and origin awareness

While domestically manufactured brands dominate the market and consumers have general awareness about them, foreign products and brands are becoming increasingly known. This trend is particularly noticeable in the urban areas and among middle and upper class consumers. We were consistently hearing similar comments from our respondents from all categories – manufacturers, importers and distributors, and retailers. These can be summarized as follows:

• The urban market is brand conscious; the rural market is price conscious. As one respondent put it, “in the metro areas consumers associate brand names with quality; in the rural areas, consumers associate higher prices with better quality.”

• The upscale niche market is focused on brand and image quality. Consumers are looking for known brands with good quality images. Swiss and Belgium chocolates are considered the crème de la crème. It is in the upscale niche market segment, where brand and country of origin really matter to consumers when making purchasing decisions.

• Except for the top quality chocolates, consumers are usually not aware, and generally not interested in where a product has been manufactured as long as they are familiar with the brand. For example, Tiffany is a popular brand with mass appeal mostly manufactured in the UAE. However, consumers associate it with the UK. Indeed, many of the large multinational companies have production faculties throughout the world and various distribution arrangements for different countries/regions. Thus frequently the global brand products may be manufactured at various places without consumers being aware or interested in the actual place of origin.

• Products from SE Asia and South America are more oriented to the mass market, while European and US products cater to the upscale market segments. Imported products in general are considered to be of higher quality than the domestic ones.

• Attractive packaging is very important for the brand image. Indians associate quality with good packaging. Imported brands are presented much better than Indian ones.

• US brands are less known than European ones. Mars and Hershey’s are the only US brand names with broader recognition in India. Consumers as well as the trade have generally have a good perception about the quality of US products.

Pricing

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.

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Executive summary

Most confectionery brands of Nutrine, Lotte, Wrigley’s, Perfetti, Candico, Parle, etc. are from the Rs. 0.25 to Rs. 1 price categories. Some chewing gum and bubble gums are in Re. 1, Rs. 2 and Rs. 5 categories. Most major companies including Cadbury’s and Nestle are strongly pushing sales of their Rs. 5, Rs. 7, and Rs. 12 categories. There is big difference in the prices of domestic and imported products. The general rule is that domestic products are the cheapest. Then, there are different ranges of prices for imported products, depending on the brand, country of origin, and product itself. Asian and South American products are usually moderately priced, while European and US products are the most expensive. For example, from the top end products, 100gm Lindt chocolate sells for around Rs. 130. An important factor that affects the price of the products is the Central Excise Duty payable by the organized/registered manufacturers is as follows. For sugar confectionery (without cocoa), it is 8% (recently reduced from 16%); for chocolate confectionery, it is 16%. Market forecast

The confectionery market in India is expected to continue to grow at healthy rates. Sugar confectionery will remain the largest segment, and new products like mints, lollipops and chewing gum, as well as boxed assortments will grow at the fastest rates. The mass market will continue to be very price sensitive pushing manufacturers to price discounting and offering smaller packages in order to continue penetrating the rural market. On the other hand, the niche for more upscale products will also offer new opportunities for branded products. Boxed chocolates show the greatest potential for growth within the chocolate category; chewing gum, medicated confectionery and power mints are also expected to grow rapidly, particularly among the young adults segment. Lollipops is a new category and has sparked lots of interest among children; the category is expected to continue growing in the coming years. Experts expect that the adult market will offer an additional niche for some products. As the market grows, so will imports. Nevertheless they will remain small and with limited impact on the total market. Imported confectionery products will play a role primarily in the urban areas, in the more upscale market segments. Distribution

The Indian food distribution system is characterized by a large number of intermediaries and relatively poor infrastructure, such as transportation, storage, and refrigeration facilities. It has low levels of efficiency, with the costs of distribution being rather high. Manufacturers and

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Executive summary

importers rely heavily on the middle man for the distribution of confectionery products in India. Most importers rely on distributors or wholesalers to reach retail outlets and confectionery manufacturers often rely on C&F agents or dealers to work with the wholesalers and distributors. India’s retail sector is highly unorganized, as small independent stores are the main outlet for consumer purchases. Nevertheless, the retail sector is changing and the organized sector is gaining ground with the emergence of supermarkets and hypermarkets in metropolitan India. Confectionery products are predominantly purchased in small independent food stores, known as kiranas. However, over the last five years, convenience stores, supermarkets, and hypermarkets have played an important role in the distribution of confectionery products. In 1998, confectionery retail sales in convenience stores were virtually non-existent, but today these stores account for 2% of confectionery sales. During the same period, the share of retail sales by supermarkets and hypermarkets has also increased, from roughly 6% to 8%. India’s organized retail sector remains the preferred distribution channel for branded and imported products, including confectionery. Although this sector is thought to be in its infancy, rapid growth is expected over the short to medium-term, creating greater opportunities for imported confectionery products. Importing confectionery in India is primarily dependent on the location of the importer and the markets they serve. Most of the importers operate warehouses near the major ports and, in many cases, this is the JNPT port at Mumbai. For many importers, JNPT is the easiest port to distribute products not only to Mumbai and Delhi, but also to other major commercial and metropolitan areas. If imported confectionery is destined primarily to South India or North India, importers may use the ports at Chennai and Kolkata. Most confectionery imports are imported into India by sea. However, two importers that we interviewed imported by air, though this is a more expensive option. Market access

The import tariffs for confectionery products vary from 30% to 45%. In addition, there are 16% additional CVD duty and 2% Custom Educational Cess. All imported products should fulfill the requirements of the Indian Food Law and the Standards of Weights and Measures Act. The latest issue of USDA’s FAS report on India Food and Agricultural Import Regulations and Standards from July 2004 (GAIN report # IN4077) provides excellent background and all necessary information. The report can be viewed at: http://www.fas.usda.gov/gainfiles/200407/146107003.pdf

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Executive summary

Overall, the best approach for any potential exporter to India is to establish contacts and work with experienced importers and distributors, who would be able to provide the necessary guidance. Conclusions

The Indian market for confectionery products has undergone significant changes over recent years. While penetration and consumption levels are still very low, overall sales, and particularly sales of higher value premium products have increased. The availability of imported products has also been rapidly rising since India liberalized its imports regime in 2001. Nevertheless, they are still very small leaving ample opportunities for further growth. The distribution channels have also undergone substantial changes. Supermarkets have emerged and started to gain power over other retail formats. With these changes in mind, we expect that:

• The share of imported confectionery will continue to increase over the next several years, although overall sales will remain modest. Indians’ taste will continue to become more westernized and more quality conscious. This trend will be more obvious in the urban areas among middle and upper class consumers, offering higher-end foreign brands growth opportunities. While most domestic companies also focus their new product development efforts on the mass market, a few have products targeting premium products. Nevertheless, Indians associate imported products with higher quality, and therefore respond positively to confectionery imports. The United States along with Western Europe are perceived as offering highest quality, although there is very low awareness of US confectionery products and brands.

• Indian confectioners are increasing their efforts in product development and promotional activities, and exporters will face stiffer competition from the domestic sector. On the other hand, the very low penetration and consumption levels provide ample opportunities for growth and make competition less of a constraint. However, for US exporters competition will be an important factor in the upscale niche segments, where European brands, particularly for chocolate are considered to the best.

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

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

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Executive summary

confectionery (with added vitamins and/or other minerals), as well as the new to the country sugar-free confectionery categories.

• While the traditional targets for confectionery products have been children and young people, increasing number of marketers have seen growth opportunities in targeting the adult consumer segment. This will lead to new products and marketing strategies aimed at them.

• There will continue to be opportunities for new products that appeal to the young consumer. The ever-present stimulus of novelty and fashion, encouraged by continuing exposure to western culture will keep the doors open for new products and new suppliers.

• Marketing and promotion expenditures for confectionery products will increase and distributors will require promotional support from manufacturers.

Recommendations

• 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. Importing is a relatively new business in India, and many importers may lack the knowledge and experience to ensure successful distribution of the products they deal with. Therefore, it is of critical importance to select the right partner.

• Importers and distributors may have limited financial and human resources. Thus U.S. exporters should be willing to offer as much as possible support, particularly in the initial phase of market entry.

• U.S. exporters may directly contact potential importers and distributors to select their partner(s). They may use the list of industry contacts provided in Section 6 or obtain contact through the US Embassy in New Delhi. The typical way of introduction is to send them company brochures, product catalogues, product samples, and price lists. A proper, formal introduction is important for a new entrant to make effective and productive contacts at potential partner firms.

• Mumbai and/or New Delhi are the most appropriate entry markets for US exporters. These cosmopolitan cities, with a larger number of affluent consumers exposed to western influences, as well as better developed infrastructure, are most appropriate for introduction of new US products that are generally higher priced than domestic and some imported products.

• India remains a very price sensitive market and appropriate pricing is key to the success of new products. US exporters should carefully discuss their product pricing and positioning with their chosen partners in India.

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Introduction

SECTION 1: INTRODUCTION

The Indian population represents roughly one-fifth of the global population. Many are poor and suffer deprivation. Despite this, by opening up its trade policy regime, India has attracted the interest of many seeking new investment and market opportunities in food and agriculture. Moreover, there are a number of factors suggesting more opportunities in India in the future, such as the changing trade policy climate, consistent economic growth, rapidly growing middle class, increasing urbanization, and modernization of the retail sector. Though change is relatively slow, there are clear signs of movement in the food systems and indications that the potential market is immense, and while still immature, growing rapidly. However, consumption of confectionery products is relatively low and product penetration 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. For these reasons, the decision of the National Confectioners Association (NCA) to research the Indian market for confectionery products and look at the opportunities for US exporters in India seems appropriate and timely. This report aims to provide description and understanding of the Indian market. We review the general economic and commercial environment and the developing situation in the Indian market for confectionery products. We also examine the competitive market conditions and review the general prospects for US products and potential entry strategies for US exporters.

1.1 Objectives

The specific objective of this research has been to provide US confectionery manufacturers and potential exporters to India with:

• A clear understanding of the Indian markets for confectionery products as they are today and the future market conditions in India;

• Market information necessary for making informed decisions regarding market opportunities for their products; and

• Contact information for importers and distributors to enable them to begin enquiries about exporting opportunities.

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Introduction

1.2 Methodology

We have used a combination of desk research and trade interviews. The core of the study has been based on personal interviews with various representatives of the trade. These gave us a very broad perspective of the market, market system, and the way it works. Overall, we had face-to-face interviews with 24 executives, as follows: 5 leading manufacturers, 13 leading importers, and 6 retailers, including major candy chain stores and supermarkets. A full list of contacts is given in Appendix 3. Our interviews covered a wide range of issues. In particular, we gained a view of the status quo in the market, the key players, the bases of competition, and the forces for change.

1.3 Report organization

The report is organized as follows:

• Section 2 provides general background information about India;

• Section 3 reviews the Indian confectionery market by sector;

• Section 4 look at the distribution of confectionery products in India;

• Section 5 reviews the market access issues, such as tariffs and duties, food safety, packaging, and label requirements;

• Section 6 provides our conclusions and recommendations for US exporters interested in the Indian market for confectionery products; and

• Section 7 lists some important industry contacts.

Additional information is provided in the report appendices as follows:

• Appendix 1: brief description of the Indian market for sweetmeats;

• Appendix 2: profiles of the main players in the Indian confectionery market; and

• Appendix 3: list of the respondents to our trade interviews.

1.4 Exchange rate used

In the report we have presented data in US dollars when it refers to total market and includes imports. For descriptions of domestic market developments we provide values in Indian Rupees (Rs).

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Introduction

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Figure 1: Average annual exchange rate: Rs per USD

During December 2004, there were 45 Rupees to 1 US dollar. In 1995 the value was 32 and this has steadily decreased over time (see Figure 1). The peak was in 2002, when the value of I US dollar was almost 47 rupees. At the time of writing this report, it is about 43.5 Rs.

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India: Country background

SECTION 2: INDIA: COUNTRY BACKGROUND

Diverse is the one word that describes India best. With an area approximately one-third the size of the USA, it is home to over one billion people of considerable economic, ethnic, linguistic, cultural, and religious diversity. Scale alone catches the attention of any company looking for opportunities of new investment or exporting. Food consumption differences between religions, regions and income strata are simply too diverse for quick and simple categorization and generalization. At this stage in the country’s development, there are relatively few food products consumed by the entire Indian population. In short, the Indian food market has several layers of complexity, which need to be fully understood by the outsider.

Figure 2: India

Despite this diversity in food consumption, some market segments in India are sufficiently large to attract the attention of companies willing to export to India or invest in the country. This section provides a brief description of the Indian economy today and depicts the diversity of India’s people in a way that can be used in later sections to determine the potential market opportunities for US confectionery products. Figure 3: India – political map

2.1 General background

India occupies a land territory of 2,973,190 sq. km (1,148,000 sq miles) in Southern Asia, bordering the Arabian Sea and the Bay of Bengal. By land it shares borders with Pakistan, Bangladesh, China, Nepal, Bhutan, and Burma (Myanmar). After almost two hundred years of British colonial rule, India gained its independence in 1947. Today, it has 28 states and 7 union territories (see Figure 3) with New Delhi being the capital. India considers itself the largest democracy in the world. It is a

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parliamentary federal state with a president who is elected for a five-year term by the elected members of the federal and state parliaments. In theory, the president has full executive power, but that power is actually exercised by the prime minister (head of the majority party in the federal Parliament) and his council of ministers, who are appointed by the president. Despite India’s impressive gains in economic development, investment, and output, there are also some serious concerns. These include the ongoing dispute with Pakistan over Kashmir, serious overpopulation, environmental problems, extensive poverty, and ethnic and religious strife. The Indian north is more populous than the rest of the country, with Uttar Pradesh being the most populous state in India. The north has predominantly agricultural activity, and Punjab is the leading agricultural state in the country. Industrial development is moderate. The India south is well developed and relatively affluent with strong agriculture and industry. The region is the leader of the Indian IT sector, and Bangalore and Hyderabad are considered the Indian equivalents of the US Silicon Valley. It also has good coastal and land transportation infrastructure. This combined with the relatively higher incomes make the Indian South a typical entry point for new imported products, as well as a favorite test marketing region. The India west is the best developed part of the country with comparatively higher per capita incomes. The states Maharashtra and Gujarat are considered the industrial hub of India and attract most foreign investment. Mumbai, the capital of Maharashtra, is the financial capital of the country and a very important center for industrial activity. Opposite to the Indian west, the east and northeast regions are the least developed and poorest with a huge gap between the urban and rural populations. On the other hand this region is the major source for some natural mineral resources, such as coal, iron, and bauxite.

2.2 Economic development and reforms

Until the mid-1980s, India’s inward looking socialist-oriented economic policies gave it a minor presence on the world economic stage. Despite being a founding member of the General Agreement on Tariffs and Trade (GATT), India’s focus was mainly toward developing commercial relations and trade with the Soviet bloc. The turnaround and reform of the Indian economy began in 1986 when the government initiated policies, which started opening its consumer markets to the western world. The reforms started with some tentative steps to open up the Indian marketplace to western products - both industrial and consumer. Restrictions on imports were relaxed, although very slightly. As a

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result, trade with the western world started increasing, while trade with the Soviet bloc fell. However, with the sharp rise of imports by 1990, India’s external debt almost tripled and its foreign exchange reserves dwindled to below US$1 billion. Rigidities in the domestic economy resulted in a serious slowdown in growth and a crisis of confidence. However, this crisis provided the much-needed stimulus for structural adjustment and reform. In the early 1990s, India’s highly regulated industrial policy was changed drastically as controls were scaled down. Imports were further liberalized, and foreign investment was allowed in a wide range of sectors. The momentum of liberalization slowed as a result of scandal, which undermined the credibility of the government and their reforms. The voters elected a new government in 1996, the beginning of another phase of development. The new government was not particularly reform-oriented, but it realized early on that the economic policy changes that had been made could not be reversed. Nonetheless, the government since 1996 has moved more cautiously on reforms – encouraged in part by the Asian crisis of 1998 – consolidating and institutionalizing the positive aspects and reworking the negative ones. The environment for domestic and foreign investment and trade has been progressively liberalized. Prior to the economic reforms in 1991, foreign investment in India was only $125 million. Furthermore, India’s imports were $27.9 billion and exports were $18.5 billion. However, between 1996 and 1997, foreign investment reached almost $6 billion and in 2000, imports and exports reached $50.5 billion and $42.3 billion, respectively. Since that date, they will have grown further. Import tariffs have been curbed per World Trade Organizations (WTO) commitments. In April 2001, all remaining quantitative import restrictions were removed. Nonetheless, the government continues to discourage imports through both tariff and non-tariff barriers. Today the import duties for most consumer food products range from 31% to 52%.

Figure 4: GDP growth rate As seen from Figure 4, gross domestic product (GDP) has grown rapidly over the last 10 years. After dropping to a low 1.7% growth in 1991, the economy responded positively to the wide-ranging reform measures to grow at 4.2% in 1992 and to increase to 8% by 1995. Thereafter, growth has remained over 5%, reaching 6.2% in 1999 and 2000 (real GDP for 2000 was $459.2 Source: Datamonitor and World Bank (for 2002 and 2003)

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billion).1 In contrast to the rest of Asia, India’s economy suffered little from the economic meltdown in 1998. In fact, in that year, it experienced an estimated real growth rate of 5.8%, compared with the decline experienced in most other Asian economies (e.g. Indonesia –13.1%, Korea –5.8%, and Thailand –10%). In 2003, GDP growth increased to 8% and estimates for 2004 suggest that it will be about 8.3%. In sum, India has managed to maintain economic growth despite surrounding economic turmoil, and this growth has not been at the expense of unruly inflation. While the country consistently carries a trade deficit, growth in exports has been significant. In addition, liberalization has encouraged foreign investment in the country, although such is the political environment that this wind blows hot and cold. However, despite these encouraging signs, with a per capita GDP of roughly $545 per annum, many in India are not reaping substantial economic rewards, although the overall situation in the country has improved markedly in the past decade.

2.3 India’s people

2.3.1 Population and main socio-economic indicators

The Indian population is close to 1.1 billion people, representing one-fifth of global population. There are more than 1,000 languages spoken in the country, nearly 400 of which are spoken by more than 200,000 people. However, only 18 are officially recognized, and Hindi, the primary tongue of 30% of the population, is India’s national language. Various States also have their own official languages and some of the most widely spoken ones are Punjabi, Bengali, Tamil, Gujarati, Urdu, Telugu, and Marathi. In addition, English which enjoys associate status is the most important language for international and commercial communication. India also has a very large proportion of poor people. More than 400 million live with less than $1 per day, without the resources to buy even basic foods. Almost 40% of India’s people are illiterate. The text box below highlights some socio-economic indicators of India and illustrates the seriousness of the economic and social deprivation.

1 Different sources give slightly different figures for the GDP growth. For example, Reserve Bank of India data shows GDP growth to have dropped to 0.8% in 1991 and the World Bank shows growth of 7.5% in 1995. Despite the differences the trend is clear, India has shown a healthy growth over the last 10 years and even during the Asian crisis managed to maintain much better economic indicators than many other Asian countries.

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A socio-economic snapshot of India (2004) • Total population 1.1 billion

• Annual population growth 1.4%

• GDP per capita (purchasing power parity) $2,900

• Percent of population below the national poverty line 25%

• Life expectancy at birth (years) 64

• Literacy rate, adult male 70.2%

• Literacy rate, adult female 48.3%

• Percent of population with access to safe drinking water (Year 2000) 88%

• Labor force 472 million

• Unemployment rate 9.5%

Source: CIA World Factbook, the World Bank

2.3.2 Age

The Indian population is young. As seen from Figure 5, only 5% of the population is older than 65 and over 30% is under 15 years of age. Indeed, the US Census Bureau International Database indicates that just over 50% of the population is younger than 25. Generational differences can often be translated into eating patterns. The younger generation of Indians is more westernized in their eating habits than older generations, particularly those in higher income groups. Younger professionals are more open to experimenting with food products, as their lifestyles resemble their counterparts in western societies. They consume more packaged, processed foods and give greater importance to quality, time, and convenience.

Figure 5: Population distribution by age

Under 15 years32%

15 - 64 years63%

65 years and over5%

Source: CIA World Factbook

As life expectancy increases, population growth slows down, and the population’s economic conditions continue to improve, the Indian population will gradually start to age. Nevertheless, as seen from the graphs in Figure 6, India will remain a predominantly young nation for the foreseeable future, although by 2025 the proportion of the population younger than 25 is expected to be down from 50% to about 40%.

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Figure 6: Population pyramids in India (1995 – 2050) 2.3.3 Income

Despite the progress in reducing poverty over the last years, India remains a very poor country with vast disparities between the different income groups in India. The good news, however, is that the high income class is expanding fast, middle income classes are bulging in size (especially in rural India), and the low income class is shrinking rapidly. In a recent publication, The Indian Consumer Market 1997 to 2007, the National Center of Applied Economic Research (NCAER) in India has very good news for the country’s economy.2 It concludes that for the covered period the very rich will grow six fold, the consuming class will triple, and the economic destitute will decline three fold. The NCAER breaks the population into five groups: Rich (high income), Survivors (upper middle income), Climbers (middle income), Aspirants (lower middle income), and Deprived (low income and poor). The consuming class comprises the first four categories. Each segment of the Indian population offers distinct growth and marketing opportunities. According to the NCAER, the top four segments of the population constituted a market of over 200 million people (about 20% of the population) in 1997. Based on its forecast, this group

2 The NCAER is an old and highly respected institution in India, known for the accuracy of its forecasts. Its reports are widely used for decisions made by marketers, economists, analysts, and investors.

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should grow to well over half a billion people by 2007. This ‘consuming class’ segment is the focus of attention for aspiring branded food and beverage companies. A major portion of the Indian population has very low incomes. Today, roughly one-quarter of the population is living below the nationally defined poverty line, down from over 30% in 1998. The NCAER’s report predicts that over the reviewed period the number of aspirants and deprived will decrease significantly as people shift up and into the growing ranks of the consuming class. The decline of the number of poorest people observed over the last five years is a positive sign in this direction. NCAER forecasts are made on the basis of the following assumptions: the economy will be growing by 7%; the average Indian household has 5.7 members; and electricity is available in most households. Many have found it hard to believe that the economy will touch and stay at 7% (although it has exceeded this figure in 2003 and 2004), or that electricity can be a presumed a stable service (although power sector reforms which are currently underway can bring in efficiencies). Going by NCAER’s assumptions, in the year 2007:

• 40% of the house-holds will have washing machines;

• 100% will have more than one wrist watch;

• 77% will have refrigerators;

• 94%, pressure cookers;

• 57%, color televisions; and

• 61%, two wheelers.

This expected prosperity, will not simply be the result of investments, creation of jobs, and the consequent rise in disposable incomes. Simultaneous with the rise in economic growth, is a predicted fall in population growth. In the 1990s the population grew at about 2.2%, while it has now declined 1.4%.3 The combination of all these factors has resulted in higher per capita income. In summary, the punch-line of the NCAER forecast might well be the following:

• By the year 2007, the combined numbers of the upper-classes (annual income between Rs.45,000 and Rs.215,000) and the 'very rich' (Rs.215,000+) will outnumber the households with less than Rs.45,000 a year!

The development of a market segment with the economic resources to express a choice represents an opportunity for US exporters of products.

3 Depending on the source, this figure varies from 1.4 to 1.7%. Nevertheless, the downward trend is clearly visible.

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2.3.4 Urbanization

One of the most significant demographic developments in India is the shift of the rural population to urban centers, caused primarily by the underemployed agricultural laborers who move to towns and cities in search of work. However, despite the rapid growth of urban population, India is still a primarily rural country with about 70% of the population living in rural villages. As Figure 7 shows, it is expected that the urban population will continue to grow at least 4% per annum, while the rural population will decline.

Source: United Nations

Figure 7: Population growth projections

0200400600800

1,0001,2001,4001,600

2000 2005 2010 2015 2020 2025 2030

Mill

ion

Rural Urban

The migration towards the urban centers has also expanded smaller towns and cities resulting in their growth and further development. Today there are about 35 Indian cities with a population exceeding one million, compared to about 25 cities in 1997. The rapidly developing economy is reaching smaller cities creating a “swelling base of affluent, upwardly, mobile consumer with the same needs, wants, and desires as the residents of bigger cities”, according to KSA Technopak, India’s largest management consulting company. This observation is confirmed by NCAER’s research, which indicates that over half of the 10.7 million households with income of less than Rs. I million ($23,000) live in smaller cities. But even more, the report also indicates a big rise in number of the rich households with incomes of Rs. 1 to 5 million in the smaller cities. Overall, in the urban areas, most social-economic indicators are significantly better that nation’s average. The urban population is the most important target market for imported products for several reasons. Income is one of the most important factors and it is approximately much higher in the urban areas than in rural India. They are the exclusive market for various imported and more expensive products. According to a recent consumer survey conducted by KSA Technopak, urban consumers spent over US$ 30 billion on themselves in 2002, a 12% year-on-year increase.4 Even more, the company predicts that annual increase in consumer spending will jump to over 15% by 2008. In addition, the major urban areas have a more developed food distribution system, another reason for being an important target for imported food products. Large cities have a variety of

4 The survey is based on a sample of 10,000 four-member families with earnings slightly higher than the average in 20 Indian cities.

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restaurants, including westernized chain restaurants and some large chain grocery retailers. Indeed, Knight Frank, India, a major real estate and property management company, ranks India fifth in the list of 30 emerging retail markets globally, and predicts 20% growth for the segment by 2010. The "brand-conscious urban population", which "forms the largest segment of demand for the majority of retailers has grown over 3% a year over the past decade," according to Knight Frank, India who also says that the organized retail segment is expected to grow from a mere 2% to 20% by the end of the decade. This is not surprising, considering that the organized retail sector is growing at 8.5% per annum. Despite its deprived position compared to the urban market, rural markets are also growing. Although on a smaller scale, the economic development has had its impact on rural areas as well. In addition, infrastructural development (including of the service sector) and the improved performance of the agricultural sector will contribute to the further growth of this market segment. However, unlike the increasingly ‘brand conscious’ urban consumers, rural consumers are, and will remain extremely price sensitive. Thus, although they are an increasingly important target for domestic FMCG, including confectionery products, the focus of marketers of imported goods remains on the more affluent and westernized urban segment.

2.4 Religion Figure 8:

Religious breakdown of the Indian population

Source: CIA World Factbook

Hindu81%

Sikh2%

Christian2%

Muslim12%

Other3% Others, include

Buddhist, Jain, Parsi

Food habits in India are influenced by religious principles. As seen from Figure 8, Hinduism is dominant but India is also the home of a wide range of other religions. Despite the common belief that most Indians are vegetarians, over 75% of the population eats meat. However, there are some taboos on the specific foods and meat in particular. The table below outlines some of the eating practices of the major Indian religions.

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Religion Eating habits

Hinduism All income groups in upper castes are strict vegetarians Lower castes are mostly non-vegetarians Taboo on beef in all castes, as bovines are considered sacred

Islam Non-vegetarian Taboo on pork Preference for halal meat

Christianity Mostly non-vegetarian with no taboos

Sikhism Some sects are vegetarians, and some are not

Buddhism Mostly vegetarian

Jainism Strict vegetarians

2.5 Consumer spending and food purchasing behavior

Although it is the second most populous country in the world and despite the positive forecasts for economic development and increasing incomes, India is still a very poor country. This reflects on the levels of consumer spending and as seen from the table below, South Asia accounts for only a small percentage of the overall global consumer spending despite the large proportion of population it represents.

Consumer Spending and Population, by Region, 2000

Region

Share of World Private Consumption Expenditures

Share of World

Population

( percent )

United States and Canada 31.5 5.2

Western Europe 28.7 6.4

East Asia and Pacific 21.4 32.9

Latin America and the Caribbean 6.7 8.5

Eastern Europe and Central Asia 3.3 7.9

South Asia 2.0 22.4

Australia and New Zealand 1.5 0.4

Middle East and North Africa 1.4 4.1

Sub-Saharan Africa 1.2 10.9

Source: the Worldwatch Institute

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Typical for poorer nations, Indian consumers spend a significant proportion of their income on food. However, consistent with the positive reports and forecasts for increasing incomes consumer expenditure on food is estimated to have been close to Rs. 6 billion in 2002, a 6.6% current value growth over 2001.5 Also, it has been estimated that Indian consumers have spent just under 40% of their annual income on food, down from 44% in 2000. Most of this is spent on basic food items, such as grains, pulses, vegetable, oils, sugar; however, in recent years an increased spending on higher value products has been a noticeable trend. Indians have a very strong preference for fresh products which are generally perceived to be healthier, as well as for traditional spices and ingredients. Indians are notoriously conservative about food and many strictly follow traditional ethnic and dietary habits which is a barrier to the growth of the packaged foods sector. The generally higher prices of packaged foods, also put them beyond reach for a large proportion of the population. Hence, the according to trade experts, packaged foods account for only about 5% of the total food consumption in India. Sales are generated mostly in the urban areas, and in 2003 have accounted for about three quarters of the total sales of packaged foods in India. However, with rising incomes and changing lifestyles (e.g. more westernized younger consumers, more women entering the workforce, less time available for cooking from scratch) sales of packaged foods are expected to increase, although at relatively slow rates. It is also expected that rural India will contribute to this growth as average incomes rise and the distribution network and infrastructure develop. The table below shows the retail sales of packaged foods for the 1998 – 2003 period. Ice cream and frozen foods have been the fastest growing categories, but bakery products are the largest category, accounting for about a third of the total sales of packaged foods. Although sales have been modest, the confectionery products segment has been growing at a healthy rate.

Retail sales of packaged foods (in billion Rupees)

1998 1999 2000 2001 2002 2003 Average annual growth

Confectionery 17 18 20 22 24 26 9%

Bakery products 72 79 87 96 104 113 9%

Ice cream 3 4 5 5 6 7 19%

Dairy products 41 44 48 53 59 65 10%

Sweet and savory snacks 4 4 5 6 6 7 12%

Snack bars - - - - - - -

5 Source: Euromonitor

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1998 1999 2000 2001 2002 2003 Average annual growth

Meal replacement products 3 3 3 3 4 4 7%

Ready meals - - - - - - -

Soup 0.3 0.3 0.3 0.4 0.4 0.4 7%

Pasta - - - - - - -

Noodles 2 2 2 2 3 3 10%

Canned food 1 1 1 1 1 1 0%

Frozen food 2 2 3 3 3 4 17%

Dried food 14 15 17 19 21 23 10%

Chilled food - - - - - - -

Oils and fats 56 59 62 66 69 73 5%

Sauces, dressings, condiments 8 9 10 11 12 14 12%

Baby food 2 3 3 3 3 3 10%

Spreads 2 2 2 2 2 2 0%

Packaged food6 225 245 266 291 316 342 9% Source: Euromonitor

6 The sum of sectors does not equal the total packaged foods because of double counting. For example, canned soups are included in soups and canned food.

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The confectionery market in India today

SECTION 3: THE CONFECTIONERY MARKET IN INDIA TODAY

3.1 General background

The chocolate and 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 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. Compared to the conventional fast moving consumer goods (FMCG), the confectionery segment in India offers significantly higher potential for growth. For example, over the past five years toilet soaps and detergents reached over 90% of the Indian households, while according to ORG-MARG estimates, chocolate penetration in 2000 was 5% and of sugar boiled confectionery, 15%.7 Even considering the urban market alone, the category reaches just 22% of the urban consumers. For comparison, cookies, considered to have modest penetration have reached 56% of the Indian households. Clearly the confectionery sector, which has been showing healthy growth over the last years, still has considerable potential to grow before it reaches saturation point, as have traditional FMCG products such as soaps and detergents. Indeed, the confectionery market in India is witnessing tremendous activity. Regular product launches, high decibel media activity, consumer promotions and trade promotions make this one of the most hyperactive categories in the Indian market. The Indian confectionery market is segmented into sugar-boiled confectionery, chocolates, mints and chewing gums. Sugar-boiled confectionery, consisting of hard-boiled candy, toffees and other sugar-based candies, is the largest of the segments and, according to some key industry players we spoke to, it is valued at around Rs. 20,000 million. Some of the largest multinational companies active in the confectionery sector, like Cadbury, Nestle and Perfetti, have already invested in India and others keep entering the market (e.g. Lotte in 2004). Also, global mergers and acquisitions have

A note on data availability and accuracy We have made our best effort to provide as accurate and comprehensive data as possible. However, it should be kept in mind that official statistics about the confectionery sector in India are scarce and there is a large ‘gray’ sector that is unaccounted for by official sources. Most of the numbers we quote in this report are based on estimates of some of the main industry players. In result, there are some inconsistencies.

7 ORG-MARG is a Mumbai based market research company specializing in consumer behavior, entertainment information, media information and precision marketing. It also has exclusive professional alliances with international leaders in a number of specialist areas of market research and is part of the VNU, The Netherlands – which belongs to AC Nielsen network of market research companies.

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resulted in consolidation of some of the major players in this segment in India (e.g. Perfetti with Van Melle, Joyco with Wrigley, and Lotte with Parry’s). Some large Indian companies have also entered the confectionery market by leveraging their overall brand equity and distribution infrastructure for their existing product lines. In result of these active developments and the positive socio-economic changes in India, both per capita consumption and availability of higher quality products are expected to grow in the coming future. At the same time, India’s confectionery market is very price-sensitive, which makes it difficult for marketers to raise prices. This price sensitivity plays to the advantage of a large unorganized production sector in India. These are numerous small scale/backyard operators who are not registered and do not pay excise duties to the government. At the same time they maintain very low operational costs. These factors allow them to sell at very low prices and to achieve significantly higher margins than the organized sector. However, there are clear signs for a growing market segment for higher value products. With the growth of the middle class, increasing number of consumers are willing to pay a premium for quality, which has given a boost to product and packaging innovation. Brand consciousness is growing in this category as well. Last but not least, any review of the Indian confectionery sector should take into account the traditional sweetmeat sector. While not directly included in the scope of this study, Indians have strongly ingrained traditions and tastes, and frequently prefer and seek the traditional sweetmeats they are used to instead of a chocolate or other confectionery product. Thus, sweetmeats directly compete for consumer stomach share. In addition, sweetmeats are generally cheaper, a very important factor in the price sensitive Indian market. A brief description of the sweetmeat market is given in Appendix 1.

3.2 The confectionery sector

3.2.1 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, as illustrated in Figure 9.

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Figure 9: The Indian confectionery market – 138,000MT

• Candies & Toffees 68,000 MT • Chocolates 22,500 MT • Breath Fresheners 7,000 MT • Bubble Gum 14,000 MT • Chewing Gum 3,350 MT • Other Categories 23,150 MT

Other17%

Chewing gum2%

Bubble gum10%

Breath fresheners5%

Chocolates16%

Candies & toffees50%

Source: Industry experts and leading manufacturers estimates, Promar’s trade interviews

As seen from Figures 10 and 11 below, retail sales have shown healthy growth over the last several years. Indeed, over the 1998-2003 period overall 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), close to US$26 billion worth of confectionery products were sold in the US. 8 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 slow down that India experienced in 2000-2002 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 in India are also actively marketing to rural India, where penetration is even lower than the average for the country. 8 The average exchange rate for 2003 was Rs. 46.66 for US$1.

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Figure 10: Retail sales of confectionery products

0

5

10

15

20

25

30

1998 1999 2000 2001 2002 2003

Billi

on R

s.

Chocolate confectionery Sugar confectionery Gum

0

20

40

60

80

100

120

140

1998 1999 2000 2001 2002 2003

Tho

usan

d M

T

Chocolate confectionery Sugar confectionery Gum

a) Value b) Volume

Source: Euromonitor

Figure 11: 1998 -2003 confectionery sales growth

7.8

9.1

7.8

9.58.5

9.4

7.9

9.

8

0

2

4

6

8

10

12

Value Volume

Perc

enta

ge

Chocolate confectionery Sugar confectionery Gum Confectionery

59.8

45.8

54.4

45.5

57.3

50.256.8

46.2

0

10

20

30

40

50

60

70

Value Volume

Perc

enta

ge

Chocolate confectionery Sugar confectionery Gum Confectionery

b) Total growth

a) Average annual growth rate

Source: Euromonitor

3.2.2 Some specific market characteristics

Some specific characteristics of the Indian confectionery market, compared to the developed western markets are:

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

• 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.

• 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.

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

• 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.

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

• 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.

• 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 chocolates confectionery.

• There is strong growth potential for chocolate; sales of chocolate confectionery are expected to continue to grow by more than 8% per year in value terms. This is due to the low penetration of chocolate confectionery in rural areas as well as the general low consumption of such products among adults.

3.2.3 Manufacturers and key players

The organized confectionery segment in India segment is dominated by the multinational companies; however, domestic players are increasingly finding a prominent position in the market. The key players in the confectionery sector in India today are:

• Cadbury India Ltd is the largest manufacturer of chocolate, confectionery and malted food products.

• Nestle India Ltd is a manufacturer and marketer of coffee, tea, malted beverages, instant baby cereals & foods, milk products, chocolates and confectionery, instant foods and culinary products.

• Lotte India Corporation Ltd is primarily a manufacturer and marketer of sugar boiled confectionery, cocoa and milk based toffees, candies and mints.

• Nutrine Confectionery Co Pvt Ltd is a manufacture and marketer of sugar boiled confectionery, cocoa & milk based toffees, candies, éclairs and fruit bars.

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• Candico India Ltd is a manufacturer and marketer of sugar boiled confectionery,

candies, gums, mints and toffees. They are also the largest contract manufacturer for various Indian and overseas confectionery companies.

• Perfetti Van Melle India Ltd is a manufacturer and marketer of sugar based confectionery and is a leader in the candy and gum segments of the confectionery market.

• Parle Products Pvt Ltd is a manufacturer and marketer of cookies, sugar boiled confectionery, and cocoa and milk based toffees.

• Wrigley India Pvt Ltd is a manufacturer and marketer of chewing gum (Wrigley brands) and sugar based confectionery, bubble gum, chewing gum and candy (Joyco brands).

• Gujarat Cooperative Milk Marketing Federation is India's largest food products marketing organization and manufacturer of milk and milk products, ice creams, chocolate and confectionery, and ready to eat products.

• ITC Foods, a division of ITC Ltd made a foray in the confectionery market in year 2002.

• Hindustan Lever Ltd, India’s leading FMGC company, has a presence in the confectionery market since 2001.

• The CAMPCO Ltd is a leading processor of cocoa and cocoa based industrial products and has a small presence in the branded chocolate sector.

• Lotus Chocolates Co. Ltd is another processor of cocoa and cocoa based industrial products with a small presence in the branded chocolate sector.

In addition, India also has a large unorganized manufacturing sector, of small producers offering very low priced products. There are no statistics about the size of the unorganized sector, but according to some industry sources, the unorganized sector can account for up to 50% of the market. We believe that this figure is exaggerated, but the main point is that the unorganized sector still plays a very important role in India, although it will gradually begin to decline. 3.2.4 Market snapshots for 2004

The confectionery industry in India has experienced some hectic activity in the year 2004.

• January 2004 - Lotte Confectionery Co Ltd, Korea acquired a 60.39% stake of Parry’s Confectionery Ltd from the Chennai-based Murugappa Group. Also in September 2004, Parry’s Confectionery Ltd officially became Lotte India Corporation Ltd.

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• January 2004 - Wm Wrigley Jr Co’s global acquisition of Spanish major Joyco

Group saw a significant restructuring of operations involving the two Indian companies, Joyco India Pvt Limited and Wrigley India Private Limited. In May 2004, the Wrigley-Joyco combination in India announced that they will operate as a single entity, Wrigley India Pvt Ltd, and will consolidate and market brands of both companies in India.

• April 2004 - Sweet World, a Mumbai based candy chain announced their plans to open 20 outlets across India by 2005. The candy market in India set to experience significant action and innovation.

• June 2004 - Effem India Pvt Ltd., a wholly owned subsidiary of Mars Inc., USA, announced that it is consolidating the presence of its flagship chocolate brands Mars, Twix, Snickers and Bounty in India through imports. Imports commenced in August 2004.

• September 2004 - Perfetti van Melle India Pvt Ltd announced an additional investment of Rs. 2000m in India to increase its manufacturing capacity for marketing and brand building. Parfetti also announced the upgrading of the Van Melle unit, which it had acquired after the global acquisition of Van Melle in 2002. The Chennai unit will increase production of the former Van Melle brands - Marbels, Mentos and Fruittella.

• October 2004 - Candico India Ltd became the 1st Indian multinational confectionery company to setup a manufacturing unit in Tanzania with an investment of US$1million.

• October 2004 - Cadbury India Ltd announced its foray into the confectionery sector with the re-launch of Adam’s Halls and Clorets lozenges, formerly Warner Lambert India Pvt Ltd brands. This was consequent to the acquisition of the global non-chocolate confectionery business of Pfizer Inc., USA by Cadbury Schweppes plc., UK, in 2002. Cadbury India Ltd announced that it will strengthen its position in the confectionery sector with the launch of gums in 2005.

• November 2004 – The Rs. 7500m Delhi based DS Group announced a Rs. 750m joint venture with Lotte Company Japan, to manufacture chewing gum, chocolate, candy and other confectionery in India by setting up a new plant by 2005.

• December 2004 - Nutrine Confectionery Co. Pvt Ltd announced an investment of Rs. 100m to install a new candy process line for manufacturing deposit candies.

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3.2.5 Market shares and brands

Cadbury India, Ltd. has by far the largest market share in the confectionery sector. Although other players are catching up, its leading position will remain unthreatened for the coming years. The following table specifies the sales market shares of the leading companies in India for 2001 and 2002.

Confectionery companies shares Company 2001 2002

(% retail value)

Cadbury India Ltd 30 29.6

Perfetti Van Melle India Ltd 14.2 14.4

Nestlé India Ltd 9.8 10.2

Nutrine Confectionery Co Ltd 7.5 7.4

Joyco India Ltd 5.7 5.8

Parle Products Ltd 4.7 4.6

Parry's Confectionery Ltd9 4.6 4.5

Ravalgaon Sugar Farms Ltd 2.1 2.1

Hindustan Lever Ltd 1.7 1.7

Gujarat Co-op Milk Marketing Federation Ltd 1.4 1.5

Warner-Lambert India Pvt Ltd 1.2 1.2

Candico India Ltd 1.1 0.9

Wrigley India Pte Ltd 0.4 0.4

Agro Tech Foods Ltd - 0.2

Ferrero SpA 0.1 0.1

Private Label 0.6 0.6

Others 14.8 14.6

Total 100 100

Source: Euromonitor

More detailed profiles of the main players are given in Appendix 2. From a bulk market for confectionery products, India is quickly transforming into a market for branded products. Today’s consumers, particularly from the middle and upper classes, are brand aware and to a great extent their perceptions about the quality and value of any given product is based on the image of the brand rather than on the country of origin or other factors. In result, all leading companies in the sector are focused on developing and promoting their main brands

9 After being purchased by Lotte Confectionery Co Ltd. Korea in 2004, the company was renamed to Lotte India Corporation Ltd.

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through creative marketing and advertising strategies. Cadbury India’s brands have by far a leading position in terms of sales; it has four brands among the top 10 selling brands. Cadbury’s Dairy Milk brand is the most popular in India, with sales share (in value terms) of over 12%, far ahead of the second best seller, Perfetti’s Alpenliebe. The following table shows the leading chocolate and confectionery brands in India.

Confectionery brands shares (percentage of retail value) Company Brand 2001 2002

Cadbury's Dairy Milk 12.4% 12.3%

Cadbury's Dairy Milk Éclairs 4.1% 4%

Cadbury's 5 Star 4% 3.9%

Cadbury's Perk 3.6% 3.5%

Cadbury's Celebrations 1.9% 2%

Cadbury's Gems 1.5% 1.4%

Googly 0.2% 0.3%

Cadbury's Mr Pops 0.3% 0.3%

Cadbury India Ltd

Trebor 0.3% 0.3%

Halls 1% 1% Warner-Lambert India Pvt Ltd10

Clorets 0.2% 0.2%

Total for Cadbury’s brands 29.5% 29.2%

Alpenliebe 4.8% 4.7%

Big Babol 4% 4%

Center 1.8% 1.9%

Cofitos 1.4% 1.3%

Chlor-Mint 1% 1.1%

Mentos 0.7% 0.7%

Fruit-tella 0.5% 0.5%

Perfetti Van Melle India Ltd

Marbels 0.1% 0.1%

Total for Perfetti’s brands 14.3% 14.3%

Kit Kat 4% 4%

Nestlé Classic 2.1% 2.3%

Polo 1% 1%

Milkybar 0.7% 0.7%

Munch 0.4% 0.6%

Nestlé Bar One 0.4% 0.4%

Nestlé India Ltd

Soothers 0.3% 0.3%

10 Warner Lambert’s brands are currently part of Cadbury’s portfolio, a result of the purchase of Pfizer’s confectionery business in 2002.

24



Company Brand 2001 2002

After Eight 0.2% 0.2%

Frutips 0.1% 0.1%

Total for Nestlé’s brands 9.2% 9.6%

Maha Lacto 3.1% 3%

Nutrine 2% 2%

Koka Naka 1% 1%

Nutrine Confectionery Co Ltd

Naturo Fruit Bar 0.4% 0.4%

Total for Nurine’s brands 6.5% 6.4%

Boomer 3.8% 3.8%

Pim Pom 1.6% 1.6%

Bonkers 0.2% 0.2%

Joyco India Ltd

Trex 0.1% 0.1%

Wrigley India Pte Ltd Doublemint 0.3% 0.3%

Total for Wrigley/Joyco’s brands11 6% 6%

Kismi 2.7% 2.7%

Parle Mango Bite 0.8% 0.8%

Parle Poppins 0.5% 0.5%

Parle Orange Candy 0.2% 0.2%

Parle Products Ltd

Parle Mint Extra Strong 0.1% 0.1%

Total Parle’s brands 4.3% 4.3%

Coffy Bite 2.5% 2.5% Parry's Confectionery Ltd

Lacto King 1.4% 1.3%

Total for Parry’s (Lotte)12 brands 3.9% 3.8%

Hindustan Lever Ltd Max 1.7% 1.7%

Gujarat Co-op Milk Marketing Amul 1.4% 1.5%

Private Label 0.6% 0.6%

Others 22.6% 22.4%

Total 100% 100%

Source: Euromonitor

11 In 2004 Wm. Wrigley acquired the confectionery business of Joyco Group, Spain, of which Joyco India was a fully owned subsidiary. 12 In 2004, the Muragappa Group, owner of Parry’s Confectionery Ltd. sold 60.4% of Parry’s to Lotte Confectionery Co Ltd., Korea and the company was renamed to Lotte, India, Ltd. Lotte Korea is expected to acquire the remaining shares in the near future.

25



3.3 Market segments

3.3.1 Chocolate confectionery

Although chocolate confectionery represents less than 20% of the total confectionery market in India in volume terms, its share in value terms is about 40%. It is also the fastest growing confectionery segment in value terms with average annual growth close to 10% (see Figures 10 and 11). However, it should be noted that despite the healthy growth potential, this is still a very small market with sales concentrated primarily in the better-off urban areas. As seen from Figure 13 below, chocolate tablets dominate the market, accounting for about half of all chocolate sales of about Rs. 10 billion (27 thousand MT) in India. Countlines is the second largest segment, followed by boxed assortments. Tablets also have shown strongest average annual growth rate (Figure 14). This however, is matched by the growth rate for the various boxed assortments which are becoming increasingly popular to be given as gifts. Milk chocolate is strongly preferred to dark and bitterer chocolates. It is estimated that about 75% of the volume of tablet chocolate sold is plain milk, while dark or white chocolates account for about 8% and 4% respectively, with the remainder being various filled chocolates (Figure 12).

Plain milk75%

Plain white4%

Plain dark8%

Filled13%

Figure 12: Tablet chocolate sales by type

Source: Euromonitor

Figure 13: Chocolate confectionery retail sales

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1998 1999 2000 2001 2002 2003

Billi

on R

s.

Tablets CountlinesBagged selflines/softlines Boxed assortmentsOther chocolate confectionery

0

5

10

15

20

25

30

1998 1999 2000 2001 2002 2003

Tho

usan

d M

T

Tablets CountlinesBagged selflines/softlines Boxed assortmentsOther chocolate confectionery

a) Value

b) Volume

Source: Euromonitor

26



Figure 14: 1998 – 2003 chocolate confectionery sales growth

a) Average annual growth rate

10.1

7.9

9.5

7.7

5.7

10.19.0

9.8

7.87.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Value Volume

Perc

enta

ge

Tablets Countlines Bagged selflines/softlinesBoxed assortments Chocolate confectionery

62

46 4545

32

5460

46

5862

0

10

20

30

40

50

60

70

Value Volume

Perc

enta

ge

Tablets Countlines Bagged selflines/softlinesBoxed assortments Chocolate confectionery

b) Total growth

Source: Euromonitor

As seen in Figure 15, Cadbury and Nestle completely dominate the chocolate market segment. Cadbury is a very strong number one, but in recent years Nestle has toughened the competition by launching new products and targeting the mass market with lower priced products. In result, Nestle is gradually earning some additional market share (from 20% in 2001 to over 21% in 2002). Despite the gains, Cadbury’s leading position seems to be unthreatened for the foreseeable future. The Gujarat Milk Cooperative Marketing Federation, Ltd. (GCMMF) is a distant number three; it has found it difficult to leverage its leading position in the dairy sector into the confectionery market. However, it has also started a major effort to broaden its reach by launching new products and targeting the children and teens consumer segment. Finally, the respondents to our trade survey reported that some imported brands have started gaining popularity in India. In the upscale niche market segment these are mostly Swiss and Belgium chocolates, while in the mass market there is a broader spectrum of brands manufactured in Malaysia, Thailand, Argentina, and other countries.

Figure 15: Companies’ retail value share in the chocolate confectionery sector

Others9.4%

Cadbury India Ltd66.2%

GCMMF3.8%

Nestlé India Ltd20.3%

Ferrero SpA0.3%

GCMMF4.0%

Others9.4%

Ferrero SpA0.3%

Nestlé India Ltd21.4%

Cadbury India Ltd64.9%

a) 2001

b) 2002

Source: Euromonitor

27



Cadbury’s Dairy Milk is the leading chocolate brand with about 32% share of the value of retail sales. Nestlé’s Kit Kat is second with just over 10% share, closely followed by Cadbury’s 5 Star, and Cadbury’s Perk. Other brands with noticeable market presence are Nestle Classic, Cadbury’s Celebrations, Amul (of GCMMF), Cadbury’s Gems, Munch (Nestle), Nestle Bar One, After Eight (Nestle), Ferrero Rocher (Ferrero SpA), Nestle Choco, Stick, and Cadbury’s Chocki. In addition to the major companies, there are numerous small chocolates manufacturers operating in India taking advantage of the premium end segment. A few, worth mentioning are:

• Mumbai based Fantasie Chocolates

• New Delhi and Bangalore based Choco Swiss

• New Delhi based Belgique Chocolates

Also, many housewives have taken the business of chocolate making seriously and operate during the festival season (for e.g. Rakhi, Diwali, Christmas, New Year). Trade estimates suggest that there are about 15,000 – 20,000 housewives in India who are making chocolates professionally, not just as a hobby or for home consumption. According to a major manufacturer of bulk chocolate, the bulk chocolate market in India is about 8,000 – 10,000 MT, and a major part of this is utilized by the homemade chocolate segment, in addition to the bakery, and ice cream industries. Many of these home-based operations market and sell chocolates online and frequently they claim to be using Belgian and Swiss ingredients. According to the respondents to our survey, this is a relatively new trend that was not seen five years ago. 3.3.2 Sugar confectionery

This is the largest confectionery sector in India both in value and volume terms. Accounting for about half of the total confectionery market, the sugar confectionery segment is also showing healthy growth, primarily due to the low-price strategies and discounts offered by the main players. As seen from Figure 16, the toffees/caramels/nougats segment is by far the largest, followed by sugar boiled sweets and mints. In terms of growth however, mints sales have been growing the fastest over the last 5 years (Figure 17). Lollipops are a new product in the Indian market which first registered noticeable presence in the market in 2002, but for the 2002-03 period, they have also registered growth of over 10%, the same as mints. Forecasts show that lollipops will continue to strengthen their market position.

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Figure 16: Sugar confectionery retail sales

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

1998 1999 2000 2001 2002 2003

Billi

on R

s.

Toffees, caramels, nougat Boiled sweetsMints Pastilles, gums, jellies, chewsMedicated confectionery Lollipops

0102030405060708090

1998 1999 2000 2001 2002 2003

Tho

usan

d M

T

Toffees, caramels and nougat Boiled sweetsMints Pastilles, gums, jellies and chewsLollipops Medicated confectionery

b) Volume a) Value

Source: Euromonitor

Figure 17: Sugar confectionary sales 1998 – 2003 growth

9.89.38.18

7.2

5.1

6.7

4.6

9.17.8

11.5

6.8

0

2

4

6

8

10

12

14

Value Volume

Perc

enta

ge

Mints Medicated confectioneryToffees, caramels and nougat Pastilles, gums, jellies and chewsBoiled sweets Sugar confectionery

59.756.347.946.8

41.4

28.2

38.6

25

54.4

45.5

72.2

39.3

0

1020

3040

50

6070

80

Value Volume

Perc

enta

ge

Mints Medicated confectioneryToffees, caramels and nougat Pastilles, gums, jellies and chewsBoiled sweets Sugar confectionery

a) Average annual growth

b) Total growth

Source: Euromonitor

The sugar confectionery segment is highly fragmented with over 20 companies in the organized sector and a proliferation of unorganized players which according to industry sources account for nearly 5,000 brands and numerous manufacturers. The unorganized sector has been traditionally operating through huge trade margins and relying on trade push. Over 70% of the products sold in this segment are in the 50 paise category. However, there are clear trends in favor of the organized sector due to better products, improved merchandising and brand-building activities. With customers also becoming increasingly quality conscious, the share of the unorganized sector in this category has been gradually shrinking. In addition, the recent reduction of the excise tariff for sugar confectionery to 8% has further reduced the competitive disadvantage which the unorganized sector had.13

13 For more information on prices , taxes, and tariffs, see Section 5.

29



Unlike the chocolate segment, company and brand leadership is less dominant, leading to stronger competition among the main players. Perfetti Van Melle is the leader in terms of sales, but it is closely challenged by Nutrine and Cadbury, followed by Parle, Lotte (Parry’s Confectionery), and several others. The top five account for over 60% of the retail sales of sugar confectionery in India. The table below lists the share of retail sales of the main players.

Share of sugar confectionery retail sales Company 2001 2002

1. Perfetti Van Melle India Ltd 16.9% 17.1%

2. Nutrine Confectionery Co Ltd 15.1% 15%

3. Cadbury India Ltd 9.8% 9.8%

4. Parle Products Ltd 9.4% 9.4%

5. Parry's Confectionery Ltd* 9.2% 9.2%

6. Ravalgaon Sugar Farms Ltd 4.2% 4.2%

7. Nestlé India Ltd 4.1% 4%

8. Joyco India Ltd 3.7% 3.8%

9. Hindustan Lever Ltd 3.4% 3.4%

10. Warner-Lambert India Pvt Ltd 2.4% 2.4%

11. Private Label 1.3% 1.3%

12. Agro Tech Foods Ltd 0.5%

13. Candico India Ltd 0.4%

14. Others 20.2% 19.9%

Total 100% 100%

* Purchased by Lotte in 2004 and renamed to Lotte India

Source: Euromonitor

No single brand commands more than 10% share. The two largest ones are Alpenliebe of Perfetti Van Melle and Cadbury’s Dairy Milk Éclairs with 10% and 8% respectively, followed by a myriad of other brands. Since Cadbury acquired Warner Lambert’s confectionery business, it has been making a strong push to develop its brands (Clorets, and Adam’s Halls). 3.3.3 Chewing gum

This a smaller but fast growing segment of the confectionery market in India. As seen from Figure 18 below, the market is driven primarily by sales of bubble gum to children which accounts for over 75% of the total value of gum retail sales in India. Chewing gums like mints, for example, are gaining momentum among young adults as breath fresheners. Although chewing gums are also showing faster growth rate than bubble gum (see Figure 19), it is nowhere near

30



catching up with it in terms of sales and market share. While bubble and chewing gum are growing quite fast, functional gums that address specific health issues (e.g. fighting tooth decay and plague, gum disease) are virtually non-existent. The only functional gum that is on the market is Perfetti’s Happydent White, launched in 2001. This is a mint flavored gum that fights tooth decay and has a whitening effect due to the baking soda it contains. However, the product has sold way under expectation, gaining some recognition only in several key metropolitan cities, like New Delhi, Mumbai, and Chennai.

Figure 18: Gum confectionery retail sales b) Volume a) Value

0

0.5

1

1.5

2

2.5

3

3.5

1998 1999 2000 2001 2002 2003

Billi

on R

s.

Chewing gum Bubble gum

02

468

10

121416

1820

1998 1999 2000 2001 2002 2003

Tho

usan

d M

T

Chewing gum Bubble gum

Source: Euromonitor

Figure 19: Gum confectionary sales 1998 – 2003 growth

Source: Euromonitor

a) Average annual growth

99.18.4

9.58.5

10.6

0

2

4

6

8

10

12

Value Volume

Perc

enta

ge

Chewing gum Bubble gum Gum

545549

57

50

66

0

10

20

30

40

50

60

70

Value Volume

Perc

enta

ge

Chewing gum Bubble gum Gum

b) Total growth

Unlike sugar or chocolate confectionery, there are only few important players in the gum segment. Perfetti Van Melle, India is the leader followed by Wrigley, India, and Candico, India. Until the acquisition of the Spanish Joyco Group by Wm. Wrigley Jr. Co, Joyco was number two in gum sales and Wrigley was number four. Since the acquisition, however, the two companies

31



and their brands will be consolidated. Currently, Perfetti holds a slightly higher share at 45%, and the joint share of Wrigley and Joyco is about 35%. Candico has about 8%. Perfetti’s Big Babol and Joyco’s Boomer are the two leading brands in terms of sales with 32% and 30% share respectively. Other popular brands are Center (Perfetti), Loco Poco (Candico), Doublemint (Wrigley), Trex (Joyco), and Chlor-Mint (Perfetti). 3.3.4 Sugar-free confectionery

Until July 2003 the use of artificial sweeteners was not allowed in India. As a result there was no sugar-free confectionery available in the market. This ruling was to a great extent the result of the pressure the strong sugar lobby was putting on the government. India has a very important sugar industry providing employment for a large number of people. It is estimated that the sugarcane farmers and their families number over 35 million and represent about 7% of the rural population. Up to that time, the only artificial sweeteners that were allowed to be manufactured in the country were table top sweeteners for use by diabetics. Since the Indian food law did not allow the use of artificial sweeteners in confectionery products, no such products were imported as well. While some sugar-free beverage and confectionery products could be seen on market, these had been imported illegally. However, in July 2003, the Ministry of Health with consultation with the Central Committee of Food Standards amended the Prevention of Food Adulteration (PFA) rules of 1995 and allowed production of sugar-free confectionery. According to this notification, confectionery products can contain up to 1% food grade titanium dioxide and limited quantities of aspartame. The ingredient was allowed in categories such as chewing gum and bubble gum, cookies, bread and cakes. The notification adds that all food products said to contain artificial sweeteners will need to declare “contains artificial sweeteners” on the package. Immediately after this notification, Perfetti Ven Melle launched Happydent Protex sugar-free chewing gum followed by Wrigley's who launched Orbit. Several of our respondents in the retail sector reported that they carry some sugar-free products. Nevertheless, since these products have been allowed in India for such a short period of time, there are no statistics or estimates available to quantify the market segment. The couple of respondents who were carrying sugar-free products in their stores believed that the category should grow. One thing is for sure, however, the category is currently very small.

32



3.4 Confectionery imports

3.4.1 General trade information

Until recently, the Indian market was virtually closed to imports due to extremely high tariffs and other additional taxes on imported goods. In 2001, the Government of India took steps to ease many of these restrictions and imports have since started to slowly infiltrate the Indian market. Despite these efforts, import tariffs for many goods, including confectionery, remain high. As a result, and in combination with relatively low demand for confectionery products, confectionery imports into India remain very small. According to official statistics, in 2002-03, the first full year without prohibitive quantitative import restrictions, India imported slightly more than 2,700 MT of confectionery, valued at roughly US $7 million. 14 Although confectionery imports increased by more than 40% in value and 20% in volume in 2003-04, India’s confectionery imports still totaled just over 3,000 MT and valued at less than US $10 million. Put into context, India’s total imports for 2002-03 and 2003-04, combined, are less than 1% by volume and value of US confectionery imports in 2003 alone. As seen in Figure 20 below, retail chocolates and sugar confectionery account for the greatest share of total confectionery imported into India. In 2003/2004 imports of retail chocolate totaled close to US $5.7 million. Imports of sugar confectionery fell close behind, totaling US $3.3 million, but registered a growth rate of 100% from the previous year. Imports of bulk chocolate and chewing gum remain very small at roughly US $500,000 and US $400,000, respectively.

Confectionery imports into India 2003-04 2002-03 Growth $ 000 MT $ 000 MT Value Volume Chewing gum – 170410 390 77 260 78 50% -1% Sugar confectionery - 170490 3,300 1,338 1,650 835 100% 60% Bulk chocolate - 180620 540 339 430 308 26% 10% Retail chocolate – Total 5,670 1,563 4,620 1,530 23% 2% Retail chocolate - 180631 30 3 60 10 -50% -70% Retail chocolate - 180632 70 185 110 87 -36% 113% Retail chocolate - 180690 5,570 1,375 4,450 1,433 25% -4% Total 9,900 3,317 6,960 2,751 42% 21% Source: India Directorate General of Foreign Trade

14 The import data throughout this section is per financial year. India’s financial year runs from April 1 to May 31 the following year.

33



Figure 20: 2003-04 share of confectionery imports by type (volume & value)

Source: India Directorate General of Foreign Trade

Base: US $9.9 million Base: 3,317 MT

Sugar confectionery

33%

Retail chocolate58%

Bulk chocolate5%

Chewing gum4%

Sugar confectionery

40%Retail chocolate

48%

Bulk chocolate10%

Chewing gum2%

It is important to note that an estimated 40-50% of India’s confectionery imports are thought to be “gray market imports” – those goods that have been: under invoiced in order to have fewer duties paid; smuggled goods; parallel imports; and goods brought into India by people traveling from abroad. While confectionery products imported through the gray market pose a threat to confectionery goods imported legally, they also affect the value of confectionery actually imported into India. As a result, actual imports are probably somewhat larger that shown by India’s official import statistics. Nevertheless, they remain very small. 3.4.2 Key suppliers, types and brands of imported confectionery

As seen from the table below and Figure 21, in the last two years, Malaysia and Singapore have been the leading suppliers of confectionery to India in terms of both value and volume. In 2003-04, the two countries accounted for more than 20% in value and more than 30% in volume of the total confectionery import market in India. However, in the last year, imports from Singapore have shown decline, particularly in volume term, while imports from the third largest supplier, the UAE, have grown almost 60% in volume terms and almost 40% in value terms. The growing importance of the UAE and the port of Dubai as center for export and re-export of confectionery products was confirmed by our suppliers, many of who indicated this as a preferred route. The US is a relatively small supplier of confectionery to India and accounted for only 4% in value and 3% in volume of India’s confectionery imports in 2003-04. However, US confectionery exports to India experienced significant growth in 2002-03 and more than doubled in value and increased roughly 80% in volume, albeit from a tiny base. Other leading suppliers that experienced significant growth in exports to India in 2003-04 included Australia, Brazil,

34



Spain, and the UK. Confectionery exports from Spain registered the largest growth, increasing more than 500% in value and more than twice in volume.

Confectionery imports by supplier 2003-04 2002-03 Growth $ 000 MT $ 000 MT Value Volume Malaysia 1,020 661 950 645 7% 2% Singapore 1,010 399 1,030 517 -2% -23 United Arab Emirates 800 227 510 166 57% 37% Australia 800 326 350 148 129% 120% Netherlands 630 196 760 315 -17% -38% Brazil 540 63 350 30 54% 110% Switzerland 510 88 360 74 42% 19% UK 510 111 240 43 113% 158% Thailand 490 202 340 233 44% -13% Spain 440 79 70 31 529% 155% Korea 410 109 300 105 37% 4% US 380 84 150 46 153% 83% Others 2,360 772 1,550 398 52% 94% Total 9,900 3,317 6,960 2,751 42% 21% Source: India Directorate General of Foreign Trade

Figure 21: 2003-04 leading foreign suppliers (volume & value)

Base: US $9.9 million Base: 3,317 MT


Singapore10%

Australia8%

Netherlands6%US

4%

Others54%

Malaysia10%

UAE8%

Singapore10%

Australia8%

Netherlands6%US

4%

Others54%

Malaysia10%

UAE8%

35



Retail and bulk chocolate

India’s bulk chocolate imports are very small and are dominated by Malaysia, with some imports originating from Singapore. In 2003-04, Malaysia exported US $390,000 in bulk chocolate to India; Singapore exported a total of US $90,000. Other suppliers include Indonesia, Switzerland, UAE, and the UK, though exports from these countries are negligible.

Retail chocolate Bulk chocolate

Base: US $5.7 million Base: US $540,000


Figure 22: 2003-04 leading suppliers market share of chocolate

Netherlands10%

Others33%

US6%

Malaysia9%

Brazil8% Switzerland

9%

UAE10%

Singapore15%

Singapore17%

Others11%

Malaysia72%

Retail chocolate accounts for the biggest share of confectionery imports into India and the second largest share of the total market for confectionery in India. Singapore is by far the leading supplier of retail chocolate to India and in 2003-04 it exported more than 300 MT of retail chocolate, valued at US $850,000. The Netherlands is the second largest supplier of retail chocolate and exported roughly 175 MT at a value of close to US $600,000. Although Singapore and the Netherlands account for 25% of India’s imported confectionery market, exports from these countries dropped more than 15% and 22%, respectively, in value and more than 30% and 40% in volume between 2002-03 and 2003-04. On the other hand, exports from several other countries, including the US, the UK, Lebanon and France, grew significantly during the same period and their combined market share increased from 9 to more than 20%. Lebanese chocolate exports increased substantially, rising from just US $20,000 in 2002-03 to US $310,000 in 2003-04, while US chocolate exports increased from US $110,000 to US $340,000.

36



Despite this rapid growth, the chocolate brands primarily found in India continue to be from the leading suppliers of retail chocolate, with a few exceptions. Some of the most popular brands and country of origin include:

• Droste – the Netherlands

• Nestle – Switzerland

• Toblerone – Switzerland

• Lindt – Switzerland

• Mars, Twix, Bounty and Snickers – Holland

• Gandour – Malaysia

• Vochelle – Malaysia

• Tango – Malaysia

• Van Houten – Malaysia

• Ferro Rocher – Brazil and Italy

• Tiffany – UAE

• Solen – Turkey

• Quanta – UAE

• Beacon – South Africa

Sugar confectionery

Sugar confectionery accounts for the largest share of India’s confectionery market and, although imports remain a very small portion of the whole, they are growing rapidly. Between 2002-03 and 2003-04 the value of sugar confectionery imports grew from close to US $1.7 million to US $3.3 million and the volume increased from more than 800 MT to more than 1,300 MT. In fact, of the top ten suppliers of sugar confectionery to India (Australia, Thailand, Spain, China, Turkey, Korea, UAE, UK, Malaysia, and Argentina), only imports from Malaysia decreased and the rest increased by at least 40%.


Base: US $3.3 million

Figure 23: 2003-04 leading suppliers market share of sugar confectionery

Thailand13%

Others37%

China7%

US1%

Turkey7%

Spain13%

Australia22%

Australia is the leading supplier of sugar confectionery to India and more than doubled its exports between 2002-03 and 2003-04. Thailand and Spain are also important sugar confectionery suppliers and exports from the latter increased from just US $30,000 in 2002-03 to US $420,000 in 2003-04. Other countries with notable growth in exports include Turkey, Argentina, UAE and the US. Although sugar confectionery exports from the US are very small, they grew more than 250% in 2003-04.

37



Brands of sugar confectionery in India originate from a number of different countries and some of the most prevalent brands are:

• Brach’s – US

• Magic Pop/Dust – Korea

• Kopiko Coffee Candy – Malaysia

• Popo Cup Jelly – Malaysia

• Hartbeat Love Candy – Thailand

• Arcor – Argentina

• Candeli – Argentina

• Tiffany – UAE

Chewing gum

Chewing gum imports and the overall market for chewing gum in India are very small. The volume of chewing gum imports remained relatively unchanged at close to 80 MT in 2002-03 and 2003-04, however, the value of imports increased roughly 20% from US $260,000 to US $390,000. In terms of value, Japan is the leading supplier of chewing gum to India, with exports of US $100,000 in 2003-04. Although the value of exports from Japan increased by close to 200% from the year before, the actual volume of exports that year decreased by more than 50% and totaled just 8 MT. Australia is the leading supplier in terms of volume and in 2003-04$60,000. China and Korea are also important suppliers of chewing gum to India with 2003-04 exports totaling US $60,000 and US $70,000, respectively.


Base: US $390,000

Figure 24: 2003-04 leading suppliers market share of chewing gum

Korea18%

Others10%

Australia15%

Indonesia8%

UAE8%

China15%

Japan26%

exported more than 20 MT valued at US

.5 Consumption

3.5.1 General information

ady discussed in Section 3.1 confectionery products have very low penetration in the

3

As alreIndian market. In result, annual per capita consumption is also very low; it is estimated to be just over 300g (0.7lb) for chocolate and around 600g (1.3lb) for sugar confectionery. For comparison, per capita consumption of confectionery products in the US is around 25lb.

38



It is primarily the low penetration and consumption that heighten everybody’s expectations about the high potential for growth of this market. The optimism is further fueled from the forecast for rapidly increasing incomes. On the other hand, confectionery products compete with the traditional sweetmeats which continue to be very popular in India.15 Finally, westernization of India (particularly young adults in the urban areas) is seen as another factor positively impacting the growth potential for confectionery products and chocolate in particular. Chocolate has already shown larger growth than sugar confectionery, which is a result of its increasing popularity as a gift. It is seen as an indulgence product, and therefore appropriate as a gift. This trend has given a boost to the boxed chocolates segment. On the negative side, as already indicated, India is a very price sensitive market. Thus even with the rising incomes and westernization, many confectionery products and particularly chocolates are considered luxury products even by the better-off consumers. In addition, increase in world prices of cocoa contributed to increased prices of chocolates, further strengthening the “indulgence product” constraint to deepening market penetration and increasing consumption. Almost all confectionery purchases in India are believed to be impulse driven. Experts indicate that sugar confectionery and gum products consumption are driven almost entirely by impulse purchasing. 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 result, in their effort to increase consumption and product penetration, marketers have started to promote some products as appropriate snacks, not just an indulgence. 3.5.2 Demographic and lifestyle considerations

a) Age

Children and teenagers are the main consumers of confectionery products, and sugar confectionery and bubble gum in particular. Some of our respondents also indicated that they have observed increasing chocolate sales to kids and teenagers. This has several important consequences for the further development and growth of the Indian market:

• With over 30% of the population younger than 15, and over 50% younger than 25, India is a very young nation. The confectionery market will continue to grow by simply continuing to target this consumer segment which will remain the main potential for growing the market, particularly in volume terms.

• Children usually purchase sweets with their pocket money, rather than with their parents’ money. Thus price will remain a most important factor when targeting

15 More information about the market for sweetmeats is given in Appendix 1.

39



Indian youngsters. Most of the potential growth in sales of higher end products will come from the adult population.

• While children are attracted mostly to bubble gum, adults prefer chewing gum. Similarly, medicated or functional products target the adult (mostly the young adult) population, which is more modernized and open to novelty and untraditional products.

b) Urban vs. rural areas

Confectionery sales in India are driven mostly by the urban market segment. Estimates suggest that between 60% and 70% of the confectionery sales in India are concentrated in the more developed urban areas, where incomes and consumer awareness are generally higher. At the same time, about 70% of the population lives in rural villages. Indeed, estimates also indicate that confectionery products have significantly higher penetration (about 22%) in the urban markets than the country average penetration. Chocolate consumption is concentrated almost entirely in urban India. The organized sectors has its stronghold in the urban markets, while unorganized manufactures and home made sweets thrive in the rural areas. Price, poor infrastructure, lack of exposure to new products and stronger traditionalism, are the main reasons for this. However, many of the main players in the Indian confectionery sector have started focusing on tapping the potential of rural India. As incomes in these areas are generally lower, marketing efforts are concentrated on promoting the lower priced mass market products and on offering smaller packs. Chocolate sales are still limited only to the few wealthier households. While rural sales have been growing over the last years, the potential for growth in urban areas also remains significant.16 The difference is that in urban India, in addition to the growth trend in the mass market segment, there are increasing opportunities to sell higher-end niche products. This is particularly important for those who are looking for opportunities to export confectionery products to India. As imported products, particularly from Europe and the US, generally fall in the highest price brackets, they hold potential among the more affluent consumer segments, concentrated mainly in the urban areas and large metropolitan areas.

16 For example, Euromonitor estimates that the value share of retail sales in rural areas has grown from 20% in 1998 to 30% in 2003.

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c) Regionality

As seen from Figure 25, South India is the largest region for confectionery sales. This is not surprising, because confectionery sales are generally linked to higher income consumers. And, the Indian south is better developed than many other areas, it is home of several booming cities, like Chennai, Bangalore, and Hyderabad, and it is the center of the thriving Indian IT industry. As such, it attracts young, well-educated professionals with good incomes who are open to trying new products, and willing to spend for quality. As a result, products like power mints, for example, have registered significant growth in the region over the last couple of years. These characteristics also make the south a favorite for new product market testing. It is usually the first place where new products are launched, and in general the market offers larger variety of products than in other parts of the country.

Figure 25: 2003 confectionery sales in India by region

South (Rs. 7.8b)30%

27%North (Rs. 7.1b)

East & Northeast (Rs. 4.5b)

17%West (Rs. 6.8b)

26%

Source: Euromonitor

The north is home of the capital New Delhi and the up and coming states Uttar Pradesh and Rajasthan and marketers have been putting special efforts there. In result, sales have been growing at above average rates. Although the Indian west shows slightly lower sales than the north and the south, its main city, Mumbai, is the most important center which alone accounts for almost half of the sales in the region. The city is the financial capital of India, and home of a larger concentration of professional, more sophisticated adults. In this respect it is not the center for sales of mass confectionery products, which form the bulk of confectionery sales in India, but offers more opportunities for premium products and chocolate in particular. d) Westernization

Westernization is an increasing trend in Indian lifestyles, particularly in the large metropolitan areas. This is believed to have contributed to the growth of chocolate consumption in the country. It has mainly contributed to the boost chocolate has seen as a gift, which is seen as trendy. Indeed although traditionally Indians have a culture of consuming and exchanging sweets as gifts, pre-packed branded products are not commonly popular. The consumption pattern and purchasing habits tend to favor local, freshly made products. The ability of chocolate companies and marketers to enter this market could provide unprecedented growth.

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At the same time, manufacturers and marketers are putting increasing effort into detaching chocolate from its ‘kids’ image and to broaden its consumer base among adults. 3.5.3 Brand and origin awareness and perceptions

While domestically manufactured brands dominate the market and consumers have general awareness about them, foreign products and brands are becoming increasingly known. This trend is particularly noticeable in the urban areas and among middle and upper class consumers. We were consistently hearing similar comments from our respondents from all categories – manufacturers, importers and distributors, and retailers. These can be summarized as follows:

• The urban market is brand conscious; the rural market is price conscious. As one respondent put it, “in the metro areas consumers associate brand names with quality; in the rural areas, consumers associate higher prices with better quality.”

• The upscale niche market is focused on brand and image quality. Consumers are looking for known brands with good quality images. Swiss and Belgium chocolates are considered the crème de la crème. It is in the upscale niche market segment, where brand and country of origin really matter to consumers when making purchasing decisions.

• Except for the top quality chocolates, consumers are usually not aware, and generally not interested in where a product has been manufactured as long as they are familiar with the brand. For example, Tiffany is a popular brand with mass appeal mostly manufactured in the UAE. However, consumers associate it with the UK. Indeed, many of the large multinational companies have production faculties throughout the world and various distribution arrangements for different countries/regions. Thus frequently the global brand products may be manufactured at various places without consumers being aware or interested in the actual place of origin.

• Products from SE Asia and South America are more oriented to the mass market, while European and US products cater to the upscale market segments. Imported products in general are considered to be of higher quality than the domestic ones.

• Attractive packaging is very important for the brand image. Indians associate quality with good packaging. Imported brands are presented much better than Indian ones.

• US brands are less known than European ones. Mars and Hershey’s are the only US brand names with broader recognition in India.17 Consumers as well as the trade generally have a good perception about the quality of US products.

17 Although the Mars brands are usually associated with the US, the products available in India are usually imported from, and made in Europe.

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3.6 Pricing

As it was already emphasized, the Indian market is generally price sensitive. Also, many experts see that the mass market will grow at faster rates than the niche segments. In result most confectionery companies are trying to fit their products in the lower price ranges. The most popular price range for confectionery products is the Rs. 0.25 – 0.85. Most confectionery brands of Nutrine, Lotte, Wrigley’s, Perfetti, Candico, Parle, etc. are from the Rs. 0.25 to Rs. 1 price categories. Some chewing gum and bubble gums are in Re. 1/-, Rs. 2/- and Rs. 5/- categories. Most major companies including Cadbury’s and Nestle are strongly pushing sales of their Rs. 5/-, Rs. 7/-, and Rs. 12/- categories. There is a big difference in the prices of domestic and imported products. The general rule is that domestic products are the cheapest. Then, there are different ranges of prices for imported products, depending on the brand, country of origin, and product itself. Asian and South American products are usually moderately priced, while European and US products are the most expensive. For example, from the top end products, 100gm Lindt chocolate sells for around Rs. 130. An important factor that affects the price of the products is the Central Excise Duty payable by the organized/registered manufacturers. For sugar confectionery (without cocoa), it is 8% (recently reduced from 16%); for chocolate confectionery, it is 16%. All involved in the distribution and manufacturing of chocolate products see this as a major constraint to the growth of the segment and believe that the excise duty for chocolates should be brought down similar to the duty for sugar confectionery. However, the government is not really keen on reducing the duty, because it is not seen to affect any major true Indian player or manufacturer. The dominating view is that this duty is earning revenues from two major chocolate manufacturers, Cadbury and Nestle, both of which are foreign companies. There is also a sales tax, which varies from state to state. For example, Maharashtra has the highest sales tax, 15.3%, while in some of the southern states it varies from 5-10%. From April 01, 2005 the Government of India will implement value-added tax (VAT). The VAT will replace the sales tax regime in all states with a two-tier tax regime of 4% and 12.5%. For imported products the price is generally structured as follows:

Landed cost (FOB+freight+insurance) + Basic duty + Countervailing duty

= Excise duty (production duty) + Special additional duty + Educational cess (2%)

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+ Clearing and forwarding cost + Octroi (a local government tax)

= Landed price to importer + Importer margin (% markup on landed cost)

= Selling price to distributor + Sales tax

= Price to distributor + Distributor margin (7-10%)

=Price to a store + Profit (15-20%)

=Retail price

3.7 Seasonality

Our respondents reported that there are no seasonal trends in the sales of sugar confectionery and gum. Sales are consistent throughout the year. On the other hand, chocolate sales peak during the festival season (August to February), when exchanging gifts is a tradition.

3.8 Market forecast

The confectionery market in India is expected to continue to grow at healthy rates. Sugar confectionery will remain the largest segment, and new products like mints, lollipops and chewing gum, as well as boxed assortments will grow at the fastest rates. The mass market will continue to be very price sensitive pushing manufacturers to price discounting and offering smaller packages in order to continue penetrating the rural market. On the other hand, the niche for more upscale products will also offer new opportunities for branded products. Boxed chocolates show the greatest potential for growth within the chocolate category; chewing gum, medicated confectionery and power mints are also expected to grow rapidly, particularly among the young adults segment. Lollipops is a new category and has sparked lots of interest among children. The category is expected to continue to grow in the coming years. Experts expect that the adult market will offer an additional niche for some products. As the market grows, so will imports. Nevertheless, they will remain small and with limited impact on the total market. Imported confectionery products will play a role primarily in the urban areas, in the more upscale market segments.

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Distribution channels

SECTION 4: DISTRIBUTION CHANNELS

4.1 Overview

The Indian food distribution system is characterized by a large number of intermediaries and relatively poor infrastructure, such as transportation, storage, and refrigeration facilities. It has low levels of efficiency, with the costs of distribution being rather high. Manufacturers and importers rely heavily on the middle man for the distribution of confectionery products in India. Most importers rely on distributors or wholesalers to reach retail outlets, while confectionery manufacturers often rely on C&F agents or dealers to work with the wholesalers and distributors. India’s retail sector is highly unorganized, as small independent stores are the main outlet for consumer purchases. Nevertheless, the retail sector is changing and the organized sector is gaining ground with the emergence of supermarkets and hypermarkets in metropolitan India. Confectionery products are predominantly purchased in small independent food stores, known as kiranas (see Figure 26). However, over the last five years, convenience stores, supermarkets, and hypermarkets have played an important role in the distribution of confectionery products. In 1998, confectionery retail sales in convenience stores were virtually non-existent, but today these stores account for 2% of confectionery sales. During the same period, the share of retail sales by supermarkets and hypermarkets has also increased, from roughly 6% to 8%.

Source: Euromonitor

Figure 26: Confectionery retail sales in 2003 by distribution format (%)

Others5%

Convenience stores2%

Confectionery specialists

9%

Service stations2%

Independent food stores74%

Supermarkets/hypermarkets

8%

India’s organized retail sector remains the preferred distribution channel for branded and imported products, including confectionery. Although this sector is thought to be in its infancy, rapid growth is expected over the short to medium-term, creating greater opportunities for imported confectionery products.

4.2 Domestic production

The Indian food distribution system is characterized by a large network of intermediaries consisting of C&F agents, wholesalers and distributors that operate throughout the country. Only the largest manufacturers may have their own distributors, and frequently these will not

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cover the whole country. Typically, domestic confectionery manufacturers in India rely on company-owned dealers or C&F agents who, in turn, work with wholesalers and distributors throughout the country to reach the retail network. Manufacturers use their own stockists/C&F agents (which are also warehouse/company depots - mostly company) as a starting point for distribution. Stockists/C&F agents are appointed depending on the city and state. In large metro cities such as Mumbai, Delhi, Kolkata, and Chennai a company may have 2-3 stockists/C&F agents. Manufacturers also service large metropolitan areas through wholesalers. In smaller cities and towns where the manufacturers do not have their stockists/C&F agents they generally work with wholesalers. Figure 27, illustrates the most typical distribution channels for domestic confectionery. Through these dealers, many domestic confectionery manufacturers have access to hundreds or thousands of wholesalers and distributors to reach the small retail outlets in both rural and urban areas as well as to reach the larger supermarkets in the metropolitan areas. In addition, in some cases, manufacturers have several regional sales offices and, and using their C&F, agents can access retailers directly within that region.

Retailers• Grocery/Kinara stores• Chemists• Gift shops• Book shops/Newspaper vendors• Supermarkets• Specialty shops – malls• Airport shops, railway stations, bus

stands• Paan Beedi shops

Wholesaler Manufacturer Wholesaler

Stockist/C&F agent – company owned

Figure 27: Typical distribution channels for domestic confectionery

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4.3 Imports

4.3.1 Ports of entry for imports

Jawaharlal Nehru Port Trust (JNPT), also known as Nava Sheva, is India’s largest seaport. It is located within Mumbai harbor on the west coast of India. The port has two dedicated container terminals designed and equipped to handle large size container vessels. One of these handles refrigerated containers. JNPT serves as the port of entry and supplies to the two largest cities – Mumbai and Delhi. Mumbai also serves other smaller metropolitan areas such as Pune, Ahmedabad, Goa, and Hyderabad.

Figure 27: India’s main ports of entry

The Chennai Port Trust is an artificial harbor situated on the Coromandel Coast in South-East India and it is the second largest port for handling containers. This port also offers refrigerated container facilities. The Chennai Port is ideal for serving southern India and is the main port of entHyderabad.

ry for Chennai, Bangalore, Coimbatore, and

The third largest port is the Kolkata/Haldia Port and it is the port of entry for the East Indian market and especially the city of Kolkata. Most major international shipping companies operate regular container services to each of these ports. 4.3.2 Geographical and logistical considerations

Importing confectionery in India is primarily dependent on the location of the importer and the markets they serve. Most of the importers operate warehouses near the major ports and, in many cases, this is the JNPT port. For many importers, JNPT is the easiest port to distribute products not only to Mumbai and Delhi, but also to other major commercial and metropolitan areas. If imported confectionery is destined primarily to South India or North India, importers may use the ports at Chennai and Kolkata. Most confectionery imports are imported into India by sea. However, two importers that we interviewed import by air, though this is a more expensive option.

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THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA Distribution channels

48

Given the size of the country, poor infrastructure, and the large number of intermediaries, established business relationships play an important role in the distribution of both domestic and imported confectionery products in India. The majority of the importers and manufacturers that we interviewed have had long-standing relationships with their agents or distributors or have exclusive arrangements for the distribution of their product. As one manufacturer stated, “A C&F agent or distributor can make or break your brand.”

Many importers still cover a wide range of confectionery products and import from several different countries. However, we spoke to several importers who focused on the niche market and import only chocolates or only from one country or brand.

It is important to keep in mind that confectionery imports into India are very small and even the large importers deal in very small volumes. For example, our respondents reported that they import between 10 and 200 containers of confectionery products per year. However, only one reported 200 containers, one reported 100 to 110, one reported 50 to 65, and the remaining 10 said that they import around 10 containers.

Confectionery imports into India are mainly handled by local importers who then distribute the products through a network of distributors, wholesalers, and sometimes directly to large retailers. Figure 28 on the following page illustrates the distribution of imported products from the JNPT port throughout India.

Several of our respondents mentioned that Dubai has turned into an important center for shipping product to India, with numerous consolidators working there.

4.3.4 Business relationships along the distribution chain

4.3.3 Handling of imports



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Figure 28:



4.4 Wholesale and retail

4.4.1 Role and key players

Food retailing in India is changing rapidly. While small independent stores, such as kiranas and paan-beedi shops prevail, modern supermarkets are becoming increasingly common in urban areas such as Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad and Pune, leading to increasing demand for quality products, including confectionery. Larger scale wholesale club/hypermarket formats are also appearing. Overall, organized retailing is growing rapidly and in addition to supermarkets and hypermarkets, the shopping mall concept is quickly gaining ground. Today, India has approximately 12 million retail outlets. These are second only to agriculture sector in terms of employment. It is estimated that food products are sold by an estimated 6.5 million small grocery stores and wet markets throughout India, with only a small percent sold in more organized supermarkets and hypermarkets. . Food and beverage retail sales are estimated at roughly US $135 billion with a growth rate of 4-5% each year. However, out of this, receipts in the organized sector represent less than 1%. Kiranas

Kiranas, small independent food stores, account for the vast majority of confectionery retail sales in India. Due to the omnipresence of kiranas and their long-standing existence in India, they remain the most popular choice of consumers for food purchases. Kiranas often offer a variety of services such as home delivery, credit facilities and consumer discounts and Indian consumers remain extremely loyal to these stores.

Figure 29: A Kirana in Mumbai

Figure 30: Perfetti’s Managing Director in a paan-beedi Paan-Beedi

The friendly neighborhood paanwalla or the paan-beedi shop has played a key role for the growth of the chocolate and confectionery sector in India. The paan-beedi retailer occupies a slot in a locality in urban and rural India that gives enormous convenience to people looking to buy basic things. These stores, positioned to serve the mass market, are usually found in all busy streets and in residential neighborhoods in most Indian cities and towns. They

50



occupy only about 10 square feet of space and stock everything from chocolates and confectionery, produce, and other food items to cigarettes, batteries, and personal care items and to branded and non-branded items. It has become increasingly easier for the paan-beedi shops to expand the breadth and depth of their product line, as many branded product brands now come in mono packs and in low unit volumes and prices. Many fast moving consumer goods companies are increasingly using this vast network, which accounts for more than one million stores and is growing. Paan-beedi shops are generally served by C&F agents and wholesalers and distributors. Several of the leading confectionery manufacturers, including Nestle, Perfetti, ITC Foods, and Cadbury, are using these shops and they have become a major distribution channel for their confectionery products. Candy stores

Although candy stores in India account for close to 10% of confectionery retail sales in India, their share has been declining in recent years. These stores typically sell a range of confectionery products from domestic and imported chocolates and confectionery to bulk and branded confectionery products and are primarily aimed at children. Indian candy stores usually purchase from domestic manufacturers, C&F agents, and distributors for imported products. However, if importers are based locally, some confectionery retail stores will purchase directly from the importer. Despite the general decline of the share of candy stores in overall retail sales of confectionery products, some specialized candy stores and chains are thriving. A typical example is the Mumbai based chain Sweet World, which currently has 20 stores in 9 cities in all prestigious shopping malls in Mumbai, Delhi, Pune, Gurgaon, Noida, Bangalore, Hyderabad, Kolkata and Chennai. They have positioned themselves to serve the more upscale market segment and sell more than 150 varieties of confectioneries. Sweet World is a pick’n mix concept store, which sells a wide range of candies. They do not sell branded products, but clearly label the origin of their candies.

Figure 31: Sweet World candy store

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Supermarkets and hypermarkets

Supermarket retailing is a relatively new, though rapidly developing concept in India. Although there are no supermarkets that mirror western-style stores, some Indian versions of supermarkets have emerged. These are 3,000 to 5,000 square foot self-serviced and air-conditioned stores which stock a wide range (by Indian standards) of groceries, snacks, processed foods, confectionery, cleaning and personal care products, and cosmetics. They stock most national brands, a large number of regional and specialty brands, as well as their own brands of packaged dry groceries. Many of them have small bakery sections, and some are still experimenting with fresh produce and dairy products. Frozen foods are also often available. A typical supermarket carries about 6,000 stock-keeping units (SKUs). Shopping malls

The shopping mall is a new and quickly growing retail concept in India. By end of 2003, there were about 25 operational shopping malls in the country, all located in the major cities (New Delhi, Mumbai, Pune, Chennai, Kolkata, Bangalore and the twin cities of Hyderabad-Secunderabad) with total space of about 5m sq. ft. However, expectations are that by the end of 2006, this space will grow about ten times with a significant part of this new space located in the second tier cities like Jaipur, Ahmedabad, Lucknow, Nagpur, Indore, Ludhiana, Nashik, Agra, Thiruvananthapuram, Kochi and Mangalore. According to the global retail and real estate consultant Chesterton & Meghraj, the market share held by the organized retail market will grow from the current 2% to about 20% of the total retail market by the end of 2010. Scale advantage and superior operations would allow modern large-format stores to be up to 35-40% cheaper than the traditional formats, and this would in turn fuel consumer spends. Studies done in the specific field indicate that there is the potential to improve productivity in the sector by 250%. This development will also have an impact on the food retailing and confectionery sectors in particular. It will lead to improved and more streamlined distribution channels and cutting down the number of intermediaries. 4.4.2 Key retail players

Some of the larger supermarkets in India are:

• Foodworld Supermarkets Limited (FSL) is a joint venture between the Kolkata-based RPG Enterprises (51%) and Dairy Farm International Holdings, Hong Kong (49%). FSL is India’s largest supermarket chain with 90 outlets located in Chennai, Pondicherry, Bangalore, Cochin, Trivandrum, Hyderabad, Pune and Coimbatore. It has annual sales of approximately Rs. 3 billion. It is currently focusing on southern and western India but also has plans to go national in the near future.

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• Nilgiri's Supermarkets, owned and managed by Nilgiri’s Dairy Farm Limited

(NDFL), is a leading food retailer and manufacturer of dairy and bakery products in southern India (annual sale of approximately Rs. 15.5 billion). The first Nilgiri’s food retail outlet/supermarket opened in Bangalore in 1905. Currently, there are 25 Nilgiri’s Supermarkets all in southern India located in Bangalore, Mysore, Chennai, Coimbatore and Erode.

• Sabka Bazaar is operated by The Home Stores (THS) and is part of a Rs. 600 crore Shahid Group of Companies and is a 51:49 JV with Groupe Casino, France a multi-format retailer. Sabka Bazaar is North India’s largest supermarket chain and there are 21 Sabka Bazaar stores in Delhi. THS in association with Ansal Housing and Construction Ltd, a leading property developer (Rs. 3.5 billion), has forayed into the hypermart segment with a Super Sabka Bazaar in New Delhi.

• C3 – The Market Place is owned by TAI Industries in Kolkata. While C3 is only found in Kolkata, the company has plans to expand to other states in the Eastern and North Eastern regions of India.

• Piryamid Supermarket is owned by the real estate business arm of Piramal Enterprises, a Rs. 35 billion conglomerate and one of India’s largest diversified business houses with interest in pharmaceuticals, retailing, glass, textiles, auto-components and engineering. The group forayed into the retailing business in 1999 with a landmark mega state-of-the-art shopping mall called Crossroads in central Mumbai followed by one in Pune in 2001. Crossroads houses 500 of the top international and national brands including Piramyd Supermarket, the food and grocery retail venture. Piramal plans to expand by around 40 stores with an investment of Rs. 500-600 million in cities such as Mumbai, Pune and Nagpur in the next four years.

• Haiko Supermarket is owned and managed by Lakewood Malls Private Limited, Mumbai (LMPL), the retail wing of the leading property developers - Hiranandani Group of Companies. Haiko Supermarket was launched in June 2000 with its first outlet in a prestigious area in North Mumbai. The supermarket is spread over 10,000 sq. ft of space, thus making it the largest supermarket of its kind in the country. It is a fully air-conditioned with aesthetically designed interior, immaculate displays, wide aisles, and well-designed signage. They will be a five-store chain by mid 2007, expanding to more than 15 stores by 2010 in Mumbai alone.

• Bombay Bazaar Limited (BBL) is perhaps one of the largest private sector pure grocery retail chains, in terms of the number of outlets. It is a Mumbai-based retail chain with 250 outlets, selling food, groceries, and provisions. Currently, BBL is concentrating on promoting their private brands of groceries and provisions.

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• SPAR Supermarket/Radhakrishna Foodland Pvt. Ltd – SPAR International, the

Netherlands has signed a license agreement with Rs. 900m Radhakrishna Foodland Pvt. Ltd, a leading foodservice distribution company, to operate in the Mumbai region. The first SPAR store opened in Mumbai in January 2005 and is the first international food retailer to enter the Indian market. Radhakrishna Foodland Pvt. Ltd plans to open three new SPAR Supermarkets in Mumbai by 2007.

Some of the main, larger scale, retail formats (hypermarkets) in India are:

• Great Wholesale Club Ltd (GWCL) is another venture of the owners of Foodworld Supermarkets who have made their foray in the cash and carry store format by opening the “Giant” hypermarket in Hyderabad in 2001. Giant is spearheading the hypermarket revolution in India and in 2004 opened two stores in Mumbai and Kolkata. GWCL has plans to open similar “Giant” hypermarkets in Bangalore and Chennai in the near future.

• Metro Cash & Carry India Ltd (MCCI), a 100% subsidiary of the German-based cash and carry store, Metro AG, is scheduled to open its first store in Bangalore in 2003. MCCI is opening its second venture in Kolkata in 2005.

• Shoprite Hyper is a 100% subsidiary of South Africa’s largest food retailer, Shoprite Holdings Ltd. In December 2004, Shoprite opened its first hypermarket with an investment of US $375 million in Mumbai spread across 70,000 square feet. This is in association with Mumbai based leading property builder, Nirmal Group of Companies.

4.4.3 Industry trends affecting or altering the structure of retail food sales

The continued growth of the organized retail sector in India will have a huge impact on the country’s distribution channel. Growth in this sector will be dependent on rising incomes and increasing exposure to the “western” lifestyle. It is estimated the food retail sales in supermarkets and hypermarkets have grown approximately 30% per year in the last three years and this trend is expected to continue in the future. Although the retail sector is rapidly changing, the importance of the smaller independent food stores will still play a role in the Indian distribution channel, but primarily for domestic products. As a result, there should be a unique opportunity for imported food products in the supermarket sector in the future.

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4.4.4 Types of product promotions used

Most of the major confectionery manufacturers in India rely on regional and national television to promote their products. Their marketing message is primarily aimed at children, teenagers, and young adults. Thus, they also use promotional activities such as sponsorships of sports and other activities in schools and colleges. For the most part, importers and retailers are not heavily involved in promotion of confectionery. Aside from the in-store display of confectionery, retailers do not go into any additional lengths to promote their products. However, some of our respondents indicated that they occasionally place advertisements in newspapers or magazines around the holiday season and several respondents had plans to use radio promotion in the future. Also, some of the importers we interviewed indicated that they consider promotional support from their overseas suppliers important for carrying their products and brands.

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Market entry

SECTION 5: MARKET ENTRY

5.1 Tariffs, import and customs regulations

5.1.1 Import and custom regulations

All the categories mentioned below are listed under OGL (Open General License) and can be imported freely into the country and no special import license is required. Chewing gum (HS 1704.10) Sugar confectionery (HS 1704.90) Bulk chocolate (HS 1806.20) Retail chocolate (HS 1806.31; 1806.32; 1806.90) Sugar free confectionery (HS 2106.90.99) 5.1.2 Import tariffs

The import tariffs for each of the above classifications are as follows:

Unit Basic ADD. DUTY

EDU. CESS

Duty Rates in % Kilogram(s) 45 % 16 % 2%


EDU. CESS


Custom Heading No: 17041000 Sugar Confectionery (Incl. White Chocolate) without Cocoa

- Chewing gum, whether or not sugar coated

Custom Heading No: 17049090 Sugar Confectionery (Incl. White Chocolate) without Cocoa

--Others

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Market entry


EDU. CESS



EDU. CESS



EDU. CESS



EDU. CESS


Custom Heading No: 18062000 Chocolate & other food products containing Cocoa

- Other preparations in blocks, slabs or bars weighing more than 2 kg. or in liquid, paste, powder, granular or other bulk form in containers or immediate packings, of

a content exceeding 2 kg.


Other, in blocks, slabs or bars: - Filled


-- Other, in blocks, slabs or bars: - Not filled


-- Other

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Market entry


EDU. CESS


Custom Heading No: 21069099 Food Preparations Not Elsewhere Specified Or Included

--Others

5.1.3 An example

The following example illustrates the how the tariff is calculated.

5.2 Food safety, packaging, and labeling requirements

The Indian Food Laws could be the main constraint for US chocolate and confectionery manufacturers’ immediate entry into India via the legal channel, although some recent amendments in the laws will benefit the imports of sugar free confectionery. For example, according to one respondent, an importer and agent for a US brand, 70% of the confectionery range of this brand manufacturer cannot be legally imported into India because certain food additives (colors, preservatives and flavoring agents) used by the company are not approved by PFA in India. 18

18 The Prevention of Food Adulteration Act (PFA) of 1954 and the PFA Rules of 1955 as amended. The PFA covers various aspects of food processing and distribution, such as food color, preservatives, pesticide residues, packaging and labeling, and regulation of sales.

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Market entry

Also, US manufacturers are not willing to comply with some labeling requirements and special instructions, because current volumes are too small to justify the adjustments. Although, the Government of India through a special notification issued by Ministry of Commerce & Industry has allowed the importer to put these special labels/stickers on the consignment at the port of entry in India; this could be one of the reasons why importers prefer to buy from agents in Dubai and Singapore who are willing to put these additional labels/stickers on the consignment prior to shipment to India. Another government act that needs to be taken into consideration is the Standards of Weights and Measures Act, 1976, and Standards of Weights and Measures (Packaged Commodities) Rule, 1977. These legislative measures are designed to establish fair trade practices with respect to packaged commodities. The rules are to ensure that the basic rights of consumers regarding vital information about the nature of the commodity, the name and address of the manufacturer, the net quantity, date of manufacture, and sale price are provided on the label. There may be additional labeling requirements for food items covered under the PFA. Importers of packaged food products must adhere to these acts, including labeling the product, informing the consumer of the name and address of the importer, the net quantity, date of manufacture, best before date, and sale price. The latest issue of USDA’s FAS report on India Food and Agricultural Import Regulations and Standards from July 2004 (GAIN report # IN4077) provides excellent background and all necessary information. The report can be viewed at: http://www.fas.usda.gov/gainfiles/200407/146107003.pdf Overall, the best approach for any potential exporter to India is to establish contacts and work with experienced importers and distributors, who would be able to provide the necessary guidance.

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Conclusions and recommendations

SECTION 6: CONCLUSIONS AND RECOMMENDATIONS

6.1 General prospects

The Indian market for confectionery products has undergone significant changes over recent years. While penetration and consumption levels are still very low, overall sales, and particularly sales of higher value premium products have increased. The availability of imported products has also been rapidly rising since India liberalized its imports regime in 2001. Nevertheless, they are still very small leaving ample opportunities for further growth. The distribution channels have also undergone substantial changes. Supermarkets have emerged and started to gain power over other retail formats. With these changes in mind, we expect that:

• The share of imported confectionery will continue to increase over the next several years, although overall sales will remain modest. Indians’ taste will continue to become more westernized and more quality conscious. This trend will be more obvious in the urban areas among middle and upper class consumers, offering higher-end foreign brands growth opportunities. While most domestic companies also focus their new product development efforts on the mass market, a few have products targeting premium products. Nevertheless, Indians associate imported products with higher quality, and therefore respond positively to confectionery imports. The United States along with Western Europe are perceived as offering highest quality, although there is very low awareness of US confectionery products and brands.

• Indian confectioners are increasing their efforts in product development and promotional activities, and exporters will face stiffer competition from the domestic sector. On the other hand, the very low penetration and consumption levels provide ample opportunities for growth and make competition less of a constraint. However, for US exporters competition will be an important factor in the upscale niche segments, where European brands, particularly for chocolate are considered the best.

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

• The sugar confectionery will remain the largest confectionery segment. We expect to see growth of new and novelty products, such as mint and medicated confectionery (with added vitamins and/or other minerals), as well as the new to the country sugar-free confectionery categories.

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• While the traditional targets for confectionery products have been children and

young people, increasing number of marketers have seen growth opportunities in targeting the adult consumer segment. This will lead to new products and marketing strategies aimed at them.

• There will continue to be opportunities for new products that appeal to the young consumer. The ever-present stimulus of novelty and fashion, encouraged by continuing exposure to western culture will keep the doors open for new products and new suppliers.

• Marketing and promotion expenditures for confectionery products will increase and distributors will require promotional support from manufacturers.

6.2 Recommendations

• 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. Importing is a relatively new business in India, and many importers may lack the knowledge and experience to ensure successful distribution of the products they deal with. Therefore, it is of critical importance to select the right partner.

• Importers and distributors may have limited financial and human resources. Thus U.S. exporters should be willing to offer as much support as possible, particularly in the initial phase of market entry.

• U.S. exporters may directly contact potential importers and distributors to select their partner(s). They may use the list of industry contacts provided in Section 6 or obtain contact through the US Embassy in New Delhi. The typical way of introduction is to send them company brochures, product catalogues, product samples, and price lists. A proper, formal introduction is important for a new entrant to make effective and productive contacts at potential partner firms.

• Mumbai and/or New Delhi are the most appropriate entry markets for US exporters. These cosmopolitan cities, with a larger number of affluent consumers exposed to western influences, as well as better developed infrastructure, are most appropriate for introduction of new US products that are generally higher priced than domestic and some imported products.

• India remains a very price sensitive market and appropriate pricing is key to the success of new products. US exporters should carefully discuss their product pricing and positioning with their chosen partners in India.

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6.3 Success stories

Distribution is the key to success for high value food items like chocolates. There are many examples of both small companies with minimal financial resources and large companies with substantial financial resources who lack adequate experience in the import trade or knowledge and access to distribution channels for confectionery products and who have ventured into the import of chocolates and confectionery but failed. In fact, some of the most common mistakes have revolved around seasoned and diversified importers entering the confectionery import market with a keen understanding of importing but a lack of knowledge about the confectionery market and distribution in India. There have been several examples where importers with experience in industries from metals to healthcare products partnered with leading foreign confectionery manufacturers to import and distribute their products throughout India. Yet, these importers did not have an understanding of the complex confectionery distribution channels, the price sensitivity of the confectionery market, nor their target market and, inevitably, imports were discontinued and the goal of the partnerships was never attained. Although these companies did not have success in India’s confectionery import market, for all of the unsuccessful attempts there are an equal number of success stories. Some of these are as follows:

• Effem India Pvt Ltd - a 100% subsidiary of Mars Inc., USA is perhaps the only company in India that is professionally importing and distributing chocolate in India. The company commenced imports in August 2004. They import products such as Mars, Twix, Snickers and Bounty from the Mars subsidiaries Masterfoods, Holland and Masterfoods, France. The products are distributed by Snowman’s Frozen Foods Pvt Ltd, a distribution company, which uses a cold/refrigerated chain to distribute the product all over India and the product is available in all metropolitan areas, cities and main supermarkets such as Foodworld, Food Bazaar, Subka Bazaar, Nilgiri’s, C3 as well as in convenience/kinara stores, chemist shops, and grocery stores across India.

• Sunstar Confection & Trading (Pvt) Ltd / Fantasie Chocolates - The other international major brand in India is Lindt. These chocolates are imported by a Mumbai based company Sunstar Confection & Trading (Pvt) Ltd who also retails the Lindt’s range through their own air conditioned boutique stores called Fanatise Chocolates in Mumbai, Pune and Bangalore. Fantasie chocolates also sell their home brand Fantasie through these stores. Fantasie chocolate brand is 50 years old and is well known in Western India.

• Vrinka Overseas Pvt Ltd/Sweet World – is perhaps India’s only multi-store, multi-location candy store. Sweet World commenced operations in 2002 and introduced the Pick ‘N’ Mix concept in India. Sweet World sells over 200 varieties of unbranded imported confectionery including jellybeans, gummies, marshmallows, gumballs,

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licorice, etc. There will be 20 Sweet World stores in India by March 2005, all of them in the prestigious malls in major metropolitan areas across India.

• Brook Trading Co. Pvt Ltd./Patchi Chocolates – another imported chocolate brand which has a presence in Mumbai, India is Patchi. Mumbai based Brook Trading Co. Pvt Ltd., imports and retails a range of Patchi’s chocolates imported from Lebanon. Their flagship store, Patchi, opened in Crossroads, an upmarket shopping mall in Mumbai in 2003. The company is planning to open two stores in Delhi and one each in Kolkata, Bangalore, Hyderabad and Pune in 2005.

• Other US chocolate and confectionery brands that have established some small presence in India over the last three years are:

− Hershey’s – imported and distributed in India by Kaivan Foods;

− Skittles anad M&Ms – imported and distributed in India by Optimum Marketing Metrics Pvt Ltd;

− Tootsie – imported and distributed in India by Optimum Marketing Metrics Pvt Ltd;

− Just Born - imported and distributed in India by Optimum Marketing Metrics Pvt Ltd;

− Hasbro – imported and distributed in India by Microtrack Business Systems Pvt Ltd;

− Brach’s - imported and distributed in India by Balaji Victuals Pvt Ltd;

− Jelly Belly - imported and distributed in India by HMA Udyog Ltd; and

− Hillside Candy - imported and distributed in India by HMA Udyog Ltd.

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Industry contact information

SECTION 7: INDUSTRY CONTACT INFORMATION

7.1 Confectionery importer-distributors and wholesalers

Ms. Vrinda Rajgarhia – Director Vrinka Overseas Pvt Ltd (Importer and retailer of candy and confectionery) 46, Jolly Maker Chambers II, 225 Nariman Point Mumbai – 400 021 Tel: +91 22 2202 7309 / 2202 7335 Fax: +91 22 2281 6122 Email: [email protected] Website: www.sweetworldonline.com Mr. Kaivan C. Balsara Kaivan Foods (Agent for Ferrero Rocher and Hershey’s – importer of chocolates) C. K. Balsara Group of Companies 3, Kurla Industrial Estate L.B.S. Marg Ghatkopar (W) Mumbai – 400 086 Tel: +91 22 25138455 / 25116795 Fax: +91 22 25139318 Email: [email protected] Mr. Ravi Sureka International Marketing Network (Agent for Toblerone – importer of chocolates) Plot No. 7, Ashok Nagar Society N.S. Road No. 11, J.V.P.D. Scheme Mumbai – 400 049 Tel: +91 22 26134826 Fax: +91 22 26184485 Email: [email protected] Ms. Arti Manoj – Marketing Controller All India Sunstar Confection & Trading (Pvt) Ltd / Fantasie Chocolates (Agent for Lindt – importer of chocolates. Also manufacturer of Fantasie chocolates) “Sun-Ville” 9, Dr. Annie Besant Road Worli,

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Mumbai – 400 018 Tel: +91 22 2493 5546 / 2497 8082 Fax: +91 22 2492 1604 Email: [email protected] Website: www.webindia.com/fantasie Mr. Chetan Gokal – Director Brook Trading Co. Pvt Ltd. / Patchi Chocolates (Agent for Patchi chocolates – Importer and retailer of chocolates) Kasturi Building, 5th Floor, Jamshedji Tata Road Mumbai – 400 020 Tel: +91 22 2202 0590 / 2202 2291 Fax: +91 22 2285 3713 Email: [email protected] Website: www.brooktrading.com Mr. A. Haveliwala – Director Uni Colloids Impex Pvt Ltd (Importer of bulk chocolates) 206, Nagdevi Street, 2nd Floor Valiulla Compalex Mumbai – 400 003 Tel: +91 22 23439215 / 0214 / 2342 9872 Fax: +91 22 2343 5916 / 5637 0959 Email: [email protected], [email protected] Mr. Sanjey Bajoria – Director Bajoria Foods Pvt Ltd / Virgo Marketing (Importer of candy and confectionery) 41/1623 D. N. Nagar, Andheri (W) Mumbai – 400 053 Tel: +91 22 3090 7575 / 2670 5686 Fax: +91 22 2670 7110 Email: [email protected] Kolkata Address: 1, British Indian Street Kolkata – 700 069 Tel: +91 33 2210 2479

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Mr. Rajesh Sanghvi - Director Delta Chem Impex Pvt Ltd (Agents for Barry Callebaut – importer of chocolates) C-13, Sri Ram Industrial Estate 13, G. D. Ambedkar Road Wadala Mumbai – 400 031 Tel: +91 22 5662 1093-94 / 5662 5440 Fax: +91 22 5662 1095 / 24181770 Email: [email protected], [email protected] Website: www.anmalliance.com Mr. Chetan Jaikishan - Director Express Foods (Importer of bulk chocolates. Also manufacturer of cookies and breakfast cereals) 444 Kewal Industrial Estate S.B. Marg, Lower Parel Mumbai - 400 013 Tel: +91 22 2281 3695 / 2281 7436 Fax: +91 22 – 2495 2923 Email: [email protected] Website: www.expressfoods.net Mr. Manoj Dugar – Managing Director Mr. Sumit Khandelwal – Director Dugar Overseas Pvt Ltd (Agent for Ritter Sport and Accor - Importer of chocolate, candy and confectionery) D-65, Anand Niketa Lower Ground Floor New Delhi – 110 021 Tel: +91 11 8661240 / 41 Fax: +91 11 2467 8475 Email: [email protected] Mumbai office: D-311 Crystal Plaza Link Road, Andheri (W) Mumbai – 400 053 Tel: +91 22 56926778 / 70 / 80 Fax: +91 22 56914975

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Mr. Saswata Sengupta – Chief Execuitve Rai & Sons Pvt. Ltd (Agent for Ricola – importer of candy and confectionery) 9-A, Connaught Place, New Delhi-110001 Tel: +91 11 2332 1270 / 2331 1681 Fax: +91 11 2332 7598 / 23317117 Email: [email protected] Website: www.raifoods.com Mrs. Bina Modi – Director Yum n Yumi Candy (Agent for Hillside Candy - importer of candy and confectionery) HMA Udyog Ltd E 49/11 Okhla Industrial Estate Phase II New Delhi – 110 020 Tel: +91 11 2638 5797 Fax: +91 11 2638 9138 Email: [email protected] Mr. Tushar Gupta - Director Tushar Nutritive Foods Pvt. Ltd (Importer of bulk chocolates) 508,B-9, ITL Twin Towers, Netaji Subhash Marg, Pitam Pura, Ring Road. New Delhi – 110 034 Tel: +91 11 2719 1823 Fax: +91 11 2719 3510 Email: [email protected] Website: www.foodtechmart.com Mr. Atul Khanna – Director Operations Optimum Marketing Metrics Pvt Ltd (Agent for Skittles and Tootsie - importer of candy and confectionery) 203, Okhla Industrial Estate, Phase III New Delhi – 110 020 Tel: +91 11 5100 0034-35-36 Fax: +91 11 5100 0037 Email: [email protected], [email protected] Website: www.ommindia.com

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Mr. Sunil Rai – President Balaji Victuals Pvt Ltd (Agent for Brach’s – importer of candy and confectionery) W-28, Green Park Main Lower Ground Floor New Delhi – 110016 Tel: +91 11 26965158 Fax: +91 11 26965147 Email: [email protected] Mr. J. P. Bagaria – Managing Director Rangdev Holdings Pvt Ltd (Agent for Nestle, Swiss Delice and Stella Chocolates, Fazer Chocolates, Jacali Chocolates and Swiss Navy Candy – importer of chocolates and Candy) 46, Strand Road, 1st floor Kolkata – 700 007 Tel: +91 33 22580350 Fax: +91 33 22580340 Email: [email protected] Mr. N. Balasubranaian – National Sales Manager Effem India Pvt Ltd (Subsidiary of Mars Inc., USA - importers of chocolates) 1st floor, Ashoka Hitech Chambers Banjara Hills, Road No. 2 Hyderabad – 500 034 Tel: +91 40 23555900 Fax: +91 40 23551528 Email: [email protected] Mr. Anil Shroff – Director Essence Empire (Agent for Swiss Confisa, Switzerland and Haribo, U.K. – importers of chocolates and confectionery) 228-231, Kaliandass Udyoh Bhavan Premises, Co-op. Society Ltd., Century Bazar Lane, Prabhadevi, Mumbai - 400 025 Tel: +91 22 5660 8260 / 5660 2203 Fax: +91 22 2438 0426 Email: nilima@ essenceempire.com

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Mr. Rajiv Tibrewal -Managing Director Microtrack Business Systems Pvt Ltd / Taurus Confectionery India (P) Ltd 1, Rawdon Street "Shubham" 5th Floor, Room - 505 Kolkata - 700 017 Tel: +91 33 302 20300 / 2280 9477 Fax: +91 33 2280 1853 Website: www.candytreatsindia.com Email: [email protected] Mr. Jay Jindal – Managing Director Jindal Dyechem Industries Ltd. (Agents for Sorini, Italy) 110 Babar Road Connaught Place New Delhi 110001 Tel: +91 11 234 11800 Fax: +91 11 234 11801 Email: [email protected] Mr. Harcharan Singh Nag – Managing Director M. B. International / H.S. Nag & Associates Pvt. Ltd (Agents for Paton’s Australia and Walter Heindl Confiserie, Austria) 106 DLF Cinema Complex, Greater Kailash - II, New Delhi - 110048 Tel: +91 11 2921 1383 Fax: +91 11 2921 6213 Email: [email protected]

7.2 Key retail candy accounts across marketing channels

Mr. Raghu Pillai - President & Chief Executive Retail Sector Foodworld Supermarkets Limited Spencer Plaza, IV Floor, 769, Anna Salai, Chennai - 600 002 Tamil Nadu - India Tel: +91 44 2851 0708 / 2841 8990 Fax: +91 44 2859 4563

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Mr. Kishore Biyani – Managing Director Food Bazaar Pantaloon Retail (India) Limited Pantaloon Knowledge House, Shyam Nagar, Off Jogeshwari-Vikhroli Link Rd., Jogeshwari (E), Mumbai- 400 060 Maharashtra - India Tel: +91 22 5644 2200 Fax: +91 22 5644 2201 Mr. C. Gopalkrishnan - Managing Director Nilgiri’s Supermarket Nilgiri’s Dairy Farm Limited / Nilgiri’s Franchisee Private Limited 404/A, 2nd Cross, 8th Main, 3rd Block, Koramangala, Bangalore - 560 034 Karnataka - India Tel: +91 80 2552 7124 / 2550 6705 Fax: +91 80 2552 7125 Mr. Mohammed Abdulla – Managing Director Subka Bazaar Home Stores (India) Ltd D-169 Okhla Industrial Area, Phase I, New Delhi – 110020 - UT Tel: +91 11 2681 9692 -5 Fax: +91 11 2681 1665 / 2681 4573 Mr. Wangchuk Dorji – Managing Director C3 Supermarkets Tai Industries Ltd 53-A, Mirza Ghalib Street, 3rd Floor Kolkata - 700016 West Bengal - India Tel: +91 33 2249 2956 / 2229 2292 / 2229 8489 Fax: +91 33 2249 7319

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Mr. K N Iyer - CEO (Retail) Piramyd Supermarket Piramal Holdings Ltd Khatu House Mogal Lane Mahim (W) Mumbai 400 016 Maharashtra - India Tel: +91 22 5666 9520 - 22 Fax: +91 22 5666 9526 Mr. Susil S. Dungarwal – Chief Manager – Development & Operations. Haiko Supermarket Lakewood Malls Private Limited Olympia, Central Avenue, Hiranandani Gardens, Powai Mumbai - 400 076 Maharashtra - India Tel: +91 22 2579 7888 Fax: +91 22 2579 7967 Mr. Raghu Pillai - President & Chief Executive Retail Sector GIANT Great Wholesale Club Limited Spencer Plaza, IV Floor, 769, Anna Salai, Chennai - 600 002 Tamil Nadu - India Tel: +91 44 2849 3611 Mr Harsh Bahadur - Country Manager and MD METRO Cash & Carry India Pvt. Ltd. No. 26/3, Industrial Suburbs, 'A' Block, Subramanyanagar, Ward No. 9, Bangalore - 560 055 Karnataka - India Tel.: +91 80 2219 2000 Fax: +91 80 2219 2200

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Mr. B. Singh – Country Manager India Shoprite / Megasave Trading Pvt Ltd Plant 18-B, Godrej & Boyce Industrial Complex Vikhroli (E) Mumbai 400 079 Maharashtra - India Tel: +91 22 5518 0102 / 03 Fax: +91 22 5518 0105 Mr. Mayank Tandon – Head Marketing & Sales SPAR Supermarket / Radhakrishna Foodland Pvt. Ltd. Radhakrishna House Majiwade Thane (W) – 400 601 Maharashtra - India Tel.: +91-22-5598 6464 Fax: +91-22-5597 1767 Email: [email protected]

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Appendix 1: Indian sweetmeats

APPENDIX 1: INDIAN SWEETMEATS

Sweetmeats in India have a great cultural significance as they are accepted as a mark of hospitality in almost every section of the society. Apart from hospitality, they are a must during most religious performances, festivals and other social occasions such as engagement and wedding ceremonies, anniversaries, birthdays and graduation parties, etc. For most Indian people sweetmeats form a part of their culture and tradition. Almost every state or region has its sweetmeat specialty and traditions associated with it. But the rapid growth of communication, migration, urbanization, and industrialization has led to the diffusion of sweetmeats from one region to another. In most parts of India, they are known as mithai although there are some regional variations in names. Historically, any person actively associated with the profession of sweetmeat making was known as Halwai but with rapid social change due to industrialization, this caste does not exist anymore, although you can find traditional Halwais in all large cities. Sweetmeats and other sweet dishes form an important part of the dietary pattern in India. The country is the third largest producer of sugar in the world and a large producer of milk. Though it is impossible to describe all the ingredients of sweetmeats, the basic ingredients are:

• Milk (fresh cow and buffalo milk);

• Kheer (‘condensed milk’) and khoya (‘dried milk’);

• Chenna (cottage cheese);

• Ghee (butter melted until the watery content is expelled);

• Sugar, various forms of refined or unrefined sugar (gur or jaggery);

• Besan (Gram or other peaa or bean flours);

• Safead (rice-flour);

• Dried fruits and nuts (primarily almonds, pistachios, cashews and raisins);

• Flavoring, and coloring agents (e.g. -- the most common cardamom flavor, rose water, mango, ginger, lemon, peel, etc. -- saffron (zafran), turmeric (yellow),

cochineal (red), pistachio (green) and other edible coloring agents);

• Hot spices. Dried (and oftern baked or roasted) cardamom, cloves, cinnamon, and cassia leaves;

• Sodium bicarbonate; and

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• Barak/Tabqka for decorating the more expensive sweetmeats (e.g. rose petals, silver

leaf, etc).

The Indian sweets can be broadly categorized as follows:

• Milk Sweets are made from kheer or khoya. Tradition plays a major role in kheer or

khoya sweets. The range includes a wide range of variations such as Pedas and Burfis.

• Ghee sweets are made by using ghee as a base with besan and safead. Again, there is a wide range types, including of Ladoos, Halwas and Pinnis and the famous Sohan

Papdis.

• Bengali sweets are the most popular and are made from Chenna. These include the Rasgullas, Gulab Jamuns, Sandesh, Chum Chums, Anurodh, Pakizas and a wide range

of Bhoj.

• Dry fruit sweets are prepared from almonds, cashews, and pistachios. Figs and raisins are also widely used. These include Badam Pista Katli, Kaju Anjeer Roll, Kaju

Katli and Anjeer Burfi.

Structure of the sweetmeats sector

The Indian sweetmeat market is roughly estimated at 1million metric tons. The market is difficult to estimate as these are manufactured at home or by the over 60,000 odd sweetmeats shops (called halwaiis or mithai wallahs) which dot almost every street in India. This unorganized sector has lower hygiene and quality standards, smaller scale, and products have very short shelf life. There are often several such small shops catering for each residential area The small halwaiis co-exist with a few hundred larger regional sweet companies that sell sweetmeats under their store names and sometimes end up as regional brands. These operations usually emerge in the larger cities and could be considered the beginning of a more organized industry. There is no quantification of the scale or share of this more ‘organized’ sector but the larger sweetmeat operations only exist in large cities such as Mumbai, New Delhi, Hyderabad, Kolkotta, Bangalore, and Chennai. The smaller towns and rest of rural India are dominated by the unorganized, small, corner shop sector. We estimate about 85% of the total sweetmeat sector remains in the unorganized sector. Most of the sweetmeats are milk based and perishable with a shelf life of less than a day. Consumer loyalty is built by consistent quality, taste, freshness, variety, and convenience. For this reason, often both manufacturing and retail of sweets take place in the same location. Some of the larger operations would have a central production facility/factory which caters to the

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company’s own retail outlets and sometimes to other retailers as well. Usually the production facility and the retail outlets are located in the same city. Most of these have been established for many years and remain in the hands of the original family owners. The following table lists some larger sweetmeat operators in India. Brijwasi Sweets - Mumbai 15

branches Punjabi Chandu Halwai Karachiwala - Mumbai

11 branches

The two top sweetmeat brands in Mumbai are Brijwasi and Punjabi Chandu Halwai. Brijwasi Sweets is Mumbai’s leading sweetmeat manufacturer. It was established in 1945 by Mr. Ramswaroop Goyal and continues to be managed by the Goyal family. Mumbai is a cosmopolitan city and Brijwasi Sweets caters to the needs of all communities through its 15 outlets all over Mumbai. Punjabi Chandu Halwai was established in 1896 in Karachi (now in Pakistan). After Partition in 1947, the business moved to Mumbai and the company soon established itself as a reputable manufacturer of sweets and savories. Today, Punjabi Chandu Halwai sells a wide array of sweetmeats and namkeens through its 11 branches in Mumbai.

Nathu’s Sweets - New Delhi

6 branches

Bikanervala Foods Pvt Limited - New Delhi

6 outlets

Nathu’s is the most popular brand in Delhi. Nathu’s Sweets started as a single outlet in 1995 and over the past six years has expanded to six. Owned by the Gupta family, Nathu’s is a household name in Delhi today. Nathu’s Sweets runs restaurants in these branches and also sells a wide range of sweetmeats and namkeens. Nathu’s has recently diversified into event catering business. Another brand, Bikanervala which began as a namkeens brand in 1950, today has six restaurants in Delhi selling a wide range of their namkeens, sweetmeats, snacks and other food items.

Arya Bhavan Sweets - Bangalore

5 branches Arya Bhavan originally from the temple town of Madurai in Southern India is perhaps the only the popular sweetmeat brand in Bangalore today and currently has 5 branches.

G. Pulla Reddy Sweets - Hyderabad

2 branches Mr. G Pulla Reddy started his business vending sweets on a small cart way back in 1948 and today his name is synonymous with sweets in the historical city of Hyderabad. G. Pulla Reddy has 2 branches selling a wide range of milk and dry fruit sweets.

Nandhinee Sweets - Chennai

8 branches

Adyar Ananda Bhavan - Chennai

9 branches

Nandhinee Sweets has eight branches in the city of Chennai and sells a wide range of South Indian, Bengali Sweets and Ghee Sweets. Adyar Ananda Bhavan perhaps is Chennai’s only truly ethnic South Indian sweetmeat manufacturer with 7 branches spread over the city.

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Attempts to develop a larger scale production of sweetmeats have been limited to a few products such as rasagolla (a spongy succulent sweet) and shrikhand (a traditional curd-based milk sweet). Two companies K C Das Pvt Ltd, Kolkatta and Haldiram Foods International Ltd, Nagpur both sell branded canned rasagollas under their brand K C Das and Haldiram’s, respectively. However, the canned sweetmeat concept has yet to be embraced by Indian consumers. On the other hand, organized efforts have been fairly successful in branding shrikhand. The most popular brand is Amul from Gujarat Cooperative Milk Marketing Federation Ltd. Others include Warana from Warana Dairy and Aarey from Aarey Dairy. The majority of the sales of branded shrikhand are in Western India, especially in Mumbai where it is a traditional sweet. The market for branded shrikhand alone is estimated to be 7,000 metric tons.

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Appendix 2: Key manufacturers’ profiles

APPENDIX 2: KEY MANUFACTURERS’ PROFILES

The following profiles have been compiled mainly on the basis of our desk research and to a smaller extent the trade interviews. Sources include the companies’ annual reports, the internet and various publications such as The Economic Times, The Business Line.

Cadbury India Limited

Company name and ownership details

Cadbury India Limited is a 51% subsidiary of Cadbury Schweppes plc., UK and is the largest manufacturer of chocolate, confectionery and malted food products in India. Indian Public Limited Company. Listed on Mumbai, Calcutta and Delhi SXs. Cadbury Schweppes Plc., U.K. and Cadbury Schweppes Mauritius is in the final phase to enable the de-listing of CIL from Indian stock exchanges and have announced their final cash offer to purchase outstanding public shareholding of 9.76% of Cadbury India. The two companies have announced their decision to purchase the outstanding public shareholding which comprises of 34,83,539 equity shares at a price of Rs. 500 each. The company has 3 factories, located in Thane and Nduri, Maharashtra State, and in Malanpur, Madhya Pradesh State. It also has cocoa operations in Kottaym, Kerala State. Installed capacities:

− Cocoa powder – 900 mt/pa.

− Malted foods – 6,470 mt/pa.

− Chocolates and confectionery – N/A as products are manufactured at integrated plants.

− Cadbury India gets some of its chocolate and confectionery products packed through contract packing.

Recent performance

FY ending 31 Dec. 2003:

− Sales: Rs. 7,298.11m

− Net Profit: Rs. 456.50m

− During FY2003, Cadbury India sale of chocolates and confectionery products were valued at Rs. 5,140m

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Main activities

A manufacturer of chocolates and confectionery, malted foods and drinking chocolate, and soft drinks.

• During FY2003, Cadbury India was bestowed with the award for the first Business Today – A. T. Kearney, India’s Best Managed Company. India’s best companies were identified on the basis of four characteristics: value creation, strategic direction, complexity of portfolio and status as a role model.

• During FY2003, Cadbury India was selected amongst the top 10 “Great Places To Work” in corporate India by Great Place To Work Institute, Inc., USA

Products and brand presence

Chocolate and confectionery. The Cadbury brand is synonymous with chocolates in India.

• Cadbury India has 70% of the domestic chocolate market.

• 65% of Cadbury India’s revenue is from the sale of chocolates.

• Cadbury India has a 5% market share in the organized sugar confectionery segment.

• 12% of Cadbury India’s revenue is from the sale of sugar confectionery.

• Cadbury India also markets Halls and Clorets under the Adam’s brand in India.

• Cadbury India has setup an entirely new network for its confectionery range and is not using its existing chocolate network.

• During FY2003, Cadbury India launched Double Deck and Caramello a new milk chocolate variant, launched Perk and Gems in smaller pack size priced at Rs. 2 and launched Bytes a chocolate flavored wafer snack.

• During FY 2003, Cadbury India also focused on newer gifting formats for various occasions.

Cadbury India chocolate brands include: Dairy Milk, Perk, Crackle, 5 Star, Temptations; and the confectionery brands are Éclairs and Gems. Gums. Cadbury India entered this segment with the acquisition of the Adam’s brands from Warner Lambert India Pvt Ltd, which was consequent to the acquisition of the global non-chocolate confectionery business of Pfizer Inc., USA by Cadbury Schweppes plc., UK, in 2002. The acquisition is now poised to become a growth area for Cadbury India. The company announced that it will strengthen its position in the confectionery sector and will launch some of their gum brands such as Trident, Dentyne, Bubbas and Chiclets in 2005.

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Malted Foods. Cadbury India has the strong brand presence of Bournvita, which enjoys a market share of around 16%. Other malted foods are Cadbury’s Drinking Chocolate and Cadbury’s Cocoa powder, which contributes 22% of the company’s revenue. Soft Drinks. Cadbury India has an arrangement with Pure Drinks Ltd to manufacturer a range of soft drinks such as Canada Dry, Crush and Tonic Water. Distribution and future outlook

Cadbury India is aiming at the development of its retail network in rural areas for expanding its sales volume and turnover. It also has an advantage of brand equity, distribution network, access to global technology and a strong base for raw material collection.

Nestle India Limited


Nestle India Limited is one of India’s largest companies manufacturing consumer food products. NIL is a 51% subsidiary of Nestle SA, Switzerland. Indian Public Limited Company. Listed on Mumbai and Delhi SXs. The company has six factories in the following locations:

− Bicholin and Ponda, in Goa State;

− Moga, Punjab State (for confectionery products);

− Nanjangud, Karnataka State;

− Cherambadi, Tamilnadu State; and

− Samalkha, Haryana State. In addition to its six factories, Nestle India has a large number of contract packers in India. Installed capacities:

− Chocolates & Confectionery – N/A as products are manufactured at integrated plants.

− Nestle India gets some of its chocolate a confectionery products packed through contract packing.

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Recent performance

For FY ending December 31 2003:

− Sales: Rs.23,077m

− Net Profit: Rs. 2,631m

− During FY 2003, Nestle India manufactured 21,450 MT of chocolates and confectionery products valued at Rs. 3,366m.

Main activities

Manufacturer and marketer of coffee, tea, malted beverages, instant baby cereals & foods, milk products, chocolates and confectionery, instant foods and culinary products. Manufactures products in categories that include: “Milk Products and Nutrition”, “Beverages”, “Prepared Dishes and Cooking Aids”, and “Chocolate and Confectionery”. Products and brand presence

Chocolates and confectionery. Nestle India forayed into chocolates and confectionery in 1990 and has cornered a quarter of the chocolate market in India. It has expanded its products range to all segments of the market. The Kit Kat brand is among the largest selling chocolate brands in India.

• 14% of Nestle India’s turnover is from the chocolate and confectionery.

• During FY 2003, Nestle India continued to strengthen their presence in the market. It sustained momentum through innovative consumer promotions and trade offerings and supporting key price points.

• During FY2003, Nestle India launched a range of innovative and renovated products in this category that includes Nestle Milk Chocolate, Nestle Fruit & Nut, Nestle Krunchy, Nestle Milkybar Starz, Nestle Choco, Nestle Chocolate Éclairs, Nestle Coffee Éclairs and various flavors of Chocostick.

• During FY 2003, Nestle India earmarked 25% of its product portfolio at affordable

price points and cut prices of Kit Kat to drive volume growth. Nestle India cut

prices of Kit Kat by up to Rs. 2, bringing the brand on a par with the chocolate

industry benchmark price points of Rs. 5 and Rs. 10.

• Nestle Munch, the largest selling unit in the wafer segment and the most widely distributed, continued to gain in volumes. Nestle Chotu Munch, which was launched at Rs. 2/- price point was well received.

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Nestle India brands include:

• Chocolate: Milky Bar, Marbles, Munch, Nestle Rich Dark, Bar-One, etc.

• Confectionery: Polo, Soothers, Frootos and Milkybar Éclairs.

• All confectionery products are sold under the umbrella brand Allen's.

Distribution and future outlook

Hit by the low sales growth in chocolate and confectionery segment, Nestle India is revamping its distribution structure to drive growth. The company has added 15 regional sales offices in its sales and distribution structure from January 2004 to drive product reach into the smaller towns and cities across the country. Nestle India has a retail distribution network of 650,000 outlets reaching 3,300 towns, serviced by a network of over 4,000 distributors. It is expanding its retail distribution reach and expects to cover 1million outlets.

Lotte India Corporation Ltd.


Lotte India Corporation Ltd. (LICL), formerly Parry’s Confectionery Limited (PCL), was part of the Rs. 29,000m Murugappa Group and is India’s leading manufacturer of confectionery in India.

• Parry’s was a pioneer of the confectionery industry in India and was the first Indian company to setup its factory in 1914.

• During 2004, Murugappa Group sold 60.39% of its stake in Parry’s to Lotte Confectionery Co Ltd, Korea, for Rs.6447m and will further acquire 20% of Parry’s in the near future.

• The entry of multinationals in the Indian confectionery sector over the last decade, adversely affected Parry’s business and could not support further investments. In this changed market environment, the Murugappa Group found it difficult to pump in money continuously to build and sustain the confectionery brands and decided to exit to divest the group's stake in Parry’s in the best interest of its shareholders.

Indian Public Ltd. Company.

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Listed at Chennai and The National SXs. For FY ending March 31, 2004:

− Sales: Rs. 1,005.2m

− Net Profit: Rs. 7.8m

− One factory located in Nellikuppam, Tamilnadu Installed capacities:

− Products are manufactured at integrated plants and hence, installed capacities cannot be ascertained.

− During FY2003-04, Lotte India produced 8,400 MT of assorted confectionery.

− Lotte India has an exclusive arrangement with two independent contract manufacturers (one in Cochin, Kerala and Sangli, Maharashtra)

Main activities

Manufacturer and marketer of sugar boiled confectionery, cocoa and milk based toffees, candies and mints.

• During FY1999-00, Parry’s entered into a joint venture agreement with Hutamaki Oy Leaf, Finland to manufacture and market Smilees brand - sugar panned chocolate buttons, Lakerol brand - medicated candy, and Chewits brand - chewable toffee with an investment of Rs. 250m but had to exit from this business as the products could not be adapted to India’s tropical climate conditions.

• During FY2003-04, Lotte India upgraded its quality systems and received the ISO-9001-2002 and ISO 14000 certifications and also HACCP certification from BVQI for its plant in Nellikuppam, Tamil Nadu.


Confectionery. The Lotte India management will continue with the existing Parry’s brands for the next five years and will pay EID Parry’s a royalty of Rs 500,000 per annum. After that period Lotte Confectionery Co Ltd, Korea will introduce Lotte brands to the Indian market.

• Lotte India brands have a 24.5% market share of the confectionery industry and a 28% market share in the toffee segment.

• Lotte India brands have a strong presence in the 25 paise price segment.

• During FY2003-04, it entered the deposit candy segment through the launch of Butter Scotch Rings.

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Lotte India portfolio of consists of 16 brands aiming the children and teens consumer segment. Some popular brands include Parry’s Éclairs, Lacto King, Coffee Bite, Coconut Punch, Madras Café, Soft Spot, Shakti, Mocca, Joozy Mangoh, Cricket, Lacto Bon Bon, Caramilk and Fruitz. All are sold under the umbrella brand of Parry’s / Lotte Distribution and future outlook

Lotte India currently has 800 distributors and plans to appoint an additional 400 distributors India-wide. Lotte India’s brands are retailed through more than 300,000 outlets throughout the country. The company plans to infuse funds and expertise into the company by introducing new products including gums and other innovative products from the Lotte international kitty.

Nutrine Confectionery Co. Pvt Ltd


Nutrine Confectionery Co. Pvt Ltd (Nutrine) is the flagship company of the Nutrine Group of Companies owned by the Reddy family and the largest Indian owned manufacturer of sugar and chocolate confectionery.

• Nutrine has grown to be a multi-product, multi-market giant and continues to be the single largest manufacturer of confectionery and toffees in India since 1980.

• During FY1999-00, Nutrine sold its biscuit brands and bakery division to Sara Lee Corporation, USA for Rs. 330m.

Indian Public Limited Company Not listed on any SX. Nutrine has one factory, located in Chittoor, Andhra Pradesh State Installed capacities:

− Products are manufactured at integrated plants and hence installed capacities cannot be ascertained.

− During FY2003-04, Nutrine produced approximately 28,000 MT of assorted confectionery.

Recent performance:

Sales turnover for the FY ending March 31, 2003 were approximately Rs. 1,800m

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Main activities

Nutrine manufactures and markets sugar boiled confectionery, cocoa and milk based toffees, candies, éclairs and fruit bars. Products and brand presence

Nutrine’s main brands are as follows:

− Confectionery: Koka Naka, Elaichi, Maha Lacto, Wild Koffy, Nutrine Gold, Gulkhand, Amras, Caramella, Superstar, Marvel, and Lolli pop;

− Toffeees/Eclairs: Aasay; and

− Fruit bars: Naturo. All are sold under the umbrella brand Nutrine.

• The Nutrine's Maha Lacto brand is among the most popular, bringing about Rs 1,000m.

• Eighty percent of the market comprises products at the 50-paise price point.

• Nutrine brands have a 28% market share of the confectionery industry.

• Nutrine spends 8% of its turnover on advertising and brand promotion per annum.

• Nutrine is the major sponsor of sports events at school and college levels and has a national brand presence.


Nutrine brands are marketed through 400,000 wholesalers and dealers and 10 million retail outlets. The company is adding another 600-tonne-per-month capacity by installing a new process line for deposit candy in its factory with an investment of Rs. 100m – 120m and also plans to launch 4-5 new brands under the deposit candy range.

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Candico India Limited


Candico India Limited is the largest manufacturer owned by the New Delhi based Kumar family of confectionery in India.

• Candico was earlier the confectionery division of Bakemans India Ltd., a large manufacturer of biscuits and bakery products which was hived off in FY1997-98 as a separate company.

• Candico is the only Indian MNC in the confectionery sector.

Indian Public Limited Company. Not listed in any SX. Candico has one factory, located in Nagpur, Maharashtra State with installed capacity of 45,000 mt/pa. The company has invested Rs. 320m in its state-of-the-art manufacturing plant. Candico earns a significant portion of its revenue through contract manufacturing. Recent performance

For the FY ending March 31 2004, sales turnover was approximately Rs. 1,250m. Main activities

Manufactures and markets sugar boiled confectionery, candies, gums, mints and toffees. Candico is the only company in India that manufactures all four categories of confectionery - candies, toffees, lozenges and gums - a strength it is using for serving the demands of national and international markets. Products and brand presence

Candico manufactures and markets 8 to 12 brands, all targeted at children, teens, and young adults.

• Candico is the 4th largest manufacturer of confectionery products and has a market share of approximately 8%.

• Candico brands have a strong presence in the northern states of India.

• During 2002, Candico sold its Mint-O brand to ITC Foods a division of Indian Tobacco Co. Ltd.

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• Candico is actively engaged in contract manufacturing/private labeling for numerous

international and Indian companies.

Candico’s brand portfolio consists of:

− Confectionery: Frutti Tutti, Jucee Mango and Lacto;

− Gum: Big Bubble Gum, Time Bomb, Gol Maal, Freedom, Jumbo Gumbo and Loco Poco;

− Toffees/éclairs: Elachi Roll, Koffi Toffi, Éclairs, and Drum Beat All are sold under the umbrella brand Candico. Technical collaboration

• Technical collaboration with Curt Georgi, Germany a world leader in flavors

• Technical collaboration with Eurobase, Belgium for gum-base the world’s largest independent gum base manufacturer.

Outward foreign direct investment

During 2003, Candico invested US$ 1million to setup a 3,900 MT confectionery manufacturing plant in Tanzania. During 2004, Candico invested US$ 5million to setup a 6,000 MT confectionery manufacturing plant in South Africa. Distribution and future plans

• Candico products are sold through a 1,500 distributors countrywide network. The company has a direct or indirect distribution reach in most towns and cities with a population of over 25,000 individuals.

• Candico is into preliminary negotiations with international chocolate and confectionery manufacturers who wish to introduce their product range into India.

• Candico has identified candy retail as one of the potential segments for future growth and is actively exploring this opportunity.

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Perfetti van Melle India Pvt Ltd


Perfetti van Melle India Pvt Ltd (Perfetti) is India’s leading confectionery manufaand is a wholly owned subsidiary of Perfetti S.p.a. Italy.

cturing company

Perfetti started operations in India in 1994 as Perfetti India Ltd, a JV with Tecnova India Pvt. Ltd. In 2001, Perfetti India Ltd acquired Tecnova’s shares and Van Melle decided to merge their activities through Perfetti's global acquisition of all Van Melle shares in March 2001. The company was renamed as Perfetti van Melle India Pvt Ltd. Indian Private Limited Company. Not listed on any SX. Perfetti has two factories in India, located in Manesar, Haryana State and Chennai, Tamilnadu State with total installed capacities of 45,000 MT/pa. Recent performance

For FY ending December 31, 2003 Perfetti’s turnover was approximately Rs. 4,000m. Main activities

A manufacturer and marketer of sugar based confectionery and is a leader in the candy and gum segments. It is the second largest company in the Perfetti group in terms of sales volumes world-wide. Products and brand presence

Candies:

− Alpenliebe - milk and caramel based candy - is the largest selling candy in India.

− Cloromint - mint flavored candy.

− Cofitos - coffee and cream based candy.

− Herbasol - herbal breath freshener - mint, orange, strawberry and peach flavors. Gums:

− Big Babol - non sticky bubble gum in 4 flavors - fruit, cream, strawberry and mango – is the largest selling gum in India targeted at children.

− Centerfresh – in spearmint and strawberry flavors, targeted at the teen segment.

− Brooklyn – targeted at the adult segment.

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Center Fresh was the first brand offering of Perfetti to be launched in India in 1994, followed by Big Babol and Alpenliebe. Alpenliebe today is the largest brand in its portfolio. Big Babol ranks second in size followed by Center Fresh and Chlormint. Alpenliebe Lollipop, Mentos, Cofitos, Center Shock, Marbels, and Fruit-telta are other leading brands in the Perfetti portfolio. With a basket of 13 brands, the company strives to leverage its international product expertise while adapting flavors and blends to local tastes. Perfetti has a 25% share of the organized confectionery market in India. It spends between 10 to 15% of its net sales on advertising each year. With a focus on innovation and new product development, Perfetti launched 12 products across several categories during 2004. It also forayed into the chocolate éclairs market with “Chocotella” and the digestives market with “Chatarpatar”. Three to four more products are expected to be launched in 2005. Among the 2004 launches was ‘Happydent Protex', a specially formulated sugar-free chewing gum containing Xylitol. Perfetti is positioning the sugar-free gum as an oral care product and maintains that the contents of Xylitol assist in prevention of tooth decay and helps contain bacterial growth. The company intends to spend an estimated Rs. 20m in advertising to promote “Happydent Protex'” over the next few months. Outward foreign direct investment

During FY2003, Perfetti India, which is a wholly owned subsidiary of its Italian parent, set up its first manufacturing plant outside India - in Bangladesh with an investment of Rs. 200m. Distribution and future outlook

Perfetti markets its product to 1 million outlets across India. Pan shops plays a key role in the company's growth, with its products stocked across 250,000 pan shops across the country. Over the last 10 years, Perfetti has invested approximately Rs. 6,000m in India. During 2004, it announced a planned further investment of Rs. 1,500m over the next two years in marketing and brand building, and to increase its manufacturing capacity by upgrading its Chennai plant.

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Parle Products Pvt Ltd


Parle Products Pvt Ltd is a Rs. 7,500m conglomerate owned by the Mumbai based Chavan Family and is a leader in manufacturing and marketing of cookies and confectionery. Indian Private Limited Company. Not listed at any SX. Parle has four factories located in:

− Mumbai, Maharashtra State - manufactures cookies and confectionery;

− Bahadurgarh, Haryana State - manufactures cookies;

− Neemrana, Rajasthan - manufactures cookies; and

− Bangalore, Karnataka - manufactures cookies. Installed capacities:

− Products manufactured at integrated plants and hence installed capacities cannot be ascertained.

− Parle has 19 contract manufactures located in different parts of the country out of which 14 for manufacturing their range of biscuits and 5 for confectionery products.

Recent performance

For FY ending March 31, 2004 Parle’s sales turnover was approximately Rs. 8500m. Main activities

Parle manufactures and markets cookies, sugar boiled confectionery, and cocoa and milk based toffees. Products and brand presence

• Eighty percent of Parle’s revenue is from the sale of biscuits and bakery products.

• It has 40% market share in the total cookies industry in India. Parle G remains the largest selling cookies brand in the world by volumes, accounting for more than half of Parle’s sales turnover.

• Parle has 15% market share in the total confectionery industry. Melody, Poppins, Mangobite and Kismi enjoy a strong imagery and appeal amongst consumers.

• Its brands are targeted at the lower and middle price segment.

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• Parle donates 25% of its income to public charities to support education medical

care.

Parle’s main brands are as follows:

− Cookies: Parle G, Parle G Magix, Parle G Milk Shakti, Monaco, Krackjack, Marie Choice, Hide-n-Seek, Fun Centre and Monaco Bites.

− Confectionery: Melody, Mango Bite, Kismi, Poppins, Rol-a-Cola, Orange Candy, Smoothies and Chox.


Parle has 1,500 wholesalers, catering to 4,25,000 retail outlets directly or indirectly. A two hundred dedicated field force services these wholesalers and retailers. Additionally, there are 31 depots and C&F agents supplying goods to the wide distribution network. Parle seems to be focused on their cookies business as they enjoy a substantial market share of this Rs. 350 billion market in India. On the other hand, its confectionery business, which started operations in 1929, remains in a slow growth mode.

Wrigley India Pvt Ltd and Joyco India Pvt Ltd


Joyco India Pvt Ltd (Joyco) / Wrigley India Pvt Ltd (Wrigley) Joyco India Pvt Ltd is a wholly owned subsidiary of Joyco Group, Spain. Wrigley India Pvt Ltd is a wholly owned subsidiary of Wm. Wrigely Jr. Co., USA.

• During 2004, Wm. Wrigley Jr. Co. USA, acquired the confectionery business of Joyco Group, Spain. This transaction involved Joyco's operations in India along with China, France, Italy, Poland and Spain.

• As part of the restructuring, the corporate head office of Wrigley, India has moved from Bangalore to Delhi, which was Joyco’s base of operations.

• Both companies in India will operate as Wrigley India Pvt Ltd.

• This acquisition is expected to help in consolidating the brands of both companies in the confectionery market.

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• Joyco Group earlier named Agrolimen, Spain entered India during 1995 through a

51:49 joint venture General de Confiteria Ltd with the New Delhi based Dabur Group.

• During 1999, Agrolimen, Spain bought out Dabur's share in the joint venture and General de Confiteria Ltd acquired the status of a 100% subsidiary of Joyco Group. At the same time, the company's name was also changed to Joyco India Pvt Ltd.

• Wrigley entered India in 1994 with the launch of Wrigley’s chewing gum.

Both are Indian Private Limited Companies. Not listed on any SX. Joyco has one factory in Nalagarh, Himachal Pradesh, and Wrigley has a factory in Bangalore, Karnataka. Recent performance

For the FY ending December 31, 2003, Joyco had and approximate turnover of Rs. 2 billion, and Wrigley – of Rs. 316 million. Main activities

Joyco manufactures and markets bubble gum, chewing gum, lollipop and candy. Wrigley manufactures and markets a range of chewing gums. Joyco is the third largest sugar confectionery company operating in India, and has 10-15% market share in the Indian confectionery market. Products and brand presence

Joyco’s brands are Boomer bubble gum, Pim Pom lollipops, Solano candy, Bonkers soft chews, and Trex chewing gum. It has a leading position in the bubble gum and lollipops segments, while it holds a second position in the candy segment. Sixty percent of Joyco’s turnover is derived from its flagship brand Boomer bubble gum which it launched in 1995. Wrigley’s brands are Doublemint, Wrigley’s Spearmint, Juicy Fruit, Orbit, Cool Air, and P.K. chewing gums. In 2004, it launched Orbit, India’s first sugar-free chewing gum, priced at Rs 5. So far Wrigley’s sales in India have not been very encouraging.

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Wrigley’s acquisition of Joyco brands will definitely consolidate the confectionery market in India. Also, Wrigley will take advantage of Joyco’s distribution network, especially in Northern India. Joyco currently has a retail presence in over 400,000 outlets, with a network of 1,650 distributors. It has the largest distribution setup in the confectionery industry, with direct coverage in more than 350,000 retail outlets across the country. With a wide portfolio of products they service a range of outlets, including grocery stores, general merchants, pan shops and supermarket chains. They have regional offices in Mumbai, Kolkata, Chennai and Bangalore. Besides this direct coverage, the company also has a very strong indirect channel serviced through wholesalers.

Gujarat Co-operative Milk Marketing Federation Ltd.


Gujarat Co-operative Milk Marketing Federation Limited (GCMMFL) is the largest organization in the Indian food industry engaged in the marketing of milk and dairy products, and chocolates and confectionery. It is India's leading co-operative marketing federation and India's largest food products marketing organization. Not listed on any SX. Installed Capacities:

• Liquid Milk Processing – 6.07m/day. GCMMFL has a membership of 12 district co-operative milk producer's unions spread over 10,183 villages and having 1.95m producer members. It is a state level apex body of milk co-operatives in the state of Gujarat.

• Chocolate manufacturing capacity – 1500 MT/pa

• GCMMFL has a manufacturing contract agreement with The CAMPCO Ltd for production of its brands.

• The CAMPCO Ltd will offer 3,000 MT of its chocolates manufacturing capacity exclusive for production of AMUL brands for GCMMFL.

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Recent performance

For FY ending March 31, 2004, GCMMFL had net sales of Rs. 27,480 million. Main activities

Producers and marketers of milk, milk products, ice creams and processed foods.

• Produces and markets a wide range of dairy and non-dairy bread spreads, powdered milk & dairy whitener, fresh & UHT milk, a wide range of cheese, yogurt, flavored yogurt, flavored milk, cooking butter, ghee, a wide range of ice creams, malted foods, chocolates and confectionery and instant foods.

Products a brand presence

• GCMMFL currently has less than 2% share of the total chocolate market.

• GCMMFL is a success story of dairy and ice cream business in India and wants to have another go at its chocolate brand.

• GCMMFL is re-focusing on its chocolate business.

• GCMMFL wants a hold in the chocolate market that is seeing new international players like Mars.

• During FY 2003-04 introduced three new brands to add to its range. GCMMFL also re-launched Éclairs its confectionery brand, which was pulled out of the market two years ago.

• During FY 2003-04, GCMMFL also re-launched its gifting brand Rejoice.

GCMMFL chocolate brands (all sold under the AMUL brand) are Milk Chocolate, Fruit n Nut, Almond Bar, Bindaaz, Fundoo and Éclairs. It also has Rejoice, a gifting brand. Distribution and future outlook

GCMMFCL currently poses very little threat to the other two chocolate giants Cadbury and Nestle, as it still needs to get its distribution and product attributes in place before it can make a dent in the chocolate market.

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ITC Limited


ITC Limited (ITCL) is the flagship company of the ITC conglomerate, India’s largest manufacturer of cigarettes and tobacco products, is an agri-commodity trader with interests in greetings, gifting and stationery products, safety matches and essence sticks, hotels, paper board and specialty papers, packaging, information technology, lifestyle retailing and foods. British American Tobacco Co. Ltd holds 45.33% stake in ITCL. Indian Public Limited Company. Listed at the Mumbai, Delhi, Calcutta, Cochin, Bangalore, Ahmedabad, Pune, Hyderabad, Chennai, Uttar Pradesh and National SXs. During 2002, ITCL, set-up a separate division for its foods business called ITC Foods. ITCL made its entry into the branded and packaged foods business in August 2001 with the launch of the Kitchens of India brand. A more broad-based entry has been made since June 2002. ITCL Foods Division does not have its own manufacturing facilities for confectionery products. Products are manufactured by contract manufacturers. Recent performance

FY ending 31 March 2004:

− Net Sales: Rs. 64704.40m (total sales of the group)

− Net Profits: Rs. 15928.50m (total net profit of the group) Main activities – Food division

Marketer of 45 value added products in four categories: staples, confectionery, snack foods and cookies, and ready to eat meals. Products and brand presence

• During 2002, ITC’s Foods rolled out its maiden confectionery brand- Mint-O, which it had acquired from the Delhi-based Candico India Limited. Mint-O is targeted at the young adult segment. Mint-O is also available in Lemon and Orange flavors.

• During 2003, ITC Foods later launched Candyman targeted at the under 12 children segment. Candyman is available in two variants - Wild Banana and Mango Delight.

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• ITC Foods sugar-boiled confectionery portfolio consists of just two brands Mint-O

and Candyman.

ITC’s main brands include:

− Aashirvaad brand Atta, one of the leading brands of atta in the country; 19

− Sunfeast brand, cookies in butterscotch and orange flavors;

− Mint-O and Candyman, hard boiled sugar confectionery; and

− Kitchens of India brand, ready to eat meals and jams and preserves. Distribution and future outlook

ITCL's traditional distribution strength has been convenience outlets that sell, among other things, tobacco products. ITCL has the largest FMCG distribution reach in the country, and directly services more than a million outlets across the country. Since confectionery is an impulse purchase category, largely sold out of convenience outlets, ITCL is believed to be in a good position to distribute its confectionery products. ITCL has strength in terms of distribution of confectionery and is using its vast network of pan, cigarettes and beedi shops in India. It is expected that ITCL confectionery business will need a minimum of two years to break even.

Hindustan Lever Limited

Company name a ownership details

Hindustan Lever Limited (HLL) is India’s largest and leading Fast Moving Consumer Good (FMCG) company manufacturing and marketing soaps, detergents, household and personal care products, foods and chemicals, fertilizers and animal feed.

• Unilever Plc. holds 51% stake in HLL.

• HLL is focusing on a brand portfolio, which comprises of 35 powerful brands across categories, which caters to customers across various income categories.

Indian Public Limited Company. Listed on Mumbai, Ahmedabad, Calcutta, Bangalore, Chennai, Cochin, Delhi, Guwahati, and National SXs.

19 Atta is wheat flour, primarily used for making Indian breads, such as Chapati and Roti.

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HLL does not have its own manufacturing facilities for confectionery products. Products are manufactured by contract manufacturers. Recent performance

For calendar year ending December 31, 2003 HLL had sales of Rs. 1,109.60million, and net profit of Rs. 180.43million. Main activities

HLL’s Food Division comprises the business of tea, coffee, ice creams, bakery products, staples and confectionery. Products and brand presence

HLL brand range includes hard-boiled candies, toffees, mint candies and crackling candy, such as ChocoMax, MaxCream, MaxMint and MaxCrackler. All are priced at 25p, 50p and Rs. 2 and sold under the brand Max.

• HLL launched the Max Confectionery range in FY 2001.

• HLL has a 6% market share in the hard-boiled confectionery market in India.

• Max is also HLL’s ice cream brand.

• Max candies are among the most popular confectionery brands in India.

• Max candies have an innovative marketing strategy targeting children. The Max brand story is about simple and imaginative play. The brand ambassador is the playful Max lion who rules the Kingdom of Max. Max Kingdom is a place full of mouth-watering confectionery and ice cream treasures that have to be continuously guarded against the designs of the Evil Shadow master. In this adventure, he is guided by Prof. Higgabottom. Max always wants to play and have fun, whereas Prof. Higgabottom always disciplines him and wants him to behave like a King and herein lies the conflict. Therefore, most kids identify with Max being one of them and his struggles and adventures as their own.

• During FY 2003 HLL’s Food Division turnover was Rs. 290m.


• HLL is aware that increasing the distribution reach would be the key to growth.

• HLL had plans to take its confectionery business to 400,000 outlets by the end of 2004 and is developing its exclusive distribution system for the confectionery business.

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The CAMPCO Ltd


The CAMPCO Ltd – The Cocoa and Arecanut Marketing & Processing Co-Operative Limited (CAMPCO) is a procurement, processing and marketing co-operative agency dedicated to cocoa and arecanut crops. Not listed on any SX. CAMPCO is a joint venture between Karnataka and Kerala Governments which commenced operations in July 1973 encouraging growers in Karnataka and Kerala to take up cocoa cultivation. CAMPCO set up a chocolate manufacturing factory in 1986 with an investment of Rs. 116.7m. The factory is located in Kemminje/Puttur in Karnataka. Installed capacities:

− Cocoa processing – 6000 MT/pa, which is an integrated independent facility.

− Chocolates – 8800MT/pa out of which 700 MT is for their own brands. The manufacturing facility allows CAMPCO to manufacturer products of different segment of the confectionery segment – molded, enrobed, éclairs and pan confectionery. During FY2003-04, CAMPCO modified its plant to also manufacture éclairs which used to be manufactured by a contract manufacturer. Recent performance

For FY ending March 31, 2004 CAMPCO had net sales of Rs. 2 billion. Main activities

A manufacturer and marketer of chocolate and a wide range of cocoa based industrial products.

• CAMPCO had a 10-year contact-manufacturing tie-up with Nestle, which expired in 2000. Nestle utilized 4,500MT of CAMPCO’s production capacity.

• CAMPCO undertakes processing of cocoa beans and supplies cocoa and other intermediary products to Cadbury and Nestle.

• CAMPCO currently has a manufacturing contract tie-up with GCMMF, which will use CAMPCO’s installed capacity of 3,000 MT.

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• During FY2003-04, CAMPCO adopted a new strategy, which is aimed at expanding the chocolate market for its brands in India.

• During FY2003-04, CAMPCO adopted a strategy of "low price point" to market its chocolate brands to the middle-class segment and introduced innovative packaging and a new look to its enrobed chocolate products – “Turbo” and “Treat”. Turbo was also introduced in Rs 3 pack, apart from the existing Rs 5 pack.

• Another brand, CAMPCO Bar, which is sold at Rs 10 for a 45-gm pack, was launched at Rs 2 for a 9-gm pack under CAMPCO Mini Bar segment.

• During FY 2003-04, CAMPCO launched Krust, a chocolate-coated wafer biscuit, and 4Fever, described as a protein-rich bar enrobed with milk chocolate to compete with similar products being manufactured by Cadbury and Nestle.

CAMPCO also markets a wide range of chocolate products under its own brand and has small presence in different segments of the chocolate market. Its main brands, all sold under the CAMPCO umbrella brand, include:

− Chocolate: Melto, Cream, Turbo, Treat, Megabite, Bar, 4ever, Krust, Éclair, Melto Éclairs, Brown Center Éclairs, Play Time; and

− Drinking chocolate: Winner. Distribution and future outlook

CAMPCO, being a co-operative, is unable to match the advertising budgets of MNC such as Cadbury and Nestle. Instead, it is concentrating on event management activities to popularize its products especially in schools. CAMPCO has 22 area sales offices and regional offices in Kolkata, Lucknow, Delhi, Hyderabad, Bangalore, and Mumbai. Delhi, Himachal Pradesh, Punjab, Haryana, and Uttar Pradesh account for 38% of the total chocolate market of CAMPCO. Its chocolate products are sold in nearly 100,000 outlets throughout the country. Nearly 40% of the outlets are in Uttar Pradesh. CAMPCO has a strong market presence in Karnataka and Kerala, as most of the members of this co-operative organization are from these States. This has helped it garner more than half of its chocolate market in the southern states. During FY2003-04, CAMPCO appointed a Bangalore based consulting company to train its sales representatives, sales managers and regional heads in areas such as leadership, management, and team-building initiatives.

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Lotus Chocolate Company Limited


Lotus Chocolate Company Limited (Lotus) formerly owned by Network Foods International Limited, Singapore (52%) is a leading manufacturer of chocolate and chocolate-based confectionery in India.

• Until August 2003, Lotus was 52% owned by Network Foods International Limited, Singapore, a holding company belonging to Sunshine Allied Investments, Singapore, part of MUI Group, Malaysia. Lotus had obtained a total loan of US$2.33m from Network Foods International Ltd during FY1998 and FY1999 towards brand promotion and working capital requirements.

• During FY 2003, the ownership of the company changed hands and two Hyderabad based businessmen Mr. D. Durgaprasad and Mr. A. Ramakrishna acquired 42.25% of the equity from Network Foods International Limited, Singapore and also infused Rs. 20m into the sick company.

• Lotus has been incurring losses over the past 5 years and performance has not been encouraging for this 13 years old company. Despite several efforts MUI Group, Malaysia could not revive the company’s operations.

Indian Public Ltd Company. Listed on Mumbai and Hyderabad SXs. Lotus has one factory located in Doulatabad, Medak, Andhra Pradesh State. Installed capacity:

− Cocoa processing – 3,800 MT/pa, which is integrated independent facility

− Chocolates – 3,000MT/pa The manufacturing facility allows Lotus to manufacture products of different chocolate segments, such as molded, panned, and enrobed chocolate. Lotus has a facility for enrobing wafers and cookies, and also has a sugar and chocolate panning facility for nuts, fruit bits, chips, cookies, etc. Recent performance

For calendar year, ending December 31, 2003 Lotus had sales of Rs. 30.4m and incurred Rs. 20.3m of net losses.

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Main Activities

A manufacturer and marketer of chocolate and a wide range of cocoa based industrial products.

• Lotus currently has a cocoa processing and chocolate manufacturing agreement with Cadbury India Ltd, which is the major revenue earner for the company.

• Lotus is focusing on strengthening its industrial chocolate segment especially with exports of cocoa butter. The company presently exporting cocoa butter to countries in EU.

Product and brand presence

Lotus markets a wide range of chocolate products under its own brand and has small presence in different segments of the chocolate market. Its main brands, all sold under the Lotus name, include: Chuckles, Super Car, Kiddies, On & On, Kandos Maltys, Kajoos, and Tango. Distribution and future outlook

Lotus is now focused on regaining lost ground and capturing the low-end market for its brands through a focused campaign in schools, parks, and retail outlets. It has an excellent market presence in its home state, Andhra Pradesh and is currently focusing its distribution in the southern states. Lotus also expects to strengthen its cocoa based industrial based segment and its new management is in contact with the large MNC’s and manufacturers of bakery products, ice cream, chocolate, malted beverages, breakfast cereals and confectionery products. Lotus is looking at a turnover of Rs. 160m in FY 2004 out of which Rs. 40m will be from exports. Lotus is currently negotiating with a few manufacturers of chocolates in EU to manufacturer chocolates from them in India.

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Appendix 3: Trade interviews

APPENDIX 3: TRADE INTERVIEWS

MANUFACTURERS: Candico India, Ltd. Mr. Karan Gupta Executive Director A-4/B-1, Mohan Co-operative Estate New Delhi – 110 044 Tel: +91 11 26950580 Fax: +91 11 26941665 Email: [email protected] Website: www.candicoindia.com

Kayempee Foods Pvt, Ltd.Mr. Sirish Kothapally Executive Director A-50/1, IDA, Kukatpally Hyderabad – 500 037 Tel: +91 40 2308 5739 / 2308 8559 Fax: +91 40 23088581 Email: [email protected] Website: www.chocomarco.com

Lotus Chocolate Co., Ltd. Mr. D. Durga Prasad Director # 403, IV Floor, Diamond House Panjagutta Hyderabad – 500 082 Tel: +91 40 2340 1966 / 2340 4967 Fax: +91 40 2340 1312 Email: [email protected] Website: www.lotuschocolates.com

Lotte India Corporation Ltd Mr. Shankar S. General Marketing Manager ‘Dare House’, 234, N.S.C. Bose Road Parrys Corner Chennai – 600 001 Tel: +91 44 2530 6338 Fax: +91 44 2534 1135 Email: [email protected]

Nutrine Confectionery Company Pvt Ltd Mr. K. Siva Mohan Reddy Executive Director PB#38, B. V. Reddy Colony Chittoor – 517 001 Tel: +91 8572 229969 (8 lines) Fax: +91 8572 226646 / 226244 Email: [email protected] Website: www.nutrinesweets.com

IMPORTERS/DISTRIBUTORS:

Bajoria Foods Pvt Ltd / Virgo Mr. Sanjey Bajoria Director Marketing 41/1623, D. N. Nagar Andheri (W) Mumbai – 400 053 Tel: +91 22 3090 7575 / 2670 5686 Fax: +91 22 2670 7110 Email: [email protected]

Balaji Victuals Pvt Ltd Mr. Sunil Rai President W-28, Green Park Main Lower Ground Floor New Delhi - 110016 Tel: +91 11 26965158 Fax: +91 11 26965147 Email: [email protected]

Rai & Sons Pvt Ltd Mr. Saswat Sengupta Chief Executive 9-A Connaught Place New Delhi – 110 001 Tel: +91 11 2332 1270 / 2332 6655 Fax: +91 11 2332 7598 Email: [email protected] Website: www.raifoods.com

Optimum Marketing Metrics Pvt. Ltd. Mr. Atul Khanna Director 203, Okhla Industrial Estate, Phase III New Delhi – 110 020 Tel: +91 11 5100 0034-35-36 Fax: +91 11 5100 0037 Email: [email protected] Website: www.ommindia.com

Dugar Overseas Pvt Ltd Mr. Sumit Khandelwal Director D-311 Crystal Plaza Link Road, Andheri (W) Mumbai – 400 053 Tel: +91 22 56926778 / 70 / 80 Fax: +91 22 56914975 Email: [email protected]

International Marketing Network Mr. Ravi Sureka Director Plot No. 7, Ashok Nagar Society N.S. Road No. 11, J.V.P.D Scheme, Mumbai – 400 049 Tel: +91 22 2613 4826 Fax: +91 22 2618 4485 Email: [email protected]

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Appendix 3: Trade interviews

Rangdev Holdings Pvt Ltd Mr. J. P. Bagaria Managing Director 46, Strand Road, 1st floor Kolkata – 700 007 Tel: +91 33 22580350 Fax: +91 33 22580340 Email: [email protected]

Sunstar Confection & Trading (Pvt) Ltd Ms. Arti Manoj Marketing Controller All India “Sun-Ville” 9, Dr. Annie Besant Road Worli, Mumbai – 400 018 Tel: +91 22 2493 5546 / 2497 8082 Fax: +91 22 2492 1604 Email: [email protected]

Vrinka Overseas Pvt Ltd Ms. Vrinda Rajgarhia Director 46, Jolly Maker Chambers II, 225 Nariman Point Mumbai – 400 021 Tel: +91 22 2202 7309 / 2202 7335 Fax: +91 22 2281 6122 Email: [email protected] Website: www.sweetworldonline.com

Kaivan Foods C. K. Balsara Group of Companies Mr. Kaivan C. Balsara Director 3, Kurla Industrial Estate L.B.S. Marg Ghatkopar (W) Mumbai – 400 086 Tel: +91 22 25138455 / 25116795 Fax: +91 22 25139318 Email: [email protected]

Essence Empire Mr. Anil Shroff Director 228-231, Kaliandass Udyoh Bhavan Premises,Co-op. Society Ltd., Century Bazar Lane, Prabhadevi, Mumbai - 400 025 Tel: +91 22 5660 8260 / 5660 2203 Fax: +91 22 2438 0426 Email: nilima@ essenceempire.com

Candy Treats / Taurus Confectionery India (P) Ltd Mr. Sunil Saraogi Marketing Head – Western India 1, Rawdon Street "Shubham" 5th Floor, Room - 505 Kolkata - 700 017 Tel: +91 33 302 20300 Fax: +91 33 2280 1853 Email: [email protected]

RETAILERS:

Champion Sweet Mart Mr. Ramesh Bhai Proprietor 272, Bhat Bazar Narshi Natha Street Masjid Bander (E) Mumbai – 400 009 Tel: +91 22 23475616

Ego Yum n Yumi Candy Store Ms. Bina Modi Director C/o HMA Udyog Ltd E49/11 Okhla Industrial Estate Phase II New Delhi – 110 020 Tel: +91 11 2638 5797 Fax: +91 11 2638 9138 Email: [email protected]

New Regal Stores Mr. Sajjad Ratlamwala Partner 499, Inside Crawford Market Mumbai – 400 001 Tel: +91 22 2343 3484

Le Chocolat Ms. Leela Thawani Proprietor 8/9, Joy Palace, 29th Road Bandra (W) Mumbai – 400 050 Tel: +91 22 2640 8879

Nutty Affair Mr. Mhod. Jafer Proprietor # 1-8-91/19/1, Sindhi Colony P.G. Road Secunderabad – 500 003 Tel: +91 40 5531 2807

Sweet World Vrinka Overseas Pvt Ltd Ms. Vrinda Rajgarhai Director 46, Jolly Maker Chambers II, 225 Nariman Point Mumbai – 400 021 Tel: +91 22 2202 7309 / 2202 7335 Fax: +91 22 2281 6122 Email: [email protected] Website: www.sweetworldonline.com

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