COUNTRY MARKET REPORT

CHOCOLATE IN INDIA

PURPOSE OF THE REPORT

Provide relevant country and market information to foreign chocolate manufacturers who want to enter the Indian chocolate market.

AGENDA

1.

General Country Background

The Political/Legal Environment

2.

3.

The Economic Environment

The Socio-Cultural Environment The Indian Chocolate Market Conclusions and Recommendations

4.

5.

6.

Chocolate in India

General Country Background

General Country Background

Name

Republic of India (Bhrat Gaarjya)

Government Area Capital Largest city

Federal Republic 3,287,263 km2 (7th) New Delhi Mumbai

Population
Official languages Administrative divisions Currency

1,170,938,000 (2nd)
English, Hindi 28 states and 7 union territories Indian Rupee (INR)

General Country Background

India is one of the fastest growing economies in the world.

Fast development of the country Increasing income levels Westernization of the national culture Wide variety of opportunities for foreign companies

General Country Background

India also faces many challenges:

Poverty
Poor infrastructure High levels of illiteracy

Quality and quantity of universities

Inadequate public health system

Overpopulation

Chocolate in India

The Political/Legal Environment

The Political/Legal Environment

British colony for almost 200 years,

independence on August 15th 1947

Federal parliamentary republic

Problems: fragmented multi-party

coalition, high bureaucracy, policy implementation weaknesses, conflict over Kashmir, poverty, religious conflicts

Relatively high country risk, BERI=58

The Political/Legal Environment

Taxation system: income taxes, custom duties, Central Excise, sales taxes, etc.

Tariffs on food imports still high, despite liberalization of trade in 2001

Legal requirements for food safety,

packing and labeling: PFA (Prevention of Food Alteration Act), Standards of Weights and Measures Act

Chocolate in India

The Economic Environment

The Economic Environment

Fastest growing economy in the world Until 1990ies stagnation and under-development Economic reforms, LPG model Deregulation of markets, lift of restrictions on FDI

GDP (Purchase Power Parity)

GDP growth rate GDP per capita Inflation rate Labor force Unemployment rate Exports Imports Exchange rate INR per USD

$ 4,06 trillion (5th in the world)

10,4% p.a. $ 3,500 12% 478 million 10% $ 225,6 billion $ 357,7 billion 46,163

The Economic Environment

Sources of economic growth: Services: 54% (of GDP) Agriculture: 28% Industry: 18%

Major exporter of IT services: Bangalore and

Hyderabad the Indian Silicon Valley

Increase in FDI since 1990ies, many international players

The Economic Environment

India still faces many problems despite the rapid economic development:

High inflation rate of up to 10% Inequalities between the rich and poor Poor physical and social infrastructure Poverty (37% below poverty line) Strict labour laws which prevent FDI

Chocolate in India

The Socio-Cultural Environment

The Socio-Cultural Environment

High ethnic and cultural diversity ( >1000 different languages spoken) Fastest growing middle class in the world High level of urban migration Religion plays an important role in peoples lives (Hinduism) Many festivals (Diwali, Rakhi, Onam)

Total population
Growth rate Life expectancy Urban population Population below poverty line Literacy rate, male resp. female Official languages Regionally recognised languages % under 65 years

1,2 billion (2011)

1,35% p.a. 67 years 30% 37% 73%, resp. 48% Hindi, English 18

95%

The Socio-Cultural Environment

Considerable differences between regions

Southern and Western India are more developed with strong agricultural and

industrial sectors

Hyderabad

Northern India is most populous, mainly agriculture

Bangalore

Eastern India is largely poor

The Socio-Cultural Environment

India is a young country, less than 5% over 65 years, 50% under 25 years Younger generations are more westernized and brand-conscious Hofstedes cultural dimensions: high PD, moderate UA, MSC, IND Cast systems still relevant

Chocolate in India

The Indian Chocolate Market

General Overview

Major changes since the 1990ies

Most popular chocolate tablet in India

Market still very small ($300 mil.) but steady growth of 1820% p.a. Huge growth potential for premium segment

70% of sales in urban areas

Very price-sensitive market

Consumer Behaviour

Chocolate consumption still very low: 300g p.a. (1,9kg in Britain) Westernization of Indian lifestyle

Rising income levels, travel abroad, metropolitan population

Gifting sweets during festivals Substitution of traditional mithai with chocolate

Competition

Two dominant players with a long tradition: Cadbury and Nestle (90% of market) Local manufacturers: Amul, Campco, etc. International players: Lindt, Godiva, Hersheys, etc. (premium segment) Housewives

Market snapshot for 2011

Jan. 2011 - Kraft Foods acquires Cadbury India Jul. 2011 - Hersheys exits JV with Godrej Group Oct. 2011 - Ferrero opens first production facility in India Nov. 2011 - Campco increases production to 23,000 ton./year Dec. 2011 - Kraft Foods increases investments in Cadbury India

Distribution Channels
Kirana and Paad-Beedi shops

Distribution system: low efficiency, high costs

Many intermediaries Retail sector highly unsystematic Small independent stores: Kiranas, Paan-Beedis Supermarkets, malls, exclusive chocolate stores

Chocolate in India

Conclusions and Recommendations

Conclusions

India high cultural, economic, ethnic, linguistic, religious diversity Differences between regions and income levels Huge growth potential of the chocolate market, many international players are entering Westernization of culture and lifestyles

Market is highly concentrated, very pricesensitive

Market entry needs careful planning

Recommendations

Large capital investments for branding and marketing to compete with major players Appropriate pricing strategy is crucial

Selection of appropriate local trading partners, importers, distributors

Focus on more developed regions and metropolitan areas first

Sources available on request.

Thank you for your attention!