Cadbury –ranked amongst India’s most respected

companies

Cadbury India has been ranked 5th in the FMCG sector, in a survey on India’s most
respected companies by sector conducted by Business World magazine.

Conducted by the Indian Market Research Bureau (IMRB), India's most respected
companies (by sector) looks at companies across 17 sectors. The fundamental purpose
was to find out which companies were respected the most among their peers. Companies
were rated on seven parameters like Innovativeness, Quality and depth of top
management, Financial performance and return to shareholders, Ethics and transparency,
Quality of Products or Services, People practice/talent management & Global
competitiveness.

This is the first time that Cadbury has made it to the top 5, which is an indication of the
growing trust and public affirmation for brand Cadbury
Cadbury well placed to prosper as Indian
confectionery market expands
Cadbury is reaping the reward of a long-term commitment to India, as rising
incomes and retail expansion spur growth in the confectionery category. Dominique
Patton spoke with marketing director for Cadbury India Sanjay Purohit about the
country's growth potential, and Cadbury's plans for this rapidly developing market.

The world's leading chocolate makers, facing modest growth in the health-conscious
West, are eyeing India's sweet-toothed consumers as a major opportunity. However, while
rising disposable incomes will certainly increase spending on indulgent products,
companies wishing to enter India for the first time face a formidable competitor in the
form of Cadbury which has been there since 1948.

Moreover, although growth in chocolate sales was slow for many years, the market has
recently started to boom, on the back of increased advertising, special pack formats and
retail expansion, and Cadbury is reaping the dividend from its long-term commitment to
the market.

According to Cadbury India's marketing director Sanjay Purohit, the company's chocolate
sales have grown by almost 20% during each of the last two years, largely a result of
significant investment in marketing. But progress has been hard earned. "India is a land of
people with a sweet tooth but we've had to battle against deeply entrenched cultural
products like mithai," Purohit explains.

Mithai, a generic name for Indian sweets, are consumed on a daily basis as snacks eaten
alone or with a cup of chai. Huge quantities are also given as gifts during festivals like
Diwali, which ushers in the New Year, and mithai are also a crucial part of wedding
ceremonies - the first gift of an Indian bride to her husband's family is often several kilos
of high quality mithai.

By using advertising to associate chocolate with mithai, Cadbury has succeeded in

opening up a huge consumer base. "Until the 90s people thought that only children eat
chocolate," says Purohit. "Now we have a large portion of adults across different social
segments who see chocolate as a wonderful, indulgent product, eaten at the same
occasions as mithai."

Cadbury's trading update in December confirmed the impact of this behavioural shift:
"India is having a particularly good year with recent performance boosted by a very
strong demand during the Diwali festival," the company said.
It has also made some product adjustments to reach out to new consumers. As elsewhere
in Asia, Cadbury chocolates are sold in individual single pieces in India. One of the
newest individual pieces for the Indian market, Chocfuls, is a caramel candy with a hard
shell and soft chocolate centre that costs just 4 cents per piece.

"If you look across the world, there is a direct correlation between per capita GDP and
spend on chocolate in every country," says Purohit. "So if you are going to make
chocolate present and part of everyone's repertoire, then you have to make it affordable."

He claims, however, that the company's gross margins in India "are not any worse off
than other markets", despite having to increase the cocoa butter content in its milk
chocolate formulations to help them withstand the Indian heat. In fact, Cadbury's 60-year
presence in India has driven the growth of the country's cocoa production, and it can now
meet 60% of cocoa demands at its five Indian factories from the domestic market.

This long presence also means that "Cadbury_Dairy_Milk defines the taste of chocolate
in the country", suggesting that a different recipe may take some time to develop fans.
Companies like US chocolate giant Hershey, rumoured to be looking to enter the market,
should perhaps take note. "The taste palate has to be developed over a period of time,"
Purohit says. "Having developed the taste over 60 years we have a tremendous
advantage."

Cadbury is certainly well ahead in the category, with a 72% share of India's IR12.3bn
($279m) chocolate market last year, compared to Nestlé's 24.7%, according to ACNielsen
data. Cadbury also has an extensive sales network that reaches some 500-600,000 outlets
directly and 1.5m outlets indirectly.

But new entrants see an opportunity in the rapid development of India's retail market and
Purohit agrees that this will really help the chocolate category take off. Currently most
confectionery sales in India are made through traditional outlets like kiosks or small
'mom-and-pop' stores that stock the entire range of basic groceries. But brands like
Cadbury's are set to perform better in larger retail formats, where there is space to stock
an entire range of products and the display is 'more appetising'. "We see double the rate of
sales in these formats than traditional trade outlets," says Purohit.

In recent years, Cadbury has only made around 7% of its total sales in larger retailers but
he believes this will increase to some 25% in the next five years. Euromonitor has
predicted that India's retail market will grow by 28% between 2006 and 2010, with sales
growing from US$80bn growing to US$103bn.

"As India continues to grow and retail formats allow excellent placement and visibility of
products, the chocolate confectionery market is only going to see exponential growth,"
says Purohit. "And we're well poised to take a large share of the growth given our
position in the market."
The company is also looking to expand in other categories where competition is tougher,
with the presence of international brands Wrigley, Perfetti and Lotte.

Cadbury has increased its share of total confectionery products to 31% in the last year.
About a quarter of its sales come from its Bournvita chocolate drinks while the rest is
largely generated by chocolate and a few other confectionery lines. And the company is
keen to add new products. Purohit concludes: "If you look at the kind of products we
offer in the rest of the world that we don't already have here, this is an indication of where
we want to go in India."
Cadbury
UK firm Cadbury-Schweppes is currently the number one confectionery firm in Western
Europe, holding 11.6 per cent of the market, as well as being number one in terms of
global sales.

The firm was originally established as a cocoa and chocolate firm in England in the late
eighteenth century, but has now grown rapidly to encompass sweets, beverages and
chewing gum, processed and sold all over the world.

Cadbury's dominance can be attributed to a number of factors, Meade said. In particular,

the company has completed several successful acquisitions in Asia and Eastern Europe.
These include the successful bids for Japanese candy company Sansei Foods and Turkey-
based Intergum.

This year, the company has boosted profits with its very successful moves within the
chewing gum market, and the company now claims to be number one in 18 of the top 50
gum markets worldwide.

The company has also made some steps in the organic and premium chocolate markets
with its acquisition of the Green & Blacks range, Meade added.

Like many other successful companies, Cadbury has made conscious efforts to reorganise
operations in Western Europe in order to keep costs down.

Only this month, the company announced the closure of a factory in the UK in order to
move production to Poland, while Cadbury is currently focusing on moving the main
offices out of central London to a cheaper location.

Cadbury are clearly determined to hang on to their number one spot. In fact, only last
week the confectionery giant announced that it will demerge its €10bn beverage arm in
order to focus on chocolate, sweets and gum.

Nestle
Unlike Cadbury, Switzerland-based food firm Nestle has a much wider product range that
encompasses beverages, coffee, infant nutrition, ice cream, soup and health care, and it
has lost 0.8 per cent of its market share since 2001.

However, the company still holds the number two position in Western Europe with 9.1
per cent of the market share, thanks to successful sales of brands such as Milkybar, Kit
Kat, Smarties Aero and Polo.

According to Euromonitor, Nestle has been successful takeover bids in emerging markets,
especially in Brazil.

"Nestle's successful strategy, for instance, in Brazil, contributed to reinforcing the global
standing of the swiss giant at a world level," Kazanchuk said.
However, Nestle has been much less proactive than other companies in acquiring organic
chocolate subsidiaries, Kazanchuk added, "which might in the medium term put the
company in a less robust position versus its more immediate competitors."

The company is also heavily involved with research into foods that target the health and
wellness trends, and is keen to involve chocolate, traditionally seen as fattening, in this
category.

For example, the company recently reformulated the Milkybar brand with all-natural
ingredients, taking advantage of current concern for food additives.
 CADBURY INDIA
Cadbury India is a food product company with interests in Chocolate Confectionery, Milk
Food Drinks, Snacks, and Candy. Cadbury is the market leader in Chocolate
Confectionery business with a market share of over 70%. Some of the key brands of
Cadbury are Cadbury Dairy Milk, 5 Star, Perk, Eclairs, Celebrations, Temptations, and
Gems. In Milk Food drinks segment, Cadbury's main product - Bournvita is the leading
Malted Food Drink in the country.

Cadbury is the world's largest confectionery company and its origins can be traced back
to 1783 when Jacob Schweppe perfected his process for manufacturing carbonated
mineral water in Geneva, Switzerland. In 1824, John Cadbury opened in Birmingham
selling cocoa and chocolate. Cadbury and Schweppe merged in 1969 to form Cadbury
Schweppes plc. Milk chocolate for eating was first made by Cadbury in 1897 by adding
milk powder paste to the dark chocolate recipe of cocoa mass, cocoa butter and sugar. In
1905, Cadbury's top selling brand, Cadbury Dairy Milk, was launched. By 1913 Dairy
Milk had become Cadbury's best selling line and in the mid twenties Cadbury's Dairy
Milk gained its status as the brand leader. Cadbury India began its operations in 1948 by
importing chocolates and then re-packing them before distribution in the Indian market.
Today, Cadbury has five company-owned manufacturing facilities at Thane, Induri (Pune)
and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices
(New Delhi, Mumbai, Kolkota and Chennai). Its corporate office is in Mumbai.
Worldwide, Cadbury employs 60,000 people in over 200 countries.

Major Achievements of Cadbury

• Worlds No 1 Confectionery company

• World's No 2 Gums company.
• World's No 3 beverage company.
• World's No 3 beverage company.
• Cadbury Dairy Milk & Bournvita have been declared a "Consumer Superbrand"
for 2006-7 by Superbrands India.
• Cadbury India has been ranked 5th in the FMCG sector, in a survey on India's
most respected companies by sector conducted by Business World magazine in
2007.
Cadbury reports higher net, sales

Our Bureau

MUMBAI, Oct. 31

CADBURY India Ltd has reported a net profit of Rs 21.62 crore for the third quarter
period of June 17-October 6, 2002, compared to Rs 18.25 crore for the period June 18,
2001-October 7, 2001. Net sales increased to Rs 217.94 crore (Rs 196.41 crore).

Sales increased by 11 per cent and profit after tax and before exceptional items increased
by 12 per cent to Rs 21.44 crore (Rs 19.16 crore).

Other income increased to Rs 2.66 cr (Rs 2.49 crore).

Financial statement

Statement of Directors' responsibilities in relation to the

Financial Statements
The following statement, which should be read in conjunction with the auditors' statement
of auditors' responsibilities set out in their report, is made with a view to distinguishing
for shareholders the respective responsibilities of the Directors and of the auditors in
relation to the financial statements.

The following statement, which should be read in conjunction with the auditors' statement
of auditors' responsibilities set out in their report, is made with a view to distinguishing
for shareholders the respective responsibilities of the Directors and of the auditors in
relation to the financial statements.

The Directors consider that in preparing the financial statements the Company has used
appropriate accounting policies, consistently applied and supported by reasonable and
prudent judgements and estimates, and that all accounting standards which they consider
to be applicable have been followed. The Directors have responsibility for ensuring that
the Company keeps accounting records which disclose with reasonable accuracy the
financial position of the Company, and which enable them to ensure that the financial
statements comply with the Companies Act 1985.

The Directors have general responsibilities for taking such steps as are reasonably open to
them to safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
competition
The confectionery industry is highly competitive: the Group's brands compete with many
other multi-national, national and regional companies in various markets. The Group
competes actively in terms of quality, taste and price of products and seeks to develop and
enhance brand recognition by introduction of new products, new packaging, extensive
advertising and promotional programmes.

We are the world's leading confectionery group by sales value (see table below).
Chocolate confectionery is primarily a branded market. Four groups account for around
43% of the world market, each with market share built on regional strengths. Our 7.5%
chocolate share is built on strong positions in the UK, Ireland, Australia, New Zealand
and India. The sugar confectionery market is significantly more fragmented, with a
greater presence of local and regional brands and private label products, but our 7.2%
share makes us global market leader. Gum is also a branded market. It is more global in
nature with brands and products more consistent across geographies. Two groups account
for approximately 62% of the global total: our number two position is built on strong
market shares in the Americas, parts of Continental Europe, Japan, Thailand and South
Africa.

2005 $ Share Total Chocolate Gum Candy

Cadbury Schweppes 9.9% 7.5% 25.7% 7.2%
Mars 9.0% 14.8% - 3.0%
Nestlé 7.8% 12.6% 0.1% 3.2%
Wrigley 5.8% - 35.9% 2.7%
Hershey 5.5% 8.2% 1.7% 2.7%
Kraft 4.3% 7.7% 0.5% 0.4%
 2004
2005
Notes (restated)
£m
£m
Fixed assets
Tangible fixed assets 4 114 115
Investments in associates 5 9 9
Investments 5 5,397 5,699
5,520 5,823
Current assets
Debtors 6
- Due within one year 132 141
- Due after one year 30 20
Cash at bank and in hand 8 -
170 161
Creditors: amounts falling due within one year
- Borrowings 11 (2,159) (2,589)
- Other 8 (118) (190)
Net current liabilities (2,107) (2,618)
Total assets less current liabilities 3,413 3,205
Creditors: amounts falling due after more than one
year
- Borrowings 11 (843) (899)
- Other 9 (100) (5)
(943) (904)
Net assets 2,470 2,301
Equity capital and reserves
Called-up share capital 12 260 259
Share premium account 12 1,135 1,098
Revaluation reserve 12 1 1
Other reserves 12 542 624
Profit and loss account 12 532 319
Equity shareholders' funds 2,470 2,301
 MATHEW CADBURY - MANAGING DIRECTOR

CADBURY INDIA TODAY…..

• Index stock on BSE and NSE.

• Rs. 15 billion market capitalisation.
• 48,000 + shareholders.
• 1,900 + employees
• Rs. 5,711 million sales in 2000 :
1. 76% Confectionery
2. 24% Food Drinks.

• Rs. 1,069 million PBDIT

• Rs. 2,345 million total assets.

OUR PLACE IN CADBURY SCHWEPPES GROUP

• 1.8% of group sales

• 1.2% of group net assets.
• 1.8% of group PBIT (Profit before interest and tax)
• Part of 'developing markets' region

Full support from group.

Branded Impulse Market includes Chocolates, Biscuits, Ice Creams, Salted

Snacks, Soft Drinks

• There are over 1.5 million retail outlets for FMCG in India. Over two-third of
these stock branded impulse products, but fewer than 25% sell chocolate.

Branded Impulse Market

• Current chocolate value share of total impulse category is 6.1% (CIL 4.4%).
Though this is relatively small, changing tastes and lifestyles of consumer offer
tremendous scope for growth.

• Chocolate confectionery is sold at premium in India compared to other branded

impulse products.

Consumer - Growth Opportunities

• Impulse snacking is an Indian habit.

• Attitude and disposable income changes are favourable to impulse foods.
• Large youth population, 47% of urban India is growing dominant chocolate
consuming segment.
• Child and gifting segments expected to grow at faster rate.
 • Current low penetration of Chocolates

22% adults in urban India.

Creating Value in Future

• Effectively managing growth drivers

1. Gifting Child Connectivity and low end VFM.
2. New channels.

• Optimising manufacturing efficiencies.

Aiming for best in class TMC in Cadbury Schweppes plc. (CS) for CDM and
Eclairs.

• Competitiveness in logistics and distribution using IT.

• Exploiting mass media to create / maintain large brands.

10+% Advertising / Sales.

Cocoa Beans

• About half of requirements bought locally.

• "Forward" purchases in case of imports.
• "Cash on delivery" purchases locally
1. Purchase Price declared by CIL, giving fair price to farmer.
2. Long term relationship

• Local cocoa area development in progress

1. Expansion
2. Better yields

Chocolate Imports

• Greater presence of imported products

• Low volume high trade margin segment
• Reducing restrictions and duties
• Threat as well as opportunity.
• CS International portfolio being evaluated.

Impact of WTO - Lifting of QRs

• Window of opportunity for importing from CS group companies.

1. Better cost effectiveness for trying new products
2. Possibility of providing huge variety
 3. Good speed of response to consumer likings
4. Large opportunity in Sugar Confectionery category

• Opportunity limited by rate of import duties.

Our Vision

• Cadbury in every pocket

• Superior shareholder value.

This Requires

• Broadening our consumer appeal and extending our reach to newer markets.
• Sustained growth of our market share through aggressive product development.
• Striving for international quality in our products and processes.
• Focussing on cost competitiveness, productivity and innovative utilisation of
assets.
• Energising and developing our people.

top back

GIRISH M BHAT, DIRECTOR ( FINANCE & COMMERCIAL)

Market Share

Chocolates 69.2%

Sugar Confectionery 4.0%

Food Drinks 14.2%

Business Categories - Value

Contribution per category

Chocolates 64%

Sugar Confectionery 12%

Food Drinks 24%

Shift in focus from 1994

 • Chocolates segment have grown to 64% from 59%, Sugar confectionery has
grown to 12% from 9%, Food drinks has fallen to 24% from 32%.

CIL in relation to Competition

• Stronger brands in Chocolates

• Defining Chocolate taste
• Dominant Chocolate market shares
• First mover advantage
• Established distribution network.
• Aggressive market development

• Sugar Brand portfolio one among many

1. though dominant in Eclairs category
2. very strong price led competition

• Only one player (Nestle) who competes across all categories.

• Concentrated advertising campaign to ensure positioning and recall.

Increasing marketshare through

• Broadening consumer appeal

1. 4,50,000 outlets
2. 2,100 + distributors.
3. Strategy aimed at fostering new users
4. 8 million new consumers added in 2000.

• Total now above 60 million

• Aggressive product development.

top

OVERALL FUTURE STRATEGY

• Focus on maintaining dominance on Chocolate Confy market and leadership in

Brown Drinks.
• New growth drivers in new Choc consumer segments like Gifting, Child
connectivity, low end VFM and new channels.
• Grow sales volume around 10% p.a. (avg) over next 3 years.
• Best in class TMC in CSplc for CDM and Eclairs.
• Launch of one new major product every year.

Market Statistics - Chocolates

 • Dominated by branded players

Market Size (Volume) 22,500 tpa

Growth Rate (last 3 years) 12% p. a.

Cadbury's share 69.2%

Focus areas for growth

• Impulse snacking
• Child connectivity
• Gifting
• New channels & Institutional sales
• Further improve quality of products.

SUGAR CONFECTIONERY

Market Statistics - Sugar

Market Size (Volume) 1,63,000 tpa

Growth rate (last 3 years) 15% p.a.

Share of unorganised sector 1,00,000 tpa

Cadbury's share 4.0%

Growing marketshare

• Optimum utilisation of distribution network and reach

• Introduce technologically differentiated value added sugar products
• Focus on quality and packaging
• Regular introduction of variants.

FOOD DRINKS

Market Statistics - Food Drinks

Market Size (Volume) 73,500 tpa

Growth rate (last 3 years) 8.5% p.a.

Share of white drinks 68%

Share of Brown drinks 32%

Cadbury's share 14.2%

Current scenario

• No. 2 in food drinks market.

• Positioned on platform of 'taste and energy'.
• Associated with children through programs such as 'Bournvita Quiz Contest'.

Reaching one step up

• Extend positioning of 'taste and energy' to adults.

• Continue programs for associations with kids.
• Increase association with kids through website 'bournvita.com'
1. Games
2. Education and information.

2000 KEY FIGURES

• Sales value grew by 11.8%

1. On top of volume growth of 5.2%
2. Despite difficult market conditions.

• This came through market expansion

1. Substantial increase in below line sales and marketing activities
2. Focused advertising
3. Launch of three new products
a. Milk Treat
b. Perk Slims
c. Chocobix.

• PBDIT margin improved to 18.7% (up from 16.7%) through

• Reduced material costs

1. By improved procurement of materials and reduced wastages
2. Reduced manufacturing costs
3. Reduced interest costs
4. By superior management of operating funds, working capital efficiencies
and tight control over capital expenditure.

SUMMARY OF GROWTH RATES 1994-2000

 CAGR last 6 years

Sales 20%

Total Assets 14%

PAT before Exceptional items 26%

Dividends Paid 25%

Total Shareholder Returns 27%

Plans for near term future

• Increase share in impulse category

• Introduce new product offerings to grow overall business.
• Enhance Chocolate Confectionery products offer to drive growths in wider
consumer segments.
• Introduce differentiated value added Sugar Confectionery products.
• Enhance share in Food Drinks market.
• High focus on Economic Profit

• To evaluate Company and Brands performance :

Drive low cost manufacturing

Reduction in manufacturing costs
Supply chain efficiencies
Further reduction in material costs.
Increase trading margin.
Increase utilisation of assets
Brands and production capabilities
Keep Capex close to depreciation
Further improvement in working capital norms.
Effective use of properties
Use of Information Technology for business improvement and reducing costs.
Web enabled SCM.
Enhancing organisational capability through people
Training and development
Sharpening culture workshops
Performance linked incentives for managers
People care index measurement.
Generation of surplus cash.
Improved returns to shareholders.

Some recent business improvement projects

 • Inhouse projects teams of senior managers have been working closely with CS
Group and some well known consultants to
1. Identify new growth opportunities
2. Improve manufacturing costs and supply chain processes.
3. Effectively use of information technology.

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QUESTION & ANSWER SESSION

• Company is cutting down costs so that it would like to be best in class when
compared to world class companies so that it would like to internationally cost
competitive in next 3 years even at zero import duty from current level of 50%.

• Business challenge is non-improvement in domestic market and increasing

material costs. If this happens, margins will fall.

• International products are imported by under-invoicing so as to reduce import

duty. This has created low imported product costs when compared to locally
manufactured goods.

• Cocoa is important raw material for company. 40-50% is imported while balance
is locally procured.

• Other brands except Cadbury Diary Milk has not grown that well.

• In sugar confectionery also except Éclair, none of new launches in last 3 years
have fared well.
he country's largest-selling chocolate manufacturer Cadbury India Ltd said on Wednesday
it is now back on the track with growth rates going back to the days before it received a
setback in the market following large-scale complaints of infestation of its products in the
market place last October.

It has imported machinery for auto-wrapping and put in place a new packaging system
designed to keep infestation at bay and a comprehensive quality
control audit that continuously monitors its retail network to ensure proper handling of
products.

Senior company officials who spoke to reporters at its Indur plant, 50 km outside Pune
city said the company, which recorded loss in sales of an estimated Rs 70 crore
immediately after the peak-Diwali season reports of infestations of its products, is now
showing healthy growth and said turnover this year will exceed Rs 720 crore it recorded
last year.

"The incident affected the chocolate category as a whole but we are maintaining our 67-
70 per cent market share," Sharad Gangal, General Manager, HR, said.

The other players in the market comprise Nestle, which has an estimated 29 per cent
share, and the remaining 1 per cent shared by Amul and a host of regional level players.

Armed with a new, air-tight packaging that is now exclusive to only Cadbury products in
India and a system that trains its retailers and sales people on proper storage and handling
of the product, the company is now revving up to sweeten up its sales with the onset of
the festive season that begins with Raksha bandhan and continues till the New Year.

"We spent over Rs 8 crore in importing auto-wrappers for the new packaging, introduced
new foil and poly-laminated packaging and have incurred over Rs 4.5 crore in additional
input costs per annum and are now confident that the packaging is infestation-proof,"
Gangal said.

The company has also, simultaneously, activated a consumer grievance redressal cell.The
company now seems all set to pip competitionwith a first mover advantage in the white
and brown chocolate combo category. It is in the process of launching the `two-in-one' in
bar and marble form under its popular Dairy Milk brand.

The company is also seeking an entry into the fast-growing `bag snack' category with
Bytes, a chocolate-inside-a wrapper-snack. While the two-in-one chocolate will be made
at the 5.5 lakh capacity/day Indur plant, the wafer snack will be made at its Hyderabad
and Warana plants and other multiple locations because of the fragile nature of the
product.

Meanwhile, the company is in the process of setting up a new plant at Baddi in Himachal
Pradesh which will initially manufacture 1,000 tonnes/day of its malt-based drink,
Bournvita, Gangal said. Cadbury already has three existing manufacturing facilities at
Thane, Indur and Malanpur (Gwalior) in additional to third party operations.

The Pune plant manufactures 13,000 tonnes of `crumbs', that go into making chocolate at
all its facilities. Cadbury India manufactures 17,000 tonnes of chocolate annually.
Cadbury officials said the company sells 10 lakh bars of chocolate every day. Cadbury is
now rearing to go again - home/eq.mktng The country's largest-selling chocolate
manufacturer Cadbury India Ltd said on Wednesday it is now back on the track with
growth rates going back to the days before it received a setback in the market following
large-scale complaints of infestation of its products in the market place last October.
Cadbury, packaging, FMCG

The country's largest-selling chocolate manufacturer Cadbury India Ltd said on

Wednesday it is now back on the track with growth rates going back to the days before it
received a setback in the market following large-scale complaints of infestation of its
products in the market place last October.

It has imported machinery for auto-wrapping and put in place a new packaging system
designed to keep infestation at bay and a comprehensive quality
control audit that continuously monitors its retail network to ensure proper handling of
products.

Senior company officials who spoke to reporters at its Indur plant, 50 km outside Pune
city said the company, which recorded loss in sales of an estimated Rs 70 crore
immediately after the peak-Diwali season reports of infestations of its products, is now
showing healthy growth and said turnover this year will exceed Rs 720 crore it recorded
last year.

"The incident affected the chocolate category as a whole but we are maintaining our 67-
70 per cent market share," Sharad Gangal, General Manager, HR, said.

The other players in the market comprise Nestle, which has an estimated 29 per cent
share, and the remaining 1 per cent shared by Amul and a host of regional level players.

Armed with a new, air-tight packaging that is now exclusive to only Cadbury products in
India and a system that trains its retailers and sales people on proper storage and handling
of the product, the company is now revving up to sweeten up its sales with the onset of
the festive season that begins with Raksha bandhan and continues till the New Year.

"We spent over Rs 8 crore in importing auto-wrappers for the new packaging, introduced
new foil and poly-laminated packaging and have incurred over Rs 4.5 crore in additional
input costs per annum and are now confident that the packaging is infestation-proof,"
Gangal said.

The company has also, simultaneously, activated a consumer grievance redressal cell.The
company now seems all set to pip competitionwith a first mover advantage in the white
and brown chocolate combo category. It is in the process of launching the `two-in-one' in
bar and marble form under its popular Dairy Milk brand.

The company is also seeking an entry into the fast-growing `bag snack' category with
Bytes, a chocolate-inside-a wrapper-snack. While the two-in-one chocolate will be made
at the 5.5 lakh capacity/day Indur plant, the wafer snack will be made at its Hyderabad
and Warana plants and other multiple locations because of the fragile nature of the
product.

Meanwhile, the company is in the process of setting up a new plant at Baddi in Himachal
Pradesh which will initially manufacture 1,000 tonnes/day of its malt-based drink,
Bournvita, Gangal said. Cadbury already has three existing manufacturing facilities at
Thane, Indur and Malanpur (Gwalior) in additional to third party operations.

The Pune plant manufactures 13,000 tonnes of `crumbs', that go into making chocolate at
all its facilities. Cadbury India manufactures 17,000 tonnes of chocolate annually.
Cadbury officials said the company sells 10 lakh bars of chocolate every day.
Effectiveness of brand repositioning

S. Ramesh Kumar

If a brand does not reposition at the right time, it may not get a second chance.

La-ira-ela ... what appeared to be a typical remix from Channel V turned out to be
advertising repositioning the soap brand Liril. The commonality which the latest
advertisement has with Liril's launch advertisement that appeared in the mid-Seventies is
its permissiveness: what is perhaps important to the current one is whether it can recreate
the "magic of lemony indulgence" ushered in by the launch advertisement, along with its
permissiveness.

Close-up's lemony variant is attempting the nostalgic route to repositioning itself. The
brand has been attempting several repositioning strategies in the recent past. Cadbury
successfully repositioned its mould (milk chocolate) variant during the mid-Nineties,
even managing to change the target segment for the variant — a very difficult task for
marketers operating in any kind of market. The body of knowledge concerning brand
repositioning is unfortunately not vast but the concept is receiving increasing attention
with the proliferation of product categories and brands.

With brand equity being the driving force behind brands, the ones which are strongly
established either in terms of consumer preferences or in terms of recall are under
pressure to create a roadmap which will lead to effective repositioning.

Why brand repositioning?

Brand repositioning is required because of several reasons:

When new offerings flood the market, the superiority of the established brand has to
be re-emphasised
The established brands may not be able to offer either the same features or the
variants that are being offered by the new brands (Ambassador and Robin Blue). Hence,
there is a need for them to reposition themselves in a timely manner, relying more on the
consumer goodwill they enjoy or by exploring ways to appeal to the consumers
When a contemporary image is required in some categories because of changing
psychographics
When brands desire to change their target segment (rarely)
When brands want to communicate improved offerings
When motivation to buy products in the category is low

Timely repositioning

Contemporary perception could involve either the image or superior functional utility.
Iodex was almost the unassailable leader for several years in the pain balm market but
was forced to reposition itself by Moov, which made rapid strides. Dove is repositioning
itself as a superior soap with moisturisers (as against its previous `trial for results'
positioning). Vim Challenge was a response to several regional brands emerging in the
dishwash market. Esteem's "Shall we go for a drive, please?" campaign (where the son
hopes his dad's pleasure at the ride in the car will overshadow his poor marks) was
triggered by the various offerings which entered the mid-segment passenger car market.

If repositioning is not attempted by a brand in a timely manner, the brand may not get a
second chance. The powerful positioning of economy by the no-frills Maruti 800 during
the mid-Eighties could have been pre-empted by Ambassador, not necessarily by the
same economy proposition: Ambassador even today is widely acknowledged as a
comfortable car for Indian roads and is also known for its space. Some of the recent
offerings in the passenger car market today use this as a strong proposition. The brand
could have used this effectively to create a favourable perception of itself. Maruti 800
became almost a legend as much known for derailing Fiat and Ambassador as it is for its
fuel economy.

Even in fast moving consumer goods involving mundane household products, timely
repositioning matters. The Ujala brand of blue used to whiten clothes made history with
its liquid variant. The pioneering (and the brand which held the dominance for years)
Robin Blue had a powder variant before Ujala was introduced. Powerfully repositioning
Robin Blue (even before introducing the liquid variant as a follower) might have reduced
the impact of the new entrant because of the favour and trust Robin Blue enjoyed with
consumers.

Burnol, the antiseptic cream for burns (it did attempt some sporadic repositioning
exercises) no longer seems to occupy the same space in the consumer's mind. Women
continue to cook as before and probably mostly in a hurry to catch up with the pressures
of life. Burnol being a handy brand to overcome the inevitable small burns could have
been a probable proposition to reposition it.

With several categories jostling for consumer mindspace, there is a relevant proposition
required for a brand in the `small burns category' to get into the considerations set of
consumers. The timing of repositioning (in such cases) should be worked out to ensure
that the category does not fade from the consumer's mind because of a number of other
categories emerging to create generic competition in terms of the share of consumer's
wallet.

For example, a brand traditionally used for burns may be forgotten because of several
categories of products and offerings like a cream for heels, herbal antiseptic ones for
multiple injuries and corn caps. Forhans toothpaste, Zambac and Saibal multipurpose
antiseptic ointments, Eno's for acidity relief, Waterbury's Compound for `after-cough'
recovery and Crook's Lactocalamine lotion are some of the brands of yesteryear which
could have maintained their dominance of the consumer's memory with appropriate
repositioning strategies.

Contemporary image

This matters in some categories which are conspicuous in terms of consumers' usage and
observation. With changing lifestyles and nuclear families in urban markets (especially in
the upmarket segments), the role of the male in the family is undergoing a change. The
`relationship' repositioning of Raymond is a good example of a brand coming to grips
with the changing psychographics of the target segment. Fair and Lovely's repositioning
as a brand for the aspiring girl making a mark in a male-dominated world (woven around
the cricket commentator commercial) too is one such example. Pepsodent's commercial in
which the mother scolds her child for snacking and establishes the brand as a protector of
teeth is associated with traditional habits which have been highlighted to create a realistic
association between the brand and the target segment. Product/brand attribute relevance
to the habit of the user (children) and the buyer of the category (concerned mother) has
been used to reposition the brand. Lifebuoy's repositioning on health based on hygiene is
an attempt to take into consideration the priorities consumers place on heath in a
deteriorating environment — one of the issues raised frequently by mass media and
consumer groups.

Changing the target segment

It is difficult for an established brand to change its target segment overnight because of
the prolonged associations and perceptions related to imagery and price.

However, there have been rare instances of a brand repositioning itself for a new target
segment. Cadbury, in an effort to make chocolates appeal to adults, created the
repositioning around `spontaneous joy' (the girl's dance in the cricket field) and since then
the mould version of its offering continues to be positioned for adults. With the company
offering different offerings for different segments, the strategy for the mould version
synergises with the overall strategy of the brand. Timex, which was targeting the lower-
end watch market when it entered India, has introduced expensive watches with high
technology at the higher end of the market. Technology, with its rub-off on the product's
attributes, could be a powerful factor in moving a brand from lower to higher segments.
Changing the target segment for an established brand is a delicate marketing exercise and
several aspects of marketing mix elements are involved. These are important from the
viewpoint of consumer perception.

Bata, during the Nineties started dealing with designer brands: it had developed the
Power brand for youth and a number of offerings for middle-class consumers. In the
recent times, it has segmented its retail outlets into discount outlets and higher-end ones.
In such a situation, it may be difficult for the brand to reposition itself with a clear
association. Communicating the newness can be seen in the `new, `improved' versions of
old established brands. The point that is important in such a positioning is that consumers
should be able to relate to the improved claims made by the brand. If Rin is repositioned
to provide extra whiteness, the attribute should be recognised by consumers.

Decisions concerning repositioning

A brand need not always rely on repositioning: the decisions are related to the strength of
the company, competitive context and consumer perception. A brand could create several
sub-brands over a period of time in tune with the changes in the environment. Hero
Honda, after the success of its CD 100 almost two decades ago, continues to hold sway
over the market by creating several sub-brands each distinctive from the other. It created
SS, Passion and Splendor with differing appeals. Sometimes, a premium offering needs to
be repositioned when consumers become more receptive to the brand over a period of
time. Colgate Total, one such offering, was initially positioned on multiple benefits but
later, the same benefits were positioned with the `12-hour protection' proposition.

Brand positioning and repositioning deals with the mind of consumer.

Brand repositioning is more complex as it has to take into account the perception already
created in the consumers' minds.
Cadbury sales take a beating
PUNE: The retail offtake of Cadbury products, especially the Dairy Milk brand, has dropped
by 40 to 50 per cent in the city since the Maharashtra Food and Drugs Administration
confirmed infestation of worms in some packs.

The company, however, believes that its current efforts at building awareness among the
retailers is actually helping its sales pick up again. Interestingly, the loss of Cadbury has
been the gain of imported chocolate brands like Toblerone, Ferrero, Arcor Rocher and
Raffaello and not of other Indian brands like Nestle and Amul.

“We expect the incremental sales during this month, which mainly come from the special
festival packs, to be the same as last year as the confectionery company does not publicise
the Dairy Milk brand on the celebration pack,” said Devanand Shenoy, head of purchase,
Foodworld.

The grocery retail chain of the RPG group registers sales of Cadbury products of around Rs
2.5 lakh per month among its seven outlets in the city, 40 per cent of which used to come
from Dairy Milk. This figure goes up to Rs 3.5 lakh during the festive season.

In the last two months, since the first worm controversy broke, Foodworld has recorded a 40
per cent drop in its Dairy Milk sales in Pune, but the sales of other chocolate-coated brands
of Cadbury have actually gone up by 15 per cent, Shenoy told TNN.

Grocery retail chain Homeland Shopping Centres Pvt Ltd, which has 12 franchisees in the
city, also saw a drop of around 20 per cent in its Cadbury sales last month. “I sell 30 packs of
Arcor chocolates per day, compared to the 10 I did last year,” said Rajeev Sarin, director,
Himalaya Shopping Centres Pvt Ltd, a franchisee of Homeland in Pune Camp.

According to Subhash Mehta, proprietor of S. Mahindra Kumar, a leading Cadbury distributor

in the city, the dealer offtake is almost the same as last year. “But we have to wait and watch
the retail offtake, which mainly happens on the last two days of Diwali,” he said.

According to him, the company had immediately removed from the market the tainted batch
of Dairy Milk, which was receiving consumer complaints, and replaced it with new stock. His
family owns four of the nine Cadbury distributorships in the city and has over 40 per cent
share in the Rs 1-crore-plus Cadbury chocolate market in Pune.

“We are doing well now, considering that the Cadbury name has 50 years of trust behind it.
Moreover, public memory in India is very short,” said Deepak Banerjee, area sales manager
of Cadbury India. Though the days of customers asking “Kya chocolate mein keeda hai” (Is
there a worm in the chocolate) are not fully behind Cadbury, its project, Vishwas, launched to
build awareness among retailers about storage requirements, seems to be paying off.

For, even a small chocolate retailer like Dilip Jadhav, proprietor of Greetwel, says:
“Chocolates should not be stored with grocery items as they may get infested with worms.
They must be stored in dispensers and visi-coolers.”
No worms in chocolates, says Cadbury
MUMBAI: Cadbury India Ltd said on Tuesday that chocolate samples at its factories were
free of any "infestation" after Maharashtra health officials said they found dead and live
worms in chocolates picked from a store here.

"We have checked all samples of Cadbury dairy milk Chocolate at the factory and have
found them to be of good quality and free of any traces of infestation," Cadbury India sales
and markets director Vidyut Arte said in a statement.

Cadbury issued the statement after officials at the Maharashtra food and drug administration
said tests confirmed that worms were present in Cadbury chocolates taken from the small
suburban store.

The state government lab conducted the tests following complaints by a group of people
about live worms in chocolates bought from the store. Arte said Cadbury India learned about
the laboratory report through local media reports.

Govt plans to prosecute Cadbury

MUMBAI: The Maharashtra Food and Drugs Administration has decided to prosecute
Cadbury India Ltd after finding two dead worms and one live worm in its chocolate bars, FDA
commissioner Uttam Khobragade told TNN on Monday. Cadbury India has contested the
findings.

The FDA has tested a few bars of Cadbury chocolate at the public health laboratory and
found the contents classify as adulteration under the Prevention of Food Adulteration Act,
Khobragade said. The prosecution will be launched in a week.

Khobragade said the FDA had advised the company to change its packaging for chocolate
products as ''it leaves room for air to get in''. He said the FDA had suggested it should seal all
its chocolate products the way it does for its ''5-Star'' brand. C
Cadbury India Q1 net up 8.87%
mumbai: confectionery major cadbury india has posted a 8.87 per cent increase in net profit
at rs 13.49 crore for the first quarter ended march 31 as compared to rs 12.39 crore in the
same period previous year. net sales for q1 were at rs 159.68 crore as against rs 149.91
crore in the fourth quarter of fy-01, managing director bharat puri said in a release here on
monday. the exceptional items for the current quarter include rs 22 lakh toward refurbishment
of the registered office and rs 63 lakh towards voluntary retirement scheme, he said. the
company has engaged in the foods business, which is its only business segment. the
geographical segementation was insignifcant as exports were less than two per cent of the
cadbury's turnover. the total capital employed at end of q1 fy'02 was rs 283.67 crore, the
release said. cadbury schweppes plc along with two of its subsidiary companies recently
made a voluntary offer for purchase of upto 49 per cent equity shares held by the public in
the company at rs 500 per share. the offer commenced on january 2002 and closed on
february 22, post closure of the offer the shareholding of cadbury schweppes companies
stands at rs 90.24 per cent of the paid-up share capital of the company. the company works
13 periods of four weeks each, basis per annum, the release added.

Cadbury net up 23.09 pc at Rs 73.51 cr

MUMBAI: Cadbury India has posted a 23.09 per cent increase in its net profit at Rs 73.51
crore for 2002 as compared to Rs 59.72 crore in 2001.

The board, which met on Friday, has recommended a dividend of Rs 2 per share for 2002 as
against Rs 6 last year.

Sales during this period grew by 9.73 per cent to Rs 687.3 crore in 2002 as against Rs
626.32 crore in 2001, while other income for last year was up at Rs 19.92 crore as compared
to Rs 9.03 crore the previous year.

The net profit for the fourth quarter was higher at Rs 18.6 crore as compared to Rs 16.62
crore in 2001 while net sales also grew to Rs 186.11 crore as against Rs 161.51 crore, in
2001, the release said.

The company spent Rs 1.31 crore towards the voluntary retirement scheme.

Cadbury Schweppes Overseas Ltd UK and Cadbury Schweppes Mauritius Ltd currently hold
94.5 per cent of the company's equity shares after the closure of the final open offer to
purchase its equity held by the public.

Upon the closure of the initial offer, the company applied for delisting of its equity shares from
the Bombay and National Stock Exchanges.

Consequently the company scrips have been delisted from BSE on January 20, 2003 and
from NSE on February 7, 2003, the release said, adding it would keep the exit option open till
January 19, 2004 for the balance shareholders to exit from their holding at Rs 500 per share.
After worms, company plans better packaging

MUMBAI: Cadbury India has decided to go in for better packaging to tide over ‘worm
sightings’ being reported by consumers from all over the state.

The company’s move to change its packaging from a wrapper to a heat-sealed pack may
cost a few crores of rupees annually.

Cadbury has maintained that improper storage, and not its factory conditions, has been
responsible for the continuing episodes of worm infestation in its chocolates.

However, it has now accepted the Food and Drugs Administration’s suggestion to package
its products differently to reduce the incidence of infestation. Cadbury currently packs its milk
chocolates with a foil and a slip-in sleeve.

According to an industry insider, the packaging costs about 25 paise per bar of chocolate,
while heat-sealed packaging will cost about 65 paise.And considering that Cadbury
chocolates sell one million pieces a day, repackaging will be a tall order for the company.

Amul, a smaller player in the market, heat-seals its chocolate. Amul India’s assistant general
manager Ramesh Barath said,

“We take two precautions in our packaging to make sure worms don’t get to creep in from
any side. After the bars come out of the production line, the foil is pressed in by a machine
and the bars go into a cardboard carton, that forms the second proofing layer.’’

In addition to packaging, storage conditions are equally crucial for chocolates. Therefore,
companies prescribe a certain temperature and separation from otherCadbury says its
chocolates should ideally be stored at between 18 to 22 degrees Celsius whereas Amul
recommends 15 degrees Celsius for its products.

“The Cadbury chocolate is designed for our tropical conditions with less milk fat, and melts
only at 26 degrees,’’ said managing director of Cadbury India Bharat Puri.

However, these prescriptions melt in the face of market forces, as most retailers cannot
afford to keep chocolates in refrigerated luxury. Intriguingly, there are no norms governing
storage facilities at a retail outlet.

The rules that directly apply at the point of sales are the Standards of Weights and Measures
(Packaged Commodities) Rules, 1977, but these govern quantity alone.

The Prevention of Food Adulteration Act 1954 expects the state government to exercise vigil
to ensure that all food articles are subject to regular checks. In Maharashtra, the FDA is
entrusted with this job.
 COMPETITORS OF CADBURY

Cadbury India is in the midest of a strategy overhaul, but its future depends on how it keeps
competitor Nestle at bay. Shareholders of the Rs 428-crore confectionery manufacturer Cadbury
India Ltd must be a happy lot. From the Rs 200 levels the stock was trading at a year ago, it is
today quoting at Rs 770. The soaring share price reflects the sustained improvement in the
company`s bottomline in the past two years. But managing director Rajeev Bakshi feels that the
company has to do much more to keep its shareholders happy. The last time the company went
into overdrive was in 1991-92, when Nestle launched its chocolates in the Indian market. Till then
Cadbury had been the undisputed leader of the business in India. To ward off competition,
Cadbury changed the rules of the game by targeting its largest brand, Cadbury`s Dairy Milk, at
adults. It was a prominent shift, with a new campaign, expensive packaging and new products.
The move helped keep Nestle at bay for two-and-a-half years. Cadbury held on to its marketshare
of 76 per cent against Nestle`s 10 per cent till 1996.

But that was then. Today, for the second time in less than a decade, Cadbury India is in the
middle of another strategy overhaul. Bakshi is busy rallying his employees around parent
Cadbury Schweppes vision -- superior shareholder value and a Cadbury in every pocket. An
unintended consequence of this exercise is that it brings the Indian company closer to the parent.

The route to maximise shareholder value is to raise financial performance by improving the way
the company manages its business and sharpening the corporate culture. The attempt there is to
involve the entire company. Getting the entire system to move towards a higher aspiration, is
much better than telling my finance or marketing guy to achieve separate goals, says Bakshi.

Three sets of activities have been identified to increase the tempo within the company. One big
areas is to focus on the viability of new projects. The idea here is to ensure that each project
investment is viable vis-a-vis capital costs. The second big areas is performance. The overriding
performance matrix is economic profitability. For the analytically inclined, economic profitability is
net operating profit after tax minus the post tax cost of capital employed.

In the third area life four big HR initiatives -- raising the bar of performance, sharpening the
culture and leadership capabilities, and linking rewards to the new performance matrix. Unless we
have people in the organisation who are there with the right competencies, the organisations
does not move forward.

According to Hozefa Topiwalla, analyst at ASK-Raymond James, The new strategy looks at all
areas of business. They are taking each product and seeing which one gives value and which one
doesn`t. The company will phase out products that don`t add any value to it bottomline. When
Bakshi was appointed managing director last April, he threw the entire company behind each of
the company`s businesses -- chocolates, brown drinks and sugar confectionery. From last July to
March this year, the company was focusing on chocolates, which is the number one business in
terms of economic profitability. This when the parent is the world`s largest manufacturers of sugar
confectionery.

Chocolates contribute 55 per cent to the company`s turnover. Last year the company launched
three new brands -- Picnic (a chocolate bar with raisins, wafer and caramel) Gold (Cadbury`s
Dairy Milk with a soft centre launched to commemorate the company`s golden jubilee) and
English Toffee (a chewy toffee). To reach out to the mass consumer, the company took the market
by storm by its small pack strategy with chocolates priced at Rs 3-5 with even its new launches
such as Byte (a strawberry flavoured candy). What is important here is that this strategy was in
line with its vision of a Cadbury in every pocket.
The strategy seems to have paid off. Today the company holds a 70 per cent share of the
chocolates market with closest competitor, Nestle holding a mere 13 per cent. However,
according to analysts, Cadbury can`t afford to be complacement as Nestle is likely to follow
Cadbury into the low unit pack segment as its (Nestle`s) parent is keen on making chocolates a
key area in the Indian market.

From March this year, the focus moved to the brown drinks business and Bournvita. (The brown
drinks business contributes 20 per cent to the company`s turnover.) In the recent past in the malt
beverages market, the browns have been under pressure from the whites, with the whites gaining
marketshare at the expense of browns. Brands like SmithKline Beecham`s Horlicks benefited
from this trend. Bournvita`s closest competitor is Nestle`s Milo. While Milo marginally ate into
Bournvita`s marketshare, most of it was lost to white drinks like Horlicks. Horlicks with its nutrition
plan advertisements proved to be a tough competitor for Bournvita. Milo`s entry further affected
Bournvita`s growth. Early this year, Bournvita`s marketshare dropped to 12 per cent. Given the
fact that Bournvita was the next big brand after Cadbury`s Dairy Milk chocolate, it was important
for the company to capitalise on the brand.

The focus on Bournvita over the past four months has been quite aggressive. Bournvita was re-
launched in March this year and repositioned as a nutritional drink, as against a health drink it
was earlier positioned as. This pitches the brand against white beverages such as SmithKline
Beecham`s Horlicks and Heinz Complan, which share 70 per cent of the malted beverages
market in India. With its new positioning, Bournvita could regain the marketshare it lost of Horlicks
and Milo. So growth in this segment is expected to be high, says Topiwalla. In the past three
months Bournvita has gained 3 per cent marketshare and is today at 15 per cent.

In India, the sugar confectionery market is a very diffused market and each category is defined at
one`s whims and fancy. For instance, Cadbury`s Eclair could be defined as a confectionery or as
a toffee. While Eclairs has been in the market for years, as a holistic business the sugar
confectionery area is relatively new for Cadbury India. This business contributes 23 per cent to
the company`s turnover. The company has two brands in this segment -- Eclairs and Googly.

The sugar confectionery market, in value terms, is three times the size of the Rs 800-crore
chocolate market. So it made sense to enter the market. Cadbury India held back all this while,
despite its parent being the world`s largest manufacturer of sugar confectionery, because
products in this category have been traditionally reserved for the small scale sector. It continues
to be reserved for the small scale sector. Against this background when you enter a segment that
is reserved fro the small scale sector, you are up against players who follow very different
business systems. For example, a player like Nutrine or Parle, operate on a certain net sales
value per tonne with different cost structures, advertising to sales ratios and profit profile. This
business system did not fit into our existing business systems, that is chocolates both the cost
structures are based on very different paradigms, says Bakshi. So unless we had the wherewithal
to actually add value through manufacturing and thereby have a different cost structure, we just
could not have a go at it, he adds. Googly was primarily launched to get our feet wet and to
ascertain how to do business in the sugar category, says Bakshi.

According to another analyst who has been tracking the company. The strategy of introducing a
slew of new products and taking price increases in the products is apparently paying off. For the
first half of this calendar year, the company reported sales of Rs 175.90 crore. Net profits stood at
Rs 10 crore. Total expenditure at Rs 180 crore includes Bournvita relaunch activities. The
company has been systematically repaying its debt, hence reducing its interest costs. For the
year ending January 1999, turnover stood at Rs 431 crore. Net profits stood at Rs 26.02 crore.

Bakshi says he has big plans for Cadbury`s sugar confectionery portfolio and will be
launching two new brands by the end of the year. For calendar year 1999, Ask-Raymond
James analyst Topiwalla projects an 18.6 per cent growth in the company`s net revenues
to Rs 504 crore. And a 55 per cent growth in net profits to Rs 40.3 crore. But Bakshi is
more concerned about maximising shareholder value. In terms of economic profit
performance, at 18-20 per cent he feels the company is a bit behind their peer group who
would be doing 25-30 per cent. So the attempt clearly is to move up and be at respectable
numbers, if not exceed in terms of economic profitability. Let`s hope he succeeds his job
on the line.

Cadbury second plant under watch

Mumbai - Cadbury India`s second plant in Maharashtra is now under the lens of Maharashtra`s
food and drugs administration. Cadbury Dairy Milk is mainly manufactured at Cadbury`s factories
in Talegaon near Pune and Thane, which cater to the entire country. The company`s chocolates
reach over 650,000 retailers directly and indirectly. The FDA started inspecting Cadbury India`s
plants after worms were allegedly found in a Cadbury Dairy Milk chocolate bar. The chocolate bar
was produced at Cadbury`s Talegaon plant. The FDA has also sent the allegedly contaminated
pieces for testing at its laboratories.

The revenue and the bottom line of the local arm of British confectionery and beverages giant
Cadbury Scheweppes could take a hit if the FDA decides to initiate action against it. Cadbury
Dairy Milk, the flagship brand, contributed about 30 per cent to the company`s Rs 687.30 crore
turnover in 2002. Cadbury India is the market leader with brands like Dairy Milk, Five Star, Perk
and Gems, with a market share of over 65 per cent. Cadbury Dairy Milk has a 30 per cent share
of the packaged chocolate market. After the discovery of the infested bar from batch number
28F311, the company checked the factory samples of this batch and found them to be of good
quality and free of any traces of infestation, the company said.

India among Cadbury's top 12 global markets

NEW DELHI: There could be a lot more sweet moments for Indian consumers. The UK-
based chocolate, confectionery and beverages major Cadbury Schweppes has identified
India among its top 12 focus markets globally, in an announcement made last week.

Under a new management structure which would emerge following the proposed
demerger of its beverages arm Americas Beverages into a separate company, the Cadbury
Schweppes management announced last week that its commercial strategy would hinge
on ‘fewer top markets and brands’.

The Rs 1,058-crore Indian subsidiary, along with the UK, US, Australia, Mexico, Brazil,
Russia and Turkey, now represents around 70% of Cadbury Schweppes’ global revenues.
This, despite beverages brands such as Schweppes, Snapple and Dr Pepper not having a
presence in India. The 12 core markets have been forecast to account for growth in excess
of 60% over the next five years.

Cadbury India, growing in double digits the past two years, has forecast a healthy 2007
riding on the back of factors such as sharper focus on core brands, product rationalisation
and working closely with trade channels.
The Indian subsidiary, which now operates under five categories –- chocolates, snacks,
beverages, candy and gums being the newest, is learnt to be in the process of pushing
products in categories other than chocolate where it is a dominant player. Of Cadbury
Schweppes’ 13 focus brands clocking above average revenue growth and operating
returns, two are in India as of now — Cadbury Dairy Milk and Halls.

But sources say it’s a matter of time before Cadbury India brings brands such as Trident
and Dentyne gums, and Flake chocolates into India, Trident being the front-runner. The
13 focus brands make up for over 50% of Cadbury Schweppes’ confectionery revenues.

With Cadbury Dairy Milk, Five Star, Perk and Celebrations in its portfolio, the company
leads the Rs 1,500-crore organised chocolate market with a 72% value share as per AC
Nielsen data. However, it trails rivals in other categories. In beverages, for example,
Cadbury’s Bournvita occupies second slot behind Glaxo Smithkline’s Horlicks. It’s other
beverage brand, Delite, was pulled off shelves following weak offtake. The company
recently re-entered the gums category with Bubbaloo. It’s earlier foray in chewing gum
through Bilkul did not work and the brand was subsequently discontinued.

In snacks, Cadbury has one brand — Bytes — as of now, and its candy basket has two
brands — Halls and Eclairs. At the global level, the demerger process separating the
beverages arm from confectionery is expected to be completed by the second quarter of
2008. It will result in the formation of two companies — Cadbury Plc holding the
Group’s confectionery business, and CSAB Inc which will hold the Americas Beverages
business.

Elaborating on its decision, Cadbury Schweppes announced: “To help drive further
revenue growth under a new category management structure, we are focusing our
resources on fewer number of markets, brands and customers.”
PUSHING AHEAD

Cadbury India is in the midest of a strategy overhaul, but its future depends on how it keeps
competitor Nestle at bay. Shareholders of the Rs 428-crore confectionery manufacturer Cadbury
India Ltd must be a happy lot. From the Rs 200 levels the stock was trading at a year ago, it is
today quoting at Rs 770. The soaring share price reflects the sustained improvement in the
company`s bottomline in the past two years. But managing director Rajeev Bakshi feels that the
company has to do much more to keep its shareholders happy. The last time the company went
into overdrive was in 1991-92, when Nestle launched its chocolates in the Indian market. Till then
Cadbury had been the undisputed leader of the business in India. To ward off competition,
Cadbury changed the rules of the game by targeting its largest brand, Cadbury`s Dairy Milk, at
adults. It was a prominent shift, with a new campaign, expensive packaging and new products.
The move helped keep Nestle at bay for two-and-a-half years. Cadbury held on to its marketshare
of 76 per cent against Nestle`s 10 per cent till 1996.

But that was then. Today, for the second time in less than a decade, Cadbury India is in the
middle of another strategy overhaul. Bakshi is busy rallying his employees around parent
Cadbury Schweppes vision -- superior shareholder value and a Cadbury in every pocket. An
unintended consequence of this exercise is that it brings the Indian company closer to the parent.

The route to maximise shareholder value is to raise financial performance by improving the way
the company manages its business and sharpening the corporate culture. The attempt there is to
involve the entire company. Getting the entire system to move towards a higher aspiration, is
much better than telling my finance or marketing guy to achieve separate goals, says Bakshi.

Three sets of activities have been identified to increase the tempo within the company. One big
areas is to focus on the viability of new projects. The idea here is to ensure that each project
investment is viable vis-a-vis capital costs. The second big areas is performance. The overriding
performance matrix is economic profitability. For the analytically inclined, economic profitability is
net operating profit after tax minus the post tax cost of capital employed.

In the third area life four big HR initiatives -- raising the bar of performance, sharpening the
culture and leadership capabilities, and linking rewards to the new performance matrix. Unless we
have people in the organisation who are there with the right competencies, the organisations
does not move forward.

According to Hozefa Topiwalla, analyst at ASK-Raymond James, The new strategy looks at all
areas of business. They are taking each product and seeing which one gives value and which one
doesn`t. The company will phase out products that don`t add any value to it bottomline. When
Bakshi was appointed managing director last April, he threw the entire company behind each of
the company`s businesses -- chocolates, brown drinks and sugar confectionery. From last July to
March this year, the company was focusing on chocolates, which is the number one business in
terms of economic profitability. This when the parent is the world`s largest manufacturers of sugar
confectionery.

Chocolates contribute 55 per cent to the company`s turnover. Last year the company launched
three new brands -- Picnic (a chocolate bar with raisins, wafer and caramel) Gold (Cadbury`s
Dairy Milk with a soft centre launched to commemorate the company`s golden jubilee) and
English Toffee (a chewy toffee). To reach out to the mass consumer, the company took the market
by storm by its small pack strategy with chocolates priced at Rs 3-5 with even its new launches
such as Byte (a strawberry flavoured candy). What is important here is that this strategy was in
line with its vision of a Cadbury in every pocket.

The strategy seems to have paid off. Today the company holds a 70 per cent share of the
chocolates market with closest competitor, Nestle holding a mere 13 per cent. However,
according to analysts, Cadbury can`t afford to be complacement as Nestle is likely to follow
Cadbury into the low unit pack segment as its (Nestle`s) parent is keen on making chocolates a
key area in the Indian market.

From March this year, the focus moved to the brown drinks business and Bournvita. (The brown
drinks business contributes 20 per cent to the company`s turnover.) In the recent past in the malt
beverages market, the browns have been under pressure from the whites, with the whites gaining
marketshare at the expense of browns. Brands like SmithKline Beecham`s Horlicks benefited
from this trend. Bournvita`s closest competitor is Nestle`s Milo. While Milo marginally ate into
Bournvita`s marketshare, most of it was lost to white drinks like Horlicks. Horlicks with its nutrition
plan advertisements proved to be a tough competitor for Bournvita. Milo`s entry further affected
Bournvita`s growth. Early this year, Bournvita`s marketshare dropped to 12 per cent. Given the
fact that Bournvita was the next big brand after Cadbury`s Dairy Milk chocolate, it was important
for the company to capitalise on the brand.

The focus on Bournvita over the past four months has been quite aggressive. Bournvita was re-
launched in March this year and repositioned as a nutritional drink, as against a health drink it
was earlier positioned as. This pitches the brand against white beverages such as SmithKline
Beecham`s Horlicks and Heinz Complan, which share 70 per cent of the malted beverages
market in India. With its new positioning, Bournvita could regain the marketshare it lost of Horlicks
and Milo. So growth in this segment is expected to be high, says Topiwalla. In the past three
months Bournvita has gained 3 per cent marketshare and is today at 15 per cent.

In India, the sugar confectionery market is a very diffused market and each category is defined at
one`s whims and fancy. For instance, Cadbury`s Eclair could be defined as a confectionery or as
a toffee. While Eclairs has been in the market for years, as a holistic business the sugar
confectionery area is relatively new for Cadbury India. This business contributes 23 per cent to
the company`s turnover. The company has two brands in this segment -- Eclairs and Googly.

The sugar confectionery market, in value terms, is three times the size of the Rs 800-crore
chocolate market. So it made sense to enter the market. Cadbury India held back all this while,
despite its parent being the world`s largest manufacturer of sugar confectionery, because
products in this category have been traditionally reserved for the small scale sector. It continues
to be reserved for the small scale sector. Against this background when you enter a segment that
is reserved fro the small scale sector, you are up against players who follow very different
business systems. For example, a player like Nutrine or Parle, operate on a certain net sales
value per tonne with different cost structures, advertising to sales ratios and profit profile. This
business system did not fit into our existing business systems, that is chocolates both the cost
structures are based on very different paradigms, says Bakshi. So unless we had the wherewithal
to actually add value through manufacturing and thereby have a different cost structure, we just
could not have a go at it, he adds. Googly was primarily launched to get our feet wet and to
ascertain how to do business in the sugar category, says Bakshi.

According to another analyst who has been tracking the company. The strategy of introducing a
slew of new products and taking price increases in the products is apparently paying off. For the
first half of this calendar year, the company reported sales of Rs 175.90 crore. Net profits stood at
Rs 10 crore. Total expenditure at Rs 180 crore includes Bournvita relaunch activities. The
company has been systematically repaying its debt, hence reducing its interest costs. For the
year ending January 1999, turnover stood at Rs 431 crore. Net profits stood at Rs 26.02 crore.
Bakshi says he has big plans for Cadbury`s sugar confectionery portfolio and will be launching
two new brands by the end of the year. For calendar year 1999, Ask-Raymond James analyst
Topiwalla projects an 18.6 per cent growth in the company`s net revenues to Rs 504 crore. And a
55 per cent growth in net profits to Rs 40.3 crore. But Bakshi is more concerned about
maximising shareholder value. In terms of economic profit performance, at 18-20 per cent he
feels the company is a bit behind their peer group who would be doing 25-30 per cent. So the
attempt clearly is to move up and be at respectable numbers, if not exceed in terms of economic
profitability. Let`s hope he succeeds his job on the line.