Hitting the sweet spot

THE HARSHEY COMPANY

Hershey's arrival signals more action in the chocolate market.

A chocolate bar of Hershey's melts into pulp as we head back from the company's launch conference. The tropical Indian climate has never been kind to chocolates. But global manufacturers believe it's 'hot'.

Last week, The Hershey Company, known for not just chocolate bars but also dessert sauces and beverages, picked up a 51 per cent stake in Godrej Beverages and Foods.

CEO Richard H Lenny says the entry into India 'is part of a disciplined approach to global expansion, with India being an important part of it.'

On another front, Ferrero, the Italian company with best-sellers like the creamy hazelnut delight, Ferrero Rocher or the chocolate with a surprise, Kinder is looking to set-up a manufacturing base in India. Other boutique chocolate brands like the Lebanese brand, Patchi are already present through exclusive outlets in Mumbai and Kolkata.

The opportunity sure looks big. India makes up only 0.5 per cent or $300 million (Rs 1,500 crore) of the $57 billion global chocolate market. And the per capita consumption at around 0.14 grams, compared with 10 kgs in the US, is among the lowest in the world.

The market is estimated to be growing at a healthy 12 per cent, albeit on a low base. Compare that with Hershey's growth of under four per cent in its main market, the US. The chocolate major is not venturing into unchartered territory.

The Indian market is dominated by the two firms that launched a joint bid for acquiring Hershey in 2002 "� Cadbury and Nestle. While Cadbury commands a market share in excess of 60 per cent, Nestle has a 20 per cent slice of the chocolate pie.

The entry of biggies like the $5 billion Hershey, says A Mahendran, mentor director, Godrej Hershey Foods & Beverages, will not necessarily take the market away from Nestle or Cadbury. It's the pie that will grow to accommodate new players.

"We are aiming to garner a market share of about 15 per cent over the next three years," says Mahendran, forecasting that the market growth is likely to accelerate by six percentage points to 18 per cent in three years.

The focus, he explains, will be to provide the relevant products at the right price in the Indian market. With category creation being Hershey's biggest strength, the company will build the category in India and aim at growing the overall market.

As growing chocolate sales show, people start spending more on luxury and impulse purchases as incomes rise. Observes Chetan Gokal, country head, Patchi India, "Consumption patterns are slowly shifting from traditional 'mithai' to chocolates and pastries. However, there are risks. Industry experts point out that even top brands like Godiva or Leonidas have yet to make a mark. Gokal points out that a high import duty, low scale and short shelf life, make things more difficult.

Lenny admits that entering the Indian market requires tremendous staying power but is clear that his company is here for the long haul.

"The alliance with Godrej is an important part of our strategy as it gives us an understanding of the market, as well an advantage with the go-to-market capabilities," he says.

Meanwhile Cadbury, which is again making overtures to buy out Hershey's globally, is positioning chocolates as the best treat for any celebration. And dairy major Amul, which entered the chocolates market a few years ago, recently launched a range of sugar free chocolates.

R S Sodhi, GM, Marketing, Gujarat Co-operative Milk Marketing Federation says the range has elicited a good response. Sodhi believes that new brands launching in India will expand the market, not eat into existing shares.

Nestle too has introduced Kit-Kat Lite, a diet variant of its popular Kit-Kat brand aimed at the health conscious segment. With more organised retailing formats in place, companies are confident that consumption will perk up and chocolates that retail from air-conditioned shelves will escape the unfavourable climate of the mom-and-pop stores. This time, it's the players that are going to generate all the heat.