THE CHOCOLATE MARKET

IN INDIA

The Chocolate Market in India _________________________________________________________________________________ 3

CONTENT

1. Executive Summary ......................................................................................................................... 5 2. Scope of our Study .......................................................................................................................... 6 3. Methodology ................................................................................................................................... 6 4. Market Overview ............................................................................................................................. 7 5. Global Market Versus The Indian Market For Chocolates .............................................................. 8 6. Market Segmentation...................................................................................................................... 9 7. Chocolate Market Share ................................................................................................................ 10 8. Domestic Brands ............................................................................................................................ 10

8.1. Amul ...................................................................................................................................... 10 8.2. Cadbury ................................................................................................................................. 10 8.3. Nestle ..................................................................................................................................... 11

9. Imported Brands ............................................................................................................................ 12 9.1. Ferrero Rocher....................................................................................................................... 12 9.2. Mars Chocolate ..................................................................................................................... 12

10. Competitor Analysis .................................................................................................................. 12 10.1. Leonidas ............................................................................................................................. 12 10.2. Lindt And Sprungli ............................................................................................................. 13 10.3. Toblerone .......................................................................................................................... 14

11. Market Check ............................................................................................................................ 14 11.1. Retail Market Feedback ..................................................................................................... 14 11.2. Belgian Chocolate In India ................................................................................................. 15 11.3. Product Range And Pricing In India ................................................................................... 16 11.4. Target Customer Market ................................................................................................... 18

12. Mode Of Entry Into India ........................................................................................................... 19 13. Setting Up An Office In India ..................................................................................................... 20 14. Business Models In India –Chocolate Industry .......................................................................... 21

14.1. Importer / Distributor Model – United Distributors ......................................................... 21 14.2. Setting Up Manufacturing In India - Puratos ..................................................................... 21

15. Chocolate Academy – Barry Callebaut ...................................................................................... 22 16. Private Equity Investments In Food And Beverage ................................................................... 23 17. Belgian Investments In India ..................................................................................................... 24 18. Customs And Import Procedure ................................................................................................ 25

18.1. Illustration Of Duty Calculation ......................................................................................... 25 18.2. Customs Attaché In New Delhi .......................................................................................... 25 18.3. Import Procedures ............................................................................................................. 26 18.4. Green Channel Facility ....................................................................................................... 27 18.5. Labelling ............................................................................................................................. 27 18.6. Regulations ........................................................................................................................ 27 18.7. Standards For Imported Products ..................................................................................... 28 18.8. Labels And Consumers ...................................................................................................... 28 18.9. Future Action ..................................................................................................................... 28 18.10. EU-India Free Trade Agreement ........................................................................................ 30

19. Outlook For Chocolate Manufacturers Looking At India ........................................................... 31 19.1. Sustainability ..................................................................................................................... 31 19.2. Innovation.......................................................................................................................... 32 19.3. Health ................................................................................................................................ 32 19.4. Eventing ............................................................................................................................. 32

20. Industry Contacts ...................................................................................................................... 33 21. Related Exhibitions .................................................................................................................... 41 22. Industry Associations And Related Bodies ................................................................................ 41

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23. Bibliography ............................................................................................................................... 42 24. Flanders Investment & Trade Mumbai...................................................................................... 43

The Chocolate Market in India ________________________________________________________________________________ 5

1. EXECUTIVE SUMMARY

Competition in India is dominated by Cadbury’s, Nestle and Amul (referred to as ‘Top 3’ brands of chocolates in the market) which account for 92% of the market share. Other foreign labels and unorganized players constitute the remaining 8%. The unorganized market is highly fragmented. With increasing urbanization, growth in disposable incomes, impressive growth in organized retail in recent years, increasing brand consciousness among Indians, growing substitution of traditional Indian sweets by chocolates and growing health consciousness have contributed to an increase in the per capita consumption of chocolates in recent times. Even though the per capita consumption is still very low at 70 grams as compared to 10.5 Kilograms in Europe and 5 Kilograms in USA, trends indicate that Asia Pacific in general and India in particular would lead growth rates in this segment. Majority of the foreign brands have focused on the premium segment and operate either through exclusive stores or through large retail chains while Indian brands predominantly operate through organized retail chains and an extensive network of ‘kirana’ (mom and pop convenience stores). Foreign labels (other than Cadburys and Nestle) have generally adopted a ‘low key’ but a focused promotional strategy (through ‘in store’ marketing) rather than a ‘Big Bang’ advertising strategy through electronic media using celebrities which have predominantly been the strategy of companies like Cadbury and Nestle.

The Indian ‘mass consumption’ market is highly price sensitive. The complexity in customer preferences and the challenges associated with the creation of a distribution network require foreign chocolate brands aspiring to build business in India to have a ‘long term focus. The ‘Top 3’ companies have built their leadership position in India by making their products affordable and available, on an all-India basis, through sustained efforts over the last 4 decades. Other foreign players have tended to focus on the small but fast growing high income, urban households through niche and premium product offerings, which offer smaller volumes but better pricing.

The ‘Market Check’ section of this report indicates the price range at which various brands are sold at retail stores. It is evident from the comparison that the prices of foreign labels are higher than the brands sold by Top 3, because they are generally imported, have a superior focus on quality, a strong brand recall and a ‘premium’ association in the minds of consumers.

Foreign labels in India that have been successful in the past and continues to penetrate the market have been through partnerships with reputed importer (distributor) and/or selling their brands through large retail chains or by setting up of exclusive flagship stores. Companies who have been in a position to capture substantial market share over a period of time have later on moved on to a manufacturing setup in India to cater to the consumer.

Mumbai,

August 2013

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2. SCOPE OF OUR STUDY

The scope of the report is to understand the domestic chocolate/confectionery market including competition in the form of domestic and foreign brands/labels already in India, their product portfolio, current market shares, segmentation, positioning, advertising and promotional strategies, distribution channels etc. The study also involves visiting select stores in Mumbai selling some of the leading chocolate brands and to help Belgian Companies understand the price range along with mandatory information that needs to be displayed on the package or labels of chocolates.

3. METHODOLOGY

The study involves desk based research (Company websites, Press Releases and Reports) and collection of data through visit to stores in Mumbai and conversations with importers/distributors of foreign labels in India. India being a large country with relatively low penetration and incomplete availability of organized data, it is important for companies to understand that there is an element of ‘subjectivity’ in this report. The key findings and recommendations need to be considered in this context before taking major decisions with respect to India.

The Chocolate Market in India ________________________________________________________________________________ 7

4. MARKET OVERVIEW

India is the fastest growing market globally for chocolate, posting the largest increase in volume sales with 21% growth between 2008 and 2011. Chocolate consumption in India has almost doubled since 2008, with sales of chocolate increasing from $418 million in 2008 to $857 million in 2011. Volume has grown strongly too in the past few years, to reach 88,000 tons in 2011, up from 50,000 tons in 2008. This equates to a per capita consumption of 70 grams in 2011, up from 40 grams in 2008.

While domestic consumption in India is currently low if compared with other mature markets, such as Germany at 8 kilograms per head, or the U.K. and France at 6 kilograms respectively, there is huge potential for the Indian chocolate market to grow even further.

Chocolate consumption in India has seen an incredible growth rate in the past few years, especially in urban and semi-urban areas. Until few years ago, chocolate confectionery was considered a premium in comparison to sugar and gum confectionery, but major players in the market have found channels to manufacture and distribute their products at more affordable prices than before. This has given the Indian consumer an array of choices whilst giving manufacturers a level game field to compete, especially in the premium and affordable premium segments.

The chocolate confectionery industry has been quick to respond to this untapped market opportunity. Looking at new product launches in India, premiumization as a claim has seen a 100% growth over the last three years, from 4% of launches in 2008 to 6% in 2011. Also, seasonal launches have proven to be particularly dynamic across the market, with a 300% increase between 2008 and 2011, accounting for 7% of total launches in 2011 vs. 2% in 2008.

Consumers are trading up to luxury and premium chocolate, which has given an opportunity to international brands to enter the Indian market and increase their penetration by creating an affordable premium space for the aspirers. Many Indian consumers consider chocolate assortment boxes to be premium and to be more hygienic and longer-lasting than traditional Indian sweets. This mindset has contributed to increased sales as the popularity of seasonal gifting of chocolate, particularly during Diwali, has grown in recent years.

However, all is not as sweet as it appears. The chocolate confectionery market in India is facing challenges, such as keeping costs low for mass markets and health issues. The key challenges that the chocolate market is facing in India are inflationary pressures on raw material prices, lack of government initiative, high entry barriers due to duopolistic markets and price-sensitive consumers. Rising sugar and cocoa prices are also putting pressure on companies to innovate with ingredients and packaging to offer better prices for the mass market.

Moreover, as the chocolate confectionery category suffers from being associated with negative health, brands are working to manage this perception and introduce elements of enhanced health messaging. Indeed, according to latest research, new product development with antioxidant claims grew 400% in the past four years (2008-2011) and low/no/reduced trans-fat, low/no/reduced calorie and diabetic claims all posted 200% growth in the same period, suggesting that the prospects for market growth in this segment are very positive.

While the Indian chocolate confectionery industry is thriving, more mature chocolate markets across Europe are experiencing a slowdown. For example, in Germany volume consumption declined from 770,000 tons in 2008 to 700,000 tons in 2011, and in the U.K. it fell from 362,000 tons in 2008 to 350,000 tons in 2011. Other key markets for the chocolate confectionery industry posted steady but slow growth, as for example in Italy where the market grew from 98,000 tons in 2008 to 104,000 tons in 2011.

India is a major focus of interest for chocolate confectionery manufacturers as the more mature western markets begin to slow. Major players, including Cadbury, Nestle, and Amul, are making efforts to establish a strong presence in the Indian market.