Mondelez India Foods Pvt. has managed to sell more packs even as it had to raise prices of products to offset the pressure on margins.
The country's largest chocolate maker has consciously taken price hikes in its premium portfolio as it has little scope to tinker with packs priced less than Rs 10—a strategy that consumer goods companies tend to follow in times of inflation.
However, a lack of strong competition, a wide distribution network as well as shoppers' willingness to indulge on "affordable luxuries" worked in favour of the company, which owns brands like Cadbury Dairy Milk, 5 Star and Perk.
The snacking major increased prices in the range of 2–9% across its malt-based drinks to chocolate bars in the last two months, according to Kotak Institutional Equities' monthly price tracker of packaged consumer goods.
"There is certainly an inflation and we have taken price hikes to offset the pressure on margins," Desmond D'souza, senior director of sales at Mondelez, told BQ Prime in an interview. "But that hasn't impacted our sales."
In fact, the offtake during Raksha Bandhan had been "very encouraging". The consumers were not really reluctant to pay more for their treats despite concerns of inflation-led economic slowdown, D'souza said. "While the mass packs continued to grow, we also saw consumers indulging in more premium packs, exceeding our internal expectations."
He expects robust festive sales as consumer appetite picks up. "Historically, we have seen that if Rakhi starts on a positive note, then the consumer sentiment is carried forward all the way up to Diwali."
D'souza highlighted that the company rolls out its bolt-on gifting offerings, which is twice the number of products launched for the rest of the year, to capitalise on the festive period every year. "We primarily focus on the packaging of this portfolio based on festive codes to ensure that our assortment stays relevant to shoppers."
Rural Push
Over the past few years, Mondelez has been investing in its rural distribution network on the back of growing disposable income and change in lifestyle.
The company serves about 1 lakh villages directly, a strategy that has also helped it remain a dominant player in the Rs 15,500-crore chocolate market with nearly a two third share.
Dairy Milk, synonymous with chocolates in the country, commands a market share of 40% alone, according to Nielsen data. Nestle India Ltd. is at a distant second position, commanding roughly 15–20% share. Its other major competitors include ITC Ltd., Parle Products Pvt., The Hershey Co., Ferrero India Pvt., Mars Wrigley India and Amul.
The high brand loyalty of Cadbury also helped it get away with rising prices on chocolate bars without significantly denting demand even as the fast-moving consumer goods industry is reeling under rural slowdown for the past several quarters. "Our rural growth has been significantly higher as compared with urban growth for the last two years," according to D'souza.
The rural areas are "not the way it used to be", he said. "What we have observed in the last two–three years is that there are retail outlets in rural (areas) which are giving us equal amounts of business, if not more, as some of our large urban stores."
D'souza said that the assortment needs in rural markets were surprisingly not very different from that of urban markets. The company's portfolio can be divided into three segments—below Rs 100, Rs 100–200, Rs 200–400 and greater than Rs 400.
"The Rs 200–400 range is doing very well in rural (areas)," he said. "In fact, we are seeing higher demand for the premium packs in small stores versus the trend, albeit on a low base."
Mondelez has increased its distributor count by 20% over the last three to five years. In rural areas, which contributes a fourth of its sales, the company expanded distributors by 30–35%. "We expect to maintain this pace," D'souza said.
Unlocking Growth
In fiscal 2022, Mondelez's revenue rose 16% to Rs 9,296 crore, However, its profit fell 2.3% to Rs 978 crore due to an 18% increase in expenses.
The largest portion of Mondelez's revenue is generated from chocolates. But the company is now eyeing a bigger share in the biscuits and cakes segment to unlock the next phase of growth.
In January, it launched choco-chip cookies under its brand, Cadbury Chocobakes, a move that will pit Mondelez against Parle's Hide and Seek and Amul's choco-chip cookies. "There will be more line extensions as we continue to evaluate the white space opportunities," D'souza said.
Market research firm Euromonitor International pegs the market size for chocolates in India to touch Rs 23,700 crore by 2027. In India, chocolate consumption is still low as compared with the western counterparts.
"The per capita chocolate consumption in India is only at 206 grammes per year, so there's enough headroom for growth. In the U.S., the per capita chocolate consumption is estimated at 10 kg per year," D'souza said.
Earlier this year, the packaged food major had said it would invest Rs 4,000 crore in India from 2023 to 2026 to ramp up capacity at existing factories, besides augmenting warehousing, logistics and cold-chain infrastructure to cater to surging demand.
The investment size is three times bigger than what the company had spent in the past four years. Between 2019 and 2022, the company invested Rs 1,500 crore in the country. Mondelez is also expanding its manufacturing plant's capacity in Andhra Pradesh, with an investment of Rs 1,600 crore.
"India has consistently featured among the brightest spots globally over the last eight to 12 quarters, growing in strong double digits," D'souza said.
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