While rural India develops the taste of chocolate, a dominant Mondelez extends its reach

CHICAGO / HAROHALLI, India (Reuters) – Two years ago, Satish P., owner of a bakery in the small village of Harohalli near Bengaluru, had doubts about Mondelez's supply (MDLZ.O) Cadbury silk bars.

With a price between 70 and 170 rupees, they seemed out of reach of customers accustomed to paying only 5 rupees for the tiny chocolates that he has been selling for years. But he has tried his luck and now rings up to 3,500 rupees (US $ 50) in sales of the Silk Bar per month.

"Villagers can afford top quality chocolates now," he said.

As Satish and other Harohalli traders have found that chocolate sales in India are taking off, aided by the growth in disposable income that is spreading to the country's 650,000 poorest villages, where most of the residents live. two-thirds of the population.

The growth of e-commerce and a sharp reduction in taxes is also driving up sales, which is stimulating global confectioners such as Mondelez International Inc, Nestlé SA (NESN.S) and the relative newcomer Hershey Co (HSY.N) to invest more in the still small but growing market.

Mondelez, the # 1 chocolatier in India, told Reuters "the bulk of the volume" of a $ 150 million increase in global investment this year – the first rise in five years – will be in the world. Rural India.

The company, which began supplying free showcases to Indian store owners in the early 2000s, has intensified its distribution in rural areas over the past year. It is expected to be present in approximately 75,000 to 100,000 villages over the next three years, up from 50,000 in 2018.

To this end, it is also expanding its fleet of refrigerated trucks and creating a database that lists small convenience stores in India and monitors sales of its products in these stores.

"There is a misconception that rural consumers are poor. All are not. There are wealthy farmers who fall into the category of consumers, "Deepak Iyer, Mondelez's general manager for India, told Reuters.

Iyer said Mondelez targeted villages with just 3,000 inhabitants. "Some families are looking for high-end products because they see them today via mobile connectivity."

NEW PRODUCTS, MORE MARKETING

Mondelez chief executive, Dirk Van de Put, said his rivals would have trouble aligning with the firm's scale in the country.

The extensive Cadbury distribution network in India, established several decades ago, was a major badet for Kraft Food as part of its $ 19.6 billion acquisition of the brand in 2010. Kraft s & 39 is then split into two companies with its world renowned snack business Mondelez.

"It will not be easy (for the rivals) to spare space, to be really noticed in the store," he said in an interview, adding that Mondelez had steadily increased its market share in India during several years.

Mondelez says it now holds 66% of the Indian chocolate market. Cadbury, a 195-year-old British confectionery brand, entered India in 1948 and its Dairy Milk, Silk and 5Star products have since made a well-known name. The Dairy Milk brand alone accounts for 40% of the market.

Nestlé is ranked No. 2, followed by Ferrero and Hershey, according to Euromonitor. The companies did not provide estimates of market shares.

With annual sales of $ 1.9 billion, India has a lot of room for growth. China, also a developing economy with a similar population size, represents a market of $ 3.2 billion, but both are poor compared to the US market of $ 19.2 billion, data from Euromonitor show .

Last year, chocolate sales in India jumped 15.4% after the government, wishing to be re-elected, revised its national sales tax for many items. The reduction in the tax from 28% to 18% has lowered chocolate retail prices and businesses have almost tripled their spending on promotions, according to market research firm Nielsen.

For a chart on growing chocolate consumption in India, click here: tmsnrt.rs/2jG9XGD

Mondelez claims that its Cadbury brand, which has been working for decades with WPP (WPP.L) Ogilvy India in Bollywood Star TV commercials spends more money on marketing. And to tap the online application, the company has created a Cadbury-only store on Amazon.com (AMZN.O) which customizes gift boxes for Indian festivals throughout the year.

It also introduces new products. Last month, it launched a low-sugar Dairy Milk bar, aimed at a booming market for healthier products in India, where 9% of adults have diabetes.

KISSES IMPACT

Nestlé, the largest packaged food company in the world, has also invested in high quality coolers, expanded distribution, celebrity ads and the launch of superior products. Last year, she started to import from Europe her "artisbad" bars The Recipes From The Workshop.

Hershey is doing his best to catch up.

She entered the Indian chocolate market in 2016 with her lesser-known brand Brookside and announced plans next year to spend $ 50 million over five years.

The 112-year-old Kisses brand was launched last fall and made March India's 4th largest chocolate company, although its products are only available in 14 cities and major online stores. like Amazon.com, BigBasket. .com and Flipkart.com.

"We are at an early stage … we will extend this to the national level and then consider moving from urban to rural areas," said Herjit Bhalla, managing director of Hershey India, Reuters.

The unit had spent more than expected over the past year, funding advertising campaigns and celebrity technologies, including wearable devices badyzing store preferences, Bhalla said.

The Indian e-commerce market is a priority, he added, with online orders accounting for over 4% of sales, which is more than 1% for the entire Indian consumer goods market.