50 Kellogg’s in India

Kellogg’s is, of course, a mighty brand. Its cereals have been consumed aroundthe globe more than any of its rivals. Sub-brands such as Corn Flakes, Frostiesand Rice Krispies are the breakfast favourites of millions.

In the late 1980s, the company had reached an all-time peak, commandinga staggering 40 per cent of the US ready-to-eat market from its cerealproducts alone. By that time, Kellogg’s had over 20 plants in 18 countriesworld wide, with yearly sales reaching above US $6 billion.

However, in the 1990s Kellogg’s began to struggle. Competition wasgetting tougher as its nearest rivals General Mills increased the pressure withits Cheerios brand. Kellogg’s management team was accused of being‘unimaginative’, and of ‘spoiling some of the world’s top brands’ in a 1997article in Fortune magazine.

In core markets such as the United States and the UK, the cereal industryhas been stagnant for over a decade, as there has been little room for growth.Therefore, from the beginning of the 1990s Kellogg’s looked beyond itstraditional markets in Europe and the United States in search of more cereal-eating consumers. It didn’t take the company too long to decide that Indiawas a suitable target for Kellogg’s products. After all, here was a country withover 950 million inhabitants, 250 million of whom were middle class, anda completely untapped market potential.

In 1994, three years after the barriers to international trade had opened inIndia, Kellogg’s decided to invest US $65 million into launching its numberone brand, Corn Flakes. The news was greeted optimistically by Indianeconomic experts such as Bhagirat B Merchant, who in 1994 was the director

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of the Bombay Stock Exchange. ‘Even if Kellogg’s has only a two percentmarket share, at 18 million consumers they will have a larger market than inthe US itself,’ he said at the time.

However, the Indian sub-continent found the whole concept of eatingbreakfast cereal a new one. Indeed, the most common way to start the day inIndia was with a bowl of hot vegetables. While this meant that Kellogg’s hadfew direct competitors it also meant that the company had to promote notonly its product, but also the very idea of eating breakfast cereal in the firstplace.

The first sales figures were encouraging, and indicated that breakfast cerealconsumption was on the rise. However, it soon became apparent that manypeople had bought Corn Flakes as a one-off, novelty purchase. Even if theyliked the taste, the product was too expensive. A 500-gram box of CornFlakes cost a third more than its nearest competitor. However, Kellogg’sremained unwilling to bow to price pressure and decided to launch otherproducts in India, without doing any further research of the market. Overthe next few years Indian cereal buyers were introduced to Kellogg’s WheatFlakes, Frosties, Rice Flakes, Honey Crunch, All Bran, Special K and ChocosChocolate Puffs – none of which have managed to replicate the success theyhave encountered in the West.

Furthermore, the company’s attempts to ‘Indianize’ its range have beendisastrous. Its Mazza-branded series of fusion cereals, with flavours such asmango, coconut and rose, failed to make a lasting impression.

Acknowledging the relative failure of these brands in India, Kellogg’s hascome up with a new strategy to establish the company’s brand equity in themarket. If it can’t sell cereal, it’s going to try and sell biscuits. The news ofthis brand extension was covered in depth in the Indian Express newspaperin 2000:

The company has been looking at alternate product categories tocounter poor off take for its breakfast cereal brands in the Indianmarket, say sources. Meanwhile, the Kellogg main stay – breakfastcereals – has seen frenzied marketing activity from the company’s end.The idea behind the effort is to establish the Kellogg brand equity inthe market.

‘The company is concentrating on establishing its brand name in themarket irrespective of the off take. The focus is entirely on being present

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and visible on the retail shelves with a wide range of products,’ explainsa company dealer in Mumbia.

As per the trade, Kellogg India has disclosed to the dealers its intentionof launching more than one new product onto the market every monthfor the next six months.

These rapid-fire launches were supported with extensive ‘below-the-line’activity, such as consumer offers on half of Kellogg’s cereal boxes. Althoughmost of the biscuit ranges have so far been a success with children, due in partto their low price, Kellogg’s is still struggling in the cereal category.

Although the company tried to be more sensitive to the requirements ofthe market, through subtle taste alterations, the high price of the cerealsremains a deterrent. According to a study conducted by research firmPROMAR International, titled ‘The Sub-Continent in Transition: A strate-gic assessment of food, beverage, and agribusiness opportunities in India in2010,’ the price factor will restrict Kellogg’s from further market growth.‘While Kellogg’s has ushered in a shift in Indian breakfast habits and adaptedits line of cereal flavours to meet the Indian palate, the price of the productstill restricts consumption to urban centres and affluent households,’ thestudy reports.

Kellogg’s tough ride in India has not been unique. Here are some furtherexamples of brands which have managed to misjudge the market:

� Mercedes-Benz. In 1995 the German car giant opened a plant in India toproduce its E-class Sedan. The car, which was targeted at the growing ranksof India’s wealthy middle class, failed to inspire. By 1997, the plant wasusing only 10 per cent of its 20,000 car capacity. ‘Indians turned up theirnoses at the Sedan – a model older than those sold in Europe,’ reportedBusiness Week at the time. ‘Now Mercedes has to reassess its mistakes andstart exporting excess cars to Africa and elsewhere.’

� Lufthansa. Germany’s Lufthansa airline joined forces with Indian com-pany, the Modi Group, to launch a new domestic private airline, Modi-Luft, in 1993. However, three years later ModiLuft had gone bust andLufthansa filed a lawsuit against one of the Modi brothers, claiming hehad used funds obtained from the German company in other ventures.In return, the Modi Group accused Lufthansa of charging too much andof producing defective planes.

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� Coca-Cola. The Coca-Cola company understood that distribution was thekey to building a strong Indian brand. It therefore decided to buy out oneof India’s most successful soft drink companies and manufacturers ofpopular soda brand Thums Up. However, although this gave Coca-Colaan instant distribution network, Thums Up remained more popular thanCoke for many years. Most Indians initially thought that the new entryto the market wasn’t fizzy enough.

� Whirlpool. When Whirlpool launched its refrigerators on the Indianmarket, it found the market unwilling to buy larger sizes than the standard165 litres.

� MTV. When MTV India was launched, the aim was to bring Westernrock, rap and pop to the sub-continent. Now, however, the music policyhas shifted to accommodate Indian genres such as bhangra.

� Domino’s Pizza. Initially, Domino’s Pizza transferred its Western offeringsdirect to the Indian market, but the company eventually realized that ithad to bow to local tastes, as Arvind Nair, chief executive officer atDomino’s Pizza India explains. ‘Initially, our focus was to stay only inmetropolitan areas, but in the last two years we have felt the need to spreadourselves into “mini metros” and B-category towns. We have also experi-mented with our taste options, especially when we went into smallertowns. We have focused on more regional flavours now,’ he says. As a resultof this change of strategy, Domino’s came up with localized toppings suchas ‘Peppy Paneer’ and ‘Chicken Chettinad’. This move was greeted witha wry smile from Domino’s main Indian competitor, US Pizza, which wasthe first to offer local topping. ‘In 1995, when we offered tandoori chickenand paneer toppings, some made fun of us saying, why not offer spaghettiand pasta toppings? The same companies are now offering chole and spicymasala pizzas,’ says Wahid Berenjian, the managing director for US Pizza.He told the Hindu newspaper Business Line that US brands such asDomino’s made the mistake of thinking that US tastes are universal. ‘Youcannot change the taste buds that were developed more than a thousandyears ago,’ he said.

� Citibank. When Citibank entered the Indian market, the firm’s aim wasto target only high-income earners. But, in the words of the Business Linenewspaper, Citibank soon realized that ‘in India it makes sense to go themass banking way rather than the class banking way.’

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One of the reasons why Kellogg’s and these other brands’ passage to Indiawas not smooth was because they had been blinded by figures. The Indianpopulation may be verging on 1 billion, but its middle class accounts for onlya quarter of that figure. However, a 1996 survey conducted by the IndianNational Council on Applied Economic Research in Delhi found that thesub-continent’s ‘consumer class’ numbers are around 100 million people atthe most, and that buying habits and tastes vary greatly between the Indianregions. After all, India has 17 official languages and six major religionsspread throughout 25 states.

As a result, only those companies which are in tune with India’s manycultural complexities can stand a chance. One of the companies which hasmanaged to get it right is Unilever. However, the conglomerate has had ahead start on those Western companies which entered the market after 1991.Indeed, Unilever’s soap and toothpaste products have been available in Indiasince 1887, when the sub-continent was still the crown jewel of the BritishEmpire. The secret to Unilever’s longevity in India is distribution. HindustanLever Limited (Unilever’s Indian arm) has products available in a staggeringtotal of 10 million small shops throughout rural India.

As for Kellogg’s, it remains to be seen whether its move into other productcategories, such as snack food, will be able to help strengthen its brand. Thedilemma that it may face is that if it becomes associated with biscuits ratherthan cereals, core products like Corn Flakes could become a marginal partof the company’s brand identity in India.

‘Kellogg’s is caught in a bind,’ one Indian brand analyst remarked in India’sBusiness Line newspaper. ‘It realises that cornflakes can make money only inthe long haul, so it needs a product which will give it some accelerated growthand the tonnage it is desperately looking for. However, its area of strengthworldwide lies in breakfast cereal and not in the snack food category.’

However, other impartial Indian commentators are more optimistic aboutKellogg’s future prospects within the sub-continent. Among those whobelieve Kellogg’s will eventually succeed is Jagdeep Kapoor, the managingdirector of Indian marketing firm Samiska Marketing Consultants. ‘Withevery product offering, Kellogg’s chances improve based on its learning in theIndian market,’ he says.

Only time will tell.

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Lessons from Kellogg’s

� Do your homework. Why did Kellogg’s cereals have a tough ride in India?‘It was just clumsy cultural homework,’ says Titoo Ahluwalia, chairmanof market research company ORG MARG in Bombay.

� Don’t underestimate local competitors. Although Indian brands were worriedthey would struggle against a new wave of foreign competition followingthe market opening of 1991, they were wrong. ‘Multinational corpora-tions must not start with the assumption that India is a barren field,’ saidC K Prahalad, business professor at the University of Michigan, in aBusiness Week article. ‘The trick is not to be too big.’

� Remember that square pegs don’t fit into round holes. When Kellogg’s firstlaunched Corn Flakes in India it was essentially launching a Westernproduct attempting to appeal to Indian tastes. Globalization may be anincreasing trend, but regional identities, customs and tastes are as distinctas ever. It may be easy for brand managers of global brands to view theworld as homogenous, where consumer demands are all the same, but thereality is rather different. ‘There is a bigger opportunity in localizing yourofferings and the smarter companies are realizing this,’ says RamanujanSridhar, chief executive officer at Indian marketing and advertisingconsultancy firm Brand Comm.

� Don’t try and make consumers strangers to their culture. ‘The rules are veryclear,’ says Wahid Berenjian, the managing director for US Pizza (whichhas successfully launched a range of pizzas with Indian toppings) in anarticle for the Hindu newspaper, Business Line. ‘You can alienate me a bitfrom my culture, but you cannot make me a stranger to my culture. Thesociety is much stronger than any company or product.’ Brands who wantto succeed in India and other culturally distinct markets need to rememberthis.