Nearly eight years after entering India, Italian chocolate maker Ferrero India, the maker of Kinder Joy chocolates and Nutella chocolate-hazelnut spread, posted revenues of Rs 929 crore during the seven months ended March 2015. The company changed its accounting year from August in 2014. Nestle’s chocolate division, which sells Kit-Kat and Munch among other brands, had revenue of Rs 1,110 crore in calendar 2015. Just three years ago, Nestle’s chocolate business was three times that of
the Italian company. Mondelez, which sells Cadbury chocolates, still dominates the segment with annual revenues of over Rs 6,500 core. Experts attribute this to Ferrero’s differentiation strategy.
“There is a case to revisit the lens with which marketers view Indian consumers and affordability,” said Devendra Chawla, president - FMCG and Brands at Future Group. “Brands like Ferrero with no historic baggage has discovered and led the top down approach of premiumising through innovation versus old school thinking of focusing mainly on low priced products. Ferrero has shown that there is a large market even at the top end,” he added.
According to a recent report by Nomura, Nestle’s portfolio issues lead to revenue declines and market share loss. “Growth in the chocolate and confectionery business for the company has been in decline since calendar 2010, but revenue has declined from calendar 2013 onwards. Reasons for this decline are portfolio optimisation in chocolates, as well as seeking premiumisation at a time when demand was slowing. That apart, the failure to innovate beyond the wafer segment when consumer tastes were evolving is also blamed for the growth decline,” added the report.
While Nestle didn’t comment on financials, a company spokesperson said it will continue to evaluate global portfolio and will bring in brands as and when there is a strong need . “Our focus at the moment is to continue to grow our existing portfolio. India is a market of huge opportunity and we believe that this market will continue to grow at a healthy rate in the next few years to come and we will continue to bring exciting new variants,” added the spokesperson.
Nestle’s market share in chocolates has fallen from 29% in 2006 to 14% now, as per Euromonitor data. Leaders such as Mondelez have introduced smaller stock keeping units (SKUs) at lower price points and increased penetration into rural India even as slowdown in consumption and the lowering of discretionary spend affect several food categories including chocolates.
Ferrero has been aggressively investing too — it passed a resolution to invest Rs 375 crore in the Indian arm and double its authorised capital to Rs 1500 crore, as per latest regulatory filings last submitted last week. Around nine months ago, it had raised its borrowing limit to Rs 2,500 crore and said it will invest Rs 367 crore.
The Indian unit of US-based Mars Inc, too, has announced an investment of Rs 1,005 crore to set up manufacturing plant in Maharashtra, while Mondelez has invested $190 million to open a manufacturing facility in Andhra Pradesh, its largest in the Asia-Pacific Region.