What was Cadburys standing in India prior to the Kraft

acquisition? Was this a reason to go for the acquisition route?

Justify.

Cadbury was incorporated in India in July 1948 as a private limited company

under the name of Cadbury Fry (India). At that time they imported and sold
chocolates. During nearly 63 years of its existence it established five
manufacturing facilities at Thane, Gwalior, Bangalore and Himachal Pradesh.
While its corporate office was in Mumbai its sales offices were in New Delhi,
Mumbai, Kolkata and Chennai.
It enjoyed a market share of over 70% as the highest Cadbury Brand share in
the world in the chocolate segment of the confectionery industry. It operated in
four categories mainly: chocolates, malted food drinks (bournvita), candy
(Halls) and Gums (bubbaloo). Its core purpose was to make today delicious
which clearly expressed the spirit of what the company stood for.

Cadbury diary milk (CDM)

It had been the market leader in the chocolate category and in the year March
2011 it had a market share of 30%. They did focus on the trend of chocolate
consumption and they changed the perception of Indian consumers that
chocolates are not only meant for kids. It also shifted CDM to the social
acceptance of chocolate consumption by adults. Through their campaigns,
Cadburys have also associated CDM to celebrations and as a necessary sweet
to always have at home.

Cadbury Bournvita.
It was launched in the year 1948. In the year 2011 it had the market share of
17%. One of the principal reasons for the continued success of Bournvita was
its periodic re-invention in terms of product, packaging, promotion and
distribution. As the competition increased decade by decade the brand
positioning changed. In the 1970s the focus was on good upbringing as an
important building block for childhood, In 1980s it focused on intelligence
and In 1990s the company focus on both physical and mental benefits.

Halls
It was launched in the candy category in the year 1968 and positioned as a
therapeutic candy competing in the cough lozenge market. It was leader in the
medicated candy market. They kept the brand alive by advertising and
campaigns. Later, halls positing was changed to refreshment platform. Finally
they adopted the tagline of soothes sore throat which was most successfully
positioned.

Cadbury Bytes
In 2004-05 the Cadbury made its entry in to packaged snack market with
Cadbury bytes. While the most of the snacks in India were salty, bytes was
sweet. The product was targeted at teens as they were the largest consuming
segment of this category. The positing was that of the only sweet snack in the
world of salty snacks. The idea was all about breaking the stereotypes.

Bubbaloo
In the gum category the company launched its bubble gum brand Bubbaloo in
Indian market in the year 2007. It was positioned for teenagers and stood out
because of its unique flavoured liquid filling. It gained 30% of market share
within three months of its launch in bubblegum market.

At the time of acquisition by KFI, Cadbury India owned key brands such as
CDM, 5star, Bournvita, perk, Bournville, celebrations, halls and Eclairs, all of
which had strong customer loyalty. Being in India for over six decades the
company had understood the market dynamics and consumer behaviour.

Distribution
Only 2% of Indian retail sector is organised, Cadburys products have
availability across hundreds of villages, towns and cities through over 5,50,000
retail outlets, served through 1200 distributors, which gave it an extensive
market reach. 20000 visi cooler outlets for selling chocolates were also
installed. In 2009 it had revenue of around $454 million and was growing at a
CAGR of 22% for a four year period.
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Was this reason to go for the acquisition route? Justify.

Yes, all of these were very good reasons to go for the acquisition route as-

1) Access to a wide market.

Since Cadbury is present in India for over 6 decades, it had an extensive market
reach throughout. Acquiring a company with such a market reach and reputation
was in favour of KFI.
Through Cadbury, KFI also got an entry into other emerging markets in Europe
and Asia-Pacific regions

2) Great portfolio of brands

Through acquisition, Kraft got popular brands like Cadbury Diary Milk,
bournvita, Halls, Cadbury bytes, etc., all of which had good market share. Kraft
also had 11 popular brands which had revenue exceeding $1 billion each and 70
products which had revenue over $100 million each. With this acquisition KFI
made for itself a very impressive portfolio of power brands.

3) Economies of Scale
Cadbury has manufacturing facilities in India, with this Kraft can manufacture
their products in India and would not require to set up their own plants. And this
acquisition would save $300 million in manufacturing, $200 million in
Administration and $125 million in marketing and media. Overall it would
result in decreasing of the costs for the company.

4) Great move for the company.

Indian chocolates market is very competitive with brands like Cadbury, Nestle
and Amul. All these brands are old and have good backward integration. There
are also small local brands. Entering by itself would have been a bad move as it
could have been very tough for a new player to enter in such a market, no
matter how big a player it is.

5) Knowledge sharing.
Through the acquisition the Kraft can understand the Indian consumers, their
purchasing pattern towards confectionery products. And the employees of both
companies can share their knowledge, skills and build up competencies which
are required to foster organizational growth.
KFI have also introduced global manufacturing processes, standards and sales
practices in Cadburys (visi coolers), which are up to KFI standards.
This merger has also allowed both the companies to exchange their patent
recipes in similar products such as chocolate bars. This could help in launching
new products in global markets as well as development of new products.

6) Synergy.
Through their combination, Kraft can reduce their manufacturing cost that is
$300 million, $200 million in administration and $125 million in advertisement
and media, over all the costs of the firm will decrease, Kraft can gain synergy.
(As the CEO of Kraft stated the new company would have $50 billion in
revenue in each year in markets like India, Mexico, Brazil, China and India).

7) The likelihood of Nestle and Hershey coming together

When KFI was in the process of acquiring Cadburys, there was news that
Nestle and Hersheys too are in the race of acquiring it. If nestle had got
Cadburys then it would have become one single biggest confectionary giant in
emerging markets, closing doors for any future entries by KFI. Acquiring
Cadburys saved that opportunity for KFI for the emerging markets.

8) To survive among competition.

Market follows the philosophy of survival of the fittest and most innovative. To
survive in the Asian markets, KFI was not very well equipped in terms of
market knowledge. The competition was also too fierce. An acquisition of one
of the giants helped in covering those weaknesses and brought KFI into focus in
these markets.

9) Overcoming entry barriers.

Acquiring a company which has its foothold in a particular country is
considered to be a better option than going up the long way of launching oneself
from scratch. Such an acquisition brings in pre-made supply chain, distributors
and a customer base for the acquirer. Here, KFI won in all these aspects by
acquiring KFI and in one leap, it got a strong presence in the Asia-Pacific
regions, especially in the Indian market.

10) Gaining market share

The Cadbury acquisition helped KFI get a substantial market share across AsiaPacific and European markets. The major benefits came for emerging markets
such as India, where Cadburys is a market leader. Through this acquisition, KFI
would also make up good revenues in time.

Why does KFI appear hesitant to use Cadbury India to launch its
own global brands in India? Assess the strategic importance of
this.

Strengthening existing brands

When Cadbury was acquired by KFI, it already had a very impressive portfolio
of brands such as CDM and Bournvita Cadbury bytes, 5star, perk, halls and
range of cakes and biscuits. These brands had a very strong foothold in the
minds of consumers and great market share. It enjoyed a market share of over
70% the highest Cadbury brand share in the world so it decided to strengthening
these brands instead of launching their own brands because through this Kraft
would make lots of profits rather than launching their products and incurring
cost on them.
Strengthening of existing brands and extending product lines was an economical
and efficient solution. Extending product line of CDM and strengthening it via
introducing global standards and practices in production and distribution came
as a good idea.

Indian consumer.
As India is a country where people would not easy accept the foreign brands, it
takes years to the companies to make their stand in the market, so if Kraft
launch their products it would also take time to build and capture the Indian
market.
Indian market also had other products in the same category by Amul and Nestle.
All these manufacturers and their brands are very deeply entrenched in the
minds of customers. The market also had some local players with only local
reach. This makes the confectionaries market in India very crowded and highly
competitive.
It would not be easy for KFI to launch any of its products against giants like
Nestle and Amul, Though KFI is a giant itself. Other companies have much
stronger backward and forward integrations and dumping the products in market
would be a waste.

Cannibalisation.
If Kraft launched their products along with Cadburys products it, would have
created competition between the existing brands of Cadbury and KFIs rather
than competing with competitors like Nestle and Amul etc. This sort of selfcannibalisation would have been unproductive for KFI. Energies should be
spent on competing with rival products rather than own product.

Understanding market
It is a better idea to wait and learn the market dynamics while surviving and
growing through existing products. KFI might launch some of its other products
in India in due course of time, after it has made its name known among the
consumers. That would give an advantage to KFI. They might launch their
Brands such as Jacobs coffee, Oscar Meyer and Maxwell house in niche
segments or in up markets. It is also possible that KFI may launch some
augmented versions of their heritage products under the banner of Cadburys.
Also, KFI is not totally hesitant to launch its products. It has Tang and Oreo in
the market, both of which are doing good.

What else should they do with their Indian operations to improve

business performances?

Core competence
Kraft is a very strong company on global scale, after Nestle. It has huge market
share with revenues of $49.207 billion. Kraft could use Cadbury to strengthen
their global base in emerging market like India and use their core competencies
to maximise profits. Kraft had core competencies through their sales
capabilities. It can further grow and improve their competencies in the Indian
market and can gain competitive advantage.

Heritage brands.
Kraft has heritage brands which hold the number one or two position in the
market where it operates. Kraft can pump such products in the Indian market
and can increase market share. Heritage brands were classified into as regional
brands which operates in a particular region and as local brands, which are
confined in the single country. Tang (Asia Pacific), Jacobs coffee (Europe) and
Oscar Meyer (North America) were considered as regional brands. While A1
Steak Sauce (USA), Diary cheese (England) and Vegemite spreads (Australia).
After the acquisition, the Cadbury brand occupied its own brands category
because of its influence was across multiple regions. It was considered as a
supra-regional brand because of its popularity in both Asia Pacific and Europe.

1) Kraft can distribute Cadburys brand products in market such as China, Brazil
and Russia where Cadbury has little or no presence. This way it will help Kraft
to achieve global market share through Cadburys products and maximise its
profits.

2) They can further acquire the local manufacturers in India so that Cadburys
could reach to every level and zones of the market.

3) Kraft could hire talent from its competitors like Nestle, Hershey or from the
Indian giants like Amul, Britannia etc. so that best talent is hired and best
practices are followed. These people would also bring insight into Indian
markets.
Same practice of hiring talents could be practiced into all emerging markets as
every ounce of insight into customers behaviour is precious.

4) It can leverage the biscuits portfolio of Groupe Danone, which it had acquired
in 2007. KFI had leveraged and integrated the global infrastructure of Danone
especially in Emerging market which resulted in sales growth of 12% and profit
growth of 24.2%. But it left the India because Danone was engaged in a bitter
litigation with Britannia industries and their Indian promoter, the Wadias.

5) As KFI is new to some markets which it has entered through Cadburys route, it
needs to keep an open mind to the work cultures of those nations where it has
entered. For any organisation to work smoothly, the workforce needs to be in
harmony and a state of mutual respect. Also, the trade unions need to be dealt
with properly. The holidays and workhours too need to be scheduled carefully,
with best practices from around the world and local approach.
KFI would need to see itself as a GLOCAL organisation, into the markets it has
entered.

6) Establish organised retail store.

Kraft can make investment in organised retail format like CCD and Brista.
Through this they can sell their products and give customers a better experience
of KFIs heritage products.
KFI could invest into Starbucks like coffee chain where it would serve its
Jacobs coffee, sell packets of the said coffee and also maintain inventory of
other global brands. A Cadbury experience could be provided for young ones as
well.
These retail stores would be focused to an up-market audience who would like
to come in for a gourmet experience with one of the worlds best manufacturers.
This would also become a platform to sell as most of Heritage KFI products
would not be sold in general stores. Therefore, these retail/coffee stores would
become a market development platform for KFI.

CASE REPORT FOR

STRATEGIC
MANAGEMENT- II
KRAFT FOODS Inc. IN INDIA- THE
CADBURY ACQUISITION

BY
Shivani Shrivastava, Mubarak Havanur
Manal Verma, Swaroop B. V.
Section- B, Group- 6
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