Pleasure without guilt, says Nestlé, is what the consumer wants today and that’s where the company is putting its money
If it’s light, it’s right. Food companies are busy keeping up pace with the growing preference for healthy, lean, low fat, low calorie, less filling or lite food. Oil lite, milk lite, salt lite, sugar lite, snacks lite, cheese lite… you name it… How about chocolates — replacing your sinfully filling brown bar with, again, something light? Nestlé, the country’s second-biggest chocolate maker, says the switch is already happening — more and more consumers are choosing lighter chocolates to the more filling ones. Pleasure without guilt, says Nestlé, is becoming the new preference and that’s where the company is putting its money.
In the next one year or so, Nestlé says, it will be rolling out a range of new chocolate products. These could be new brands (developed locally), brands from its international portfolio or new variants of its existing brands. While it is not disclosing the brands, it says most will fall in the so-called ‘light’ category. By light, Nestlé means both chocolates that are less filling — such as wafer-chocolates like Kit Kat and Munch — as well chocolates in small, bite-size portions. It believes both these will drive future demand and is confident a sharp focus on them will drive its growth and increase market share.
So far the Indian chocolate market has been driven by the ‘heavier’ category. Cadbury dominates the market with a share of over 70 per cent — Dairy Milk alone rules 30 per cent of the market. Nestlé is second with over 22 per cent share. It’s the market leader in the lights (wafer) category with Munch and Kit Kat. Nestlé has its reason why the light category is likely to drive growth.
Kannan says to move the category towards ‘just like that’ eats, “chocolates will have to be non-interfering, not being heavy on one who consumes it — say, if I’m eating a chocolate, I should not mess up my dinner”. This means chocolates need to be lighter, not so filling. If consumers start picking up chocolates more like a snack, rather than a special eat, obviously sales go up. Nestlé so far has Kit Kat, Kit Kat Chunky, Munch, Munch Pop Choc and Milkybar Crispy Wafer in the wafer-chocolates or ‘light’ category, but Kanan says there’s more to come.
“Lifestyles are changing and an increasing number of consumers seek balance in indulgence with lighter eating and wellness. So there is a definite market with a good potential in the light category,” says Anand Dikshit, executive director (corporate finance & investment banking), PricewaterhouseCoopers India.(Click for graph)
Small is big
Kanan says that chocolates being less filling also mean the consumer will probably look for more choices. This in turn points to the trend towards smaller portions — bite-size packs instead of the de rigueur 50-gm ones — and thus more variety to choose from. Smaller packs also mean lower price-points, which again drives consumption and volumes. “That this segment is driving growth is evident from the market data for last year — the growth was very high in segments like 10.5-gm packs for Rs 5,” says KPMG Analyst (consumer markets) Anand Ramanathan.
Roll out of smaller stock-keeping units (SKUs) at lower price points is nothing new. It is a strategy both Nestlé and Cadbury have used for quite some time to drive volumes and upgrade consumers from candy consumption. Nestlé first introduced a Rs 2 chocolate, called Chocostick, in 2002. Cadbury followed with a similar product, Chocki, at Rs 2. Over the years, Rs 2 and Rs 5 price points were extended to a number of offerings. Today, Nestlé offers most of its products at such low price points — Kit Kat at Rs 5, Munch at Rs 2, Rs 5 and Rs 10, Milkybar at Rs 5 and Rs 10, Milkybar variants Choo and Crispy Wafer both at Rs 5, and Bar-One again at Rs 5 and Rs 10. Cadbury has Perk, 5 Star and Dairy Milk available at Rs 5 and Rs 10. Kannan points out that Nestlé Maha Munch at Rs 5 is in fact the single largest SKU among all chocolates.
By making almost its entire portfolio available at lower price-points Nestlé is obviously aiming for a bigger market. It hopes to reach out to the mass consumer in not only urban regions but also in tier II and tier III cities as well as the big and fast-growing rural market, and address the issue of low penetration in the category. Chocolate penetration is as low as 7 per cent in the country (about 12 per cent in urban regions and 2 per cent in rural), and thus the market has a huge potential to grow. Compare this with Brazil, an emerging economy with similar weather conditions, which has 75 per cent penetration.
An analyst who doesn’t want to be named says Nestlé surely wants take on other segments of the Rs 41-billion confectionery market, particularly éclairs and toffees as well as hard boiled candies which together comprise 36 per cent of the market. He says, “Nestlé hasn’t been able to make a dent in rival Cadbury’s market share, which has been more or less the same (about 70 per cent) for some years. With price points as low as Rs 2, it is taking on the other big segments of the confectionery market for a bigger wallet-share.”
Get, set, grow
Kannan, on his part, says the aggressive moves of Nestlé and its rival Cadbury will help grow the overall category and market penetration significantly. “Penetration has gone up reasonably well in urban areas, and in the next few years it will also go up in tier II and III market. If you’re talking about penetration going up from 7 to 14 per cent, that would be doubling the overall market. That’s the potential we see.” As to how he plans to tap that potential, he says, “We see the biggest chunk would prefer smaller portions on the one side and lighter eats on the other — of course, taste is paramount. The way the consumer is evolving, he will think twice going for something heavier in between his meals.”
The reasons for low chocolate penetration in the country are many. Analysts say India remains a traditional sweets market and chocolate is still struggling to find acceptably particularly with rural and lower-middle class consumers. Then there are infrastructural and distribution constraints — Indian retail is still not equipped to sell chocolates (temperatures go up to 50 degrees in some regions during summer and chocolates melt). Above all, the adult confectionary market is still nascent, making it difficult for players to broaden the market.
Kannan backs his move to focus on lighter eats with trends in the international markets. For instance, Mars, one of the world’s most popular chocolates, has removed 15 per cent of saturated fat from its bar and claims it now has 45 per cent less saturated fat than the average of the top 25 chocolate brands per 100 gm. On the other hand, Mars has a ‘lite’ variant too, and is available in smaller packs of 20 gm (called Fun-Size) and 36 gm (Snack Time) as well. Kannan says, internationally Nestlé is going very strong in wafers.
Nestlé says it has a two-pronged strategy to move ahead in this direction. One, creating differentiation, and the other, hardselling its existing brands in the market. On creating differentiation Kannan says, “We will probably not come with the same categories that our rivals have. We will evaluate if it is worthwhile to be there as a smaller player or we create new categories which perhaps we can grow as big as, say, wafers.” He adds that the company has a lot of insights on this, based on which it has been working on several ‘concepts’. Many of these concepts have been translated into products that have been tested for superiority on a number of benchmarks. “We will be introducing these in the market in a 12- to 14-month timeframe. And we are confident these would be successful.”
The second part of the strategy would be to have a portfolio of brands in markets where penetration is still low. “We would continue to accelerate what we already have, which would mean focusing on the unaddressed markets in urban areas, going down to tier II and III markets, and improving our distribution.”
He adds, but if one is looking for excitement it is going to come from all the new products the company has lined up for launch.