Competing For The Soupstakes

Maggi pioneered the branded packaged soup market. Now Corn Products Knorr is going all out to wrest it out of Nestles grasp.

It may not perhaps qualify as the most exciting marketing battle in the Indian marketplace...yet. But finally with Corn Products Company's (CPC) Knorr soups going national in October 1996, the stage was set for a direct, head-to-head confrontation between CPC and one of largest food companies in the world, Nestle.

The contrast is remarkable. Maggi the brand is still quoted in marketing textbooks as the ultimate brand launch of the eighties. CPC figures just as many times in Indian management literature as a company that went about methodically killing off all its golden geese. And yet, Maggi is reacting to the CPC threat almost as if it is meeting a rival on equal terms.

 

Quite obviously for Nestle, Knorr's entry could well act as a fly in its Maggi soup. The reason: Knorr outsells Maggi two to one in other global markets, despite commanding a healthy price premium.

So will Knorr be able to turn the table on Maggi, despite the latter's headstart in India? It is early days yet. But interestingly enough, the stakes go well beyond the goings-on in the tiny Rs 40-crore soups market. The soup encounter isn't the first time that the puny Rs 37.64-crore midget CPC has crossed swords with a rival that is at least 26 times bigger. Twice in the past, CPC has effectively rebuffed Nestle's gameplan first, when Nestle pitched Nesfit against CPC's Glucovita glucose powder and also when Milkmaid custard was pitted against the Brown and Polson custard.

So apart from setting the record straight, Nestle would prefer to stop Knorr dead in its tracks. That's because apart from soups, Knorr has a large basket of offerings sauces, boullions, seasonings, meal makers which strongly overlap with Maggi's portfolio. This means that if Knorr is able to get off to a strong start, Maggi will no longer enjoy an open field in these emerging categories.

For the over $10-billion CPC International, the Knorr launch is perhaps the second tangible evidence that it is serious about its effort to redeem its act in India. Despite its 60-year old presence in India, backed by the strength of a portfolio consisting of popular, household brands like Brown and Polson custard, Rex Jelly, Glucovita glucose powder, CPC's Indian subsidiary has remained a virtual shell.

Finally last year, the parent decided to step in, upping its equity holding in CPC (India) to 74 per cent. Since then, the Knorr launch is the first real attempt to breathe life into a moribund product portfolio and gun for growth.

And if plans don't go awry, Knorr hopes to chip off about 35 per cent of the market in three years. If market sources are to be believed, early evidence suggests CPC may have made far more headway than they had initially anticipated. Within a short time, CPC is supposed to have grabbed 25 per cent share in the specific markets that they have hit.

Maggi, of course, isn't taking any of this lying down. It has prepared its own rebuttal upping outdoor visibility, launching newer variants and offering consumer an alluring offer which is bound to block Knorr trials.

Where is the battle headed? Before that, a quick fix on the market.

The broth

The current stakes in the branded packaged soups business aren't all that attractive. Industry experts say that Indians drink close to 22 million litres of soup every year. But the share of packaged soup is as low as 0.5 million litres. Explains Vinay Bhatia, brand manager,(SIL) Marico Industries, Soups are still not part of a household's regular monthly purchase list and still fall between the multi-purchase and impulse-purchase category.

The biggest deterrent is that Indians do not have an appetiser before a meal. Therefore, soup drinking is not a regular feature. Then again, the Indian meal structure is predominantly based on traditional food items forming a part of the core meal. Although Indians are willing to experiment with new products in the snacks category, there is an ingrained resistance against tinkering with the main meal.

Research has consistently shown that Indians are still conservative in their food habits. They much rather prefer to prepare their own meals rather than use packaged meals. Also, packaged soups are an urban concept and that further restricts the scope of market expansion.

Maggi's pioneering stint

Despite its early entry, a heavyweight like Maggi hasn't been able to grow the market. Much of it has to do with Nestle's obsession with maintaining its profit margins, rather than spend money and effort in developing the soups market. As an umbrella brand, Maggi has chosen to extend the brand to a host of product categories including ready-to-cook noodles, sauces, seasonings, ready-to-cook sauces, pickles, dosa mixes. Each of these product categories are still nascent and require market development, before they can pay back. It is likely that in Nestle's plan to build the Maggi brand, the Rs 40-crore soups branded packaged market is perhaps not attractive enough yet.

This is reflected in the manner in which Nestle has chosen to target Maggi. To widen the market, it could have either chosen to increase the usage occasions or increase penetration by bringing in new users into the fold.

But Nestle never put major thrust in selling Maggi soups. It positioned its soups as an occasional-usage product and a good during cold or illness item. Clearly this was the most cost-effective way to pick up small volumes and extend the Maggi franchise across a wider consumer base, explains a marketing executive from Nestle, on conditions of anonymity. Nestle was also hamstrung by the fact that it had to spend large amounts of money in developing the Maggi in its nine years stint, without eventually breaking even.

Of course, the company did its bit to stimulate soup usage through the occasional consumer and trade schemes, but such schemes are more in line with the company's overall cross-promotion exercises, rather than a specific exercise at expanding the soup market. As a result, much of its early success was based on its excellent distribution network and by sharply positioning soups as a snack item of convenience in the ready-to-cook segment.

However, the early success did not translate into steady growth for the brand.

Knorr's gameplan

With market penetration not exceeding 2.5 per cent, the current market size was simply too small to accommodate both Maggi and Knorr. As a late entrant, CPC felt it made better sense to focus on market development rather than attack Nestle head-on.

It wasn't as if the soups category cannot generate sufficient volumes. A market research survey shows that soups by themselves do have the potential to allow large sales volumes. For example, there are around 40 million urban households and around 25 million households exist in over one-lakh plus towns. So even if one pack of soup is consumed per household every month, it still translates into a market worth around Rs 60 crore. This would mean that if CPC could carve out a decent share, Knorr can easily build a business worth Rs 20-25 crore.

On the face of it, Knorr's strategy is to increase usage. Its target: households that fall into the socio-economic classification (SEC) A1, A2 and B2, with disposable incomes which allow a consumption pattern of at least one pack a month.

But its drivers of demand are refreshingly different. On basis of syndicated research done in 1995, CPC found that the incidence of soup preparation and consumption at home is on the increase.

It further realised that soups were almost always a part of a meal when consumers ate out. The trick was to bring Knorr as perceptually close to the culinary standards offered at a restaurant. Its first endeavour was to deliver a product that offered restaurant quality soup at home without the hassles.

To begin with, CPC is well aware of the negative perception that packaged soups are strongly associated with a synthetic flavour. Knorr has developed a product, which has actual vegetable or meat pieces.

To differentiate itself, Knorr's core strategy is to accelerate the variety of soups and build a good brand value in the long-term. If Maggi had five flavours tomato, mixed vegetable, chicken, mushroom, and chicken noodle, Knorr has introduced as many as seven variants (thick tomato, thick chicken, thick mushroom, sweet corn vegetable, sweet corn chicken, curried vegetable and rasam in three different soup styles Indian, Chinese and Staple. The staple soups are intended to put pressure on Maggi, for whom this style brings in 50 per cent of revenues.

There is a plan to introduce a fourth style too, consisting of exotic soups, followed by a Mexican, Greek, and a South-Asian soup. However, despite the variety, Knorr plans to maintain a very strong localised element in its products. According to its corporate goals, the brands stands for chefmanship and the contribution of flavour to basic foods, which are always consistent with local culinary practices.

CPC's hypothesis is that the incidence of consumption will increase once the consumer appreciates the product quality, evidenced by the taste, flavour, thickness, and price, besides the ease of preparation. As a result, considerable attention has also been paid to study consumer needs.

To make it convenient for the housewife, the distinctive yellow and green pouch pack has been designed to measure 750 ml of water (two empty Knorr soup pouches of water equal 750 ml). There is another important feature every Knorr soup variant is the same 750 ml - which means that every variant of Knorr soup makes 750 ml of soup, yielding four to five servings, ideal for the average Indian family. Given the yield of four-five serving, the cost per serving for the consumer is a reasonable Rs 5.

Knorrs advertising strategy is simple: it is targeted at the family, using taste and variety as the selling pitch. The punchline: So many ways of making life delicious. Says Samar Nagarsekar, marketing manager, CPC, TV is the lead medium supported by outdoor (bus shelters) and road shows at vantage points across the city. Besides there are prominent Knorr window displays at select retailers using attractive point of sale material.

Stirring the broth

The Knorr challenge has lit the spark under Nestle. It has gone on overdrive to block Knorr from taking the upperhand. Using its trade clout, Nestle has begun to drum up point of sale visibility.

By launching the Chinese styles, Knorr had clearly snatched the initiative. The logic was impeccable: although the Indian consumer did not perceive packaged foods as significant value addition, it was apparent that Chinese cuisine was the first to cross that hurdle, prompting enough homes to start substituting the