Economic Analysis

The FMCG Industry▪FMCG goods are popularly known as consumer packaged goods. Items in this category include all consumables people buy at regular intervals.

▪The FMCG sector has grown at an annual average of about 11 per cent over the last decade. Food products is the leading segment, accounting for 43 per cent of the overall market.

▪The market size of FMCG in India is estimated to grow from US$ 30 billion in 2011 to US$ 74 billion in 2018.

The top ten India FMCG brands are: 1.Hindustan Unilever Ltd. 2. ITC (Indian Tobacco Company) 3. Nestlé India 4. GCMMF (AMUL) 5. Dabur India 6. Asian Paints (India) 7. Cadbury India 8. Britannia Industries 9. Procter & Gamble Hygiene and Health Care 10. Marico Industries

Company Profile

Cadbury Cadbury is a British multinational confectionery company owned by Mondelēz International. It is the second largest confectionery

brand in the world after Wrigley's.

It is H.Q in Uxbridge, Greater London and operates in more than fifty countries worldwide.

Chocolate became the company’s best-selling product by 1948.

Cadbury India In 1948, Cadbury India began its operations in India by importing chocolates. The corporate head office is in Mumbai.

It is the market leader in the chocolate confectionery business with a market share of over 70%

On 21 April 2014, Cadbury India changed its name to Mondelez India Foods Limited.

PRODUCTS

Cadbury India operates in five categories –

• Chocolate confectionery • Beverages • Biscuits • Gum and • Candy

Some of the key brands are Cadbury Dairy Milk, Bournvita, 5 Star, Perk, Bournville, Celebrations, Gems,

Halls, Éclairs, Bubbaloo, Tang and Oreo.

Market StructureCadbury operates in a monopolistic competitive market structure in which they have been able to maintain a control over their inflated prices.

Cadbury understands the concepts of brand identity and product differentiation which is a reason why Cadbury has become the second largest confectionery company all over the world. The company’s strategy is to focus on their main competencies to differentiate themselves

Cadbury understands how to benefit their customer in which they conduct an observation on consumer feedback; leverage the company widely to many products and markets, and create innovative ideas that are hard for competitors to imitate.

Cadbury attracts their customers over their competitors by their creative designed advertisement campaigns

The company is maintaining a steady gross margin of approx 20% around its years of production. This is despite the fact that they

having 35% share of this market which gives them an almost monopolistic status

Pricing Strategy

Weight Prices20gm pack Rs 1050 gm Pack Rs 30150 gm Pack Rs 90350 gm Tin Rs 175500 gm Tin Rs 350

And it is concluded from the survey that customers by looking this price chart have accepted the prices and called it as an economical.

Pricing Technique

Skimming

The prices are set very high to take advantage of some people’s desire for a new product or design at any price.

Cost Plus Pricing

In this simple mark-up procedure is used. Cost plus pricing tends to ignore the demand for the product and the competition.

There are 4 different pricing techniques that are available to Cadbury.

Positioning pricing

Cadbury uses this method to position prices that are set which reflect the consumers view of the chocolate bean.

Demand based pricing

Cadbury set their prices based on what they think the consumer is prepared to pay.

CostStructure

Years 2013 2014Per pack

Per carton

Per pack

Per carton

Material

260 1300 320 1600

Processing Cost

40 200 65 325

Financial Cost

64 320 83 415

Sales team expenses

103 515 132 660

Other expenses

45 225 60 300

TOTAL COST

512 2560 660 3300

Graphical representation of cost structure for the years 2013 and 2014

The expenses that a firm must take into account when manufacturing a product or providing a service is considered as company’s cost structure. 

2013 2014Total no. of bags sold

3,40,000 5,00,000

Revenue per bag

3,200 4,125

TOTAL REVENUE 1,088,000,000 2,062,500,000

Revenue structureA revenue model is a framework for generating revenues. The co’s revenue reflects significant increase because of two main reasons : ▪Control in production cost ▪Great appreciation and value of product leads to increase in demand

Graphical representation of revenue structure for the years 2013 and 2014

Porter’s Five

Force ModelBargaining

power of buyers

Entry of competitors

Threat of substitutes

Bargaining power of suppliers

Rivalry among the existing

players

Entry of competitors Entry will be difficult because there are already well established companies within this market like Mars, Nestle, Ferrero, Kraft, Hershey’s and Lindt. The barrier for entry is very hard for new company.

Threat of substitutes The main threat of is the supermarket own brands because they tend to copy popular chocolates and sell at a cheaper price.

Bargaining power of suppliers  Cadbury has higher bargaining power as it is a big company and has high purchasing power. Although there is an existing competition, but Cadbury’s can use economies of scale and buy raw materials at a cheaper price.  

Bargaining power of buyers Cadbury’s has a large buying power scattered all around the world in billions. The price subjectivity of the products is not a question for the people but the increasing number of competitors that offers the same type of products at a lower cost might be the cause of customer loyalty alteration.

Rivalry among the existing players Companies such as Nestle, Hershey’s, Ferrero etc. are Cadbury’s main rivals because they are also long established confectionary brands and like Cadbury are developing new ranges of products new promotions. Rivalry will always be strong among these companies because they sell from the same types of stores and their products are similar in some respects.

S W

0 T

•World leader  •Powerhouse brands and Products  •Brand name, brand equity and Brand loyalty •Positioning as gift  •Promotions •Indian connect  •Placement and distribution 

•Rural distribution •Quality control needs to be strengthened.

• Rural markets • New tastes

•Cost and price increase •Health consciousness on the rise •Decreasing importance of festivals •Rising demand of people, growing purchasing power

Determinants of Demand

•Income •Population and Age Group •Brand Image •Consumer Preference and Taste •Expected Future Price

•Competition •Price of Complementary Goods •Cooling Weather and Recession

Demand Curve

Determinants of Supply

Supply Curve

Pric

e Rs

.

400

525

650

775

900

Quantity

1.1 Million kg (2010) 1.7 Million kg (2011) 2.5 Million kg (2012)

520

640

825

Sales prices per year

2012 2013 2014

•Number of suppliers •Expected price •Price of input costs

Elasticity

•Price Elasticity of Demand Price Elasticity is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price.

•Cross Price Elasticity Cross price elasticity measures the responsiveness in the quantity demand of one good when a change in price takes place in another good .

Band Wagon Effect: The band wagon effect is totally depended on the mentality of the human beings. The advertisement campaign with Amitabh Bachchan has made an increase in the demand of the dairy milk. It indicates that if the one person is going to buy dairy milk chocolate than the other also want to buy the same chocolate.

Snob Effect: This is a kind of totally contra effect of the band wagon effect. If a person bought one particular product then the other person wants superior product than the person had already bought. But in our product the demand does not affect by the snob effect.

Demand forecasting

Table: Sales for the year 2005-14 YEAR SALES (In Rs Cr) 2005 571.14 2006 626.32 2007 795.61 2008 842.85 2009 885.28 2010 1006.02 2011 1149.97 2012 1441.92 2013 1751.24 2014 2045.08

1. Trend Projection Method

Time series has four types of components namely, Secular Trend (T), Secular Variation (S), Cyclical Element (C), and an Irregular or Random Variation (I).

In our study we estimate the trend using The Graphical Method

Fig: Trend Line of actual sales from 2005-2014

Sales (in Rs Cr)

0

550

1100

1650

2200

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Sales (in Rs Cr)

According to the graph, there is an upward trend in the actual yearly sales of Cadbury. It rises by 250 Crores every year from 2011 to 2014. Going by the trend, it is forecasted that the sales for the year of 2015 will be Rs 2,295 Crores.

2. Regression analysis It attempts to assess the relationship between at least two

variables (one or more independent and one dependent), the purpose being, to predict the value of the dependent variable from the specific value of the independent variable

Relationship of Sales with Price

Relationship of Sales with Advertising

Price

Sale

s (C

r.)

0

550

1100

1650

2200

Price

0 4 8 11 15

R² = 0.6266 Series1

Adv (Cr)

Sale

s (C

r.)

0

550

1100

1650

2200

Adv (Cr.)

0 50 100 150 200

R² = 0.995 Adv (Cr)

This graph shows that the impact of price on sales of Cadbury’s can be explained only by 62.66%. R squared value of 0.6266 shows a not so strong correlation between price and the sales of Cadbury’s.

Direct correlation between advertisement spending and the Sales of Cadbury’s from the period 2005-2014. Rreflected in strong R squared value of 0.995 which implies that 99.5% of the impact of advertising spends can be seen on the Sales of Cadbury’s chocolates.

Relationship of Sales with Competitors price

Relationship of Sales with PDI

Competitor Price

Sale

s (C

r.)

0

550

1100

1650

2200

Competitor Price

0 5 9 14 18

R² = 0.6266 Series1

Personal Disposable Income (PDI)

Sale

s (C

r.)

0

550

1100

1650

2200

PDI

0 20000 40000 60000 80000

R² = 0.8332Series1

The PDI of Indian consumers has direct impact on the sales of Cadbury’s chocolate. Though this impact is not as high as that of advertisement spending but still high enough (83% correlation) to not be ignored.

As with the pricing of the Cadbury’s chocolates, the pricing of its competitor products doesn’t have much impact on its Sales. This can be seen from a weak R squared value of 0.6266

Recommendations•Maintain dominance in chocolate segments and bring in more flavours of Dairy Milk. •Use medias such as Facebook, twitter, radio, etc. to enable large amount of cheap advertisement. •Formulate new strategies to give tough competition to new entrants. •New channels such as gifting, child connectivity and value for money offering to be the key growth drives. •One new major product from International Portfolio should be launched in India every year. •Maintain their strong market distribution channel so as not to lose market share. •Customer’s complaint should be welcomed and handled effectively

Marketing Strategies

Marketing strategies can be implemented by dividing the target audience in three age groups and formulate strategies accordingly.

1. Marketing Plan for Age group 0 to 18 •Child connectivity & gifting is a new growth segment for the company. Target this age group by gifting the chocolates in schools. •We propose, Cadbury to tie up with bigger chain of school for distribution. Chocolates have become a premium gifting option. The chocolates have health •benefits compared to Indian traditional sweets. CDM has more nutritional value for children's than any other sweet.

2. Marketing Plan for Age group to 19 to 35 •The best way is to catch this population on internet (on Facebook). India has 78 million active users who access Facebook. We propose Cadbury to tie up with Facebook & launch the online chocolate gifting programme on facebook. Customers can choose the best Chocolate gift they want to send it across India. Cadbury will take great care in delivering the Chocolate gifts across India (Through distribution network. •In future this can be extended to gifting chocolates on Valentine's Day, International Women, Day Mother's Day, Father's Day & Friendship Day.

3. Marketing Plan for Age group 36 to 60 •The total population in this age group is 0.381 billion.This is majorly working population of India. This segment can be targeted by using corporate gifting Chocolates have become a premium gifting option. •Hospitality is another segment that is growing at a consistent rate. •This population can be targeted on marriages (with wedding invitation card & after marriage gift), on festivals, special occasions & many more occasions.

ConclusionCadbury has had much market power in the confectionery industry all over the world. Cadbury realizes their success depends significantly on the value of the Cadbury brand while relying on its excellent reputation for their product quality and flavour, accessible, and affordable price. In the current economic state, they are still facing and need to sort out the issue of the deficit of cocoa and the price increases in cocoa. Besides, they need to compete with other chocolate brands as many firms have entered freely in the market. To remain a major player in the confectionery industry, they need to be effective in the current market by introducing more new products and react to the alternatives within the market. Also, their advertisement spending has a huge impact on the revenue that they earn and so they should be very careful while making the decision.

Presented by:

Prateek Kathuria: 157002 Chhavi Rahul: 157009 Aishwarya Raj Khanna:157016

Kshitiz Singhal: 157024 Shubham Thukral: 157033 Ritika Puria: 157040 Simranmeet Singh: 157045