This relatively smaller company has seriously threatened Nestle’s empire in India

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This relatively smaller company has seriously threatened Nestle’s empire in India
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KitKat isn’t the choice of ‘sweet treat’ people in India are indulging in any longer. The ‘chocolate’ market in the country has gone through a sea change, which has left Nestle, the manufacturer of the brand KitKat and the leader in the market so far, rather worried. Rival Ferrero’s little bundles of joy packed in toy shaped Kinder have grown rapidly in just 7 years after entering India. According to a news report by The Economic Times, the rising popularity of Nutella chocolate-hazelnut spread, Ferrero Rocher chocolates, Kinder Joy and Tic Tac breath mints among all segments of people has aided in shooting up Ferrero India's sales by 76% to Rs 1,014 crores in the year ended in August 2014.

Though Nestle hasn’t declared annual segment-wise performance for 2014, but a company investor presentation shows a dip of 2.3% to Rs 830 crore in the January-September period proves the company is seeing red in its concrete Indian market. Nestle's chocolate division, which sells Kit-Kat and Munch among other brands, had revenues of Rs 1,286 crore in calendar 2013.

Moreover, Cadbury’s lion’s share of the chocolate market has remained intact at 65%, Nestle with a market share of 16% is alarmingly losing ground to Ferrero’s 12% reign on the market. Experts have told the ET that this is largely because of the firm's differentiation strategy at a time when most consumers have been cutting discretionary spending, including on chocolates.

"There is no slowdown for differentiated and innovative products as consumers always seek a better experience. All products of Ferrero are so differentiated that none of the rivals come close to their brands, be it Nutella, Kinder Joy or Rocher," said Devendra Chawla, president, food and FMCG business for Future Group, which runs retail chains and says it's Ferrero's largest buyer in India.

"The company has capitalised the most on the India story of premiumisation without sacrificing on the quality or innovation funnel, which has translated into heady growth numbers." For instance, Tic Tac has made its way into stationery shops and not just conventional paan or kirana stores, while premium Rocher chocolate packs were available at small neighbourhood stores that usually stock low-priced items, although this strategy is changing now. The ET report says, the company has been withdrawing Ferrero Rocher from kirana stores because of inadequate storage facilities, especially in summer.
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The company's aggression is set to intensify - it has raised the borrowing limit to Rs 2,500 crore, signalling its intention to invest in distribution and manufacturing expansion.

This comes as the Indian chocolates segment, which grew at a heady pace in the 2005-12 periods, has been flagging. The report by the financial daily reveals, there was an 8% slump in chocolate sales in November-December last year, much sharper than the 2% decline in September-October.

As per the latest Euromonitor data, chocolates with toys recorded the fastest value growth of 28% in 2014, mainly due to the category's small base and rising popularity among children.Ferrero’s egg-sized kinder has earned a profit of Rs 12 lakh against a loss of Rs 195.92 crore in the year before.

(Image: Reuters)