INTRODUCTION

Chocolate consumption in India is extremely low. Cadbury dominates the chocolate

market with about 70% market share. Nestle has emerged as a significant competitor
with about 20% market share. Key competition in the chocolate segment is from co-
operative owned Amul and Campco, besides a host of unorganized sector players.
There exists a large unorganized market in the confectionery segment too. Leading
national players are Parry's, Ravalgaon, Candico and Nutrine. MNC's like Cadbury,
Nestle, Perfetti, are recent entrants in the sugar confectionery market. Other
competing brands such as GCMMF's Badam bar and Nestlé’s Bar One have minor
market shares.

Chocolate consumption in India is extremely low. Per capita consumption is around

160gms in the urban areas, compared to 8-10kg in the developed countries. In rural
areas, it is even lower. Chocolates in India are consumed as indulgence and not as a
snack food. Indian chocolate market grew at the rate of 10% pa in 70's and 80's,
driven mainly by the children segment. In the late 80's, when the market started
stagnating, Cadbury repositioned its Dairy Milk to any time product rather than an
occasional luxury. Its advertisement focused on adults rather than children. Cadbury's
Five Star, the first count chocolate, was launched in 1968. Due to its resistance to
temperature, the chocolate has become one of the most widely distributed chocolate in
the country.

In the early 90's, high cocoa prices compelled manufacturers to raise product prices
and reduce their advertisement budget affecting the volumes significantly. The launch
of wafer chocolates Kit Kat and Perk spurred volume growth in the mid 90's. These
chocolates positioned as snack food rather than on the indulgence platform compete
with biscuits and wafers. A strong volume growth was witnessed in the early 90's
when Cadbury repositioned chocolates from children to adult consumption. The mid
90's saw the entry of new players like Nestle, which created categories like wafer
chocolate and spurred growth.

1
Chocolate Manufacturing
Cocoa, common name for a powder derived from the fruit seeds of the cacao tree and
for the beverage prepared by mixing the powder with milk. When cocoa is prepared,
most of the cocoa butter is removed in the manufacturing process. After the fat is
separated and the residue is ground, small percentages of various substances may be
added, such as starch to prevent caking, or potassium bicarbonate to neutralize the
natural acids and astringents and make the cocoa easy to dissolve in liquids. Cocoa
has a high food value, containing as much as 20 percent protein, 40 percent
carbohydrate, and 40 percent fat. It is also mildly stimulating because of the presence
of Theo bromine, an alkaloid that is closely related to caffeine.

The processing of the cacao seeds, better known as cocoa beans, is complex. The fruit
harvest is cured or fermented in a pulpy state for three to nine days, during which the
heat kills the seeds and turns them brown. The enzymes activated by fermentation
impart the substances that will give the beans their characteristic chocolate flavor later
during roasting. The beans are then dried in the sun and cleaned in special machines
before they are roasted to bring out the chocolate flavor. They are then shelled in a
crushing machine and ground into chocolate. During the grinding, the fat melts,
producing a sticky liquid called chocolate liquor, which is used to make chocolate
candy or is filtered to remove the fat and then cooled and ground to produce cocoa
powder.

The beans are sold in international markets. African countries harvest about two-
thirds of the total world output; Ghana, Côte d'Ivoire, Nigeria, and Cameroon are the
leading African cocoa producers. Most of the remainder comes from South American
countries, chiefly Brazil and Ecuador. The crop is traded on international commodity
futures markets. Attempts by producing countries to stabilize prices through
international agreements have had little success.

2
Types of chocolate
Sweet chocolate, usually dark in colour is made with chocolate liquor, sugar, cocoa
butter, and such flavourings as vanilla beans, vanillin, salt, spices and essential oils.
Sweet chocolate usually contains at least 25-35% chocolate liquor content. The
ingredients are blended, refined (ground to a smooth mass), and conched. Viscosity is
then adjusted by the addition of more cocoa butter, lecithin (an emulsifier), or a
combination of both.

Milk chocolate is formulated by substituting whole milk solids for a portion of the
chocolate liquor used in producing sweet chocolate. It usually contains at least 10%
chocolate liquor and 12% whole milk solids. Manufacturers usually exceed these
values, frequently going upto 12-15% chocolate liquor and 15-20% whole milk solids.
Milk chocolates, usually lighter in colour than sweet chocolate, are milder in taste
because of its lower content of bitter chocolate.

Products And Segmentation

Chocolate market can be segmented as follows:
 Large units bars/ slabs,
 Count lines,
 Panned varieties,
 Small value added units.
 Confectionery products can be categorized as
 Hard boiled sugar candies, lollipops, jellies
 Toffees
 Chewing candies
 Breath freshners, digestives, throat relievers
 Gum based products are
 Chewing gum
 Bubble gum

3
Chocolates and Confectionery Industry
Chocolates Sugar confectionery Gum based
Bars/ Slabs Hard boiled Chewing gum
Count lines Toffees Sugar coated chewing gum
Panned (Gems) Soft chew Bubble gum
Eclairs Jelly candies
Assorted Deposit candies
Lollipops
Mints, etc.

Chocolate Segmentation
Chocolate market can be segmented into moulded chocolates, count chocolates,
panned chocolates, éclairs and assorted chocolates.

Type of chocolates % Share in chocolate market

Moulded 37%
Count 30%
Eclairs 20%
Panned 10%
Others 3%

Moulded chocolates, like Dairy Milk, Truffle, Amul Milk Chocolate, Nestle
Premium, Nestle Milky Bar, is the largest segment accounting for more than 1/3rd of
the market.

Count lines (5 Star, Perk, Kit Kat, and Picnic) are the second largest segment
accounting for 30% of the volumes. The Count Line segment has been growing at a
faster pace during the last three years driven by growth in Perk and Kit Kat volumes.
Panned products include Cadburys' Gems, Nutties, and Nestlé’s Marbles. In panned
segment, Cadbury dominates with over 95% market share.

4
Éclairs (droplets of hard caramels with soft chocolate fillings) are a low unit priced
product. Cadbury Éclairs was launched in 1972. Parle Products launched Melody in
1991. Nestle is a recent entrant in the segment. Nutrine's Éclairs has done extremely
well in the market.

Chocolates Market Share

Cadbury is the market leader in all categories with over 65% market share. Its main
competitor is Nestle India. Nestle has identified chocolate and confectionery as one of
the thrust areas for growth. It has launched some of its international brands like
Quality Street, After Eight, and Lions in India. In 1998, Cadbury launched a new
count bar Picnic. Nestle immediately followed it with the launch of Charge. Gujarat
Co-operative Milk Marketing Federation (GCMMF), which is normally known as
Amul and Central Arecanut and Cocoa Manufactures and Processors Co-operative
(CAMPCO) are other two significant players. Both are local manufacturers.

Market Share

Moulded segment Count segment Éclairs

Cadbury 70% Cadbury 76% Cadbury 49%

Nestle 23% Nestle 20% Nutrine 37%

GCMMF 5% Campco 3% Nestle 12%

Others 2% Others 1% Parry's 1%

Others 1%

Confectionery
Confectionery, processed food based on a sweetener, which may be sugar or honey, to
which are added other ingredients such as flavorings and spices, nuts, fruits, fats and
oils, gelatin, emulsifiers, colorings, eggs, milk products, and chocolate or cocoa.
Confectionery, usually called candy in the United States, or sweets in Great Britain,
can be divided into two kinds according to their preparation and based on the fact that
sugar, when boiled, goes through different stages from soft to hard in the

5
crystallization process. Typical of soft, or crystalline, candy—smooth, creamy, and
easily chewed—are fondants (the basis of chocolate creams) and fudge; typical hard,
noncrystalline candies are toffees and caramels. Other favorite confections include
nougats, marshmallows, the various forms of chocolate (bars or molded pieces,
sometimes filled), pastes and marzipan, cotton candy (spun sugar), popcorn, licorice,
and chewing gum.

Records show that confectionery was used as an offering to the gods of ancient Egypt.
Honey was used as the sweetener until the introduction of sugar in medieval Europe.
Among the oldest types of candies are licorice and ginger from the Far East and
marzipan from Europe. Candy-making did not begin on a large scale until the early
19th century, when with the development of special candy-making machinery it
became a British specialty. In the U.S. the candy industry began to grow rapidly
during the mid-19th century with the invention of improved machinery and a cheaper
process for powdering sugar. In 1911 the first candy bars were sold in baseball parks;
by 1960 candy bars made up almost half of U.S. confectionery production. By the
1980s annual world production of confectionery totaled many millions of kilograms.

Confectionery Market Share

The confectionery market is highly fragmented with several players with strong
regional presence. Leading national players are Nutrine, Parry's, Parle, Cadbury,
Nestle, Ravalgon, Candico, Perfetti, Wrigleys and Joyco India. The entire market can
be divided into 7 major categories, namely Hard Boiled Candies(HBC), Toffees,
Eclairs, Chewing Gum, Bubble Gum, Mints and Lozenges. While HBCs form 51% of
the entire market, 18% is formed by toffees and 18% by chewing gum & bubble gum
collectively. Eclairs form just 5% of the entire market. Mints and Lozenges form 4%
and 3% of the market respectively.

Nutrine with a strong base in southern India has emerged as the reigning number one
player in the sugar confectionery market with 24% share. Over last one year or so it
has launched various products in the sugar confectionery market. It is the market
leader in hard-boiled confectionery as well as toffees. It has share of 37% in eclairs
market and is reigning at second position behind Cadbury's. Nutrine gets around 50%

6
of its turnover from southern India, 20% from Eastern region and rest equally from
westerns and northern region. Its biggest brand is Mahalacto followed by Asay and
Kokonaka respectively. Total tonnage sold by Nutrine in the confectionery market is
around 36650 tonnes.

The second largest player, Parle has strong presence in orange candies (hard boiled)
supported by its Melody toffees, Mango Bite and Kismi Toffee bar. Besides this the
company also has brands like Rola Cola, Poppins, Peppermint etc. in its portfolio.It
has market share of 16% in the total confectionery market with a tonnage of 16800
tonnes. It is number two in both HBC and Toffee market with 30% and 21% market
share respectively.

Parry's has emerged as the third largest player in the market with 13% market share
and a tonnage of 14500 tonnes.The company has brands like LactoKing, Coconut
Punch, Madras Cafe, Coffy Bite etc. in its portfolio. Though in the over all
confectionery market it is at number three, it is at par with Parle in toffees market
with 21% share.

Cadbury has been one of the leaders with Cadbury eclairs with chocolate inside. It
was the most successful in 1972 when it was launched because of its initial
introductory price of 25 paise and was instant hit. It continues to be one of the biggest
brands. Cadbury made a foray into the sugar confectionery segment with Googly, a
hardboiled sweet in late 1996.Googly the tangy, fizzy candy, Cadbury took the market
by surprise and marked the entry of Trebor into the fast growing Indian market. The
product is sold under license from Trebor Bassett, UK. Googly was extended
nationally in early 1997. Cadbury has also launched Mocka, a coffee based sugar
confectionery.

7
Market shares in sugar confectionery market
Company Market share
Major brands
(%)
Mahalacto, Kokonaka, HoneyFab, Aam
Ras, Chuma- Chuma, Gulkand, Funda, Gum
Nutrine 24 Yum, Ole, Nutrine Eclairs,SuperStar,
Caramella, Wild Coffy, Dishum,
Aasay,Naturo, Fruit Bar
Melody, Mango bite, Kismi, Poppins, Rola
Parle's 16
cola, LuxDairy, Peppermint, Rosemint
Coffy Bite, Lacto king, Coconut punch,
Caramilk, Madras Cafe, Soft-Spot,
Parry's 13
Flavoured Candy, Mango, Sunshine, Shakti,
Pineapple
Googly, Mocka, English toffee,
Cadbury's 11
Frutus, Gollum, Eclairs, Pops.
Polo, Allen's Splash, Soothers, Toffo
Nestle 8
Butter, Fruit Rings, Fox's
Pan pasand, Mango mood, Coffee break,
Ravalgaon 7
Hi-soft, Supreme, Cherries, Juicy

Company Market Share Major brands

Dabur 3% Hajmola
P&G 2.5% Vicks
Warner Lambert 2.5% Halls, Chiclets, Clorets

Anti-cold/OTC brands such as Halls, Vicks, Clorets, etc are increasingly being sold
on the fun positioning rather than for their medicinal properties, competing directly
with other confectionery brands. Halls and Vicks are available in various flavours.

8
 OBJECTIVE OF THE PROJECT

The study of pricing of Cadbury different products and which techniques they use to
maximize the profit.
 We study the how Cadbury increase their profit by introducing new product.
 We have done a comparison of Cadbury by its competitors.
 The place Cadbury has in market.
 We have studied the ongoing battle in the confinery market.
 What are the difficulties, which Cadbury faces, in past years?

9
 RESEARCH METHOLOGY

It refers to the method adopted to collect the relevant data and other information,
which forms the basis of the thesis writing. So for the effective writing of the thesis
report, the data must be quality oriented. My research is divided into two stages:

Primary Data- The relevant information has been generated from the medium of
interviews. Interview had been very helpful in analyzing the information collected
from secondary data.

Secondary Data- Secondary data represents information that already exists

somewhere, having been collected for another purpose.

The secondary data sources that came to be utilized by me in these were as follows-
I Internal Sources-
- In-house magazine
- Annual Reports of the banks
- Corporate magazines (Business baron, Times, Business Today) etc
II. External Sources-
- iilm library
- Fore school library
- Internet services

STAGE II: Analysis In this stage all the collected data had been analyzed and then a
Report had been written.

10
 INDUSTRY PROFILE

The Indian Chocolate Industry has come a long way since long years. Ever since 1947
the Cadbury is in India, Cadbury chocolates have ruled the hearts of Indians with their
fabulous taste. Indian Chocolate Industry?s Cadbury Company today employs nearly
2000 people across India. The company is one of the oldest and strongest players in
the Indian confectionary industry with an estimated 68% value share and 62% volume
share of the total chocolate market. It has exhibited continuously strong revenue
growth of 34% and net profit growth of 24% throughout the 1990?s. The brand of
Cadbury is known for its exceptional capabilities in product innovation, distribution
and marketing. With brands like Dairy Milk, Gems, 5 Star, Bournvita, Perk,
Celebrations, Bytes, Chocki, Delite and Temptations, there is a Cadbury offering to
suit all occasions and moods.

Today, the company reaches millions of loyal customers through a distribution

network of 5.5 lakhs outlets across the country and this number is increasing
everyday. In 1946 the Cadbury?s manufacturing operations started in Mumbai, which
was subsequently transferred to Thane. In 1964, Induri Farm at Talegaon, near Pune
was set up with a view to promote modern methods as well as improve milk yield. In
1981-82, a new chocolate manufacturing unit was set up in the same location in
Talegaon. The company, way back in 1964, pioneered cocoa farming in India to
reduce dependence on imported cocoa beans. The parent company provided cocoa
seeds and clonal materials free of cost for the first 8 years of operations. Cocoa
farming is done in Karnataka, Kerala and Tamil Nadu. In 1977, the company also
took steps to promote higher production of milk by setting up a subsidiary Induri
Farms Ltd., near Pune.

In 1989, the company set up a new plant at Malanpur, MP, to derive benefits available
to the backward area. In 1995, Cadbury expanded Malanpur plant in a major way. The
Malanpur plant has modernized facilities for Gems, Eclairs, and Perk etc. Cadbury
operates as the third party operations at Phalton, Warana and Nashik in Maharashtra.
These factories churn out close to 8,000 tonnes of chocolate annually.

11
In response to rising demand in the chocolate industry and reduce dependency on
imports, Indian cocoa producers have planned to increase domestic cocoa production
by 60% in the next four years. The Indian market is thought to be worth some 15bn
rupee (?0.25bn) and has been hailed as offering great potential for Western chocolate
manufacturers as the market is still in its early stages.

Chocolate consumption is gaining popularity in India due to increasing prosperity

coupled with a shift in food habits, pushing up the country's cocoa imports. Firms
across the country have announced plans to step-up domestic production from 10,000
tonnes to 16,000 tonnes, according to Reuters. To secure good quality raw material in
the long term, private players like Cadbury India are encouraging cocoa cultivation,
the news agency said. Cocoa requirement is growing around 15% annually and will
reach about 30,000 tonnes in the next 5 years.

Indian Chocolate Industry as today is dominated by two companies, both

multinationals. The market leader is Cadbury with a lion's share of 70%. The
company's brands like Five Star, Gems, Eclairs, Perk, Dairy Milk are leaders in their
segments. Untill early 90's, Cadbury had a market share of over 80 %, but its party
was spoiled when Nestle appeared on the scene. The other one has introduced its
international brands in the country (Kit Kat, Lions), and now commands
approximately 15% market share. The two companies operating in the segment are
Gujarat Co-operative Milk Marketing Federation (GCMMF) and Central Arecanut
and Cocoa Manufactures and Processors Co-operation (CAMPCO). Competition in
the segment will soonly get keener as overseas chocolate giants Hershey's and Mars
consolidate to grab a bite of the Indian chocolate pie.

The UK based confectionery giant, Cadbury is a dominant player in the Indian

chocolate market and the company expects the energy glucose variant of its popular
Perk brand to be singularly responsible for adding five per cent annually to the size of
the company?s market share.

12
The Indian candy market is currently valued at around $664 million, with about 70%
share ($ 461 million) in sugar confectionery and the remaining 30% ($ 203 million) in
chocolate confectionery. Indian Chocolate Industry is estimated at US$ 400 million
and growing at 18% per annum. Cadbury has over 70 % share in this market, and
recorded a turnover of over US$ 37m in 2008.

The size of the market for chocolates in India was estimated at 30,000 tonnes in 2008.
Bars of moulded chocolates like amul, milk chocolate, dairy milk, truffle, nestle
premium, and nestle milky bar comprise the largest segment, accounting for 37% of
the total market in terms of volume. The chocolate market in India has a production
volume of 30,800 tonnes. The chocolate segment is characterized by high volumes,
huge expenses on advertising, low margins, and price sensitivity.The count segment is
the next biggest segment, accounting for 30% of the total chocolate market. The count
segment has been growing at a faster pace during the last three years driven by growth
in perk and kitkat volumes. Wafer chocolates such as kit kat and perk also belong to
this segment. Panned chocolates accounts for 10% of the total market. The chocolate
market today is primarily dominated by Cadbury and Nestle, together accounting for
90% of the market.

Major Players

 Cadbury?s India Limited

 Nestle India
 Gujarat Co-operative Milk Marketing Federation
 Cocoa Manufactures and Processors Co-operative (CAMPCO)
 Bars Count Lines Wafer Panned Premium
 Cadbury?s Dairy Milk & Variants
 5-Star, Milk
 Amul Milk Chocolate
 Treat Perk Gems,
 Tiffins Temptation & Celebrations
 Nestle Milky Bar & Bar One.

13
 COMPANY PROFILE

Throughout history chocolate has been associated with romance and sharing.
Today the richness and smoothness of Cadbury chocolate is what makes it one of the
world's favorite treats.

Discover everything here that you want to know about Cadbury and chocolate, from
historical facts to delicious recipes.
You’ll also find facts about our exciting new product such as Cadbury snaps and
Cadbury dairy milk wafer.

Cadbury has been synonymous with chocolate since 1824, when John Cadbury
opened his first shop, establishing a flourishing dynasty that today provides the world
with many of its favorite brands of chocolate.

Learn about the fascinating history of chocolate:

How cacao is the Mayan word for ‘God Food’; when and how chocolate was first
introduced to Europe; how ‘xocolatl – a bitter frothy drink, beloved by Montezuma-
made the transaction into food centuries later, how it’s reputation for heightening
pleasure made it the stuff of myth and legend.

Discover the history of Cadbury, from its social pioneering to the perfection of the
recipe for Cadbury Dairy Milk; first launched in 1905, and still a market leader today.
Find out all there is to know about making chocolate, and amaze yourself with the
brand stories and brand timeline that show how many Cadbury brands have been
favorites since the early 1900s

14
When chocolate finally reached England in the 1650s, the high import duties on
cocoa beans meant it was a drink only for the wealthy. Chocolate cost the equivalent
of 50-75 pence a pound (approximately 400g), when pound sterling was worth
considerably more than it is today. Gradually chocolate became more freely available.
In 1657, London's first Chocolate House was opened by a Frenchman, who produced
the first advertisement for the chocolate drink to be seen in London:

The history of Cadbury as manufacturers of chocolate products in Birmingham

dates back to the early part of the 19th century, when John Cadbury opened a shop in
the centre of the city, trading as a coffee and tea dealer. Soon a new sideline was
introduced - cocoa and drinking chocolate, which he prepared himself using a mortar
and pestle. His lifelong involvement with the Temperance Society led him to provide
tea, coffee and cocoa as an alternative to alcohol, believed to be one of the causes of
so much misery and deprivation amongst working people in Britain at that time.

Fashionable chocolate houses were soon opened where the people could meet
friends and enjoy various rich chocolate drinks, many of which were rather bitter to
taste, while discussing the serious political, social and business affairs of the day or
gossiping

The Cadbury family were closely involved in the evolution of drinking chocolate.
From his grocery shop in Birmingham, where he sold mainly tea and coffee, John
Cadbury started preparing cocoa and drinking chocolate, using cocoa beans imported
from South and Central America and the West Indies. He experimented with a mortar
and pestle to produce a range of cocoa and drinking chocolates with added sugar.

By 1831 the cocoa and drinking chocolate side of the business had expanded, so
he rented a small factory in Crooked Lane not far from his shop and became a
'manufacturer of drinking chocolate and cocoa'. This was the real foundation of the
Cadbury manufacturing business as it is today. The earliest preserved price list of
1842 shows that John Cadbury sold sixteen lines of drinking chocolate and cocoa in
cake and powder forms. Customers would scrape a little off the block and mix it with
hot milk or water. A solid chocolate for eating was introduced by John Cadbury in
1849, which by today's standards wouldn't be considered very palatable.
15
In 1866 George Cadbury (John 's son) brought to England a press developed in
Holland by Van Houten. The press changed the face of cocoa and chocolate
production, as it was designed to remove some of the cocoa butter, enabling a less
rich and more palatable drink to be produced. There was no longer any need to add
the various types of flour and Cadbury's new cocoa essence was advertised as
'Absolutely pure...therefore Best'.

Established by Richard and George Cadbury, two Victorian businessmen with

great industrial and social vision, Bourneville Village is a story of industrial
organization and community planning covering well over a century. It embraces the
building of a factory in a pleasant 'green' environment (in stark contrast to the
oppressive conditions of the Victorian industrial scene), the enhancement of
employees' working conditions and overall quality of life and the creation of a village
community with a balanced residential mix (both employees and non-employees).

George Cadbury was a housing reformer interested in improving the living

conditions of working people in addition to advancing working practices. Having built
some houses for key workers when the Bourneville factory was built, in 1895 he
bought 120 acres near the works and began to build houses in line with the ideals of
the embryonic Garden City movement.
Motivation for building the Bournville Village was two-fold. George Cadbury
wanted to provide affordable housing in pleasant surroundings for wage earners. But
as the Bournville factory grew, local land increased in value and was ready to fall into
the hands of developers. The last thing the brothers wanted was that their 'factory in a
garden' would be hemmed in by monotonous streets.

Dame Elizabeth Cadbury was involved in the planning of Bourneville with her
husband, George. Her memoirs tell us how these plans became reality:

"When I first came to Birmingham and we were living at Wood Brooke, morning
after morning I would walk across the fields and farmland between our home and the
Works planning how a village could be developed, where the roads should run and the
type of cottages and buildings.
16
Gradually this dream became reality, houses arose and many of the first tenants
being men in Mr Cadbury's Adult School Class - which met every Sunday morning at
8.00am in Bristol Street - who had previously lived in the centre of the city and had
never had a garden. Also workers in the factory became tenants.

They too enjoyed their homes in the healthy surroundings, cultivating their
gardens, rewarded in many instances by splendid crops of apples from the belt of
apple trees which each tenant found at the bottom of his garden."

The consequent availability of cocoa butter led to the development of the smooth
creamy chocolate we know today.

Cadbury makes a variety of chocolates for different purposes but the two main
types are Cadbury Dairy Milk, milk chocolate and Cadbury Bourneville plain
chocolate.

The taste and texture of Cadbury chocolate are based on long traditions of
expertise in recipe and processing unique to Cadbury. Techniques are improving all
the time and new technology enables the whole process to be finely tuned to match
evolving tastes and preferences.

Production starts at the Chirk cocoa factory, where the highest quality cocoa beans
are processed to produce cocoa mass containing 55% cocoa butter plus extracted
cocoa butter, the basis for all chocolate products.

When plain chocolate is made the 'mass' goes straight to the Bourneville factory
in Birmingham while the 'mass' for milk chocolate production is taken to the Cadbury
milk factory at Marl brook, Herefordshire, in the heart of English dairy country.

At the milk processing factory fresh liquid full cream milk is cooked with sugar and
condensed to a thick liquid. Cocoa mass is added, making a rich creamy chocolate
liquid, which is then evaporated to make milk chocolate crumb. As these ingredients
are cooked together the very special rich creamy taste of Cadbury chocolate is
produced. 95,000 tonnes of crumb a year are produced at Marl brook to be made into
17
chocolate at the Cadbury chocolate factories at Bourneville, Birmingham and
Somerdale, Bristol.

On arrival at the chocolate factory the crumb is pulverized by heavy rollers and
mixed with additional cocoa butter and special chocolate flavorings. The amount of
cocoa butter added depends on the consistency of the chocolate required: thick
chocolate is needed for molded bars, while a thinner consistency is used for
assortments and covered bars.

In the UK up to 5% vegetable fat is added to compensate for variations in cocoa

butter, allowing the melting properties of the chocolate to be controlled to a precise
standard, and preserving the full taste and texture of the chocolate. Cadbury use
carefully selected vegetable oils similar in nature to cocoa butter: African Shea,
Indian Sal and Malaysian Palm oils are all part of the recipe.

Both milk and plain chocolate, which has had sugar and cocoa butter added to the
mass before pulverizing, undergo the same final special production stages, producing
the famous smoothness, gloss and snap of Cadbury chocolate.

CADBURY PRODUCTS
Cadbury Perk
A pretty teenager; a long line, and hunger! Rings a bell? That was
how Cadbury launched its new offering; Cadbury Perk in 1996.
With its light chocolate and wafer construct, Cadbury Perk targeted
the casual snacking space that was dominated primarily by chips &
wafers. With a catchy jingle and tongue in cheek advertising, this
'anytime, anywhere' snack zoomed right into the hearts of teenagers.
Raageshwari started the trend of advertising that featured
mischievous, bubbly teenagers getting out of their 'stuck and hungry'
situations by having a Cadbury Perk. Cadbury Perk became the new mini snack in
town and its proposition "Thodi si pet pooja" went on to define its role in the
category.

18
As the years progressed, so did the messaging, which changed with changes in the
consumers' way of life. To compliment Cadbury Perk's values, the bubbly and
vivacious Preity Zinta became the new face of Perk with the 'hunger strike'
commercial in the mid 90's.

In the new millennium, Cadbury Perk moved beyond just owning 'hunger' to a "Kabhi
bhi kaise bhi" position, because the urge for Cadbury Perk could strike anytime and
anywhere. With the rise of more value-for-money brands in the wafer chocolate
segment, Cadbury Perk unveiled two new offerings - Perk XL and XXL.

The temptation to have more of Cadbury Perk was made even greater with the launch
of Cadbury Perk Minis in 2003 for just Rs. 2/- In 2004, with an added dose of 'Real
Cadbury Dairy Milk' and improved wafer', Perk became even more irresistible. The
product was supported in the market with a new look and a new campaign. The
advertisement spoke of the irresistible aspect of the brand, with 'Baaki sab Bhoola de'
becoming the new mantra for Cadbury Perk.

Cadbury Perk advertising has been a launch pad for Bollywood stars - Preity Zinta,
Raageshwari, Gayatri Joshi and Amrita Rao, were all Perk models before they made it
big on cinema screens.

Cadbury Five Star

Chocolate lovers for a quarter of a century have indulged their taste buds with a
Cadbury 5 Star. A leading knight in the Cadbury portfolio and the second largest after
Cadbury Dairy Milk with a market share of 14%, Cadbury 5 Star moves from strength
to strength every year by increasing its user base. Launched in 1969 as a bar of
chocolate that was hard outside with soft caramel nougat inside, Cadbury 5 Star has
re-invented itself over the years to keep satisfying the consumers taste for a high
quality & different chocolate eating experience. One of the key properties that
Cadbury 5 Star was associated with was its classic Gold colour. And through the
passage of time, this was one property that both, the brand and the consumer stuck to
as a valuable association.

19
Cadbury 5 Star was always unique because of its format and any communication
highlighting this uniqueness, went down well with the audiences. From 'deliciously
rich, you'd hate to share it' in the 70's, to the 'lingering taste of togetherness' & 'Soft
and Chewy 5 Star' in the late 80's, the communication always paid homage to the
product format.

More recently, to give consumers another reason to come into the Cadbury 5 Star
fold, Cadbury 5 Star Crunchy was launched. The same delicious Cadbury 5 Star was
now available with a dash of rice crispies. Cadbury 5 Star & Cadbury 5 Star Crunchy
now aim to continue the upward trend. This different and delightfully tasty chocolate
is well poised to rule the market as an extremely successful brand.

Cadbury Dairy milk

The story of Cadbury Dairy Milk started way back in
1905 at Bournville, U.K., but the journey with chocolate
lovers in India began in 1948.
The pure taste of Cadbury Dairy Milk is the taste most
Indians crave for when they think of Cadbury Dairy
Milk.
The variants Fruit & Nut, Crackle and Roast Almond, combine the classic taste of
Cadbury Dairy Milk with a variety of ingredients and are very popular amongst teens
& adults.
Recently, Cadbury Dairy Milk Desserts was launched, specifically to cater to the urge
for 'something sweet' after meals.
Cadbury Dairy Milk has exciting products on offer - Cadbury Dairy Milk Wowie,
chocolate with Disney characters embossed in it, and Cadbury Dairy Milk 2 in 1, a
delightful combination of milk chocolate and white chocolate. Giving consumers an
exciting reason to keep coming back into the fun filled world of Cadbury.

20
Cadbury Dairy Milk has been the market leader in the chocolate category for years.
And has participated and been a part of every Indian's moments of happiness, joy and
celebration. Today, Cadbury Dairy Milk alone holds 30% value share of the Indian
chocolate market.

In the early 90's, chocolates were seen as 'meant for kids', usually a reward or a bribe
for children. In the Mid 90's the category was re-defined by the very popular `Real
Taste of Life' campaign, shifting the focus from `just for kids' to the `kid in all of us'.
It appealed to the child in every adult. And Cadbury Dairy Milk became the perfect
expression of 'spontaneity' and 'shared good feelings'.

The 'Real Taste of Life' campaign had many memorable executions, which people still
fondly remember. However, the one with the "girl dancing on the cricket field" has
remained etched in everyone's memory, as the most spontaneous & un-inhibited
expression of happiness.

This campaign went on to be awarded 'The Campaign of the Century', in India at the
Abby (Ad Club, Mumbai) awards. In the late 90's, to further expand the category, the
focus shifted towards widening chocolate consumption amongst the masses, through
the 'Khanewalon Ko Khane Ka Bahana Chahiye' campaign. This campaign built
social acceptance for chocolate consumption amongst adults, by showcasing
collective and shared moments.

More recently, the 'Kuch Meetha Ho Jaaye' campaign associated Cadbury Dairy Milk
with celebratory occasions and the phrase "Pappu Pass Ho Gaya" became part of
street language. It has been adopted by consumers and today is used extensively to
express joy in a moment of achievement / success.

The interactive campaign for "Pappu Pass Ho Gaya" bagged a Bronze Lion at the
prestigious Cannes Advertising Festival 2006 for 'Best use of internet and new media'.
The idea involved a tie-up with Reliance India Mobile service and allowed students to
check their exam results using their mobile service and encouraged those who passed
their examinations to celebrate with Cadbury Dairy Milk.

21
The 'Pappu Pass Ho Gaya' campaign also went on to win Silver for The Best
Integrated Marketing Campaign and Gold in the Consumer Products category at the
EFFIES 2006 (global benchmark for effective advertising campaigns) awards.

During the 1st World War, Cadbury Dairy Milk supported the war effort. Over 2,000
male employees joined the armed forces and Cadbury sent books, warm clothes and
chocolates to the front.
Cadbury's big Bytes

Kuch meetha ho jaye suggests Cadbury India, its

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

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

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

22
Getting the right product and packaging was a challenge for the company. It has sub-
contracted the product to get the volumes and is poised for a national launch. Adds
Puri, "After all this was the first category anywhere in the world that Cadbury was
entering and we did not have the expertise. So the best way was to test-market the
product and today we find that it has already bagged five per cent of the chocolate
market."

The company has no apprehensions of cannibalization of its

chocolate brands. It believes that while its chocolates are more
of indulgence products, Bytes is about snacking when one is
hungry and can be treated as a snack in between meals.

In the past when Cadbury tried out a biscuit brand, Chocobix,

there was fear about some amount of cannibalization. After
all, it was simply a biscuit coated in chocolate, and was perceived to be another
chocolate brand in Cadbury's portfolio.

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

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

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

23
the existing assets, it is necessary to get them right first. Halls is the first brand that
we have revived and it is now doing well."

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

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

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

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

"There is scope in the market. Our Éclairs has been growing and this has been evident
in our past numbers," claims Puri. At the same time the sugar confectionery market is
highly competitive and it's all about finding the right consumer proposition and a
business model that can deliver both top line and bottom line growth.
24
In spite of the new categories being explored by Cadbury, its star brand remains
Cadbury Dairy Milk (CDM), which continues to corner almost 30 per cent of the
chocolate market. It is followed by brands such as 5-star, perk and Gems. Each of
these has been revamped over the years to generate excitement for the category. For
instance, recently Perk was rejuvenated as a crunchier wafer while CDM came up as a
white-and-brown variant in the market.

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

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

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

25
Pricing battle
Cadbury's efforts to exploit untapped potential and
reach every pocket have a lot to do with outwitting
Nestle in the war of the wafers.
Its latest annual report states: `Cadbury is all set to satisfy untapped potential. With
brand launches, re-launches and new products, the thrust is on reaching every
individual, satisfying different palates and being within varying budgets. Basing its
operations on this vision, Cadbury is charting a new course of action. With the
product, place, price and promotion synergies working in tandem, it won't be long
before we find a Cadbury in every pocket.'

This may sound like a reiteration of its earlier claims, but in its heart of hearts,
Cadbury India, in spite of being the leader in the chocolate market, is still trying to
settle scores with Nestle in the wafer-coated chocolate market, where it has yet to
grab a dominant share.

Creating new launches and extensions may be an ongoing exercise for the Rs 511-
crore chocolate multinational, but lately it has set its sights on the Swiss food giant,
Nestle, which is going through a rough patch with its flagship brand, Kit Kat.

In fact, the wafer chocolate war started in 1995 when both Perk (from Cadbury) and
Kit Kat (from Nestle) were launched. It had Cadbury running for cover to protect its
largest brand, Cadbury's Dairy Milk, which it did by extending its positioning on the
adult platform. The power-packed campaign from HTA (`Have a Break') did wonders
for the Kit Kat brand at that point of time, but its premium pricing proved to be the
main hitch, which has seen its volumes dipping from 15 per cent in 1997 to 9.5 per
cent this June, as per ORG-Marg figures.

Despite its share of the volumes coming down, Kit Kat still has a dominant share in
the market while Cadbury's Perk has seen steady shares between 1997 and 2000 with
present volume shares at 8.8 per cent, as per ORG-Marg figures. Perk has also
stretched itself to variants such as Mango, Strawberry and Mint to generate some
excitement around the brand.

26
So, while Kit Kat has taken a battering with its premium pricing and image, Cadbury
India is taking this chance to put its might behind its wafer category, with Perk and
the newly-launched Milk Treat, to beat Nestle in this category.
But then, the price points in the wafer chocolate category were redefined by Nestle
when it launched Munch at Rs 5 last year. Cadbury had to react to this lowering of
price within the wafer chocolates category and had to stretch Perk-to-Perk Slims at Rs
5 to counter it.

Explains Rajat Sabharwal, an analyst with Kotak Securities, ``the growth rates have
come to a standstill in wafer chocolates and the market is not buoyant in this category.
With Nestle coming out with a lesser-priced brand, Cadbury is responding now.'' So,
despite Nestlé’s flagship brand suffering to a certain extent, a flanking brand such as
Munch has taken care of the dipping shares.

Highlights Nirav Sheth, an analyst with SSKI Securities, ``In the first three years
since the launch of Kit Kat, its price rise has been too fast and this has backfired.
Today, its price cuts have been prompted by competitive pressures and the purpose is
obviously to gather volumes.'' But then, the prices of cocoa have also been crashing,
perhaps helping Nestle absorb the price cuts, which, possibly it would not have been
in a position to do otherwise.

Today, Nestle seems content with its strategy and admits that though shares of Kit Kat
have dipped, Munch has succeeded in doing what it was expected to do. Says Sanjay
Sehgal, Executive Vice-President (Marketing), Nestle India, ``Cadbury has reacted to
us. In fact, Munch could also be responsible for eating into the shares of Kit Kat along
with Cadbury's own brand. There has been a redefinition of pricing strategy for
KitKat and we are hoping it will show.''

KitKat continues to sell at a slight premium to Perk though it is now offering a price
discount of nearly 20 per cent, which indicates that Nestle either had great margins on
the brand earlier, or is in trouble.

27
For Cadbury, Perk is basically a fighter brand being used to flank the mother brand. In
fact, the fight is almost similar to what HLL did with Wheel (though it was not
making money on the brand) to counter Nirma in the detergent market while Surf sat
pretty as the mother brand in Lever's portfolio. However, in the case of wafer
chocolates, it is not a very happening category since consumers have realized that
they are not paying for pure chocolate, but for a chocolate-coated biscuit. For
Cadbury, its cash cow will always remain its Cadbury's Dairy Milk. Both are players
fighting with their higher reserves, trying to establish themselves with a dominant
share in the wafer chocolate category.

The new Perk has four wafer layers covered with chocolate and is lighter and crisper.
Its packaging has also undergone a change and has used Cadbury's trademark purple
background with the dark brown wave of chocolate on the wrapper, indicating the
presence of pure dairy milk chocolate, to set it apart from a common biscuit
chocolate.

Cadbury is targeting a 12 per cent volume share for the Perk brand after this relaunch
and expects to overhaul Kit Kat. As Bharat Puri, Director (Sales & Marketing),
Cadbury India, declares: ``our objective is to be the largest wafer-coated brand in the
country.''

A new campaign has been developed for the relaunch of the brand where through
three commercials the differences in the new Perk are highlighted through dialogues
alluding to match fixing -- Khule Aam Khayiye. Kabhi Bhi. Kahin Bhi. Explains
Piyush Pandey, National Creative Director, Ogilvy & Mather, ``Through the
commercials we are trying to bring out various explanations about the changes in
Perk.'' The original campaign of Thodi Si Pet Pooja, Kabhi Bhi, Kahin Bhi will
continue through another new commercial, of a lady secretly eating Perk on the
occasion of Karwa Chauth.

28
Meanwhile, another wafer chocolate brand that has been targeting kids is Milk Treat,
four wafers with butterscotch-flavored cream embedded in milky white chocolate.
Though Cadbury did have a white bar, Creamy Bar, it was never treated as a major
brand. Milk Treat is pitted against Nestlé’s Milky Bar though it is in a moulded form
unlike the former, which is in count form. There are expected to be more variants
under the Milk Treat brand for children. Both Milk Treat and Perk are priced on par at
Rs 10 for 27 gm.

Despite all the action in the chocolate wafer segment, growth for Cadbury has always
come from its mother brand - the Rs 117-crore Cadbury's Dairy Milk which today
straddles all possible price points. Explains an analyst with Motilal Oswal Securities,
``For Cadbury, its growth has been coming from Cadbury's Dairy Milk and what it is
doing to Perk is just to gather momentum in the chocolate market which thrives on
innovation and excitement.''

In 1999, Cadbury recorded an eight per cent turnover growth in chocolate

confectionery led by its flagship brand Cadbury's Dairy Milk, which registered a
growth of over 40 per cent. The malted food drinks category reported a growth of 14
per cent while the sugar confectionery segment rose a mere three per cent. The Éclairs
brand grew by a healthy 14 per cent.

In fact, Cadbury has consciously stayed away from meddling too much with its
heritage chocolate brands -- Dairy Milk and 5 Star. Explains Puri, ``As a marketer, it
is best not to do too much to these heritage brands which already have strong equity.
Not that we will never relaunch them but right now they enjoy a strong equity.'' But, it
did relaunch its heritage brand of malted drinks, Bournvita, last year when it lost share
to the white drinks segment. There are plans to extend this strong brand in the future,
about which Cadbury does not want to reveal its plans right now. Interestingly, there
already exists a similar sounding dark chocolate brand for adults, Bourneville, in its
kitty for many years, which has not seen much advertising.

29
While its chocolate brands are continuing to get broad based, its sugar confectionery
brands will get upgraded to higher price points. For instance, its hard-boiled sweets
such as Googly, Mocka and English Toffee are gradually being phased out, while the
new brands such as Frutus, a chewy sweet (Re 1) and the jelly, Gollups (Rs 2), are
expected to see some healthy growth. Adds Puri, ``It is not possible to build brands at
such low price points. While there are volumes, the margins are thin in this category.''
Besides, the latest Budget has hiked the duties of sugar confectionery products from
eight per cent to 16 per cent, which in any case has led to an increase in prices and
thereby affected brands such as Googly.

But one thing that Cadbury has realized through all this is that it has got cheaper with
more products in the Rs 3-5 category. Its premium brands such as Cadbury Gold,
Truffle and even Picnic have never really been accepted in the chocolate market.
Today, Cadbury is constantly looking at pushing volumes at the lower end of the
market and brands such as Relish, Break, 5 Star and Dairy Milk have Rs 5 variants
catering to this lowest price point. Perk Slims is the latest Rs 5 brand to be added to
this list.

As for taking the chocolate wafer war to the enemy camp, it might take a while
because Nestle also has deep pockets and has established itself in the chocolate wafer
category in spite of dipping shares. However, Cadbury will always be the leader with
its heritage brands. As Rajat Sabharwal, an analyst with Kotak Securities states,
``Nestle may be a key player in the Indian chocolate market but there is no possibility
of it emerging as a category leader.''

30
31