The market for confectionery products

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					The market for confectionery products

                                     in India


                       A report prepared for
   The National Confectioners Association

                                   January, 2005



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           The market for confectionery products in India




                            A report prepared for
                The National Confectioners Association



                                   CONTENTS
EXECUTIVE SUMMARY                                                   I
SECTION 1:    INTRODUCTION                                         1
     1.1     Objectives                                             1
     1.2     Methodology                                            2
     1.3     Report organization                                    2
     1.4     Exchange rate used                                     2
SECTION 2:    INDIA: COUNTRY BACKGROUND                            4
     2.1     General background                                     4
     2.2     Economic development and reforms                       5
     2.3     India’s people                                         7
             2.3.1 Population and main socio-economic indicators    7
             2.3.2 Age                                              8
             2.3.3 Income                                           9
             2.3.4 Urbanization                                    11
     2.4     Religion                                              12
     2.5     Consumer spending and food purchasing behavior        13
SECTION 3:    THE CONFECTIONERY MARKET IN INDIA TODAY              16
     3.1     General background                                    16
     3.2     The confectionery sector                              17
             3.2.1 Market size                                     17
             3.2.2 Some specific market characteristics            19
             3.2.3 Manufacturers and key players                   20
             3.2.4 Market snapshots for 2004                       21
             3.2.5 Market shares and brands                        23
     3.3     Market segments                                       26
             3.3.1 Chocolate confectionery                                                    26
             3.3.2 Sugar confectionery                                                        28
             3.3.3 Chewing gum                                                                30
             3.3.4 Sugar-free confectionery                                                   32
     3.4     Confectionery imports                                                            33
             3.4.1 General trade information                                                  33
             3.4.2 Key suppliers, types and brands of imported confectionery                  34
     3.5     Consumption                                                                      38
             3.5.1 General information                                                        38
             3.5.2 Demographic and lifestyle considerations                                   39
             3.5.3 Brand and origin awareness and perceptions                                 42
     3.6     Pricing                                                                          43
     3.7     Seasonality                                                                      44
     3.8     Market forecast                                                                  44
SECTION 4:    DISTRIBUTION CHANNELS                                                           45
     4.1     Overview                                                                         45
     4.2     Domestic production                                                              45
     4.3     Imports                                                                          47
             4.3.1 Ports of entry for imports                                                 47
             4.3.2 Geographical and logistical considerations                                 47
             4.3.3 Handling of imports                                                        48
             4.3.4 Business relationships along the distribution chain                        48
     4.4     Wholesale and retail                                                             50
             4.4.1 Role and key players                                                       50
             4.4.2 Key retail players                                                         52
             4.4.3 Industry trends affecting or altering the structure of retail food sales   54
             4.4.4 Types of product promotions used                                           55
SECTION 5:    MARKET ENTRY                                                                    56
     5.1     Tariffs, import and customs regulations                                          56
             5.1.1 Import and custom regulations                                              56
             5.1.2 Import tariffs                                                             56
             5.1.3 An example                                                                 58
     5.2     Food safety, packaging, and labeling requirements                                58
SECTION 6:    CONCLUSIONS AND RECOMMENDATIONS                                                 60
     6.1     General prospects                                                                60
     6.2     Recommendations                                                                  61
     6.3     Success stories                                                                  62
SECTION 7:    INDUSTRY CONTACT INFORMATION                                                    64
     7.1     Confectionery importer-distributors and wholesalers                              64
     7.2     Key retail candy accounts across marketing channels                              69
APPENDIX 1: INDIAN SWEETMEATS                              73
APPENDIX 2: KEY MANUFACTURERS’ PROFILES                    77
     Cadbury India Limited                                  77
     Nestle India Limited                                   79
     Lotte India Corporation Ltd.                           81
     Nutrine Confectionery Co. Pvt Ltd                      83
     Candico India Limited                                  85
     Perfetti van Melle India Pvt Ltd                       87
     Parle Products Pvt Ltd                                 89
     Wrigley India Pvt Ltd and Joyco India Pvt Ltd          90
     Gujarat Co-operative Milk Marketing Federation Ltd.    92
     ITC Limited                                            94
     Hindustan Lever Limited                                95
     The CAMPCO Ltd                                         97
     Lotus Chocolate Company Limited                        99
APPENDIX 3: TRADE INTERVIEWS                               101
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                               Executive summary



EXECUTIVE SUMMARY

India: country background

Diverse is the one word that describes India best. With an area approximately one-third the size
of the USA, it is home to over one billion people of considerable economic, ethnic, linguistic,
cultural, and religious diversity.

After years of socialist-oriented economy and commercial relations oriented primarily to the
Soviet block, in the mid-1980s India initiated economic reforms which started opening up its
consumer markets to the western world. Overall, the country has managed to maintain
economic growth even during the Asian crisis in 1998. Despite the reforms and economic
growth, India continued to heavily restrict imports through the 1990s. However, in compliance
with WTO commitments, in 2001 it removed all quantitative restrictions, which led to rapid
increase of imports to the country. Nevertheless, the government continues to discourage
imports through both tariff and non-tariff barriers.

Despite the economic growth, a very large proportion of India’s over 1 billion population
continues to live in extreme poverty. On the other hand, it has the fastest growing middle class
in the world and forecasts indicate rapid growth of the consuming class. There is serious
disparity between the urban and rural
population in India. About 70% of the           A socio-economic snapshot of India (2004)
                                        • Total population                          1.1 billion
population lives in rural areas where
                                        • Annual population growth                  1.4%
unemployment rates are higher and       • GDP per capita (purchasing power parity) $2,900
incomes are significantly lower. In     • People below the national poverty line    25%
result, there is significant migration  • Life expectancy at birth (years)          64
toward urban areas in search of work    • Literacy rate, adult male                 70.2%
and better payment. The text box        • Literacy rate, adult female               48.3%
                                        • People with access to safe drinking water 88%
highlights    some     socio-economic
                                        • Labor force                               472 million
indicators of India and illustrates the • Unemployment rate                         9.5%
seriousness of the economic and         Source: CIA World Factbook, the World Bank
social deprivation.

Typical for poorer nations, Indian consumers spend a significant proportion of their income on
food. However, consistent with the positive reports and forecasts for increasing incomes,
consumer expenditure on food is increasing.

The confectionery market in India

The confectionery market in India has undergone major changes and growth since the opening up
of the economy and liberalization of the investment regime in 1991. India became an attractive


                                               i
                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                 Executive summary


place for foreign investment and several large multinational companies entered the market for
confectionery products. This resulted in its steady growth and gradual transformation from a
commodity market to a branded products market dominated by multinational companies.

Despite its vast population, India’s confectionery market is still very small. It is valued at close to
US $450 million, and is estimated to be 138,000 MT. Sugar confectionery (candies and toffees)
has the largest share (50%), followed by chocolate, (16%), and bubble gum, (10%).

Over the 1998 - 2003 period, confectionery retail sales have grown more than 55% in value
terms and 46% in volume terms, at an average annual rate of 9.5% and 8% respectively. There is
a clear trend of faster sales growth in value terms, indicating that consumers are increasingly
ready to pay a premium for higher value products. The chocolate segment is the fastest growing
in value terms (9.8% average annual growth rate) closely followed by the gum segment (9.5%). In
volume terms gums grow at the fastest rate (8.5%), followed by chocolate and sugar
confectionery (7.8% each). At the same time, to put these figures in some perspective, while
retail sales for 2003 in India are estimated to have been US$562 million (Rs. 26,220 million),
US$26 billion worth of confectionery products were sold in the US. In volume terms these
figures were 127,000 MT in India and 3.3 million MT in the US.

While growth rates in general look rather healthy, and all agree that there is still large potential
for further growth of the confectionery sector in India, many individual players have experienced
slower growth in their sales over the last few years. This trend is partly attributed to the
economic slow down that India experienced in 2000-02 and resulting decline in consumer
spending. Confectionery products are impulse purchases which would be among the first to be
cut out. Companies are fighting this trend by broadening their consumer base from primarily
children and teenagers, to adults as well. Most of the large multinationals active in India are also
actively marketing to rural India, where penetration is lower than the average for the country.

The organized confectionery segment in India segment is dominated by the multinational
companies; however, domestic players are increasingly finding a prominent position in the
market. Cadbury India, Ltd. is by far the market leader, followed by Perfetti Van Melle India, Ltd.
and Nestle India, Ltd. Other important players are Lotte India Ltd, Nutrine Confectionery Co
Pvt Ltd, Candico India Ltd, Parle Products Pvt Ltd, Wrigley India Pvt Ltd, Gujarat Coop., Milk
Marketing Federation, ITC Foods, Hindustan Lever Ltd, CAMPCO Ltd, and Lotus Chocolates Co.
Ltd.

Since import restrictions were eased in 2001, imports of confectionery products have grown
rapidly, although they remain tiny and only a small part of the overall confectionery market. Put
into context, India’s total imports for 2002-03 and 2003-04, combined, are less than 1% by
volume and value of US confectionery imports in 2003 alone.


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                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                 Executive summary


Retail chocolates and sugar confectionery account for the greatest share of total confectionery
imported into India. In 2003-04, imports of retail chocolate totaled close to US $5.7 million.
Imports of sugar confectionery fell close behind, totaling US $3.3 million, but registered a growth
rate of 100% from the previous year. Imports of bulk chocolate and chewing gum remained very
small at roughly US $500,000 and US $400,000, respectively. In addition to the regular import
channels, Indian also has significant gray imports. As a result, actual imports are probably larger
than that shown by official statistics. Nevertheless, they remain very small.

In the last two years, Malaysia and Singapore have been the leading suppliers of confectionery to
India in terms of both value and volume. In 2003-04, the two countries accounted for more than
20% in value and more than 30% in volume of the total confectionery import market in India.
However, in the last year, imports from Singapore have shown decline, particularly in volume
term, while imports from the third largest supplier, the UAE, have grown almost 60% in volume
terms and almost 40% in value terms. The growing importance of the UAE and the port of
Dubai as center for export and re-export of confectionery products was confirmed by our
suppliers, many of who indicated this as a preferred route. The US is a relatively small supplier of
confectionery to India and accounted for only 4% in value and 3% in volume of India’s
confectionery imports in 2003-04. However, US confectionery exports to India experienced
significant growth from 2002-03 and more than doubled in value and increased roughly 80% in
volume, albeit from a tiny base. Other leading suppliers that experienced significant growth in
exports to India in 2003-04 included Australia, Brazil, Spain, and the UK. Confectionery exports
from Spain registered the largest growth, increasing more than 500% in value and more than
twice in volume.

Consumption

Confectionery products have very low penetration in the Indian market. Estimates suggest that
chocolate penetration has been only 5% in 2000, and of sugar boiled confectionery, 15%. Even
considering the more developed urban market alone, the category reaches just 22% of the
consumers. For comparison, cookies, considered to have only modest penetration, have reached
56% of Indian households. In result, annual per capita consumption is also very low. It is
estimated to be just over 300g (0.7lb) for chocolate and around 600g (1.3lb) for sugar
confectionery. For comparison, per capita consumption of confectionery products in the US is
around 25lb.

Almost all confectionery purchases in India are believed to be impulse driven. Experts indicate
that sugar confectionery and gum products consumption are driven almost entirely by impulse
purchasing. The figure is lower for chocolates (about 70%), because of its increasing popularity
as a gift for various occasions and during the festival season. In result, in their effort to increase
consumption and product penetration, marketers have started to promote some products as
appropriate snacks, not just an indulgence.


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                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                 Executive summary


Brand and origin awareness

While domestically manufactured brands dominate the market and consumers have general
awareness about them, foreign products and brands are becoming increasingly known. This
trend is particularly noticeable in the urban areas and among middle and upper class consumers.
We were consistently hearing similar comments from our respondents from all categories –
manufacturers, importers and distributors, and retailers. These can be summarized as follows:

          •   The urban market is brand conscious; the rural market is price conscious. As one
              respondent put it, “in the metro areas consumers associate brand names with quality;
              in the rural areas, consumers associate higher prices with better quality.”
          •   The upscale niche market is focused on brand and image quality. Consumers are
              looking for known brands with good quality images. Swiss and Belgium chocolates
              are considered the crème de la crème. It is in the upscale niche market segment,
              where brand and country of origin really matter to consumers when making
              purchasing decisions.
          •   Except for the top quality chocolates, consumers are usually not aware, and generally
              not interested in where a product has been manufactured as long as they are familiar
              with the brand. For example, Tiffany is a popular brand with mass appeal mostly
              manufactured in the UAE. However, consumers associate it with the UK. Indeed,
              many of the large multinational companies have production faculties throughout the
              world and various distribution arrangements for different countries/regions. Thus
              frequently the global brand products may be manufactured at various places without
              consumers being aware or interested in the actual place of origin.
          •   Products from SE Asia and South America are more oriented to the mass market,
              while European and US products cater to the upscale market segments. Imported
              products in general are considered to be of higher quality than the domestic ones.
          •   Attractive packaging is very important for the brand image. Indians associate quality
              with good packaging. Imported brands are presented much better than Indian ones.
          •   US brands are less known than European ones. Mars and Hershey’s are the only US
              brand names with broader recognition in India. Consumers as well as the trade have
              generally have a good perception about the quality of US products.
Pricing

The Indian market is very price sensitive. There is a clear distinction between the larger mass
market where price pressure is significant and the upscale niche market, where although
important, price is secondary to quality and brand image.




                                                 iv
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                Executive summary


Most confectionery brands of Nutrine, Lotte, Wrigley’s, Perfetti, Candico, Parle, etc. are from
the Rs. 0.25 to Rs. 1 price categories. Some chewing gum and bubble gums are in Re. 1, Rs. 2
and Rs. 5 categories. Most major companies including Cadbury’s and Nestle are strongly pushing
sales of their Rs. 5, Rs. 7, and Rs. 12 categories. There is big difference in the prices of domestic
and imported products. The general rule is that domestic products are the cheapest. Then,
there are different ranges of prices for imported products, depending on the brand, country of
origin, and product itself. Asian and South American products are usually moderately priced,
while European and US products are the most expensive. For example, from the top end
products, 100gm Lindt chocolate sells for around Rs. 130.

An important factor that affects the price of the products is the Central Excise Duty payable by
the organized/registered manufacturers is as follows. For sugar confectionery (without cocoa), it
is 8% (recently reduced from 16%); for chocolate confectionery, it is 16%.

Market forecast

The confectionery market in India is expected to continue to grow at healthy rates. Sugar
confectionery will remain the largest segment, and new products like mints, lollipops and chewing
gum, as well as boxed assortments will grow at the fastest rates.

The mass market will continue to be very price sensitive pushing manufacturers to price
discounting and offering smaller packages in order to continue penetrating the rural market. On
the other hand, the niche for more upscale products will also offer new opportunities for
branded products. Boxed chocolates show the greatest potential for growth within the
chocolate category; chewing gum, medicated confectionery and power mints are also expected
to grow rapidly, particularly among the young adults segment.

Lollipops is a new category and has sparked lots of interest among children; the category is
expected to continue growing in the coming years.

Experts expect that the adult market will offer an additional niche for some products.

As the market grows, so will imports. Nevertheless they will remain small and with limited
impact on the total market. Imported confectionery products will play a role primarily in the
urban areas, in the more upscale market segments.

Distribution

The Indian food distribution system is characterized by a large number of intermediaries and
relatively poor infrastructure, such as transportation, storage, and refrigeration facilities. It has
low levels of efficiency, with the costs of distribution being rather high. Manufacturers and


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                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                               Executive summary


importers rely heavily on the middle man for the distribution of confectionery products in India.
Most importers rely on distributors or wholesalers to reach retail outlets and confectionery
manufacturers often rely on C&F agents or dealers to work with the wholesalers and
distributors.

India’s retail sector is highly unorganized, as small independent stores are the main outlet for
consumer purchases. Nevertheless, the retail sector is changing and the organized sector is
gaining ground with the emergence of supermarkets and hypermarkets in metropolitan India.

Confectionery products are predominantly purchased in small independent food stores, known
as kiranas. However, over the last five years, convenience stores, supermarkets, and
hypermarkets have played an important role in the distribution of confectionery products. In
1998, confectionery retail sales in convenience stores were virtually non-existent, but today
these stores account for 2% of confectionery sales. During the same period, the share of retail
sales by supermarkets and hypermarkets has also increased, from roughly 6% to 8%.

India’s organized retail sector remains the preferred distribution channel for branded and
imported products, including confectionery. Although this sector is thought to be in its infancy,
rapid growth is expected over the short to medium-term, creating greater opportunities for
imported confectionery products.

Importing confectionery in India is primarily dependent on the location of the importer and the
markets they serve. Most of the importers operate warehouses near the major ports and, in
many cases, this is the JNPT port at Mumbai. For many importers, JNPT is the easiest port to
distribute products not only to Mumbai and Delhi, but also to other major commercial and
metropolitan areas. If imported confectionery is destined primarily to South India or North
India, importers may use the ports at Chennai and Kolkata.

Most confectionery imports are imported into India by sea. However, two importers that we
interviewed imported by air, though this is a more expensive option.

Market access

The import tariffs for confectionery products vary from 30% to 45%. In addition, there are 16%
additional CVD duty and 2% Custom Educational Cess.

All imported products should fulfill the requirements of the Indian Food Law and the Standards
of Weights and Measures Act. The latest issue of USDA’s FAS report on India Food and
Agricultural Import Regulations and Standards from July 2004 (GAIN report # IN4077) provides
excellent background and all necessary information. The report can be viewed at:
http://www.fas.usda.gov/gainfiles/200407/146107003.pdf


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                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                Executive summary




Overall, the best approach for any potential exporter to India is to establish contacts and work
with experienced importers and distributors, who would be able to provide the necessary
guidance.

Conclusions

The Indian market for confectionery products has undergone significant changes over recent
years. While penetration and consumption levels are still very low, overall sales, and particularly
sales of higher value premium products have increased. The availability of imported products has
also been rapidly rising since India liberalized its imports regime in 2001. Nevertheless, they are
still very small leaving ample opportunities for further growth.

The distribution channels have also undergone substantial changes. Supermarkets have emerged
and started to gain power over other retail formats. With these changes in mind, we expect
that:

        •   The share of imported confectionery will continue to increase over the next several
            years, although overall sales will remain modest. Indians’ taste will continue to
            become more westernized and more quality conscious. This trend will be more
            obvious in the urban areas among middle and upper class consumers, offering higher-
            end foreign brands growth opportunities. While most domestic companies also
            focus their new product development efforts on the mass market, a few have
            products targeting premium products. Nevertheless, Indians associate imported
            products with higher quality, and therefore respond positively to confectionery
            imports. The United States along with Western Europe are perceived as offering
            highest quality, although there is very low awareness of US confectionery products
            and brands.
        •   Indian confectioners are increasing their efforts in product development and
            promotional activities, and exporters will face stiffer competition from the domestic
            sector. On the other hand, the very low penetration and consumption levels provide
            ample opportunities for growth and make competition less of a constraint.
            However, for US exporters competition will be an important factor in the upscale
            niche segments, where European brands, particularly for chocolate are considered to
            the best.
        •   The popularity of chocolate products, particularly boxed assortments for gifts, will
            continue to increase.
        •   The sugar confectionery will remain the largest confectionery segment. We expect
            to see growth of new and novelty products, such as mint and medicated



                                                vii
                           THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                            Executive summary


         confectionery (with added vitamins and/or other minerals), as well as the new to the
         country sugar-free confectionery categories.
     •   While the traditional targets for confectionery products have been children and
         young people, increasing number of marketers have seen growth opportunities in
         targeting the adult consumer segment. This will lead to new products and marketing
         strategies aimed at them.
     •   There will continue to be opportunities for new products that appeal to the young
         consumer. The ever-present stimulus of novelty and fashion, encouraged by
         continuing exposure to western culture will keep the doors open for new products
         and new suppliers.
     •   Marketing and promotion expenditures for confectionery products will increase and
         distributors will require promotional support from manufacturers.
Recommendations

     •   Potential exporters should carefully select trading partners from among the Indian
         importers and distributors, as they will be critical to ensuring presence of their
         products on retail shelves. Importing is a relatively new business in India, and many
         importers may lack the knowledge and experience to ensure successful distribution
         of the products they deal with. Therefore, it is of critical importance to select the
         right partner.
     •   Importers and distributors may have limited financial and human resources. Thus
         U.S. exporters should be willing to offer as much as possible support, particularly in
         the initial phase of market entry.
     •   U.S. exporters may directly contact potential importers and distributors to select
         their partner(s). They may use the list of industry contacts provided in Section 6 or
         obtain contact through the US Embassy in New Delhi. The typical way of
         introduction is to send them company brochures, product catalogues, product
         samples, and price lists. A proper, formal introduction is important for a new
         entrant to make effective and productive contacts at potential partner firms.
     •   Mumbai and/or New Delhi are the most appropriate entry markets for US exporters.
         These cosmopolitan cities, with a larger number of affluent consumers exposed to
         western influences, as well as better developed infrastructure, are most appropriate
         for introduction of new US products that are generally higher priced than domestic
         and some imported products.
     •   India remains a very price sensitive market and appropriate pricing is key to the
         success of new products. US exporters should carefully discuss their product pricing
         and positioning with their chosen partners in India.



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                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                    Introduction



SECTION 1:          INTRODUCTION

The Indian population represents roughly one-fifth of the global population. Many are poor and
suffer deprivation. Despite this, by opening up its trade policy regime, India has attracted the
interest of many seeking new investment and market opportunities in food and agriculture.
Moreover, there are a number of factors suggesting more opportunities in India in the future,
such as the changing trade policy climate, consistent economic growth, rapidly growing middle
class, increasing urbanization, and modernization of the retail sector. Though change is relatively
slow, there are clear signs of movement in the food systems and indications that the potential
market is immense, and while still immature, growing rapidly.

However, consumption of confectionery products is relatively low and product penetration is
still very limited. At the same time, observers have noticed opportunities for growth of the
market and increasing potential for imported chocolate and other confectionery products.

For these reasons, the decision of the National Confectioners Association (NCA) to research
the Indian market for confectionery products and look at the opportunities for US exporters in
India seems appropriate and timely. This report aims to provide description and understanding
of the Indian market. We review the general economic and commercial environment and the
developing situation in the Indian market for confectionery products. We also examine the
competitive market conditions and review the general prospects for US products and potential
entry strategies for US exporters.



1.1     Objectives

The specific objective of this research has been to provide US confectionery manufacturers and
potential exporters to India with:

        •   A clear understanding of the Indian markets for confectionery products as they are
            today and the future market conditions in India;
        •   Market information necessary for making informed decisions regarding market
            opportunities for their products; and
        •   Contact information for importers and distributors to enable them to begin enquiries
            about exporting opportunities.




                                                1
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                    Introduction



1.2     Methodology

We have used a combination of desk research and trade interviews. The core of the study has
been based on personal interviews with various representatives of the trade. These gave us a
very broad perspective of the market, market system, and the way it works. Overall, we had
face-to-face interviews with 24 executives, as follows: 5 leading manufacturers, 13 leading
importers, and 6 retailers, including major candy chain stores and supermarkets. A full list of
contacts is given in Appendix 3.

Our interviews covered a wide range of issues. In particular, we gained a view of the status quo
in the market, the key players, the bases of competition, and the forces for change.



1.3     Report organization

The report is organized as follows:

        •   Section 2 provides general background information about India;
        •   Section 3 reviews the Indian confectionery market by sector;
        •   Section 4 look at the distribution of confectionery products in India;
        •   Section 5 reviews the market access issues, such as tariffs and duties, food safety,
            packaging, and label requirements;
        •   Section 6 provides our conclusions and recommendations for US exporters
            interested in the Indian market for confectionery products; and
        •   Section 7 lists some important industry contacts.


Additional information is provided in the report appendices as follows:

        •   Appendix 1: brief description of the Indian market for sweetmeats;
        •   Appendix 2: profiles of the main players in the Indian confectionery market; and
        •   Appendix 3: list of the respondents to our trade interviews.


1.4     Exchange rate used

In the report we have presented data in US dollars when it refers to total market and includes
imports. For descriptions of domestic market developments we provide values in Indian Rupees
(Rs).


                                                 2
                             THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                  Introduction


                                                                        Figure 1:
During December 2004, there were 45                     Average annual exchange rate: Rs per USD
Rupees to 1 US dollar. In 1995 the
                                                   60
value was 32 and this has steadily
                                                   50
decreased over time (see Figure 1).
The peak was in 2002, when the value               40




                                          Rs/US$
of I US dollar was almost 47 rupees. At            30

the time of writing this report, it is             20
about 43.5 Rs.
                                                   10

                                                   0
                                                            1995   1996   1997   1998   1999   2000   2001   2002   2003   2004




                                                        3
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                           India: Country background



SECTION 2:          INDIA: COUNTRY BACKGROUND

                                                   Diverse is the one word that describes India
               Figure 2: India
                                                   best. With an area approximately one-third
                                                   the size of the USA, it is home to over one
                                                   billion people of considerable economic,
                                                   ethnic, linguistic, cultural, and religious
                                                   diversity. Scale alone catches the attention of
                                                   any company looking for opportunities of new
                                                   investment or exporting. Food consumption
                                                   differences between religions, regions and
                                                   income strata are simply too diverse for quick
                                                   and simple categorization and generalization.
                                                   At this stage in the country’s development,
                                                   there are relatively few food products
                                                   consumed by the entire Indian population. In
                                                   short, the Indian food market has several
                                                   layers of complexity, which need to be fully
                                                   understood by the outsider.

Despite this diversity in food consumption, some market segments in India are sufficiently large
to attract the attention of companies willing to export to India or invest in the country. This
section provides a brief description of the Indian economy today and depicts the diversity of
India’s people in a way that can be used in later sections to determine the potential market
opportunities for US confectionery products.
                                                                 Figure 3: India – political map


2.1     General background

India occupies a land territory of 2,973,190 sq. km
(1,148,000 sq miles) in Southern Asia, bordering the
Arabian Sea and the Bay of Bengal. By land it shares
borders with Pakistan, Bangladesh, China, Nepal,
Bhutan, and Burma (Myanmar).

After almost two hundred years of British colonial
rule, India gained its independence in 1947. Today, it
has 28 states and 7 union territories (see Figure 3)
with New Delhi being the capital. India considers
itself the largest democracy in the world. It is a



                                               4
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                            India: Country background


parliamentary federal state with a president who is elected for a five-year term by the elected
members of the federal and state parliaments. In theory, the president has full executive power,
but that power is actually exercised by the prime minister (head of the majority party in the
federal Parliament) and his council of ministers, who are appointed by the president.

Despite India’s impressive gains in economic development, investment, and output, there are also
some serious concerns. These include the ongoing dispute with Pakistan over Kashmir, serious
overpopulation, environmental problems, extensive poverty, and ethnic and religious strife.

The Indian north is more populous than the rest of the country, with Uttar Pradesh being the
most populous state in India. The north has predominantly agricultural activity, and Punjab is the
leading agricultural state in the country. Industrial development is moderate.

The India south is well developed and relatively affluent with strong agriculture and industry. The
region is the leader of the Indian IT sector, and Bangalore and Hyderabad are considered the
Indian equivalents of the US Silicon Valley. It also has good coastal and land transportation
infrastructure. This combined with the relatively higher incomes make the Indian South a typical
entry point for new imported products, as well as a favorite test marketing region.

The India west is the best developed part of the country with comparatively higher per capita
incomes. The states Maharashtra and Gujarat are considered the industrial hub of India and
attract most foreign investment. Mumbai, the capital of Maharashtra, is the financial capital of the
country and a very important center for industrial activity.

Opposite to the Indian west, the east and northeast regions are the least developed and poorest
with a huge gap between the urban and rural populations. On the other hand this region is the
major source for some natural mineral resources, such as coal, iron, and bauxite.



2.2     Economic development and reforms

Until the mid-1980s, India’s inward looking socialist-oriented economic policies gave it a minor
presence on the world economic stage. Despite being a founding member of the General
Agreement on Tariffs and Trade (GATT), India’s focus was mainly toward developing commercial
relations and trade with the Soviet bloc.

The turnaround and reform of the Indian economy began in 1986 when the government initiated
policies, which started opening its consumer markets to the western world. The reforms started
with some tentative steps to open up the Indian marketplace to western products - both
industrial and consumer. Restrictions on imports were relaxed, although very slightly. As a



                                                 5
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                            India: Country background


result, trade with the western world started increasing, while trade with the Soviet bloc fell.
However, with the sharp rise of imports by 1990, India’s external debt almost tripled and its
foreign exchange reserves dwindled to below US$1 billion.

Rigidities in the domestic economy resulted in a serious slowdown in growth and a crisis of
confidence. However, this crisis provided the much-needed stimulus for structural adjustment
and reform. In the early 1990s, India’s highly regulated industrial policy was changed drastically as
controls were scaled down. Imports were further liberalized, and foreign investment was
allowed in a wide range of sectors. The momentum of liberalization slowed as a result of
scandal, which undermined the credibility of the government and their reforms. The voters
elected a new government in 1996, the beginning of another phase of development.

The new government was not particularly reform-oriented, but it realized early on that the
economic policy changes that had been made could not be reversed. Nonetheless, the
government since 1996 has moved more cautiously on reforms – encouraged in part by the Asian
crisis of 1998 – consolidating and institutionalizing the positive aspects and reworking the
negative ones.

The environment for domestic and foreign investment and trade has been progressively
liberalized. Prior to the economic reforms in 1991, foreign investment in India was only $125
million. Furthermore, India’s imports were $27.9 billion and exports were $18.5 billion.
However, between 1996 and 1997, foreign investment reached almost $6 billion and in 2000,
imports and exports reached $50.5 billion and $42.3 billion, respectively. Since that date, they
will have grown further.

Import tariffs have been curbed per World Trade Organizations (WTO) commitments. In April
2001, all remaining quantitative import restrictions were removed. Nonetheless, the government
continues to discourage imports through both tariff and non-tariff barriers. Today the import
duties for most consumer food products range from 31% to 52%.

                                                                                Figure 4: GDP growth rate
As seen from Figure 4, gross domestic
                                                       9
product (GDP) has grown rapidly over                   8
                                                       7
the last 10 years. After dropping to a
                                                       6
low 1.7% growth in 1991, the economy
                                             percent




                                                       5
                                                       4
responded positively to the wide-
                                                       3
ranging reform measures to grow at                     2
4.2% in 1992 and to increase to 8% by                  1
                                                       0
1995. Thereafter, growth has remained                        91     92     93     94     95     96     97     98     99     00     02     03       )
                                                                                                                                               st.
                                                           19     19     19     19     19     19     19     19     19     20     20     20 4(e
over 5%, reaching 6.2% in 1999 and                                                                                                         20
                                                                                                                                             0

2000 (real GDP for 2000 was $459.2                     Source: Datamonitor and World Bank (for 2002 and 2003)



                                                            6
                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                             India: Country background


billion).1 In contrast to the rest of Asia, India’s economy suffered little from the economic
meltdown in 1998. In fact, in that year, it experienced an estimated real growth rate of 5.8%,
compared with the decline experienced in most other Asian economies (e.g. Indonesia –13.1%,
Korea –5.8%, and Thailand –10%). In 2003, GDP growth increased to 8% and estimates for 2004
suggest that it will be about 8.3%.

In sum, India has managed to maintain economic growth despite surrounding economic turmoil,
and this growth has not been at the expense of unruly inflation. While the country consistently
carries a trade deficit, growth in exports has been significant. In addition, liberalization has
encouraged foreign investment in the country, although such is the political environment that this
wind blows hot and cold.

However, despite these encouraging signs, with a per capita GDP of roughly $545 per annum,
many in India are not reaping substantial economic rewards, although the overall situation in the
country has improved markedly in the past decade.



2.3     India’s people

2.3.1   Population and main socio-economic indicators

The Indian population is close to 1.1 billion people, representing one-fifth of global population.
There are more than 1,000 languages spoken in the country, nearly 400 of which are spoken by
more than 200,000 people. However, only 18 are officially recognized, and Hindi, the primary
tongue of 30% of the population, is India’s national language. Various States also have their own
official languages and some of the most widely spoken ones are Punjabi, Bengali, Tamil, Gujarati,
Urdu, Telugu, and Marathi. In addition, English which enjoys associate status is the most
important language for international and commercial communication.

India also has a very large proportion of poor people. More than 400 million live with less than
$1 per day, without the resources to buy even basic foods. Almost 40% of India’s people are
illiterate.

The text box below highlights some socio-economic indicators of India and illustrates the
seriousness of the economic and social deprivation.


1
 Different sources give slightly different figures for the GDP growth. For example, Reserve Bank of India
data shows GDP growth to have dropped to 0.8% in 1991 and the World Bank shows growth of 7.5% in
1995. Despite the differences the trend is clear, India has shown a healthy growth over the last 10 years
and even during the Asian crisis managed to maintain much better economic indicators than many other
Asian countries.


                                                   7
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                            India: Country background




                           A socio-economic snapshot of India (2004)
        •   Total population                                                    1.1 billion
        •   Annual population growth                                            1.4%
        •   GDP per capita (purchasing power parity)                            $2,900
        •   Percent of population below the national poverty line               25%
        •   Life expectancy at birth (years)                                    64
        •   Literacy rate, adult male                                           70.2%
        •   Literacy rate, adult female                                         48.3%
        •   Percent of population with access to safe drinking water (Year 2000) 88%
        •   Labor force                                                         472 million
        •   Unemployment rate                                                   9.5%
        Source: CIA World Factbook, the World Bank



2.3.2       Age

The Indian population is young. As seen from Figure        Figure 5: Population distribution by age
5, only 5% of the population is older than 65 and
over 30% is under 15 years of age. Indeed, the US                    65 years and over
                                                                            5%
Census Bureau International Database indicates that
                                                                                       Under 15 years
just over 50% of the population is younger than 25.
                                                                                            32%
Generational differences can often be translated into
eating patterns. The younger generation of Indians is
more westernized in their eating habits than older
generations, particularly those in higher income
groups. Younger professionals are more open to                15 - 64 years
                                                                  63%
experimenting with food products, as their lifestyles
resemble their counterparts in western societies.           Source: CIA World Factbook
They consume more packaged, processed foods and
give greater importance to quality, time, and convenience.

As life expectancy increases, population growth slows down, and the population’s economic
conditions continue to improve, the Indian population will gradually start to age. Nevertheless,
as seen from the graphs in Figure 6, India will remain a predominantly young nation for the
foreseeable future, although by 2025 the proportion of the population younger than 25 is
expected to be down from 50% to about 40%.


                                                8
                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                              India: Country background




                    Figure 6: Population pyramids in India (1995 – 2050)




2.3.3        Income

Despite the progress in reducing poverty over the last years, India remains a very poor country
with vast disparities between the different income groups in India. The good news, however, is
that the high income class is expanding fast, middle income classes are bulging in size (especially in
rural India), and the low income class is shrinking rapidly.

In a recent publication, The Indian Consumer Market 1997 to 2007, the National Center of
Applied Economic Research (NCAER) in India has very good news for the country’s economy.2
It concludes that for the covered period the very rich will grow six fold, the consuming class will
triple, and the economic destitute will decline three fold. The NCAER breaks the population
into five groups: Rich (high income), Survivors (upper middle income), Climbers (middle income),
Aspirants (lower middle income), and Deprived (low income and poor). The consuming class
comprises the first four categories.

Each segment of the Indian population offers distinct growth and marketing opportunities.
According to the NCAER, the top four segments of the population constituted a market of over
200 million people (about 20% of the population) in 1997. Based on its forecast, this group

2
 The NCAER is an old and highly respected institution in India, known for the accuracy of its forecasts. Its
reports are widely used for decisions made by marketers, economists, analysts, and investors.


                                                     9
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                            India: Country background


should grow to well over half a billion people by 2007. This ‘consuming class’ segment is the
focus of attention for aspiring branded food and beverage companies. A major portion of the
Indian population has very low incomes. Today, roughly one-quarter of the population is living
below the nationally defined poverty line, down from over 30% in 1998. The NCAER’s report
predicts that over the reviewed period the number of aspirants and deprived will decrease
significantly as people shift up and into the growing ranks of the consuming class. The decline of
the number of poorest people observed over the last five years is a positive sign in this direction.

NCAER forecasts are made on the basis of the following assumptions: the economy will be
growing by 7%; the average Indian household has 5.7 members; and electricity is available in most
households. Many have found it hard to believe that the economy will touch and stay at 7%
(although it has exceeded this figure in 2003 and 2004), or that electricity can be a presumed a
stable service (although power sector reforms which are currently underway can bring in
efficiencies). Going by NCAER’s assumptions, in the year 2007:

        •   40% of the house-holds will have washing machines;
        •   100% will have more than one wrist watch;
        •   77% will have refrigerators;
        •   94%, pressure cookers;
        •   57%, color televisions; and
        •   61%, two wheelers.
This expected prosperity, will not simply be the result of investments, creation of jobs, and the
consequent rise in disposable incomes. Simultaneous with the rise in economic growth, is a
predicted fall in population growth. In the 1990s the population grew at about 2.2%, while it has
now declined 1.4%.3 The combination of all these factors has resulted in higher per capita
income.

In summary, the punch-line of the NCAER forecast might well be the following:

        •   By the year 2007, the combined numbers of the upper-classes (annual income
            between Rs.45,000 and Rs.215,000) and the 'very rich' (Rs.215,000+) will outnumber
            the households with less than Rs.45,000 a year!
The development of a market segment with the economic resources to express a choice
represents an opportunity for US exporters of products.


3
  Depending on the source, this figure varies from 1.4 to 1.7%. Nevertheless, the downward trend is
clearly visible.


                                                10
                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                             India: Country background




2.3.4       Urbanization

 One of the most significant demographic                             Figure 7: Population growth projections
developments in India is the shift of the
rural population to urban centers, caused                   1,600
primarily      by      the   underemployed                  1,400
                                                            1,200
agricultural laborers who move to towns
                                                            1,000




                                                  Million
and cities in search of work. However,                        800
despite the rapid growth of urban                             600
                                                              400
population, India is still a primarily rural
                                                              200
country with about 70% of the population                        0
living in rural villages. As Figure 7 shows,                          2000   2005   2010     2015   2020   2025   2030
it is expected that the urban population                                                Rural   Urban
will continue to grow at least 4% per                               Source: United Nations
annum, while the rural population will decline.

The migration towards the urban centers has also expanded smaller towns and cities resulting in
their growth and further development. Today there are about 35 Indian cities with a population
exceeding one million, compared to about 25 cities in 1997. The rapidly developing economy is
reaching smaller cities creating a “swelling base of affluent, upwardly, mobile consumer with the
same needs, wants, and desires as the residents of bigger cities”, according to KSA Technopak,
India’s largest management consulting company.          This observation is confirmed by NCAER’s
research, which indicates that over half of the 10.7 million households with income of less than
Rs. I million ($23,000) live in smaller cities. But even more, the report also indicates a big rise in
number of the rich households with incomes of Rs. 1 to 5 million in the smaller cities. Overall,
in the urban areas, most social-economic indicators are significantly better that nation’s average.

The urban population is the most important target market for imported products for several
reasons. Income is one of the most important factors and it is approximately much higher in the
urban areas than in rural India. They are the exclusive market for various imported and more
expensive products. According to a recent consumer survey conducted by KSA Technopak,
urban consumers spent over US$ 30 billion on themselves in 2002, a 12% year-on-year increase.4
Even more, the company predicts that annual increase in consumer spending will jump to over
15% by 2008.

In addition, the major urban areas have a more developed food distribution system, another
reason for being an important target for imported food products. Large cities have a variety of

4
  The survey is based on a sample of 10,000 four-member families with earnings slightly higher than the
average in 20 Indian cities.


                                                      11
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                            India: Country background


restaurants, including westernized chain restaurants and some large chain grocery retailers.
Indeed, Knight Frank, India, a major real estate and property management company, ranks India
fifth in the list of 30 emerging retail markets globally, and predicts 20% growth for the segment
by 2010. The "brand-conscious urban population", which "forms the largest segment of demand
for the majority of retailers has grown over 3% a year over the past decade," according to Knight
Frank, India who also says that the organized retail segment is expected to grow from a mere 2%
to 20% by the end of the decade. This is not surprising, considering that the organized retail
sector is growing at 8.5% per annum.

Despite its deprived position compared to the urban market, rural markets are also growing.
Although on a smaller scale, the economic development has had its impact on rural areas as well.
In addition, infrastructural development (including of the service sector) and the improved
performance of the agricultural sector will contribute to the further growth of this market
segment. However, unlike the increasingly ‘brand conscious’ urban consumers, rural consumers
are, and will remain extremely price sensitive. Thus, although they are an increasingly important
target for domestic FMCG, including confectionery products, the focus of marketers of imported
goods remains on the more affluent and westernized urban segment.



2.4     Religion
                                                                         Figure 8:
Food habits in India are influenced by religious        Religious breakdown of the Indian population
principles. As seen from Figure 8, Hinduism is                            Sikh
                                                              Christian        Other
dominant but India is also the home of a wide                             2%
                                                                 2%             3%             Others, include
range of other religions.                                   Muslim                             Buddhist, Jain, Parsi
                                                             12%
Despite the common belief that most Indians
are vegetarians, over 75% of the population
eats meat. However, there are some taboos
on the specific foods and meat in particular.
The table below outlines some of the eating                                            Hindu
practices of the major Indian religions.                                                81%

                                                               Source: CIA World Factbook




                                                   12
                                     THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                  India: Country background




      Religion                                               Eating habits

      Hinduism                   All income groups in upper castes are strict vegetarians
                                 Lower castes are mostly non-vegetarians
                                 Taboo on beef in all castes, as bovines are considered sacred
      Islam                      Non-vegetarian
                                 Taboo on pork
                                 Preference for halal meat
      Christianity               Mostly non-vegetarian with no taboos

      Sikhism                    Some sects are vegetarians, and some are not

      Buddhism                   Mostly vegetarian

      Jainism                    Strict vegetarians




2.5    Consumer spending and food purchasing behavior

Although it is the second most populous country in the world and despite the positive forecasts
for economic development and increasing incomes, India is still a very poor country. This
reflects on the levels of consumer spending and as seen from the table below, South Asia
accounts for only a small percentage of the overall global consumer spending despite the large
proportion of population it represents.

                         Consumer Spending and Population, by Region, 2000
                                                             Share of
                                                                                  Share of
                                                           World Private
                Region                                                             World
                                                           Consumption
                                                                                 Population
                                                           Expenditures
                                                                        ( percent )
                United States and Canada                        31.5                  5.2
                Western Europe                                  28.7                  6.4
                East Asia and Pacific                           21.4                  32.9
                Latin America and the Caribbean                 6.7                   8.5
                Eastern Europe and Central Asia                 3.3                   7.9
                South Asia                                      2.0                   22.4
                Australia and New Zealand                       1.5                   0.4
                Middle East and North Africa                    1.4                   4.1
                Sub-Saharan Africa                              1.2                   10.9
                Source: the Worldwatch Institute



                                                      13
                                  THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                               India: Country background


Typical for poorer nations, Indian consumers spend a significant proportion of their income on
food. However, consistent with the positive reports and forecasts for increasing incomes
consumer expenditure on food is estimated to have been close to Rs. 6 billion in 2002, a 6.6%
current value growth over 2001.5 Also, it has been estimated that Indian consumers have spent
just under 40% of their annual income on food, down from 44% in 2000. Most of this is spent on
basic food items, such as grains, pulses, vegetable, oils, sugar; however, in recent years an
increased spending on higher value products has been a noticeable trend.

Indians have a very strong preference for fresh products which are generally perceived to be
healthier, as well as for traditional spices and ingredients. Indians are notoriously conservative
about food and many strictly follow traditional ethnic and dietary habits which is a barrier to the
growth of the packaged foods sector. The generally higher prices of packaged foods, also put
them beyond reach for a large proportion of the population. Hence, the according to trade
experts, packaged foods account for only about 5% of the total food consumption in India. Sales
are generated mostly in the urban areas, and in 2003 have accounted for about three quarters of
the total sales of packaged foods in India.

However, with rising incomes and changing lifestyles (e.g. more westernized younger consumers,
more women entering the workforce, less time available for cooking from scratch) sales of
packaged foods are expected to increase, although at relatively slow rates. It is also expected
that rural India will contribute to this growth as average incomes rise and the distribution
network and infrastructure develop.

The table below shows the retail sales of packaged foods for the 1998 – 2003 period. Ice cream
and frozen foods have been the fastest growing categories, but bakery products are the largest
category, accounting for about a third of the total sales of packaged foods. Although sales have
been modest, the confectionery products segment has been growing at a healthy rate.

                          Retail sales of packaged foods (in billion Rupees)
                                                                                          Average
                                    1998    1999        2000   2001    2002      2003      annual
                                                                                          growth
Confectionery                        17      18          20     22       24       26         9%
Bakery products                      72      79          87     96      104       113        9%
Ice cream                            3        4          5      5        6         7        19%
Dairy products                       41      44          48     53       59       65        10%
Sweet and savory snacks              4        4          5      6        6         7        12%
Snack bars                           -        -          -      -        -         -          -


5
    Source: Euromonitor


                                                   14
                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                             India: Country background


                                                                                           Average
                                 1998     1999         2000   2001      2002      2003      annual
                                                                                           growth
Meal replacement products          3        3           3       3         4         4         7%
Ready meals                        -         -          -       -         -         -          -
Soup                              0.3       0.3        0.3     0.4       0.4       0.4        7%
Pasta                              -         -          -       -         -         -          -
Noodles                            2        2           2       2         3         3        10%
Canned food                        1        1           1       1         1         1         0%
Frozen food                        2        2           3       3         3         4        17%
Dried food                        14        15          17      19       21        23        10%
Chilled food                       -         -          -       -         -         -          -
Oils and fats                     56        59          62      66       69        73         5%
Sauces, dressings, condiments      8        9           10      11       12        14        12%
Baby food                          2        3           3       3         3         3        10%
Spreads                            2        2           2       2         2         2         0%
                6
Packaged food                    225       245         266     291       316       342        9%
Source: Euromonitor




6
 The sum of sectors does not equal the total packaged foods because of double counting. For example,
canned soups are included in soups and canned food.


                                                  15
                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                     The confectionery market in India today



SECTION 3:           THE CONFECTIONERY MARKET IN INDIA TODAY

3.1     General background

The chocolate and confectionery market in India has undergone major changes and growth since
the opening up of the economy and liberalization of the investment regime in 1991. India became
an attractive place for foreign investment and several large multinational companies entered the
market for confectionery products. This resulted in its steady growth and gradual transformation
from a commodity market to a branded products market dominated by multinational companies.

Compared to the conventional fast moving consumer goods (FMCG), the confectionery segment
in India offers significantly higher potential for growth. For example, over the past five years
toilet soaps and detergents reached over 90% of the Indian households, while according to ORG-
MARG estimates, chocolate penetration in 2000 was 5% and of sugar boiled confectionery, 15%.7
Even considering the urban market alone, the category reaches just 22% of the urban consumers.
For comparison, cookies, considered to have modest penetration have reached 56% of the Indian
households. Clearly the confectionery sector, which has been showing healthy growth over the
last years, still has considerable potential to grow before it reaches saturation point, as have
traditional FMCG products such as soaps and detergents. Indeed, the confectionery market in
India is witnessing tremendous activity. Regular product launches, high decibel media activity,
consumer promotions and trade promotions make this one of the most hyperactive categories in
the Indian market.

The Indian confectionery market is segmented
                                                           A note on data availability and accuracy
into sugar-boiled confectionery, chocolates, mints
                                                          We have made our best effort to provide as
and chewing gums. Sugar-boiled confectionery,
                                                          accurate and comprehensive data as possible.
consisting of hard-boiled candy, toffees and other
                                                          However, it should be kept in mind that
sugar-based candies, is the largest of the segments
                                                          official statistics about the confectionery
and, according to some key industry players we
                                                          sector in India are scarce and there is a large
spoke to, it is valued at around Rs. 20,000 million.
                                                          ‘gray’ sector that is unaccounted for by official
                                                          sources. Most of the numbers we quote in
Some of the largest multinational companies
                                                          this report are based on estimates of some of
active in the confectionery sector, like Cadbury,
                                                          the main industry players. In result, there are
Nestle and Perfetti, have already invested in India
                                                          some inconsistencies.
and others keep entering the market (e.g. Lotte in
2004). Also, global mergers and acquisitions have

7
    ORG-MARG is a Mumbai based market research company specializing in consumer behavior,
entertainment information, media information and precision marketing. It also has exclusive professional
alliances with international leaders in a number of specialist areas of market research and is part of the
VNU, The Netherlands – which belongs to AC Nielsen network of market research companies.


                                                   16
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                   The confectionery market in India today


resulted in consolidation of some of the major players in this segment in India (e.g. Perfetti with
Van Melle, Joyco with Wrigley, and Lotte with Parry’s). Some large Indian companies have also
entered the confectionery market by leveraging their overall brand equity and distribution
infrastructure for their existing product lines. In result of these active developments and the
positive socio-economic changes in India, both per capita consumption and availability of higher
quality products are expected to grow in the coming future.

At the same time, India’s confectionery market is very price-sensitive, which makes it difficult for
marketers to raise prices. This price sensitivity plays to the advantage of a large unorganized
production sector in India. These are numerous small scale/backyard operators who are not
registered and do not pay excise duties to the government. At the same time they maintain very
low operational costs. These factors allow them to sell at very low prices and to achieve
significantly higher margins than the organized sector.

However, there are clear signs for a growing market segment for higher value products. With
the growth of the middle class, increasing number of consumers are willing to pay a premium for
quality, which has given a boost to product and packaging innovation. Brand consciousness is
growing in this category as well.

Last but not least, any review of the Indian confectionery sector should take into account the
traditional sweetmeat sector. While not directly included in the scope of this study, Indians have
strongly ingrained traditions and tastes, and frequently prefer and seek the traditional sweetmeats
they are used to instead of a chocolate or other confectionery product. Thus, sweetmeats
directly compete for consumer stomach share. In addition, sweetmeats are generally cheaper, a
very important factor in the price sensitive Indian market. A brief description of the sweetmeat
market is given in Appendix 1.



3.2     The confectionery sector

3.2.1   Market size

Despite its vast population, India’s confectionery market is still very small. With a population
about five times larger than the US, the volume size of its confectionery market is more than 20
times smaller. It is valued at close to US $450 million, and is estimated to be 138,000MT, as
illustrated in Figure 9.




                                                17
                                  THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                      The confectionery market in India today


                    Figure 9: The Indian confectionery market – 138,000MT
                                                                           Other
                                                                            17%
•     Candies & Toffees             68,000 MT
                                                             Chewing gum
•     Chocolates                    22,500 MT                    2%
•     Breath Fresheners              7,000 MT                Bubble gum
                                                                                          Candies & toffees
                                                                                                50%
•     Bubble Gum                    14,000 MT                   10%

•     Chewing Gum                    3,350 MT             Breath fresheners
                                                                 5%
•     Other Categories              23,150 MT
                                                                          Chocolates
                                                                            16%
Source: Industry experts and leading manufacturers estimates, Promar’s trade interviews


As seen from Figures 10 and 11 below, retail sales have shown healthy growth over the last
several years. Indeed, over the 1998-2003 period overall sales have grown more than 55% in
value terms and 46% in volume terms, at an average annual rate of 9.5% and 8%, respectively.
There is a clear trend of faster sales growth in value terms, indicating that consumers are
increasingly ready to pay a premium for higher value products. The chocolate segment is the
fastest growing in value terms (9.8% average annual growth rate) closely followed by the gum
segment (9.5%). In volume terms, gums grow at the fastest rate (8.5%), followed by chocolate
and sugar confectionery (7.8% each).         At the same time, to put these figures in some
perspective, while retail sales for 2003 in India are estimated to have been US$562 million (Rs.
26,220 million), close to US$26 billion worth of confectionery products were sold in the US. 8 In
volume terms these figures were 127,000 MT in India and 3.3 million MT in the US.

While growth rates in general look rather healthy, and all agree that there is still large potential
for further growth of the confectionery sector in India, many individual players have experienced
slower growth in their sales over the last few years. This trend is partly attributed to the
economic slow down that India experienced in 2000-2002 and resulting decline in consumer
spending. Confectionery products are impulse purchases which would be among the first to be
cut out. Companies are fighting this trend by broadening their consumer base from primarily
children and teenagers, to adults as well. Most of the large multinationals active in India are also
actively marketing to rural India, where penetration is even lower than the average for the
country.




8
    The average exchange rate for 2003 was Rs. 46.66 for US$1.


                                                    18
                                                                       THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                                           The confectionery market in India today


                                                       Figure 10: Retail sales of confectionery products
                                                a) Value                                                                                                   b) Volume
              30                                                                                                      140

              25                                                                                                      120

                                                                                                                      100
              20




                                                                                                     Thousand MT
Billion Rs.




                                                                                                                           80
              15
                                                                                                                           60
              10
                                                                                                                           40
              5                                                                                                            20
              0                                                                                                                 0
                   1998        1999             2000        2001         2002          2003                                             1998       1999          2000       2001          2002          2003

                            Chocolate confectionery      Sugar confectionery    Gum                                                            Chocolate confectionery    Sugar confectionery    Gum

                     Source: Euromonitor


                                                       Figure 11: 1998 -2003 confectionery sales growth
                          a) Average annual growth rate                                                                                                      b) Total growth
              12                                                                                                                70

              10                                                                                                                60
                                                                                                                                           59.8
                     9.8               9.5                                                                                                                57.3   56.8
                             9.1               9.4                                                                              50                54.4
              8                                                                8.5                                                                                                               50.2
Percentage




                                                                                                                   Percentage




                                                               7.8     7.8            7.9                                       40                                                 45.8   45.5          46.2
              6
                                                                                                                                30
              4
                                                                                                                                20
              2                                                                                                                 10

              0                                                                                                                     0
                               Value                                    Volume                                                                       Value                                  Volume

                   Chocolate confectionery       Sugar confectionery   Gum      Confectionery                                             Chocolate confectionery   Sugar confectionery   Gum     Confectionery


                     Source: Euromonitor


                     3.2.2         Some specific market characteristics

                     Some specific characteristics of the Indian confectionery market, compared to the developed
                     western markets are:

                                   •         India is primarily a mono-pack market while the market worldwide is a multi-pack
                                             market.
                                   •         While the trade and distribution in western countries is mostly organized, in India,
                                             retail outlets like paan shops and kirana outlets account for the bulk of the sales and
                                             organized trade still has only an insignificant share in overall confectionery sales.
                                   •         Functional products and sugar free confectionery dominate the worldwide market
                                             while this trend is yet to pick up in India.


                                                                                                19
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                   The confectionery market in India today


        •   Sugar confectionery will remain the largest confectionery type.
        •   As younger children are traditionally the key consumer group for confectionery,
            pricing strategies play a significant role in shaping purchasing decisions.
        •   50 paise is the most popular price-point and around 85% of confectionery sales occur
            at this price point - but there are some products in the rural markets that are
            available at 25 paise. The Re 1 price-point is not very popular.
        •   Gum confectionery will be the fastest growing category, albeit from a smaller retail
            base.
        •   Instead of chewing on paan (betel nut leaf) to freshen one’s breath or using spices
            such as fennel to aid digestion, the local population is increasingly turning to branded
            confectionery products such as chewing gum and mints. Consuming products such
            as mint and medicated confectionery conveys a sophisticated image, which appeals to
            young people.
        •   Manufacturers are increasingly looking to create a shift from manufacturing low-
            margin products like toffees and boiled sweets to higher-margin products such as
            gum and chocolates confectionery.
        •   There is strong growth potential for chocolate; sales of chocolate confectionery are
            expected to continue to grow by more than 8% per year in value terms. This is due
            to the low penetration of chocolate confectionery in rural areas as well as the
            general low consumption of such products among adults.


3.2.3   Manufacturers and key players

The organized confectionery segment in India segment is dominated by the multinational
companies; however, domestic players are increasingly finding a prominent position in the
market. The key players in the confectionery sector in India today are:

        •   Cadbury India Ltd is the largest manufacturer of chocolate, confectionery and
            malted food products.
        •   Nestle India Ltd is a manufacturer and marketer of coffee, tea, malted beverages,
            instant baby cereals & foods, milk products, chocolates and confectionery, instant
            foods and culinary products.
        •   Lotte India Corporation Ltd is primarily a manufacturer and marketer of sugar
            boiled confectionery, cocoa and milk based toffees, candies and mints.
        •   Nutrine Confectionery Co Pvt Ltd is a manufacture and marketer of sugar
            boiled confectionery, cocoa & milk based toffees, candies, éclairs and fruit bars.



                                                20
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                  The confectionery market in India today


        •   Candico India Ltd is a manufacturer and marketer of sugar boiled confectionery,
            candies, gums, mints and toffees. They are also the largest contract manufacturer for
            various Indian and overseas confectionery companies.
        •   Perfetti Van Melle India Ltd is a manufacturer and marketer of sugar based
            confectionery and is a leader in the candy and gum segments of the confectionery
            market.
        •   Parle Products Pvt Ltd is a manufacturer and marketer of cookies, sugar boiled
            confectionery, and cocoa and milk based toffees.
        •   Wrigley India Pvt Ltd is a manufacturer and marketer of chewing gum (Wrigley
            brands) and sugar based confectionery, bubble gum, chewing gum and candy (Joyco
            brands).
        •   Gujarat Cooperative Milk Marketing Federation is India's largest food
            products marketing organization and manufacturer of milk and milk products, ice
            creams, chocolate and confectionery, and ready to eat products.
        •   ITC Foods, a division of ITC Ltd made a foray in the confectionery market in year
            2002.
        •   Hindustan Lever Ltd, India’s leading FMGC company, has a presence in the
            confectionery market since 2001.
        •   The CAMPCO Ltd is a leading processor of cocoa and cocoa based industrial
            products and has a small presence in the branded chocolate sector.
        •   Lotus Chocolates Co. Ltd is another processor of cocoa and cocoa based
            industrial products with a small presence in the branded chocolate sector.
In addition, India also has a large unorganized manufacturing sector, of small producers offering
very low priced products. There are no statistics about the size of the unorganized sector, but
according to some industry sources, the unorganized sector can account for up to 50% of the
market. We believe that this figure is exaggerated, but the main point is that the unorganized
sector still plays a very important role in India, although it will gradually begin to decline.

3.2.4   Market snapshots for 2004

The confectionery industry in India has experienced some hectic activity in the year 2004.

        •   January 2004 - Lotte Confectionery Co Ltd, Korea acquired a 60.39% stake of
            Parry’s Confectionery Ltd from the Chennai-based Murugappa Group. Also in
            September 2004, Parry’s Confectionery Ltd officially became Lotte India Corporation
            Ltd.



                                               21
                      THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                          The confectionery market in India today


•   January 2004 - Wm Wrigley Jr Co’s global acquisition of Spanish major Joyco
    Group saw a significant restructuring of operations involving the two Indian
    companies, Joyco India Pvt Limited and Wrigley India Private Limited. In May 2004,
    the Wrigley-Joyco combination in India announced that they will operate as a single
    entity, Wrigley India Pvt Ltd, and will consolidate and market brands of both
    companies in India.
•   April 2004 - Sweet World, a Mumbai based candy chain announced their plans to
    open 20 outlets across India by 2005. The candy market in India set to experience
    significant action and innovation.
•   June 2004 - Effem India Pvt Ltd., a wholly owned subsidiary of Mars Inc., USA,
    announced that it is consolidating the presence of its flagship chocolate brands Mars,
    Twix, Snickers and Bounty in India through imports. Imports commenced in August
    2004.
•   September 2004 - Perfetti van Melle India Pvt Ltd announced an additional
    investment of Rs. 2000m in India to increase its manufacturing capacity for marketing
    and brand building. Parfetti also announced the upgrading of the Van Melle unit,
    which it had acquired after the global acquisition of Van Melle in 2002. The Chennai
    unit will increase production of the former Van Melle brands - Marbels, Mentos and
    Fruittella.
•   October 2004 - Candico India Ltd became the 1st Indian multinational
    confectionery company to setup a manufacturing unit in Tanzania with an investment
    of US$1million.
•   October 2004 - Cadbury India Ltd announced its foray into the confectionery
    sector with the re-launch of Adam’s Halls and Clorets lozenges, formerly Warner
    Lambert India Pvt Ltd brands. This was consequent to the acquisition of the global
    non-chocolate confectionery business of Pfizer Inc., USA by Cadbury Schweppes plc.,
    UK, in 2002. Cadbury India Ltd announced that it will strengthen its position in the
    confectionery sector with the launch of gums in 2005.
•   November 2004 – The Rs. 7500m Delhi based DS Group announced a Rs. 750m
    joint venture with Lotte Company Japan, to manufacture chewing gum, chocolate,
    candy and other confectionery in India by setting up a new plant by 2005.
•   December 2004 - Nutrine Confectionery Co. Pvt Ltd announced an investment of
    Rs. 100m to install a new candy process line for manufacturing deposit candies.




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                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                     The confectionery market in India today


3.2.5   Market shares and brands

Cadbury India, Ltd. has by far the largest market share in the confectionery sector. Although
other players are catching up, its leading position will remain unthreatened for the coming years.
The following table specifies the sales market shares of the leading companies in India for 2001
and 2002.

                                 Confectionery companies shares
                                 Company                          2001                  2002
                                                                           (% retail value)
         Cadbury India Ltd                                            30                 29.6
         Perfetti Van Melle India Ltd                                 14.2               14.4
         Nestlé India Ltd                                             9.8                10.2
         Nutrine Confectionery Co Ltd                                 7.5                 7.4
         Joyco India Ltd                                              5.7                 5.8
         Parle Products Ltd                                           4.7                 4.6
                                   9
         Parry's Confectionery Ltd                                    4.6                 4.5
         Ravalgaon Sugar Farms Ltd                                    2.1                 2.1
         Hindustan Lever Ltd                                          1.7                 1.7
         Gujarat Co-op Milk Marketing Federation Ltd                  1.4                 1.5
         Warner-Lambert India Pvt Ltd                                 1.2                 1.2
         Candico India Ltd                                            1.1                 0.9
         Wrigley India Pte Ltd                                        0.4                 0.4
         Agro Tech Foods Ltd                                           -                  0.2
         Ferrero SpA                                                  0.1                 0.1
         Private Label                                                0.6                 0.6
         Others                                                       14.8               14.6
         Total                                                        100                100
         Source: Euromonitor


More detailed profiles of the main players are given in Appendix 2.

From a bulk market for confectionery products, India is quickly transforming into a market for
branded products. Today’s consumers, particularly from the middle and upper classes, are brand
aware and to a great extent their perceptions about the quality and value of any given product is
based on the image of the brand rather than on the country of origin or other factors. In result,
all leading companies in the sector are focused on developing and promoting their main brands

9
 After being purchased by Lotte Confectionery Co Ltd. Korea in 2004, the company was renamed to
Lotte India Corporation Ltd.


                                                23
                                    THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                        The confectionery market in India today


 through creative marketing and advertising strategies. Cadbury India’s brands have by far a
 leading position in terms of sales; it has four brands among the top 10 selling brands. Cadbury’s
 Dairy Milk brand is the most popular in India, with sales share (in value terms) of over 12%, far
 ahead of the second best seller, Perfetti’s Alpenliebe. The following table shows the leading
 chocolate and confectionery brands in India.

                     Confectionery brands shares (percentage of retail value)
                   Company                                 Brand                   2001           2002
Cadbury India Ltd                           Cadbury's Dairy Milk                   12.4%          12.3%
                                            Cadbury's Dairy Milk Éclairs            4.1%           4%
                                            Cadbury's 5 Star                        4%            3.9%
                                            Cadbury's Perk                          3.6%          3.5%
                                            Cadbury's Celebrations                  1.9%           2%
                                            Cadbury's Gems                          1.5%          1.4%
                                            Googly                                  0.2%          0.3%
                                            Cadbury's Mr Pops                       0.3%          0.3%
                                            Trebor                                  0.3%          0.3%
                               10
Warner-Lambert India Pvt Ltd                Halls                                   1%             1%
                                            Clorets                                 0.2%          0.2%
Total for Cadbury’s brands                                                         29.5%          29.2%
Perfetti Van Melle India Ltd                Alpenliebe                              4.8%          4.7%
                                            Big Babol                               4%             4%
                                            Center                                  1.8%          1.9%
                                            Cofitos                                 1.4%          1.3%
                                            Chlor-Mint                              1%            1.1%
                                            Mentos                                  0.7%          0.7%
                                            Fruit-tella                             0.5%          0.5%
                                            Marbels                                 0.1%          0.1%
Total for Perfetti’s brands                                                        14.3%          14.3%
Nestlé India Ltd                            Kit Kat                                 4%             4%
                                            Nestlé Classic                          2.1%          2.3%
                                            Polo                                    1%             1%
                                            Milkybar                                0.7%          0.7%
                                            Munch                                   0.4%          0.6%
                                            Nestlé Bar One                          0.4%          0.4%
                                            Soothers                                0.3%          0.3%

 10
   Warner Lambert’s brands are currently part of Cadbury’s portfolio, a result of the purchase of Pfizer’s
 confectionery business in 2002.


                                                      24
                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                     The confectionery market in India today


                  Company                                  Brand                 2001          2002
                                           After Eight                           0.2%           0.2%
                                           Frutips                               0.1%           0.1%
Total for Nestlé’s brands                                                        9.2%          9.6%
Nutrine Confectionery Co Ltd               Maha Lacto                            3.1%           3%
                                           Nutrine                                2%            2%
                                           Koka Naka                              1%            1%
                                           Naturo Fruit Bar                      0.4%           0.4%
Total for Nurine’s brands                                                        6.5%          6.4%
Joyco India Ltd                            Boomer                                3.8%           3.8%
                                           Pim Pom                               1.6%           1.6%
                                           Bonkers                               0.2%           0.2%
                                           Trex                                  0.1%           0.1%
Wrigley India Pte Ltd                      Doublemint                            0.3%           0.3%
                                   11
Total for Wrigley/Joyco’s brands                                                  6%            6%
Parle Products Ltd                         Kismi                                 2.7%           2.7%
                                           Parle Mango Bite                      0.8%           0.8%
                                           Parle Poppins                         0.5%           0.5%
                                           Parle Orange Candy                    0.2%           0.2%
                                           Parle Mint Extra Strong               0.1%           0.1%
Total Parle’s brands                                                             4.3%          4.3%
Parry's Confectionery Ltd                  Coffy Bite                            2.5%           2.5%
                                           Lacto King                            1.4%           1.3%
                            12
Total for Parry’s (Lotte) brands                                                 3.9%          3.8%
Hindustan Lever Ltd                        Max                                   1.7%          1.7%
Gujarat Co-op Milk Marketing               Amul                                  1.4%          1.5%
                                           Private Label                         0.6%           0.6%
                                           Others                                22.6%         22.4%
                                           Total                                 100%          100%
Source: Euromonitor




 11
    In 2004 Wm. Wrigley acquired the confectionery business of Joyco Group, Spain, of which Joyco India
 was a fully owned subsidiary.
 12
    In 2004, the Muragappa Group, owner of Parry’s Confectionery Ltd. sold 60.4% of Parry’s to Lotte
 Confectionery Co Ltd., Korea and the company was renamed to Lotte, India, Ltd. Lotte Korea is expected
 to acquire the remaining shares in the near future.


                                                     25
                                                                   THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                                       The confectionery market in India today



                             3.3      Market segments

                             3.3.1    Chocolate confectionery

                             Although chocolate confectionery represents less than 20% of the total confectionery market in
                             India in volume terms, its share in value terms is about 40%. It is also the fastest growing
                             confectionery segment in value terms with average annual growth close to 10% (see Figures 10
                             and 11). However, it should be noted that despite the healthy growth potential, this is still a very
                             small market with sales concentrated primarily in the better-off urban areas.

                             As seen from Figure 13 below, chocolate tablets
                             dominate the market, accounting for about half of all                           Figure 12: Tablet chocolate sales
                             chocolate sales of about Rs. 10 billion (27 thousand                                         by type
                             MT) in India. Countlines is the second largest
                                                                                                                               Filled
                             segment, followed by boxed assortments. Tablets
                                                                                                                                13%
                             also have shown strongest average annual growth
                                                                                                              Plain white
                             rate (Figure 14). This however, is matched by the                                    4%
                             growth rate for the various boxed assortments                                  Plain dark
                             which are becoming increasingly popular to be given                                8%
                             as gifts. Milk chocolate is strongly preferred to dark
                             and bitterer chocolates. It is estimated that about                                                                        Plain milk
                             75% of the volume of tablet chocolate sold is plain                                                                           75%
                             milk, while dark or white chocolates account for
                                                                                                               Source: Euromonitor
                             about 8% and 4% respectively, with the remainder
                             being various filled chocolates (Figure 12).

                                                         Figure 13: Chocolate confectionery retail sales

                                            a) Value                                                                               b) Volume
              12.00                                                                                    30
              10.00                                                                                    25
                                                                                         Thousand MT




               8.00                                                                                    20
Billion Rs.




               6.00                                                                                    15
               4.00                                                                                    10
               2.00                                                                                    5
               0.00                                                                                    0
                      1998         1999      2000         2001       2002    2003                           1998          1999          2000        2001        2002   2003

                         Tablets                         Countlines                                                Tablets                         Countlines
                         Bagged selflines/softlines      Boxed assortments                                         Bagged selflines/softlines      Boxed assortments
                         Other chocolate confectionery                                                             Other chocolate confectionery

                             Source: Euromonitor




                                                                                    26
                                                                         THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                                             The confectionery market in India today


                                               Figure 14: 1998 – 2003 chocolate confectionery sales growth

                          a) Average annual growth rate                                                                                            b) Total growth
             12.0                                                                                                     70

             10.0                                                                                                     60
                                                                                                                               62                  62     60
                       10.1                 10.1   9.8                                                                              58
                              9.5                                                                                     50                                                                   54
              8.0                                                                      9.0




                                                                                                         Percentage
Percentage




                                     7.7                         7.9    7.7                  7.8                      40                    45                         46    45                  46
              6.0
                                                                                5.7                                   30                                                            32
              4.0
                                                                                                                      20
              2.0                                                                                                     10
              0.0                                                                                                     0
                                    Value                                     Volume                                                       Value                                  Volume

              Tablets                       Countlines                 Bagged selflines/softlines                      Tablets                     Countlines                Bagged selflines/softlines
              Boxed assortments             Chocolate confectionery                                                    Boxed assortments           Chocolate confectionery

                     Source: Euromonitor


                     As seen in Figure 15, Cadbury and Nestle completely dominate the chocolate market segment.
                     Cadbury is a very strong number one, but in recent years Nestle has toughened the competition
                     by launching new products and targeting the mass market with lower priced products. In result,
                     Nestle is gradually earning some additional market share (from 20% in 2001 to over 21% in
                     2002). Despite the gains, Cadbury’s leading position seems to be unthreatened for the
                     foreseeable future. The Gujarat Milk Cooperative Marketing Federation, Ltd. (GCMMF) is a
                     distant number three; it has found it difficult to leverage its leading position in the dairy sector
                     into the confectionery market. However, it has also started a major effort to broaden its reach
                     by launching new products and targeting the children and teens consumer segment. Finally, the
                     respondents to our trade survey reported that some imported brands have started gaining
                     popularity in India. In the upscale niche market segment these are mostly Swiss and Belgium
                     chocolates, while in the mass market there is a broader spectrum of brands manufactured in
                     Malaysia, Thailand, Argentina, and other countries.

                          Figure 15: Companies’ retail value share in the chocolate confectionery sector
                                                         a) 2001                                                                            b) 2002

                                    Ferrero SpA                                                                             Ferrero SpA          Others
                                                                Others
                                        0.3%                                                                                    0.3%              9.4%
                                                                 9.4%
                              GCMMF                                                                                        GCMMF
                               3.8%                                                                                         4.0%

                                                                                                         Nestlé India Ltd
                    Nestlé India Ltd                                                                         21.4%
                                                                              Cadbury India Ltd
                        20.3%                                                                                                                                        Cadbury India Ltd
                                                                                  66.2%
                                                                                                                                                                         64.9%

                     Source: Euromonitor




                                                                                                    27
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                  The confectionery market in India today


Cadbury’s Dairy Milk is the leading chocolate brand with about 32% share of the value of retail
sales. Nestlé’s Kit Kat is second with just over 10% share, closely followed by Cadbury’s 5 Star,
and Cadbury’s Perk. Other brands with noticeable market presence are Nestle Classic,
Cadbury’s Celebrations, Amul (of GCMMF), Cadbury’s Gems, Munch (Nestle), Nestle Bar One,
After Eight (Nestle), Ferrero Rocher (Ferrero SpA), Nestle Choco, Stick, and Cadbury’s Chocki.

In addition to the major companies, there are numerous small chocolates manufacturers
operating in India taking advantage of the premium end segment. A few, worth mentioning are:

        •   Mumbai based Fantasie Chocolates
        •   New Delhi and Bangalore based Choco Swiss
        •   New Delhi based Belgique Chocolates
Also, many housewives have taken the business of chocolate making seriously and operate during
the festival season (for e.g. Rakhi, Diwali, Christmas, New Year). Trade estimates suggest that
there are about 15,000 – 20,000 housewives in India who are making chocolates professionally,
not just as a hobby or for home consumption. According to a major manufacturer of bulk
chocolate, the bulk chocolate market in India is about 8,000 – 10,000 MT, and a major part of
this is utilized by the homemade chocolate segment, in addition to the bakery, and ice cream
industries. Many of these home-based operations market and sell chocolates online and
frequently they claim to be using Belgian and Swiss ingredients. According to the respondents to
our survey, this is a relatively new trend that was not seen five years ago.

3.3.2   Sugar confectionery

This is the largest confectionery sector in India both in value and volume terms. Accounting for
about half of the total confectionery market, the sugar confectionery segment is also showing
healthy growth, primarily due to the low-price strategies and discounts offered by the main
players.

As seen from Figure 16, the toffees/caramels/nougats segment is by far the largest, followed by
sugar boiled sweets and mints. In terms of growth however, mints sales have been growing the
fastest over the last 5 years (Figure 17). Lollipops are a new product in the Indian market which
first registered noticeable presence in the market in 2002, but for the 2002-03 period, they have
also registered growth of over 10%, the same as mints. Forecasts show that lollipops will
continue to strengthen their market position.




                                               28
                                                                                      THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                                                          The confectionery market in India today


                                                                           Figure 16: Sugar confectionery retail sales
                                                                     a) Value                                                                                           b) Volume
                   14.00                                                                                                            90
                   12.00                                                                                                            80
                                                                                                                                    70
                   10.00




                                                                                                                     Thousand MT
                                                                                                                                    60
     Billion Rs.




                       8.00                                                                                                         50
                       6.00                                                                                                         40
                                                                                                                                    30
                       4.00
                                                                                                                                    20
                       2.00                                                                                                         10
                       0.00                                                                                                          0
                                     1998         1999           2000       2001            2002         2003                                1998           1999           2000        2001            2002               2003

                                            Toffees, caramels, nougat      Boiled sweets                                                       Toffees, caramels and nougat           Boiled sweets
                                            Mints                          Pastilles, gums, jellies, chews                                     Mints                                  Pastilles, gums, jellies and chews
                                            Medicated confectionery        Lollipops                                                           Lollipops                              Medicated confectionery

                                     Source: Euromonitor


                                                                 Figure 17: Sugar confectionary sales 1998 – 2003 growth
                                              a) Average annual growth                                                                                                 b) Total growth
               14                                                                                                                       80
               12                                                                                                                       70
                                                                                                                                              72.2
               10             11.5                                                                                                      60
                                                                                                                                                                                         59.7
Percentage




                                                                                                                           Percentage




                                      9.3                                 9.8                                                           50           56.3                      54.4
                   8                                           9.1
                                             8                                  8.1                                                     40                  46.8                                47.9                       45.5
                                                                                                         7.8                                                                                           41.4
                   6                              6.8    6.7                          7.2                                                                          39.3 38.6
                                                                                                                                        30
                   4                                                                         5.1   4.6                                  20                                                                    28.2   25
                   2                                                                                                                    10
                   0                                                                                                                     0
                                              Value                                   Volume                                                                  Value                                     Volume

                                 Mints                                  Medicated confectionery                                                     Mints                              Medicated confectionery
                                 Toffees, caramels and nougat           Pastilles, gums, jellies and chews                                          Toffees, caramels and nougat       Pastilles, gums, jellies and chews
                                 Boiled sweets                          Sugar confectionery                                                         Boiled sweets                      Sugar confectionery

                                     Source: Euromonitor


                                     The sugar confectionery segment is highly fragmented with over 20 companies in the organized
                                     sector and a proliferation of unorganized players which according to industry sources account for
                                     nearly 5,000 brands and numerous manufacturers. The unorganized sector has been traditionally
                                     operating through huge trade margins and relying on trade push. Over 70% of the products sold
                                     in this segment are in the 50 paise category. However, there are clear trends in favor of the
                                     organized sector due to better products, improved merchandising and brand-building activities.
                                     With customers also becoming increasingly quality conscious, the share of the unorganized
                                     sector in this category has been gradually shrinking. In addition, the recent reduction of the
                                     excise tariff for sugar confectionery to 8% has further reduced the competitive disadvantage
                                     which the unorganized sector had.13


                                     13
                                          For more information on prices , taxes, and tariffs, see Section 5.


                                                                                                                29
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                                                   The confectionery market in India today


Unlike the chocolate segment, company and brand leadership is less dominant, leading to
stronger competition among the main players. Perfetti Van Melle is the leader in terms of sales,
but it is closely challenged by Nutrine and Cadbury, followed by Parle, Lotte (Parry’s
Confectionery), and several others. The top five account for over 60% of the retail sales of sugar
confectionery in India. The table below lists the share of retail sales of the main players.

                          Share of sugar confectionery retail sales
                            Company                   2001          2002
                1. Perfetti Van Melle India Ltd            16.9%         17.1%
                2. Nutrine Confectionery Co Ltd            15.1%          15%
                3. Cadbury India Ltd                       9.8%          9.8%
                4. Parle Products Ltd                      9.4%          9.4%
                5. Parry's Confectionery Ltd*              9.2%          9.2%
                6. Ravalgaon Sugar Farms Ltd               4.2%          4.2%
                7. Nestlé India Ltd                        4.1%           4%
                8. Joyco India Ltd                         3.7%          3.8%
                9. Hindustan Lever Ltd                     3.4%          3.4%
                10. Warner-Lambert India Pvt Ltd           2.4%          2.4%
                11. Private Label                          1.3%          1.3%
                12. Agro Tech Foods Ltd                                  0.5%
                13. Candico India Ltd                      0.4%
                14. Others                                 20.2%         19.9%
                Total                                      100%          100%
                * Purchased by Lotte in 2004 and renamed to Lotte India
                Source: Euromonitor


No single brand commands more than 10% share. The two largest ones are Alpenliebe of
Perfetti Van Melle and Cadbury’s Dairy Milk Éclairs with 10% and 8% respectively, followed by a
myriad of other brands. Since Cadbury acquired Warner Lambert’s confectionery business, it has
been making a strong push to develop its brands (Clorets, and Adam’s Halls).

3.3.3   Chewing gum

This a smaller but fast growing segment of the confectionery market in India. As seen from
Figure 18 below, the market is driven primarily by sales of bubble gum to children which
accounts for over 75% of the total value of gum retail sales in India. Chewing gums like mints, for
example, are gaining momentum among young adults as breath fresheners. Although chewing
gums are also showing faster growth rate than bubble gum (see Figure 19), it is nowhere near



                                                  30
                                                                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                                                    The confectionery market in India today


                                   catching up with it in terms of sales and market share. While bubble and chewing gum are
                                   growing quite fast, functional gums that address specific health issues (e.g. fighting tooth decay
                                   and plague, gum disease) are virtually non-existent. The only functional gum that is on the
                                   market is Perfetti’s Happydent White, launched in 2001. This is a mint flavored gum that fights
                                   tooth decay and has a whitening effect due to the baking soda it contains. However, the product
                                   has sold way under expectation, gaining some recognition only in several key metropolitan cities,
                                   like New Delhi, Mumbai, and Chennai.

                                                                         Figure 18: Gum confectionery retail sales
                                                          a) Value                                                                                                     b) Volume
              3.5                                                                                                                20
                                                                                                                                 18
               3
                                                                                                                                 16
              2.5                                                                                                                14

                                                                                                                Thousand MT
Billion Rs.




               2                                                                                                                 12
                                                                                                                                 10
              1.5                                                                                                                 8
               1                                                                                                                  6
                                                                                                                                  4
              0.5
                                                                                                                                  2
               0                                                                                                                  0
                                  1998     1999            2000         2001          2002         2003                                         1998        1999         2000        2001        2002      2003

                                                     Chewing gum        Bubble gum                                                                                    Chewing gum   Bubble gum

                                   Source: Euromonitor


                                                            Figure 19: Gum confectionary sales 1998 – 2003 growth

                                                a) Average annual growth                                                                                                   b) Total growth
                             12                                                                                                            70

                                                                                                                                           60          66
                             10          10.6
                                                             9.5                                                                                                         57
                                                   9.1                                                                                     50                  55                           54
                             8                                                       9
                                                                                             8.4     8.5                                                                                            49     50
                Percentage




                                                                                                                              Percentage




                                                                                                                                           40
                             6
                                                                                                                                           30
                             4
                                                                                                                                           20
                             2                                                                                                             10

                             0                                                                                                             0
                                                  Value                                   Volume                                                              Value                               Volume

                                                          Chewing gum    Bubble gum      Gum                                                                          Chewing gum   Bubble gum   Gum
                                   Source: Euromonitor


                                   Unlike sugar or chocolate confectionery, there are only few important players in the gum
                                   segment. Perfetti Van Melle, India is the leader followed by Wrigley, India, and Candico, India.
                                   Until the acquisition of the Spanish Joyco Group by Wm. Wrigley Jr. Co, Joyco was number two
                                   in gum sales and Wrigley was number four. Since the acquisition, however, the two companies



                                                                                                           31
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                                                   The confectionery market in India today


and their brands will be consolidated. Currently, Perfetti holds a slightly higher share at 45%,
and the joint share of Wrigley and Joyco is about 35%. Candico has about 8%.

Perfetti’s Big Babol and Joyco’s Boomer are the two leading brands in terms of sales with 32%
and 30% share respectively. Other popular brands are Center (Perfetti), Loco Poco (Candico),
Doublemint (Wrigley), Trex (Joyco), and Chlor-Mint (Perfetti).

3.3.4   Sugar-free confectionery

Until July 2003 the use of artificial sweeteners was not allowed in India. As a result there was no
sugar-free confectionery available in the market. This ruling was to a great extent the result of
the pressure the strong sugar lobby was putting on the government. India has a very important
sugar industry providing employment for a large number of people. It is estimated that the
sugarcane farmers and their families number over 35 million and represent about 7% of the rural
population. Up to that time, the only artificial sweeteners that were allowed to be manufactured
in the country were table top sweeteners for use by diabetics. Since the Indian food law did not
allow the use of artificial sweeteners in confectionery products, no such products were imported
as well. While some sugar-free beverage and confectionery products could be seen on market,
these had been imported illegally.

However, in July 2003, the Ministry of Health with consultation with the Central Committee of
Food Standards amended the Prevention of Food Adulteration (PFA) rules of 1995 and allowed
production of sugar-free confectionery. According to this notification, confectionery products
can contain up to 1% food grade titanium dioxide and limited quantities of aspartame. The
ingredient was allowed in categories such as chewing gum and bubble gum, cookies, bread and
cakes. The notification adds that all food products said to contain artificial sweeteners will need
to declare “contains artificial sweeteners” on the package.

Immediately after this notification, Perfetti Ven Melle launched Happydent Protex sugar-free
chewing gum followed by Wrigley's who launched Orbit. Several of our respondents in the retail
sector reported that they carry some sugar-free products. Nevertheless, since these products
have been allowed in India for such a short period of time, there are no statistics or estimates
available to quantify the market segment. The couple of respondents who were carrying sugar-
free products in their stores believed that the category should grow. One thing is for sure,
however, the category is currently very small.




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3.4     Confectionery imports

3.4.1   General trade information

Until recently, the Indian market was virtually closed to imports due to extremely high tariffs and
other additional taxes on imported goods. In 2001, the Government of India took steps to ease
many of these restrictions and imports have since started to slowly infiltrate the Indian market.
Despite these efforts, import tariffs for many goods, including confectionery, remain high. As a
result, and in combination with relatively low demand for confectionery products, confectionery
imports into India remain very small.

According to official statistics, in 2002-03, the first full year without prohibitive quantitative
import restrictions, India imported slightly more than 2,700 MT of confectionery, valued at
roughly US $7 million. 14 Although confectionery imports increased by more than 40% in value
and 20% in volume in 2003-04, India’s confectionery imports still totaled just over 3,000 MT and
valued at less than US $10 million. Put into context, India’s total imports for 2002-03 and 2003-
04, combined, are less than 1% by volume and value of US confectionery imports in 2003 alone.

As seen in Figure 20 below, retail chocolates and sugar confectionery account for the greatest
share of total confectionery imported into India. In 2003/2004 imports of retail chocolate totaled
close to US $5.7 million. Imports of sugar confectionery fell close behind, totaling US $3.3
million, but registered a growth rate of 100% from the previous year. Imports of bulk chocolate
and chewing gum remain very small at roughly US $500,000 and US $400,000, respectively.

                                Confectionery imports into India
                                            2003-04                 2002-03                Growth
                                        $ 000      MT           $ 000      MT          Value   Volume
Chewing gum – 170410                        390        77           260        78       50%      -1%
Sugar confectionery - 170490              3,300     1,338         1,650       835      100%      60%
Bulk chocolate - 180620                     540       339           430       308       26%      10%
Retail chocolate – Total                  5,670     1,563         4,620     1,530       23%       2%
Retail chocolate - 180631                    30         3            60        10      -50%     -70%
Retail chocolate - 180632                    70       185           110        87      -36%     113%
Retail chocolate - 180690                 5,570     1,375         4,450     1,433       25%      -4%
Total                                    9,900     3,317         6,960     2,751        42%     21%
Source: India Directorate General of Foreign Trade




14
 The import data throughout this section is per financial year. India’s financial year runs from April 1 to
May 31 the following year.


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                                              Figure 20:
                   2003-04 share of confectionery imports by type (volume & value)

                          Chewing gum                                           Chewing gum
                              4%                                                    2%



                                                Sugar
                                            confectionery                                               Sugar
                                                 33%         Retail chocolate                       confectionery
                                                                   48%                                   40%
Retail chocolate
      58%


                                        Bulk chocolate
                                              5%                                Bulk chocolate
                                                                                     10%


                               Base: US $9.9 million                                             Base: 3,317 MT

    Source: India Directorate General of Foreign Trade


It is important to note that an estimated 40-50% of India’s confectionery imports are thought to
be “gray market imports” – those goods that have been: under invoiced in order to have fewer
duties paid; smuggled goods; parallel imports; and goods brought into India by people traveling
from abroad. While confectionery products imported through the gray market pose a threat to
confectionery goods imported legally, they also affect the value of confectionery actually
imported into India. As a result, actual imports are probably somewhat larger that shown by
India’s official import statistics. Nevertheless, they remain very small.

3.4.2      Key suppliers, types and brands of imported confectionery

As seen from the table below and Figure 21, in the last two years, Malaysia and Singapore have
been the leading suppliers of confectionery to India in terms of both value and volume. In 2003-
04, the two countries accounted for more than 20% in value and more than 30% in volume of the
total confectionery import market in India. However, in the last year, imports from Singapore
have shown decline, particularly in volume term, while imports from the third largest supplier,
the UAE, have grown almost 60% in volume terms and almost 40% in value terms. The growing
importance of the UAE and the port of Dubai as center for export and re-export of
confectionery products was confirmed by our suppliers, many of who indicated this as a
preferred route. The US is a relatively small supplier of confectionery to India and accounted for
only 4% in value and 3% in volume of India’s confectionery imports in 2003-04. However, US
confectionery exports to India experienced significant growth in 2002-03 and more than doubled
in value and increased roughly 80% in volume, albeit from a tiny base. Other leading suppliers
that experienced significant growth in exports to India in 2003-04 included Australia, Brazil,


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Spain, and the UK. Confectionery exports from Spain registered the largest growth, increasing
more than 500% in value and more than twice in volume.

                                  Confectionery imports by supplier
                                            2003-04              2002-03              Growth
                                        $ 000      MT        $ 000      MT        Value   Volume
Malaysia                                  1,020      661         950      645       7%       2%
Singapore                                 1,010      399       1,030      517      -2%      -23
United Arab Emirates                        800      227         510      166      57%      37%
Australia                                   800      326         350      148     129%     120%
Netherlands                                 630      196         760      315     -17%     -38%
Brazil                                      540       63         350       30      54%     110%
Switzerland                                 510       88         360       74      42%      19%
UK                                          510      111         240       43     113%     158%
Thailand                                    490      202         340      233      44%     -13%
Spain                                       440       79          70       31     529%     155%
Korea                                       410      109         300      105      37%       4%
US                                          380       84         150       46     153%      83%
Others                                    2,360      772       1,550      398      52%      94%
Total                                    9,900     3,317      6,960     2,751      42%     21%
Source: India Directorate General of Foreign Trade


                                         Figure 21:
                     2003-04 leading foreign suppliers (volume & value)

                       Malaysia                                                 Malaysia
                        10%                                                      10%

                                      Singapore                                                Singapore
                                         10%                                                      10%



                                          UAE                                                      UAE
  Others                                  8%               Others                                  8%
   54%                                                      54%

                                       Australia                                                Australia
                                         8%                                                       8%

                                  Netherlands                                              Netherlands
                          US          6%                                           US          6%
                          4%                                                       4%



                                  Base: US $9.9 million                               Base: 3,317 MT

  Source: India Directorate General of Foreign Trade




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Retail and bulk chocolate

India’s bulk chocolate imports are very small and are dominated by Malaysia, with some imports
originating from Singapore. In 2003-04, Malaysia exported US $390,000 in bulk chocolate to
India; Singapore exported a total of US $90,000. Other suppliers include Indonesia, Switzerland,
UAE, and the UK, though exports from these countries are negligible.

                                       Figure 22:
                   2003-04 leading suppliers market share of chocolate
         Retail chocolate                                            Bulk chocolate
                       Singapore                                          Others
                          15%                                              11%
Others
 33%                                                          Singapore
                                Netherlands
                                   10%                           17%



                                UAE
                                10%
    US                                                                                   Malaysia
    6%                                                                                    72%
      Brazil              Malaysia
       8%      Switzerland 9%
                   9%


                        Base: US $5.7 million                                      Base: US $540,000

Source: India Directorate General of Foreign Trade


Retail chocolate accounts for the biggest share of confectionery imports into India and the
second largest share of the total market for confectionery in India. Singapore is by far the leading
supplier of retail chocolate to India and in 2003-04 it exported more than 300 MT of retail
chocolate, valued at US $850,000. The Netherlands is the second largest supplier of retail
chocolate and exported roughly 175 MT at a value of close to US $600,000. Although Singapore
and the Netherlands account for 25% of India’s imported confectionery market, exports from
these countries dropped more than 15% and 22%, respectively, in value and more than 30% and
40% in volume between 2002-03 and 2003-04.

On the other hand, exports from several other countries, including the US, the UK, Lebanon and
France, grew significantly during the same period and their combined market share increased
from 9 to more than 20%. Lebanese chocolate exports increased substantially, rising from just
US $20,000 in 2002-03 to US $310,000 in 2003-04, while US chocolate exports increased from
US $110,000 to US $340,000.




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                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                  The confectionery market in India today


Despite this rapid growth, the chocolate brands primarily found in India continue to be from the
leading suppliers of retail chocolate, with a few exceptions. Some of the most popular brands
and country of origin include:

       •   Droste – the Netherlands                      •    Tango – Malaysia
       •   Nestle – Switzerland                          •    Van Houten – Malaysia
       •   Toblerone – Switzerland                       •    Ferro Rocher – Brazil and Italy
       •   Lindt – Switzerland                           •    Tiffany – UAE
       •   Mars, Twix, Bounty and Snickers –             •    Solen – Turkey
           Holland
                                                         •    Quanta – UAE
       •   Gandour – Malaysia
                                                         •    Beacon – South Africa
       •   Vochelle – Malaysia


Sugar confectionery

Sugar confectionery accounts for the largest           Figure 23: 2003-04 leading suppliers
share of India’s confectionery market and,             market share of sugar confectionery
although imports remain a very small portion                                         Australia
of the whole, they are growing rapidly.                                               22%
Between 2002-03 and 2003-04 the value of                     Others
                                                              37%
sugar confectionery imports grew from close
to US $1.7 million to US $3.3 million and the
                                                                                             Thailand
volume increased from more than 800 MT to                                                     13%
more than 1,300 MT. In fact, of the top ten
                                                                US
suppliers of sugar confectionery to India                       1%                   Spain
                                                                      Turkey China
(Australia, Thailand, Spain, China, Turkey,                            7%
                                                                                     13%
                                                                              7%
Korea, UAE, UK, Malaysia, and Argentina),
only imports from Malaysia decreased and the                                           Base: US $3.3 million
rest increased by at least 40%.
                                                 Source: India Directorate General of Foreign Trade

Australia is the leading supplier of sugar confectionery to India and more than doubled its
exports between 2002-03 and 2003-04. Thailand and Spain are also important sugar
confectionery suppliers and exports from the latter increased from just US $30,000 in 2002-03
to US $420,000 in 2003-04. Other countries with notable growth in exports include Turkey,
Argentina, UAE and the US. Although sugar confectionery exports from the US are very small,
they grew more than 250% in 2003-04.




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                                                   The confectionery market in India today


Brands of sugar confectionery in India originate from a number of different countries and some of
the most prevalent brands are:

        •   Brach’s – US                                   •   Hartbeat Love Candy – Thailand
        •   Magic Pop/Dust – Korea                         •   Arcor – Argentina
        •   Kopiko Coffee Candy – Malaysia                 •   Candeli – Argentina
        •   Popo Cup Jelly – Malaysia                      •   Tiffany – UAE


Chewing gum

Chewing gum imports and the overall market                Figure 24: 2003-04 leading suppliers
for chewing gum in India are very small. The                 market share of chewing gum
volume of chewing gum imports remained                                     Others
                                                                            10%
relatively unchanged at close to 80 MT in                      Indonesia
                                                                                       Japan
                                                                                        26%
2002-03 and 2003-04, however, the value of                        8%
imports increased roughly 20% from US                          UAE
$260,000 to US $390,000.                                        8%


In terms of value, Japan is the leading supplier          Australia
                                                                                    Korea
                                                            15%
of chewing gum to India, with exports of US                                          18%

$100,000 in 2003-04. Although the value of                            China
                                                                       15%
exports from Japan increased by close to
200% from the year before, the actual volume                                        Base: US $390,000
of exports that year decreased by more than
50% and totaled just 8 MT. Australia is the Source: India Directorate General of Foreign Trade
leading supplier in terms of volume and in 2003-04 exported more than 20 MT valued at US
$60,000. China and Korea are also important suppliers of chewing gum to India with 2003-04
exports totaling US $60,000 and US $70,000, respectively.



3.5     Consumption

3.5.1   General information

As already discussed in Section 3.1 confectionery products have very low penetration in the
Indian market. In result, annual per capita consumption is also very low; it is estimated to be just
over 300g (0.7lb) for chocolate and around 600g (1.3lb) for sugar confectionery. For
comparison, per capita consumption of confectionery products in the US is around 25lb.




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                                                       The confectionery market in India today


It is primarily the low penetration and consumption that heighten everybody’s expectations about
the high potential for growth of this market. The optimism is further fueled from the forecast
for rapidly increasing incomes. On the other hand, confectionery products compete with the
traditional sweetmeats which continue to be very popular in India.15 Finally, westernization of
India (particularly young adults in the urban areas) is seen as another factor positively impacting
the growth potential for confectionery products and chocolate in particular. Chocolate has
already shown larger growth than sugar confectionery, which is a result of its increasing
popularity as a gift. It is seen as an indulgence product, and therefore appropriate as a gift. This
trend has given a boost to the boxed chocolates segment.

On the negative side, as already indicated, India is a very price sensitive market. Thus even with
the rising incomes and westernization, many confectionery products and particularly chocolates
are considered luxury products even by the better-off consumers. In addition, increase in world
prices of cocoa contributed to increased prices of chocolates, further strengthening the
“indulgence product” constraint to deepening market penetration and increasing consumption.

Almost all confectionery purchases in India are believed to be impulse driven. Experts indicate
that sugar confectionery and gum products consumption are driven almost entirely by impulse
purchasing. The figure is lower for chocolates (about 70%), because of its increasing popularity
as a gift for various occasions and during the festival season. In result, in their effort to increase
consumption and product penetration, marketers have started to promote some products as
appropriate snacks, not just an indulgence.

3.5.2      Demographic and lifestyle considerations

a)         Age

Children and teenagers are the main consumers of confectionery products, and sugar
confectionery and bubble gum in particular. Some of our respondents also indicated that they
have observed increasing chocolate sales to kids and teenagers. This has several important
consequences for the further development and growth of the Indian market:

           •   With over 30% of the population younger than 15, and over 50% younger than 25,
               India is a very young nation. The confectionery market will continue to grow by
               simply continuing to target this consumer segment which will remain the main
               potential for growing the market, particularly in volume terms.
           •   Children usually purchase sweets with their pocket money, rather than with their
               parents’ money. Thus price will remain a most important factor when targeting


15
     More information about the market for sweetmeats is given in Appendix 1.


                                                     39
                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                    The confectionery market in India today


            Indian youngsters. Most of the potential growth in sales of higher end products will
            come from the adult population.
        •   While children are attracted mostly to bubble gum, adults prefer chewing gum.
            Similarly, medicated or functional products target the adult (mostly the young adult)
            population, which is more modernized and open to novelty and untraditional
            products.
b)      Urban vs. rural areas

Confectionery sales in India are driven mostly by the urban market segment. Estimates suggest
that between 60% and 70% of the confectionery sales in India are concentrated in the more
developed urban areas, where incomes and consumer awareness are generally higher. At the
same time, about 70% of the population lives in rural villages. Indeed, estimates also indicate that
confectionery products have significantly higher penetration (about 22%) in the urban markets
than the country average penetration. Chocolate consumption is concentrated almost entirely in
urban India.

The organized sectors has its stronghold in the urban markets, while unorganized manufactures
and home made sweets thrive in the rural areas. Price, poor infrastructure, lack of exposure to
new products and stronger traditionalism, are the main reasons for this. However, many of the
main players in the Indian confectionery sector have started focusing on tapping the potential of
rural India. As incomes in these areas are generally lower, marketing efforts are concentrated on
promoting the lower priced mass market products and on offering smaller packs. Chocolate
sales are still limited only to the few wealthier households.

While rural sales have been growing over the last years, the potential for growth in urban areas
also remains significant.16 The difference is that in urban India, in addition to the growth trend in
the mass market segment, there are increasing opportunities to sell higher-end niche products.
This is particularly important for those who are looking for opportunities to export
confectionery products to India. As imported products, particularly from Europe and the US,
generally fall in the highest price brackets, they hold potential among the more affluent consumer
segments, concentrated mainly in the urban areas and large metropolitan areas.




16
  For example, Euromonitor estimates that the value share of retail sales in rural areas has grown from
20% in 1998 to 30% in 2003.


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                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                     The confectionery market in India today


c)      Regionality
                                                      Figure 25: 2003 confectionery sales in
 As seen from Figure 25, South India is the                           India by region
largest region for confectionery sales. This is
not surprising, because confectionery sales are                                East & Northeast
                                                        West (Rs. 6.8b)            (Rs. 4.5b)
generally linked to higher income consumers.                 26%                     17%
And, the Indian south is better developed than
many other areas, it is home of several booming
cities, like Chennai, Bangalore, and Hyderabad,                                           North (Rs. 7.1b)
                                                                                               27%
and it is the center of the thriving Indian IT
                                                        South (Rs. 7.8b)
industry. As such, it attracts young, well-                   30%
educated professionals with good incomes who               Source: Euromonitor
are open to trying new products, and willing to
spend for quality. As a result, products like power mints, for example, have registered significant
growth in the region over the last couple of years. These characteristics also make the south a
favorite for new product market testing. It is usually the first place where new products are
launched, and in general the market offers larger variety of products than in other parts of the
country.

The north is home of the capital New Delhi and the up and coming states Uttar Pradesh and
Rajasthan and marketers have been putting special efforts there. In result, sales have been
growing at above average rates.

Although the Indian west shows slightly lower sales than the north and the south, its main city,
Mumbai, is the most important center which alone accounts for almost half of the sales in the
region. The city is the financial capital of India, and home of a larger concentration of
professional, more sophisticated adults. In this respect it is not the center for sales of mass
confectionery products, which form the bulk of confectionery sales in India, but offers more
opportunities for premium products and chocolate in particular.

d)      Westernization

Westernization is an increasing trend in Indian lifestyles, particularly in the large metropolitan
areas. This is believed to have contributed to the growth of chocolate consumption in the
country. It has mainly contributed to the boost chocolate has seen as a gift, which is seen as
trendy. Indeed although traditionally Indians have a culture of consuming and exchanging sweets
as gifts, pre-packed branded products are not commonly popular. The consumption pattern and
purchasing habits tend to favor local, freshly made products. The ability of chocolate companies
and marketers to enter this market could provide unprecedented growth.




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                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                     The confectionery market in India today


At the same time, manufacturers and marketers are putting increasing effort into detaching
chocolate from its ‘kids’ image and to broaden its consumer base among adults.

3.5.3   Brand and origin awareness and perceptions

While domestically manufactured brands dominate the market and consumers have general
awareness about them, foreign products and brands are becoming increasingly known. This
trend is particularly noticeable in the urban areas and among middle and upper class consumers.
We were consistently hearing similar comments from our respondents from all categories –
manufacturers, importers and distributors, and retailers. These can be summarized as follows:

        •    The urban market is brand conscious; the rural market is price conscious. As one
             respondent put it, “in the metro areas consumers associate brand names with quality;
             in the rural areas, consumers associate higher prices with better quality.”
        •    The upscale niche market is focused on brand and image quality. Consumers are
             looking for known brands with good quality images. Swiss and Belgium chocolates
             are considered the crème de la crème. It is in the upscale niche market segment,
             where brand and country of origin really matter to consumers when making
             purchasing decisions.
        •    Except for the top quality chocolates, consumers are usually not aware, and generally
             not interested in where a product has been manufactured as long as they are familiar
             with the brand. For example, Tiffany is a popular brand with mass appeal mostly
             manufactured in the UAE. However, consumers associate it with the UK. Indeed,
             many of the large multinational companies have production faculties throughout the
             world and various distribution arrangements for different countries/regions. Thus
             frequently the global brand products may be manufactured at various places without
             consumers being aware or interested in the actual place of origin.
        •    Products from SE Asia and South America are more oriented to the mass market,
             while European and US products cater to the upscale market segments. Imported
             products in general are considered to be of higher quality than the domestic ones.
        •    Attractive packaging is very important for the brand image. Indians associate quality
             with good packaging. Imported brands are presented much better than Indian ones.
        •    US brands are less known than European ones. Mars and Hershey’s are the only US
             brand names with broader recognition in India.17 Consumers as well as the trade
             generally have a good perception about the quality of US products.


17
  Although the Mars brands are usually associated with the US, the products available in India are usually
imported from, and made in Europe.


                                                   42
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                  The confectionery market in India today



3.6     Pricing

As it was already emphasized, the Indian market is generally price sensitive. Also, many experts
see that the mass market will grow at faster rates than the niche segments. In result most
confectionery companies are trying to fit their products in the lower price ranges. The most
popular price range for confectionery products is the Rs. 0.25 – 0.85.

Most confectionery brands of Nutrine, Lotte, Wrigley’s, Perfetti, Candico, Parle, etc. are from
the Rs. 0.25 to Rs. 1 price categories. Some chewing gum and bubble gums are in Re. 1/-, Rs. 2/-
and Rs. 5/- categories. Most major companies including Cadbury’s and Nestle are strongly
pushing sales of their Rs. 5/-, Rs. 7/-, and Rs. 12/- categories. There is a big difference in the
prices of domestic and imported products. The general rule is that domestic products are the
cheapest. Then, there are different ranges of prices for imported products, depending on the
brand, country of origin, and product itself. Asian and South American products are usually
moderately priced, while European and US products are the most expensive. For example, from
the top end products, 100gm Lindt chocolate sells for around Rs. 130.

An important factor that affects the price of the products is the Central Excise Duty payable by
the organized/registered manufacturers. For sugar confectionery (without cocoa), it is 8%
(recently reduced from 16%); for chocolate confectionery, it is 16%. All involved in the
distribution and manufacturing of chocolate products see this as a major constraint to the growth
of the segment and believe that the excise duty for chocolates should be brought down similar to
the duty for sugar confectionery. However, the government is not really keen on reducing the
duty, because it is not seen to affect any major true Indian player or manufacturer. The
dominating view is that this duty is earning revenues from two major chocolate manufacturers,
Cadbury and Nestle, both of which are foreign companies.

There is also a sales tax, which varies from state to state. For example, Maharashtra has the
highest sales tax, 15.3%, while in some of the southern states it varies from 5-10%. From April
01, 2005 the Government of India will implement value-added tax (VAT). The VAT will replace
the sales tax regime in all states with a two-tier tax regime of 4% and 12.5%.

For imported products the price is generally structured as follows:

        Landed cost (FOB+freight+insurance)
           + Basic duty
           + Countervailing duty
        = Excise duty (production duty)
           + Special additional duty
           + Educational cess (2%)



                                                43
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                  The confectionery market in India today


           + Clearing and forwarding cost
           + Octroi (a local government tax)
        = Landed price to importer
           + Importer margin (% markup on landed cost)
        = Selling price to distributor
           + Sales tax
        = Price to distributor
           + Distributor margin (7-10%)
        =Price to a store
           + Profit (15-20%)
        =Retail price

3.7     Seasonality

Our respondents reported that there are no seasonal trends in the sales of sugar confectionery
and gum. Sales are consistent throughout the year. On the other hand, chocolate sales peak
during the festival season (August to February), when exchanging gifts is a tradition.



3.8     Market forecast

The confectionery market in India is expected to continue to grow at healthy rates. Sugar
confectionery will remain the largest segment, and new products like mints, lollipops and chewing
gum, as well as boxed assortments will grow at the fastest rates.

The mass market will continue to be very price sensitive pushing manufacturers to price
discounting and offering smaller packages in order to continue penetrating the rural market. On
the other hand, the niche for more upscale products will also offer new opportunities for
branded products. Boxed chocolates show the greatest potential for growth within the
chocolate category; chewing gum, medicated confectionery and power mints are also expected
to grow rapidly, particularly among the young adults segment.

Lollipops is a new category and has sparked lots of interest among children. The category is
expected to continue to grow in the coming years.

Experts expect that the adult market will offer an additional niche for some products.

As the market grows, so will imports. Nevertheless, they will remain small and with limited
impact on the total market. Imported confectionery products will play a role primarily in the
urban areas, in the more upscale market segments.



                                                44
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                               Distribution channels



SECTION 4:          DISTRIBUTION CHANNELS

4.1     Overview

The Indian food distribution system is characterized by a large number of intermediaries and
relatively poor infrastructure, such as transportation, storage, and refrigeration facilities. It has
low levels of efficiency, with the costs of distribution being rather high. Manufacturers and
importers rely heavily on the middle man for the distribution of confectionery products in India.
Most importers rely on distributors or wholesalers to reach retail outlets, while confectionery
manufacturers often rely on C&F agents or dealers to work with the wholesalers and
distributors.

India’s retail sector is highly unorganized, as small independent stores are the main outlet for
consumer purchases. Nevertheless, the retail sector is changing and the organized sector is
gaining ground with the emergence of supermarkets and hypermarkets in metropolitan India.

Confectionery products are predominantly                   Figure 26: Confectionery retail sales in
purchased in small independent food stores,                    2003 by distribution format (%)
known as kiranas (see Figure 26). However, over
                                                                                     Convenience stores
the last five years, convenience stores,                                                    2%
supermarkets, and hypermarkets have played an                                                      Service stations
                                                                                                         2%
important role in the distribution of confectionery
                                                          Independent food                          Confectionery
products. In 1998, confectionery retail sales in               stores                                 specialists
convenience stores were virtually non-existent,                 74%                                      9%
                                                                                                 Others
but today these stores account for 2% of                                                          5%
confectionery sales. During the same period, the
share of retail sales by supermarkets and                                              Supermarkets/
                                                                                       hypermarkets
hypermarkets has also increased, from roughly 6%                                            8%
                                                         Source: Euromonitor
to 8%.

India’s organized retail sector remains the preferred distribution channel for branded and
imported products, including confectionery. Although this sector is thought to be in its infancy,
rapid growth is expected over the short to medium-term, creating greater opportunities for
imported confectionery products.



4.2     Domestic production

The Indian food distribution system is characterized by a large network of intermediaries
consisting of C&F agents, wholesalers and distributors that operate throughout the country.
Only the largest manufacturers may have their own distributors, and frequently these will not


                                                 45
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                               Distribution channels


cover the whole country. Typically, domestic confectionery manufacturers in India rely on
company-owned dealers or C&F agents who, in turn, work with wholesalers and distributors
throughout the country to reach the retail network. Manufacturers use their own stockists/C&F
agents (which are also warehouse/company depots - mostly company) as a starting point for
distribution. Stockists/C&F agents are appointed depending on the city and state. In large metro
cities such as Mumbai, Delhi, Kolkata, and Chennai a company may have 2-3 stockists/C&F
agents. Manufacturers also service large metropolitan areas through wholesalers. In smaller
cities and towns where the manufacturers do not have their stockists/C&F agents they generally
work with wholesalers. Figure 27, illustrates the most typical distribution channels for domestic
confectionery.

Through these dealers, many domestic confectionery manufacturers have access to hundreds or
thousands of wholesalers and distributors to reach the small retail outlets in both rural and urban
areas as well as to reach the larger supermarkets in the metropolitan areas. In addition, in some
cases, manufacturers have several regional sales offices and, and using their C&F, agents can
access retailers directly within that region.

                                         Figure 27:
                 Typical distribution channels for domestic confectionery


               Wholesaler                  Manufacturer                     Wholesaler




                                       Stockist/C&F agent
                                       – company owned



                                               Retailers
                                 •   Grocery/Kinara stores
                                 •   Chemists
                                 •   Gift shops
                                 •   Book shops/Newspaper vendors
                                 •   Supermarkets
                                 •   Specialty shops – malls
                                 •   Airport shops, railway stations, bus
                                     stands
                                 •   Paan Beedi shops




                                                        46
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                              Distribution channels



4.3     Imports

4.3.1   Ports of entry for imports

Jawaharlal Nehru Port Trust (JNPT), also known         Figure 27: India’s main ports of entry
as Nava Sheva, is India’s largest seaport. It is
located within Mumbai harbor on the west coast
of India. The port has two dedicated container
terminals designed and equipped to handle large
size container vessels. One of these handles
refrigerated containers. JNPT serves as the port
of entry and supplies to the two largest cities –
Mumbai and Delhi. Mumbai also serves other
smaller metropolitan areas such as Pune,
Ahmedabad, Goa, and Hyderabad.

The Chennai Port Trust is an artificial harbor
situated on the Coromandel Coast in South-East
India and it is the second largest port for handling
containers. This port also offers refrigerated
container facilities. The Chennai Port is ideal for
serving southern India and is the main port of entry for Chennai, Bangalore, Coimbatore, and
Hyderabad.

The third largest port is the Kolkata/Haldia Port and it is the port of entry for the East Indian
market and especially the city of Kolkata.

Most major international shipping companies operate regular container services to each of these
ports.

4.3.2   Geographical and logistical considerations

Importing confectionery in India is primarily dependent on the location of the importer and the
markets they serve. Most of the importers operate warehouses near the major ports and, in
many cases, this is the JNPT port. For many importers, JNPT is the easiest port to distribute
products not only to Mumbai and Delhi, but also to other major commercial and metropolitan
areas. If imported confectionery is destined primarily to South India or North India, importers
may use the ports at Chennai and Kolkata.

Most confectionery imports are imported into India by sea. However, two importers that we
interviewed import by air, though this is a more expensive option.



                                               47
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                              Distribution channels




Several of our respondents mentioned that Dubai has turned into an important center for
shipping product to India, with numerous consolidators working there.

4.3.3   Handling of imports

Confectionery imports into India are mainly handled by local importers who then distribute the
products through a network of distributors, wholesalers, and sometimes directly to large
retailers. Figure 28 on the following page illustrates the distribution of imported products from
the JNPT port throughout India.

It is important to keep in mind that confectionery imports into India are very small and even the
large importers deal in very small volumes. For example, our respondents reported that they
import between 10 and 200 containers of confectionery products per year. However, only one
reported 200 containers, one reported 100 to 110, one reported 50 to 65, and the remaining 10
said that they import around 10 containers.

Many importers still cover a wide range of confectionery products and import from several
different countries. However, we spoke to several importers who focused on the niche market
and import only chocolates or only from one country or brand.

4.3.4   Business relationships along the distribution chain

Given the size of the country, poor infrastructure, and the large number of intermediaries,
established business relationships play an important role in the distribution of both domestic and
imported confectionery products in India. The majority of the importers and manufacturers that
we interviewed have had long-standing relationships with their agents or distributors or have
exclusive arrangements for the distribution of their product. As one manufacturer stated, “A
C&F agent or distributor can make or break your brand.”




                                               48
             THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                             Distribution channels



Figure 28:




   49
                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                Distribution channels



4.4     Wholesale and retail

4.4.1   Role and key players

Food retailing in India is changing rapidly. While small independent stores, such as kiranas and
paan-beedi shops prevail, modern supermarkets are becoming increasingly common in urban
areas such as Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad and Pune, leading to
increasing demand for quality products, including confectionery. Larger scale wholesale
club/hypermarket formats are also appearing. Overall, organized retailing is growing rapidly and
in addition to supermarkets and hypermarkets, the shopping mall concept is quickly gaining
ground.

Today, India has approximately 12 million retail outlets. These are second only to agriculture
sector in terms of employment. It is estimated that food products are sold by an estimated 6.5
million small grocery stores and wet markets throughout India, with only a small percent sold in
more organized supermarkets and hypermarkets. . Food and beverage retail sales are estimated
at roughly US $135 billion with a growth rate of 4-5% each year. However, out of this, receipts
in the organized sector represent less than 1%.

Kiranas                                                     Figure 29: A Kirana in Mumbai

Kiranas, small independent food stores, account for
the vast majority of confectionery retail sales in India.
Due to the omnipresence of kiranas and their long-
standing existence in India, they remain the most
popular choice of consumers for food purchases.
Kiranas often offer a variety of services such as home
delivery, credit facilities and consumer discounts and
Indian consumers remain extremely loyal to these
stores.
                                                            Figure 30: Perfetti’s Managing
Paan-Beedi                                                     Director in a paan-beedi

The friendly neighborhood paanwalla or the paan-
beedi shop has played a key role for the growth of the
chocolate and confectionery sector in India. The
paan-beedi retailer occupies a slot in a locality in
urban and rural India that gives enormous
convenience to people looking to buy basic things.
These stores, positioned to serve the mass market,
are usually found in all busy streets and in residential
neighborhoods in most Indian cities and towns. They


                                                 50
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                               Distribution channels


occupy only about 10 square feet of space and stock everything from chocolates and
confectionery, produce, and other food items to cigarettes, batteries, and personal care items
and to branded and non-branded items.

It has become increasingly easier for the paan-beedi shops to expand the breadth and depth of
their product line, as many branded product brands now come in mono packs and in low unit
volumes and prices. Many fast moving consumer goods companies are increasingly using this vast
network, which accounts for more than one million stores and is growing.

Paan-beedi shops are generally served by C&F agents and wholesalers and distributors. Several
of the leading confectionery manufacturers, including Nestle, Perfetti, ITC Foods, and Cadbury,
are using these shops and they have become a major distribution channel for their confectionery
products.

Candy stores

Although candy stores in India account for close to 10% of confectionery retail sales in India,
their share has been declining in recent years. These stores typically sell a range of confectionery
products from domestic and imported chocolates and confectionery to bulk and branded
confectionery products and are primarily aimed at children. Indian candy stores usually purchase
from domestic manufacturers, C&F agents, and distributors for imported products. However, if
importers are based locally, some confectionery retail stores will purchase directly from the
importer.

Despite the general decline of the share of        Figure 31: Sweet World candy store
candy stores in overall retail sales of
confectionery products, some specialized
candy stores and chains are thriving. A typical
example is the Mumbai based chain Sweet
World, which currently has 20 stores in 9
cities in all prestigious shopping malls in
Mumbai, Delhi, Pune, Gurgaon, Noida,
Bangalore, Hyderabad, Kolkata and Chennai.
They have positioned themselves to serve the
more upscale market segment and sell more
than 150 varieties of confectioneries. Sweet
World is a pick’n mix concept store, which
sells a wide range of candies. They do not sell branded products, but clearly label the origin of
their candies.




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                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                               Distribution channels


Supermarkets and hypermarkets

Supermarket retailing is a relatively new, though rapidly developing concept in India. Although
there are no supermarkets that mirror western-style stores, some Indian versions of
supermarkets have emerged. These are 3,000 to 5,000 square foot self-serviced and air-
conditioned stores which stock a wide range (by Indian standards) of groceries, snacks,
processed foods, confectionery, cleaning and personal care products, and cosmetics. They stock
most national brands, a large number of regional and specialty brands, as well as their own brands
of packaged dry groceries. Many of them have small bakery sections, and some are still
experimenting with fresh produce and dairy products. Frozen foods are also often available. A
typical supermarket carries about 6,000 stock-keeping units (SKUs).

Shopping malls

The shopping mall is a new and quickly growing retail concept in India. By end of 2003, there
were about 25 operational shopping malls in the country, all located in the major cities (New
Delhi, Mumbai, Pune, Chennai, Kolkata, Bangalore and the twin cities of Hyderabad-
Secunderabad) with total space of about 5m sq. ft. However, expectations are that by the end of
2006, this space will grow about ten times with a significant part of this new space located in the
second tier cities like Jaipur, Ahmedabad, Lucknow, Nagpur, Indore, Ludhiana, Nashik, Agra,
Thiruvananthapuram, Kochi and Mangalore. According to the global retail and real estate
consultant Chesterton & Meghraj, the market share held by the organized retail market will grow
from the current 2% to about 20% of the total retail market by the end of 2010.

Scale advantage and superior operations would allow modern large-format stores to be up to 35-
40% cheaper than the traditional formats, and this would in turn fuel consumer spends. Studies
done in the specific field indicate that there is the potential to improve productivity in the sector
by 250%. This development will also have an impact on the food retailing and confectionery
sectors in particular. It will lead to improved and more streamlined distribution channels and
cutting down the number of intermediaries.

4.4.2   Key retail players

Some of the larger supermarkets in India are:

        •   Foodworld Supermarkets Limited (FSL) is a joint venture between the
            Kolkata-based RPG Enterprises (51%) and Dairy Farm International Holdings, Hong
            Kong (49%). FSL is India’s largest supermarket chain with 90 outlets located in
            Chennai, Pondicherry, Bangalore, Cochin, Trivandrum, Hyderabad, Pune and
            Coimbatore. It has annual sales of approximately Rs. 3 billion. It is currently
            focusing on southern and western India but also has plans to go national in the near
            future.


                                                 52
                       THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                       Distribution channels


•   Nilgiri's Supermarkets, owned and managed by Nilgiri’s Dairy Farm Limited
    (NDFL), is a leading food retailer and manufacturer of dairy and bakery products in
    southern India (annual sale of approximately Rs. 15.5 billion). The first Nilgiri’s food
    retail outlet/supermarket opened in Bangalore in 1905. Currently, there are 25
    Nilgiri’s Supermarkets all in southern India located in Bangalore, Mysore, Chennai,
    Coimbatore and Erode.
•   Sabka Bazaar is operated by The Home Stores (THS) and is part of a Rs. 600
    crore Shahid Group of Companies and is a 51:49 JV with Groupe Casino, France a
    multi-format retailer. Sabka Bazaar is North India’s largest supermarket chain and
    there are 21 Sabka Bazaar stores in Delhi. THS in association with Ansal Housing
    and Construction Ltd, a leading property developer (Rs. 3.5 billion), has forayed into
    the hypermart segment with a Super Sabka Bazaar in New Delhi.
•   C3 – The Market Place is owned by TAI Industries in Kolkata. While C3 is only
    found in Kolkata, the company has plans to expand to other states in the Eastern and
    North Eastern regions of India.
•   Piryamid Supermarket is owned by the real estate business arm of Piramal
    Enterprises, a Rs. 35 billion conglomerate and one of India’s largest diversified
    business houses with interest in pharmaceuticals, retailing, glass, textiles, auto-
    components and engineering. The group forayed into the retailing business in 1999
    with a landmark mega state-of-the-art shopping mall called Crossroads in central
    Mumbai followed by one in Pune in 2001. Crossroads houses 500 of the top
    international and national brands including Piramyd Supermarket, the food and
    grocery retail venture. Piramal plans to expand by around 40 stores with an
    investment of Rs. 500-600 million in cities such as Mumbai, Pune and Nagpur in the
    next four years.
•   Haiko Supermarket is owned and managed by Lakewood Malls Private Limited,
    Mumbai (LMPL), the retail wing of the leading property developers - Hiranandani
    Group of Companies. Haiko Supermarket was launched in June 2000 with its first
    outlet in a prestigious area in North Mumbai. The supermarket is spread over
    10,000 sq. ft of space, thus making it the largest supermarket of its kind in the
    country. It is a fully air-conditioned with aesthetically designed interior, immaculate
    displays, wide aisles, and well-designed signage. They will be a five-store chain by mid
    2007, expanding to more than 15 stores by 2010 in Mumbai alone.
•   Bombay Bazaar Limited (BBL) is perhaps one of the largest private sector pure
    grocery retail chains, in terms of the number of outlets. It is a Mumbai-based retail
    chain with 250 outlets, selling food, groceries, and provisions. Currently, BBL is
    concentrating on promoting their private brands of groceries and provisions.




                                        53
                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                Distribution channels


        •   SPAR Supermarket/Radhakrishna Foodland Pvt. Ltd – SPAR International, the
            Netherlands has signed a license agreement with Rs. 900m Radhakrishna Foodland
            Pvt. Ltd, a leading foodservice distribution company, to operate in the Mumbai
            region. The first SPAR store opened in Mumbai in January 2005 and is the first
            international food retailer to enter the Indian market. Radhakrishna Foodland Pvt.
            Ltd plans to open three new SPAR Supermarkets in Mumbai by 2007.


Some of the main, larger scale, retail formats (hypermarkets) in India are:

        •   Great Wholesale Club Ltd (GWCL) is another venture of the owners of
            Foodworld Supermarkets who have made their foray in the cash and carry store
            format by opening the “Giant” hypermarket in Hyderabad in 2001. Giant is
            spearheading the hypermarket revolution in India and in 2004 opened two stores in
            Mumbai and Kolkata. GWCL has plans to open similar “Giant” hypermarkets in
            Bangalore and Chennai in the near future.
        •   Metro Cash & Carry India Ltd (MCCI), a 100% subsidiary of the German-based
            cash and carry store, Metro AG, is scheduled to open its first store in Bangalore in
            2003. MCCI is opening its second venture in Kolkata in 2005.
        •   Shoprite Hyper is a 100% subsidiary of South Africa’s largest food retailer,
            Shoprite Holdings Ltd. In December 2004, Shoprite opened its first hypermarket
            with an investment of US $375 million in Mumbai spread across 70,000 square feet.
            This is in association with Mumbai based leading property builder, Nirmal Group of
            Companies.
4.4.3   Industry trends affecting or altering the structure of retail food sales

The continued growth of the organized retail sector in India will have a huge impact on the
country’s distribution channel. Growth in this sector will be dependent on rising incomes and
increasing exposure to the “western” lifestyle. It is estimated the food retail sales in
supermarkets and hypermarkets have grown approximately 30% per year in the last three years
and this trend is expected to continue in the future.

Although the retail sector is rapidly changing, the importance of the smaller independent food
stores will still play a role in the Indian distribution channel, but primarily for domestic products.
As a result, there should be a unique opportunity for imported food products in the supermarket
sector in the future.




                                                 54
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                              Distribution channels


4.4.4   Types of product promotions used

Most of the major confectionery manufacturers in India rely on regional and national television to
promote their products. Their marketing message is primarily aimed at children, teenagers, and
young adults. Thus, they also use promotional activities such as sponsorships of sports and other
activities in schools and colleges.

For the most part, importers and retailers are not heavily involved in promotion of
confectionery. Aside from the in-store display of confectionery, retailers do not go into any
additional lengths to promote their products. However, some of our respondents indicated that
they occasionally place advertisements in newspapers or magazines around the holiday season
and several respondents had plans to use radio promotion in the future.     Also, some of the
importers we interviewed indicated that they consider promotional support from their overseas
suppliers important for carrying their products and brands.




                                               55
                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                    Market entry



SECTION 5:           MARKET ENTRY

5.1     Tariffs, import and customs regulations

5.1.1   Import and custom regulations

All the categories mentioned below are listed under OGL (Open General License) and can be
imported freely into the country and no special import license is required.

Chewing gum (HS 1704.10)
Sugar confectionery (HS 1704.90)
Bulk chocolate (HS 1806.20)
Retail chocolate (HS 1806.31; 1806.32; 1806.90)
Sugar free confectionery (HS 2106.90.99)

5.1.2   Import tariffs

The import tariffs for each of the above classifications are as follows:



                           Custom Heading No: 17041000
              Sugar Confectionery (Incl. White Chocolate) without Cocoa
                             - Chewing gum, whether or not sugar coated


                                                                     ADD.   EDU.
                                     Unit              Basic
                                                                     DUTY   CESS
         Duty Rates in %        Kilogram(s)            45 %          16 %   2%




                           Custom Heading No: 17049090
              Sugar Confectionery (Incl. White Chocolate) without Cocoa
                                               --Others

                                                                     ADD.   EDU.
                                     Unit              Basic
                                                                     DUTY   CESS
         Duty Rates in %        Kilogram(s)            30 %          16 %   2%




                                                  56
                      THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                          Market entry




                   Custom Heading No: 18062000
          Chocolate & other food products containing Cocoa
 - Other preparations in blocks, slabs or bars weighing more than 2 kg. or in liquid,
paste, powder, granular or other bulk form in containers or immediate packings, of
                             a content exceeding 2 kg.


                                                                ADD.        EDU.
                            Unit               Basic
                                                                DUTY        CESS
Duty Rates in %        Kilogram(s)             30 %                16 %      2%




                   Custom Heading No: 18063100
          Chocolate & other food products containing Cocoa
                       Other, in blocks, slabs or bars: - Filled


                                                                ADD.        EDU.
                            Unit               Basic
                                                                DUTY        CESS
Duty Rates in %        Kilogram(s)             45 %                16 %      2%




                   Custom Heading No: 18063200
          Chocolate & other food products containing Cocoa
                    -- Other, in blocks, slabs or bars: - Not filled

                                                                ADD.        EDU.
                            Unit               Basic
                                                                DUTY        CESS
Duty Rates in %        Kilogram(s)             45 %                16 %      2%



                    Custom Heading No: 180690
          Chocolate & other food products containing Cocoa
                                       -- Other


                                                                ADD.        EDU.
                            Unit               Basic
                                                                DUTY        CESS
Duty Rates in %        Kilogram(s)             30 %                16 %      2%




                                          57
                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                     Market entry




                             Custom Heading No: 21069099
                  Food Preparations Not Elsewhere Specified Or Included
                                                 --Others

                                                                         ADD.           EDU.
                                       Unit              Basic
                                                                         DUTY           CESS
         Duty Rates in %          Kilogram(s)            150 %            0%             2%


5.1.3   An example

The following example illustrates the how the tariff is calculated.




5.2     Food safety, packaging, and labeling requirements

The Indian Food Laws could be the main constraint for US chocolate and confectionery
manufacturers’ immediate entry into India via the legal channel, although some recent
amendments in the laws will benefit the imports of sugar free confectionery. For example,
according to one respondent, an importer and agent for a US brand, 70% of the confectionery
range of this brand manufacturer cannot be legally imported into India because certain food
additives (colors, preservatives and flavoring agents) used by the company are not approved by
PFA in India. 18




18
  The Prevention of Food Adulteration Act (PFA) of 1954 and the PFA Rules of 1955 as amended. The
PFA covers various aspects of food processing and distribution, such as food color, preservatives, pesticide
residues, packaging and labeling, and regulation of sales.


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                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                                  Market entry


Also, US manufacturers are not willing to comply with some labeling requirements and special
instructions, because current volumes are too small to justify the adjustments. Although, the
Government of India through a special notification issued by Ministry of Commerce & Industry
has allowed the importer to put these special labels/stickers on the consignment at the port of
entry in India; this could be one of the reasons why importers prefer to buy from agents in Dubai
and Singapore who are willing to put these additional labels/stickers on the consignment prior to
shipment to India.

Another government act that needs to be taken into consideration is the Standards of Weights
and Measures Act, 1976, and Standards of Weights and Measures (Packaged Commodities) Rule,
1977. These legislative measures are designed to establish fair trade practices with respect to
packaged commodities. The rules are to ensure that the basic rights of consumers regarding vital
information about the nature of the commodity, the name and address of the manufacturer, the
net quantity, date of manufacture, and sale price are provided on the label. There may be
additional labeling requirements for food items covered under the PFA. Importers of packaged
food products must adhere to these acts, including labeling the product, informing the consumer
of the name and address of the importer, the net quantity, date of manufacture, best before date,
and sale price.

The latest issue of USDA’s FAS report on India Food and Agricultural Import Regulations and
Standards from July 2004 (GAIN report # IN4077) provides excellent background and all
necessary information. The report can be viewed at:
http://www.fas.usda.gov/gainfiles/200407/146107003.pdf

Overall, the best approach for any potential exporter to India is to establish contacts and work
with experienced importers and distributors, who would be able to provide the necessary
guidance.




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                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                       Conclusions and recommendations



SECTION 6:          CONCLUSIONS AND RECOMMENDATIONS

6.1     General prospects

The Indian market for confectionery products has undergone significant changes over recent
years. While penetration and consumption levels are still very low, overall sales, and particularly
sales of higher value premium products have increased. The availability of imported products has
also been rapidly rising since India liberalized its imports regime in 2001. Nevertheless, they are
still very small leaving ample opportunities for further growth.

The distribution channels have also undergone substantial changes. Supermarkets have emerged
and started to gain power over other retail formats. With these changes in mind, we expect
that:

        •   The share of imported confectionery will continue to increase over the next several
            years, although overall sales will remain modest. Indians’ taste will continue to
            become more westernized and more quality conscious. This trend will be more
            obvious in the urban areas among middle and upper class consumers, offering higher-
            end foreign brands growth opportunities. While most domestic companies also
            focus their new product development efforts on the mass market, a few have
            products targeting premium products. Nevertheless, Indians associate imported
            products with higher quality, and therefore respond positively to confectionery
            imports. The United States along with Western Europe are perceived as offering
            highest quality, although there is very low awareness of US confectionery products
            and brands.
        •   Indian confectioners are increasing their efforts in product development and
            promotional activities, and exporters will face stiffer competition from the domestic
            sector. On the other hand, the very low penetration and consumption levels provide
            ample opportunities for growth and make competition less of a constraint.
            However, for US exporters competition will be an important factor in the upscale
            niche segments, where European brands, particularly for chocolate are considered
            the best.
        •   The popularity of chocolate products, particularly boxed assortments for gifts, will
            continue to increase.
        •   The sugar confectionery will remain the largest confectionery segment. We expect
            to see growth of new and novelty products, such as mint and medicated
            confectionery (with added vitamins and/or other minerals), as well as the new to the
            country sugar-free confectionery categories.




                                                60
                            THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                    Conclusions and recommendations


      •   While the traditional targets for confectionery products have been children and
          young people, increasing number of marketers have seen growth opportunities in
          targeting the adult consumer segment. This will lead to new products and marketing
          strategies aimed at them.
      •   There will continue to be opportunities for new products that appeal to the young
          consumer. The ever-present stimulus of novelty and fashion, encouraged by
          continuing exposure to western culture will keep the doors open for new products
          and new suppliers.
      •   Marketing and promotion expenditures for confectionery products will increase and
          distributors will require promotional support from manufacturers.


6.2   Recommendations

      •   Potential exporters should carefully select trading partners from among the Indian
          importers and distributors, as they will be critical to ensuring presence of their
          products on retail shelves. Importing is a relatively new business in India, and many
          importers may lack the knowledge and experience to ensure successful distribution
          of the products they deal with. Therefore, it is of critical importance to select the
          right partner.
      •   Importers and distributors may have limited financial and human resources. Thus
          U.S. exporters should be willing to offer as much support as possible, particularly in
          the initial phase of market entry.
      •   U.S. exporters may directly contact potential importers and distributors to select
          their partner(s). They may use the list of industry contacts provided in Section 6 or
          obtain contact through the US Embassy in New Delhi. The typical way of
          introduction is to send them company brochures, product catalogues, product
          samples, and price lists. A proper, formal introduction is important for a new
          entrant to make effective and productive contacts at potential partner firms.
      •   Mumbai and/or New Delhi are the most appropriate entry markets for US exporters.
          These cosmopolitan cities, with a larger number of affluent consumers exposed to
          western influences, as well as better developed infrastructure, are most appropriate
          for introduction of new US products that are generally higher priced than domestic
          and some imported products.
      •   India remains a very price sensitive market and appropriate pricing is key to the
          success of new products. US exporters should carefully discuss their product pricing
          and positioning with their chosen partners in India.




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                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                      Conclusions and recommendations



6.3    Success stories

Distribution is the key to success for high value food items like chocolates. There are many
examples of both small companies with minimal financial resources and large companies with
substantial financial resources who lack adequate experience in the import trade or knowledge
and access to distribution channels for confectionery products and who have ventured into the
import of chocolates and confectionery but failed. In fact, some of the most common mistakes
have revolved around seasoned and diversified importers entering the confectionery import
market with a keen understanding of importing but a lack of knowledge about the confectionery
market and distribution in India. There have been several examples where importers with
experience in industries from metals to healthcare products partnered with leading foreign
confectionery manufacturers to import and distribute their products throughout India. Yet,
these importers did not have an understanding of the complex confectionery distribution
channels, the price sensitivity of the confectionery market, nor their target market and,
inevitably, imports were discontinued and the goal of the partnerships was never attained.

Although these companies did not have success in India’s confectionery import market, for all of
the unsuccessful attempts there are an equal number of success stories. Some of these are as
follows:

       •   Effem India Pvt Ltd - a 100% subsidiary of Mars Inc., USA is perhaps the only
           company in India that is professionally importing and distributing chocolate in India.
           The company commenced imports in August 2004. They import products such as
           Mars, Twix, Snickers and Bounty from the Mars subsidiaries Masterfoods, Holland
           and Masterfoods, France. The products are distributed by Snowman’s Frozen Foods
           Pvt Ltd, a distribution company, which uses a cold/refrigerated chain to distribute the
           product all over India and the product is available in all metropolitan areas, cities and
           main supermarkets such as Foodworld, Food Bazaar, Subka Bazaar, Nilgiri’s, C3 as
           well as in convenience/kinara stores, chemist shops, and grocery stores across India.
       •   Sunstar Confection & Trading (Pvt) Ltd / Fantasie Chocolates - The other
           international major brand in India is Lindt. These chocolates are imported by a
           Mumbai based company Sunstar Confection & Trading (Pvt) Ltd who also retails the
           Lindt’s range through their own air conditioned boutique stores called Fanatise
           Chocolates in Mumbai, Pune and Bangalore. Fantasie chocolates also sell their home
           brand Fantasie through these stores. Fantasie chocolate brand is 50 years old and is
           well known in Western India.
       •   Vrinka Overseas Pvt Ltd/Sweet World – is perhaps India’s only multi-store, multi-
           location candy store. Sweet World commenced operations in 2002 and introduced
           the Pick ‘N’ Mix concept in India. Sweet World sells over 200 varieties of unbranded
           imported confectionery including jellybeans, gummies, marshmallows, gumballs,


                                                62
                      THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                              Conclusions and recommendations


    licorice, etc. There will be 20 Sweet World stores in India by March 2005, all of them
    in the prestigious malls in major metropolitan areas across India.
•   Brook Trading Co. Pvt Ltd./Patchi Chocolates – another imported chocolate brand
    which has a presence in Mumbai, India is Patchi. Mumbai based Brook Trading Co.
    Pvt Ltd., imports and retails a range of Patchi’s chocolates imported from Lebanon.
    Their flagship store, Patchi, opened in Crossroads, an upmarket shopping mall in
    Mumbai in 2003. The company is planning to open two stores in Delhi and one each
    in Kolkata, Bangalore, Hyderabad and Pune in 2005.
•   Other US chocolate and confectionery brands that have established some small
    presence in India over the last three years are:

    −     Hershey’s – imported and distributed in India by Kaivan Foods;

    −     Skittles anad M&Ms – imported and distributed in India by Optimum Marketing
          Metrics Pvt Ltd;

    −     Tootsie – imported and distributed in India by Optimum Marketing Metrics Pvt
          Ltd;

    −     Just Born - imported and distributed in India by Optimum Marketing Metrics
          Pvt Ltd;

    −     Hasbro – imported and distributed in India by Microtrack Business Systems Pvt
          Ltd;

    −     Brach’s - imported and distributed in India by Balaji Victuals Pvt Ltd;

    −     Jelly Belly - imported and distributed in India by HMA Udyog Ltd; and

    −     Hillside Candy - imported and distributed in India by HMA Udyog Ltd.




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                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                          Industry contact information



SECTION 7:               INDUSTRY CONTACT INFORMATION

7.1     Confectionery importer-distributors and wholesalers

Ms. Vrinda Rajgarhia – Director
Vrinka Overseas Pvt Ltd (Importer and retailer of candy and confectionery)
46, Jolly Maker Chambers II,
225 Nariman Point
Mumbai – 400 021
Tel: +91 22 2202 7309 / 2202 7335
Fax: +91 22 2281 6122
Email: vrinda@sweetworldonline.com
Website: www.sweetworldonline.com

Mr. Kaivan C. Balsara
Kaivan Foods (Agent for Ferrero Rocher and Hershey’s – importer of chocolates)
C. K. Balsara Group of Companies
3, Kurla Industrial Estate
L.B.S. Marg
Ghatkopar (W)
Mumbai – 400 086
Tel: +91 22 25138455 / 25116795
Fax: +91 22 25139318
Email: kaivanbalsara@yahoo.com

Mr. Ravi Sureka
International Marketing Network (Agent for Toblerone – importer of chocolates)
Plot No. 7, Ashok Nagar Society
N.S. Road No. 11, J.V.P.D. Scheme
Mumbai – 400 049
Tel: +91 22 26134826
Fax: +91 22 26184485
Email: imnindia@rediff.com

Ms. Arti Manoj – Marketing Controller All India
Sunstar Confection & Trading (Pvt) Ltd / Fantasie Chocolates (Agent for Lindt – importer of
chocolates. Also manufacturer of Fantasie chocolates)
“Sun-Ville”
9, Dr. Annie Besant Road
Worli,



                                                 64
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                          Industry contact information


Mumbai – 400 018
Tel: +91 22 2493 5546 / 2497 8082
Fax: +91 22 2492 1604
Email: sunstarconfection@hathway.com
Website: www.webindia.com/fantasie

Mr. Chetan Gokal – Director
Brook Trading Co. Pvt Ltd. / Patchi Chocolates (Agent for Patchi chocolates – Importer and retailer
of chocolates)
Kasturi Building, 5th Floor, Jamshedji Tata Road
Mumbai – 400 020
Tel: +91 22 2202 0590 / 2202 2291
Fax: +91 22 2285 3713
Email: patchi@brooktrading.com
Website: www.brooktrading.com

Mr. A. Haveliwala – Director
Uni Colloids Impex Pvt Ltd (Importer of bulk chocolates)
206, Nagdevi Street, 2nd Floor
Valiulla Compalex
Mumbai – 400 003
Tel: +91 22 23439215 / 0214 / 2342 9872
Fax: +91 22 2343 5916 / 5637 0959
Email: unicoll@vsnl.com, uni@bom8.vsnl.net.in

Mr. Sanjey Bajoria – Director
Bajoria Foods Pvt Ltd / Virgo Marketing (Importer of candy and confectionery)
41/1623 D. N. Nagar,
Andheri (W)
Mumbai – 400 053
Tel: +91 22 3090 7575 / 2670 5686
Fax: +91 22 2670 7110
Email: bajorias@vsnl.com

Kolkata Address:
1, British Indian Street
Kolkata – 700 069
Tel: +91 33 2210 2479




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                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                           Industry contact information


Mr. Rajesh Sanghvi - Director
Delta Chem Impex Pvt Ltd (Agents for Barry Callebaut – importer of chocolates)
C-13, Sri Ram Industrial Estate
13, G. D. Ambedkar Road
Wadala
Mumbai – 400 031
Tel: +91 22 5662 1093-94 / 5662 5440
Fax: +91 22 5662 1095 / 24181770
Email: rajesh.sanghvi@anmalliance.com, cheminfo@amalliance.com
Website: www.anmalliance.com

Mr. Chetan Jaikishan - Director
Express Foods (Importer of bulk chocolates. Also manufacturer of cookies and breakfast cereals)
444 Kewal Industrial Estate
S.B. Marg, Lower Parel
Mumbai - 400 013
Tel: +91 22 2281 3695 / 2281 7436
Fax: +91 22 – 2495 2923
Email: expressfoods@vsnl.com
Website: www.expressfoods.net

Mr. Manoj Dugar – Managing Director
Mr. Sumit Khandelwal – Director
Dugar Overseas Pvt Ltd (Agent for Ritter Sport and Accor - Importer of chocolate, candy and
confectionery)
D-65, Anand Niketa
Lower Ground Floor
New Delhi – 110 021
Tel: +91 11 8661240 / 41
Fax: +91 11 2467 8475
Email: smk2@vsnl.com

Mumbai office:
D-311 Crystal Plaza
Link Road, Andheri (W)
Mumbai – 400 053
Tel: +91 22 56926778 / 70 / 80
Fax: +91 22 56914975




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                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                           Industry contact information


Mr. Saswata Sengupta – Chief Execuitve
Rai & Sons Pvt. Ltd (Agent for Ricola – importer of candy and confectionery)
9-A, Connaught Place,
New Delhi-110001
Tel: +91 11 2332 1270 / 2331 1681
Fax: +91 11 2332 7598 / 23317117
Email: saswatsengupta@rai-group.com
Website: www.raifoods.com

Mrs. Bina Modi – Director
Yum n Yumi Candy (Agent for Hillside Candy - importer of candy and confectionery)
HMA Udyog Ltd
E 49/11 Okhla Industrial Estate
Phase II
New Delhi – 110 020
Tel: +91 11 2638 5797
Fax: +91 11 2638 9138
Email: binamodi@satyam.net.in

Mr. Tushar Gupta - Director
Tushar Nutritive Foods Pvt. Ltd (Importer of bulk chocolates)
508,B-9, ITL Twin Towers,
Netaji Subhash Marg,
Pitam Pura, Ring Road.
New Delhi – 110 034
Tel: +91 11 2719 1823
Fax: +91 11 2719 3510
Email: tushar@nda.vsnl.net.in
Website: www.foodtechmart.com

Mr. Atul Khanna – Director Operations
Optimum Marketing Metrics Pvt Ltd (Agent for Skittles and Tootsie - importer of candy and
confectionery)
203, Okhla Industrial Estate, Phase III
New Delhi – 110 020
Tel: +91 11 5100 0034-35-36
Fax: +91 11 5100 0037
Email: optimum@ommindia.com, optimumindia@rediffmail.com
Website: www.ommindia.com




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                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                            Industry contact information


Mr. Sunil Rai – President
Balaji Victuals Pvt Ltd (Agent for Brach’s – importer of candy and confectionery)
W-28, Green Park Main
Lower Ground Floor
New Delhi – 110016
Tel: +91 11 26965158
Fax: +91 11 26965147
Email: sr@balajivictuvals.com

Mr. J. P. Bagaria – Managing Director
Rangdev Holdings Pvt Ltd (Agent for Nestle, Swiss Delice and Stella Chocolates, Fazer Chocolates,
Jacali Chocolates and Swiss Navy Candy – importer of chocolates and Candy)
46, Strand Road, 1st floor
Kolkata – 700 007
Tel: +91 33 22580350
Fax: +91 33 22580340
Email: rangdev@vsnl.com

Mr. N. Balasubranaian – National Sales Manager
Effem India Pvt Ltd (Subsidiary of Mars Inc., USA - importers of chocolates)
1st floor, Ashoka Hitech Chambers
Banjara Hills, Road No. 2
Hyderabad – 500 034
Tel: +91 40 23555900
Fax: +91 40 23551528
Email: n.balasubrananian@eu.effem.com

Mr. Anil Shroff – Director
Essence Empire (Agent for Swiss Confisa, Switzerland and Haribo, U.K. – importers of chocolates and
confectionery)
228-231, Kaliandass Udyoh Bhavan Premises,
Co-op. Society Ltd., Century Bazar Lane,
Prabhadevi,
Mumbai - 400 025
Tel: +91 22 5660 8260 / 5660 2203
Fax: +91 22 2438 0426
Email: nilima@ essenceempire.com




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                                 THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                            Industry contact information


Mr. Rajiv Tibrewal -Managing Director
Microtrack Business Systems Pvt Ltd / Taurus Confectionery India (P) Ltd
1, Rawdon Street
"Shubham"
5th Floor, Room - 505
Kolkata - 700 017
Tel: +91 33 302 20300 / 2280 9477
Fax: +91 33 2280 1853
Website: www.candytreatsindia.com
Email: info@candytreatsindia.com

Mr. Jay Jindal – Managing Director
Jindal Dyechem Industries Ltd. (Agents for Sorini, Italy)
110 Babar Road
Connaught Place
New Delhi 110001
Tel: +91 11 234 11800
Fax: +91 11 234 11801
Email: info@jindalartglass.com

Mr. Harcharan Singh Nag – Managing Director
M. B. International / H.S. Nag & Associates Pvt. Ltd (Agents for Paton’s Australia and Walter Heindl
Confiserie, Austria)
106 DLF Cinema Complex, Greater Kailash - II,
New Delhi - 110048
Tel: +91 11 2921 1383
Fax: +91 11 2921 6213
Email: thenags@thenags.com



7.2     Key retail candy accounts across marketing channels

Mr. Raghu Pillai - President & Chief Executive Retail Sector
Foodworld Supermarkets Limited
Spencer Plaza,
IV Floor, 769, Anna Salai,
Chennai - 600 002
Tamil Nadu - India
Tel: +91 44 2851 0708 / 2841 8990
Fax: +91 44 2859 4563



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                                THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                           Industry contact information


Mr. Kishore Biyani – Managing Director
Food Bazaar
Pantaloon Retail (India) Limited
Pantaloon Knowledge House,
Shyam Nagar,
Off Jogeshwari-Vikhroli Link Rd.,
Jogeshwari (E),
Mumbai- 400 060
Maharashtra - India
Tel: +91 22 5644 2200
Fax: +91 22 5644 2201

Mr. C. Gopalkrishnan - Managing Director
Nilgiri’s Supermarket
Nilgiri’s Dairy Farm Limited / Nilgiri’s Franchisee Private Limited
404/A, 2nd Cross, 8th Main,
3rd Block, Koramangala,
Bangalore - 560 034
Karnataka - India
Tel: +91 80 2552 7124 / 2550 6705
Fax: +91 80 2552 7125

Mr. Mohammed Abdulla – Managing Director
Subka Bazaar
Home Stores (India) Ltd
D-169 Okhla Industrial Area, Phase I,
New Delhi – 110020 - UT
Tel: +91 11 2681 9692 -5
Fax: +91 11 2681 1665 / 2681 4573

Mr. Wangchuk Dorji – Managing Director
C3 Supermarkets
Tai Industries Ltd
53-A, Mirza Ghalib Street, 3rd Floor
Kolkata - 700016
West Bengal - India
Tel: +91 33 2249 2956 / 2229 2292 / 2229 8489
Fax: +91 33 2249 7319




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                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                          Industry contact information


Mr. K N Iyer - CEO (Retail)
Piramyd Supermarket
Piramal Holdings Ltd
Khatu House
Mogal Lane
Mahim (W)
Mumbai 400 016
Maharashtra - India
Tel: +91 22 5666 9520 - 22
Fax: +91 22 5666 9526

Mr. Susil S. Dungarwal – Chief Manager – Development & Operations.
Haiko Supermarket
Lakewood Malls Private Limited
Olympia, Central Avenue,
Hiranandani Gardens,
Powai
Mumbai - 400 076
Maharashtra - India
Tel: +91 22 2579 7888
Fax: +91 22 2579 7967

Mr. Raghu Pillai - President & Chief Executive Retail Sector
GIANT
Great Wholesale Club Limited
Spencer Plaza,
IV Floor, 769, Anna Salai,
Chennai - 600 002
Tamil Nadu - India
Tel: +91 44 2849 3611

Mr Harsh Bahadur - Country Manager and MD
METRO Cash & Carry India Pvt. Ltd.
No. 26/3, Industrial Suburbs, 'A' Block,
Subramanyanagar, Ward No. 9,
Bangalore - 560 055
Karnataka - India
Tel.: +91 80 2219 2000
Fax: +91 80 2219 2200




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                             THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                        Industry contact information


Mr. B. Singh – Country Manager India
Shoprite / Megasave Trading Pvt Ltd
Plant 18-B, Godrej & Boyce Industrial Complex
Vikhroli (E)
Mumbai 400 079
Maharashtra - India
Tel: +91 22 5518 0102 / 03
Fax: +91 22 5518 0105

Mr. Mayank Tandon – Head Marketing & Sales
SPAR Supermarket / Radhakrishna Foodland Pvt. Ltd.
Radhakrishna House
Majiwade
Thane (W) – 400 601
Maharashtra - India
Tel.: +91-22-5598 6464
Fax: +91-22-5597 1767
Email: response@rkfoodland.com




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                                   THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                             Appendix 1: Indian sweetmeats



APPENDIX 1: INDIAN SWEETMEATS

Sweetmeats in India have a great cultural significance as they are accepted as a mark of hospitality
in almost every section of the society. Apart from hospitality, they are a must during most
religious performances, festivals and other social occasions such as engagement and wedding
ceremonies, anniversaries, birthdays and graduation parties, etc.

For most Indian people sweetmeats form a part of their culture and tradition. Almost every
state or region has its sweetmeat specialty and traditions associated with it. But the rapid
growth of communication, migration, urbanization, and industrialization has led to the diffusion of
sweetmeats from one region to another. In most parts of India, they are known as mithai
although there are some regional variations in names. Historically, any person actively associated
with the profession of sweetmeat making was known as Halwai but with rapid social change due
to industrialization, this caste does not exist anymore, although you can find traditional Halwais in
all large cities.

Sweetmeats and other sweet dishes form an important part of the dietary pattern in India. The
country is the third largest producer of sugar in the world and a large producer of milk.

Though it is impossible to describe all the ingredients of sweetmeats, the basic ingredients are:

        •   Milk (fresh cow and buffalo milk);

        •   Kheer (‘condensed milk’) and khoya (‘dried milk’);

        •   Chenna (cottage cheese);

        •   Ghee (butter melted until the watery content is expelled);

        •   Sugar, various forms of refined or unrefined sugar (gur or jaggery);

        •   Besan (Gram or other peaa or bean flours);

        •   Safead (rice-flour);

        •   Dried fruits and nuts (primarily almonds, pistachios, cashews and raisins);

        •   Flavoring, and coloring agents (e.g. -- the most common cardamom flavor, rose
            water, mango, ginger, lemon, peel, etc. -- saffron (zafran), turmeric (yellow),
            cochineal (red), pistachio (green) and other edible coloring agents);

        •   Hot spices. Dried (and oftern baked or roasted) cardamom, cloves, cinnamon, and
            cassia leaves;

        •   Sodium bicarbonate; and



                                                 73
                              THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                        Appendix 1: Indian sweetmeats


       •   Barak/Tabqka for decorating the more expensive sweetmeats (e.g. rose petals, silver
           leaf, etc).
The Indian sweets can be broadly categorized as follows:

       •   Milk Sweets are made from kheer or khoya. Tradition plays a major role in kheer or
           khoya sweets. The range includes a wide range of variations such as Pedas and
           Burfis.

       •   Ghee sweets are made by using ghee as a base with besan and safead. Again, there is
           a wide range types, including of Ladoos, Halwas and Pinnis and the famous Sohan
           Papdis.

       •   Bengali sweets are the most popular and are made from Chenna. These include the
           Rasgullas, Gulab Jamuns, Sandesh, Chum Chums, Anurodh, Pakizas and a wide range
           of Bhoj.

       •   Dry fruit sweets are prepared from almonds, cashews, and pistachios. Figs and
           raisins are also widely used. These include Badam Pista Katli, Kaju Anjeer Roll, Kaju
           Katli and Anjeer Burfi.


Structure of the sweetmeats sector

The Indian sweetmeat market is roughly estimated at 1million metric tons. The market is difficult
to estimate as these are manufactured at home or by the over 60,000 odd sweetmeats shops
(called halwaiis or mithai wallahs) which dot almost every street in India. This unorganized
sector has lower hygiene and quality standards, smaller scale, and products have very short shelf
life. There are often several such small shops catering for each residential area

The small halwaiis co-exist with a few hundred larger regional sweet companies that sell
sweetmeats under their store names and sometimes end up as regional brands. These
operations usually emerge in the larger cities and could be considered the beginning of a more
organized industry. There is no quantification of the scale or share of this more ‘organized’
sector but the larger sweetmeat operations only exist in large cities such as Mumbai, New Delhi,
Hyderabad, Kolkotta, Bangalore, and Chennai. The smaller towns and rest of rural India are
dominated by the unorganized, small, corner shop sector. We estimate about 85% of the total
sweetmeat sector remains in the unorganized sector.

Most of the sweetmeats are milk based and perishable with a shelf life of less than a day.
Consumer loyalty is built by consistent quality, taste, freshness, variety, and convenience. For
this reason, often both manufacturing and retail of sweets take place in the same location. Some
of the larger operations would have a central production facility/factory which caters to the


                                               74
                               THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                         Appendix 1: Indian sweetmeats


company’s own retail outlets and sometimes to other retailers as well. Usually the production
facility and the retail outlets are located in the same city. Most of these have been established for
many years and remain in the hands of the original family owners. The following table lists some
larger sweetmeat operators in India.

 Brijwasi Sweets - Mumbai         15             The two top sweetmeat brands in Mumbai are
                                  branches       Brijwasi and Punjabi Chandu Halwai. Brijwasi Sweets
 Punjabi Chandu Halwai            11             is Mumbai’s leading sweetmeat manufacturer. It was
 Karachiwala - Mumbai             branches       established in 1945 by Mr. Ramswaroop Goyal and
                                                 continues to be managed by the Goyal family.
                                                 Mumbai is a cosmopolitan city and Brijwasi Sweets
                                                 caters to the needs of all communities through its 15
                                                 outlets all over Mumbai. Punjabi Chandu Halwai was
                                                 established in 1896 in Karachi (now in Pakistan).
                                                 After Partition in 1947, the business moved to
                                                 Mumbai and the company soon established itself as a
                                                 reputable manufacturer of sweets and savories.
                                                 Today, Punjabi Chandu Halwai sells a wide array of
                                                 sweetmeats and namkeens through its 11 branches in
                                                 Mumbai.
 Nathu’s Sweets - New             6 branches     Nathu’s is the most popular brand in Delhi. Nathu’s
 Delhi                                           Sweets started as a single outlet in 1995 and over the
 Bikanervala Foods Pvt            6 outlets      past six years has expanded to six. Owned by the
                                                 Gupta family, Nathu’s is a household name in Delhi
 Limited - New Delhi                             today. Nathu’s Sweets runs restaurants in these
                                                 branches and also sells a wide range of sweetmeats
                                                 and namkeens. Nathu’s has recently diversified into
                                                 event catering business. Another brand, Bikanervala
                                                 which began as a namkeens brand in 1950, today has
                                                 six restaurants in Delhi selling a wide range of their
                                                 namkeens, sweetmeats, snacks and other food items.
 Arya Bhavan Sweets -             5 branches     Arya Bhavan originally from the temple town of
 Bangalore                                       Madurai in Southern India is perhaps the only the
                                                 popular sweetmeat brand in Bangalore today and
                                                 currently has 5 branches.
 G. Pulla Reddy Sweets -          2 branches     Mr. G Pulla Reddy started his business vending
 Hyderabad                                       sweets on a small cart way back in 1948 and today his
                                                 name is synonymous with sweets in the historical city
                                                 of Hyderabad. G. Pulla Reddy has 2 branches selling a
                                                 wide range of milk and dry fruit sweets.
 Nandhinee Sweets -               8 branches     Nandhinee Sweets has eight branches in the city of
 Chennai                                         Chennai and sells a wide range of South Indian,
 Adyar Ananda Bhavan -            9 branches     Bengali Sweets and Ghee Sweets. Adyar Ananda
                                                 Bhavan perhaps is Chennai’s only truly ethnic South
 Chennai                                         Indian sweetmeat manufacturer with 7 branches
                                                 spread over the city.



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                                                        Appendix 1: Indian sweetmeats


Attempts to develop a larger scale production of sweetmeats have been limited to a few
products such as rasagolla (a spongy succulent sweet) and shrikhand (a traditional curd-based
milk sweet). Two companies K C Das Pvt Ltd, Kolkatta and Haldiram Foods International Ltd,
Nagpur both sell branded canned rasagollas under their brand K C Das and Haldiram’s,
respectively. However, the canned sweetmeat concept has yet to be embraced by Indian
consumers.

On the other hand, organized efforts have been fairly successful in branding shrikhand. The most
popular brand is Amul from Gujarat Cooperative Milk Marketing Federation Ltd. Others include
Warana from Warana Dairy and Aarey from Aarey Dairy. The majority of the sales of branded
shrikhand are in Western India, especially in Mumbai where it is a traditional sweet. The market
for branded shrikhand alone is estimated to be 7,000 metric tons.




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                                                  Appendix 2: Key manufacturers’ profiles



APPENDIX 2: KEY MANUFACTURERS’ PROFILES

The following profiles have been compiled mainly on the basis of our desk research and to a
smaller extent the trade interviews. Sources include the companies’ annual reports, the internet
and various publications such as The Economic Times, The Business Line.



Cadbury India Limited

Company name and ownership details

Cadbury India Limited is a 51% subsidiary of Cadbury Schweppes plc., UK and is the largest
manufacturer of chocolate, confectionery and malted food products in India.

Indian Public Limited Company.
Listed on Mumbai, Calcutta and Delhi SXs.

Cadbury Schweppes Plc., U.K. and Cadbury Schweppes Mauritius is in the final phase to enable
the de-listing of CIL from Indian stock exchanges and have announced their final cash offer to
purchase outstanding public shareholding of 9.76% of Cadbury India. The two companies have
announced their decision to purchase the outstanding public shareholding which comprises of
34,83,539 equity shares at a price of Rs. 500 each.

The company has 3 factories, located in Thane and Nduri, Maharashtra State, and in Malanpur,
Madhya Pradesh State. It also has cocoa operations in Kottaym, Kerala State.

Installed capacities:
         − Cocoa powder – 900 mt/pa.
         − Malted foods – 6,470 mt/pa.
         − Chocolates and confectionery – N/A as products are manufactured at integrated
             plants.
         − Cadbury India gets some of its chocolate and confectionery products packed through
             contract packing.

Recent performance

FY ending 31 Dec. 2003:
       − Sales: Rs. 7,298.11m
       − Net Profit: Rs. 456.50m
       − During FY2003, Cadbury India sale of chocolates and confectionery products were
           valued at Rs. 5,140m


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Main activities

A manufacturer of chocolates and confectionery, malted foods and drinking chocolate, and soft
drinks.

        •   During FY2003, Cadbury India was bestowed with the award for the first Business
            Today – A. T. Kearney, India’s Best Managed Company. India’s best companies were
            identified on the basis of four characteristics: value creation, strategic direction,
            complexity of portfolio and status as a role model.
        •   During FY2003, Cadbury India was selected amongst the top 10 “Great Places To
            Work” in corporate India by Great Place To Work Institute, Inc., USA


Products and brand presence

Chocolate and confectionery. The Cadbury brand is synonymous with chocolates in India.

        •   Cadbury India has 70% of the domestic chocolate market.
        •   65% of Cadbury India’s revenue is from the sale of chocolates.
        •   Cadbury India has a 5% market share in the organized sugar confectionery segment.
        •   12% of Cadbury India’s revenue is from the sale of sugar confectionery.
        •   Cadbury India also markets Halls and Clorets under the Adam’s brand in India.
        •   Cadbury India has setup an entirely new network for its confectionery range and is
            not using its existing chocolate network.
        •   During FY2003, Cadbury India launched Double Deck and Caramello a new milk
            chocolate variant, launched Perk and Gems in smaller pack size priced at Rs. 2 and
            launched Bytes a chocolate flavored wafer snack.
        •   During FY 2003, Cadbury India also focused on newer gifting formats for various
            occasions.
Cadbury India chocolate brands include: Dairy Milk, Perk, Crackle, 5 Star, Temptations; and the
confectionery brands are Éclairs and Gems.

Gums. Cadbury India entered this segment with the acquisition of the Adam’s brands from
Warner Lambert India Pvt Ltd, which was consequent to the acquisition of the global non-
chocolate confectionery business of Pfizer Inc., USA by Cadbury Schweppes plc., UK, in 2002.
The acquisition is now poised to become a growth area for Cadbury India. The company
announced that it will strengthen its position in the confectionery sector and will launch some of
their gum brands such as Trident, Dentyne, Bubbas and Chiclets in 2005.


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Malted Foods. Cadbury India has the strong brand presence of Bournvita, which enjoys a
market share of around 16%. Other malted foods are Cadbury’s Drinking Chocolate and
Cadbury’s Cocoa powder, which contributes 22% of the company’s revenue.

Soft Drinks. Cadbury India has an arrangement with Pure Drinks Ltd to manufacturer a range
of soft drinks such as Canada Dry, Crush and Tonic Water.

Distribution and future outlook

Cadbury India is aiming at the development of its retail network in rural areas for expanding its
sales volume and turnover. It also has an advantage of brand equity, distribution network, access
to global technology and a strong base for raw material collection.




Nestle India Limited

Company name and ownership details

Nestle India Limited is one of India’s largest companies manufacturing consumer food products.
NIL is a 51% subsidiary of Nestle SA, Switzerland.

Indian Public Limited Company.
Listed on Mumbai and Delhi SXs.

The company has six factories in the following locations:
       − Bicholin and Ponda, in Goa State;
       − Moga, Punjab State (for confectionery products);
       − Nanjangud, Karnataka State;
       − Cherambadi, Tamilnadu State; and
       − Samalkha, Haryana State.

In addition to its six factories, Nestle India has a large number of contract packers in India.

Installed capacities:
         − Chocolates & Confectionery – N/A as products are manufactured at integrated
             plants.
         − Nestle India gets some of its chocolate a confectionery products packed through
             contract packing.


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Recent performance

For FY ending December 31 2003:
       − Sales: Rs.23,077m
       − Net Profit: Rs. 2,631m
       − During FY 2003, Nestle India manufactured 21,450 MT of chocolates and
           confectionery products valued at Rs. 3,366m.

Main activities

Manufacturer and marketer of coffee, tea, malted beverages, instant baby cereals & foods, milk
products, chocolates and confectionery, instant foods and culinary products. Manufactures
products in categories that include: “Milk Products and Nutrition”, “Beverages”, “Prepared
Dishes and Cooking Aids”, and “Chocolate and Confectionery”.

Products and brand presence

Chocolates and confectionery. Nestle India forayed into chocolates and confectionery in
1990 and has cornered a quarter of the chocolate market in India. It has expanded its products
range to all segments of the market. The Kit Kat brand is among the largest selling chocolate
brands in India.

       •   14% of Nestle India’s turnover is from the chocolate and confectionery.
       •   During FY 2003, Nestle India continued to strengthen their presence in the market.
           It sustained momentum through innovative consumer promotions and trade offerings
           and supporting key price points.
       •   During FY2003, Nestle India launched a range of innovative and renovated products
           in this category that includes Nestle Milk Chocolate, Nestle Fruit & Nut, Nestle
           Krunchy, Nestle Milkybar Starz, Nestle Choco, Nestle Chocolate Éclairs, Nestle
           Coffee Éclairs and various flavors of Chocostick.
       •   During FY 2003, Nestle India earmarked 25% of its product portfolio at affordable
           price points and cut prices of Kit Kat to drive volume growth. Nestle India cut
           prices of Kit Kat by up to Rs. 2, bringing the brand on a par with the chocolate
           industry benchmark price points of Rs. 5 and Rs. 10.

       •   Nestle Munch, the largest selling unit in the wafer segment and the most widely
           distributed, continued to gain in volumes. Nestle Chotu Munch, which was launched
           at Rs. 2/- price point was well received.



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Nestle India brands include:

        •   Chocolate: Milky Bar, Marbles, Munch, Nestle Rich Dark, Bar-One, etc.
        •   Confectionery: Polo, Soothers, Frootos and Milkybar Éclairs.
        •   All confectionery products are sold under the umbrella brand Allen's.


Distribution and future outlook

Hit by the low sales growth in chocolate and confectionery segment, Nestle India is revamping its
distribution structure to drive growth. The company has added 15 regional sales offices in its
sales and distribution structure from January 2004 to drive product reach into the smaller towns
and cities across the country.

Nestle India has a retail distribution network of 650,000 outlets reaching 3,300 towns, serviced
by a network of over 4,000 distributors. It is expanding its retail distribution reach and expects
to cover 1million outlets.




Lotte India Corporation Ltd.

Company name and ownership details

Lotte India Corporation Ltd. (LICL), formerly Parry’s Confectionery Limited (PCL), was part of
the Rs. 29,000m Murugappa Group and is India’s leading manufacturer of confectionery in India.

        •   Parry’s was a pioneer of the confectionery industry in India and was the first Indian
            company to setup its factory in 1914.
        •   During 2004, Murugappa Group sold 60.39% of its stake in Parry’s to Lotte
            Confectionery Co Ltd, Korea, for Rs.6447m and will further acquire 20% of Parry’s
            in the near future.
        •   The entry of multinationals in the Indian confectionery sector over the last decade,
            adversely affected Parry’s business and could not support further investments. In this
            changed market environment, the Murugappa Group found it difficult to pump in
            money continuously to build and sustain the confectionery brands and decided to
            exit to divest the group's stake in Parry’s in the best interest of its shareholders.
Indian Public Ltd. Company.



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Listed at Chennai and The National SXs.

For FY ending March 31, 2004:
       − Sales: Rs. 1,005.2m
       − Net Profit: Rs. 7.8m
       − One factory located in Nellikuppam, Tamilnadu

Installed capacities:
         − Products are manufactured at integrated plants and hence, installed capacities cannot
             be ascertained.
         − During FY2003-04, Lotte India produced 8,400 MT of assorted confectionery.
         − Lotte India has an exclusive arrangement with two independent contract
             manufacturers (one in Cochin, Kerala and Sangli, Maharashtra)

Main activities

Manufacturer and marketer of sugar boiled confectionery, cocoa and milk based toffees, candies
and mints.

        •   During FY1999-00, Parry’s entered into a joint venture agreement with Hutamaki Oy
            Leaf, Finland to manufacture and market Smilees brand - sugar panned chocolate
            buttons, Lakerol brand - medicated candy, and Chewits brand - chewable toffee with
            an investment of Rs. 250m but had to exit from this business as the products could
            not be adapted to India’s tropical climate conditions.
        •   During FY2003-04, Lotte India upgraded its quality systems and received the ISO-
            9001-2002 and ISO 14000 certifications and also HACCP certification from BVQI for
            its plant in Nellikuppam, Tamil Nadu.
Products and brand presence

Confectionery. The Lotte India management will continue with the existing Parry’s brands for
the next five years and will pay EID Parry’s a royalty of Rs 500,000 per annum. After that period
Lotte Confectionery Co Ltd, Korea will introduce Lotte brands to the Indian market.

        •   Lotte India brands have a 24.5% market share of the confectionery industry and a
            28% market share in the toffee segment.
        •   Lotte India brands have a strong presence in the 25 paise price segment.
        •   During FY2003-04, it entered the deposit candy segment through the launch of
            Butter Scotch Rings.




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Lotte India portfolio of consists of 16 brands aiming the children and teens consumer segment.
Some popular brands include Parry’s Éclairs, Lacto King, Coffee Bite, Coconut Punch, Madras
Café, Soft Spot, Shakti, Mocca, Joozy Mangoh, Cricket, Lacto Bon Bon, Caramilk and Fruitz. All
are sold under the umbrella brand of Parry’s / Lotte

Distribution and future outlook

Lotte India currently has 800 distributors and plans to appoint an additional 400 distributors
India-wide. Lotte India’s brands are retailed through more than 300,000 outlets throughout the
country. The company plans to infuse funds and expertise into the company by introducing new
products including gums and other innovative products from the Lotte international kitty.




Nutrine Confectionery Co. Pvt Ltd

Company name and ownership details

Nutrine Confectionery Co. Pvt Ltd (Nutrine) is the flagship company of the Nutrine Group of
Companies owned by the Reddy family and the largest Indian owned manufacturer of sugar and
chocolate confectionery.

       •   Nutrine has grown to be a multi-product, multi-market giant and continues to be the
           single largest manufacturer of confectionery and toffees in India since 1980.
       •   During FY1999-00, Nutrine sold its biscuit brands and bakery division to Sara Lee
           Corporation, USA for Rs. 330m.
Indian Public Limited Company
Not listed on any SX.

Nutrine has one factory, located in Chittoor, Andhra Pradesh State

Installed capacities:
         − Products are manufactured at integrated plants and hence installed capacities cannot
             be ascertained.
         − During FY2003-04, Nutrine produced approximately 28,000 MT of assorted
             confectionery.

Recent performance:

Sales turnover for the FY ending March 31, 2003 were approximately Rs. 1,800m


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Main activities

Nutrine manufactures and markets sugar boiled confectionery, cocoa and milk based toffees,
candies, éclairs and fruit bars.

Products and brand presence

Nutrine’s main brands are as follows:
       − Confectionery: Koka Naka, Elaichi, Maha Lacto, Wild Koffy, Nutrine Gold, Gulkhand,
           Amras, Caramella, Superstar, Marvel, and Lolli pop;
       − Toffeees/Eclairs: Aasay; and
       − Fruit bars: Naturo.

All are sold under the umbrella brand Nutrine.

       •   The Nutrine's Maha Lacto brand is among the most popular, bringing about Rs
           1,000m.
       •   Eighty percent of the market comprises products at the 50-paise price point.
       •   Nutrine brands have a 28% market share of the confectionery industry.
       •   Nutrine spends 8% of its turnover on advertising and brand promotion per annum.
       •   Nutrine is the major sponsor of sports events at school and college levels and has a
           national brand presence.


Distribution and future outlook

Nutrine brands are marketed through 400,000 wholesalers and dealers and 10 million retail
outlets. The company is adding another 600-tonne-per-month capacity by installing a new
process line for deposit candy in its factory with an investment of Rs. 100m – 120m and also
plans to launch 4-5 new brands under the deposit candy range.




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Candico India Limited

Company name and ownership details

Candico India Limited is the largest manufacturer owned by the New Delhi based Kumar family
of confectionery in India.

        •   Candico was earlier the confectionery division of Bakemans India Ltd., a large
            manufacturer of biscuits and bakery products which was hived off in FY1997-98 as a
            separate company.
        •   Candico is the only Indian MNC in the confectionery sector.


Indian Public Limited Company.
Not listed in any SX.

Candico has one factory, located in Nagpur, Maharashtra State with installed capacity of 45,000
mt/pa. The company has invested Rs. 320m in its state-of-the-art manufacturing plant.

Candico earns a significant portion of its revenue through contract manufacturing.

Recent performance

For the FY ending March 31 2004, sales turnover was approximately Rs. 1,250m.

Main activities

Manufactures and markets sugar boiled confectionery, candies, gums, mints and toffees. Candico
is the only company in India that manufactures all four categories of confectionery - candies,
toffees, lozenges and gums - a strength it is using for serving the demands of national and
international markets.

Products and brand presence

Candico manufactures and markets 8 to 12 brands, all targeted at children, teens, and young
adults.

        •   Candico is the 4th largest manufacturer of confectionery products and has a market
            share of approximately 8%.
        •   Candico brands have a strong presence in the northern states of India.
        •   During 2002, Candico sold its Mint-O brand to ITC Foods a division of Indian
            Tobacco Co. Ltd.


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       •   Candico is actively engaged in contract manufacturing/private labeling for numerous
           international and Indian companies.
Candico’s brand portfolio consists of:
       − Confectionery: Frutti Tutti, Jucee Mango and Lacto;
       − Gum: Big Bubble Gum, Time Bomb, Gol Maal, Freedom, Jumbo Gumbo and Loco
           Poco;
       − Toffees/éclairs: Elachi Roll, Koffi Toffi, Éclairs, and Drum Beat

All are sold under the umbrella brand Candico.

Technical collaboration

       •   Technical collaboration with Curt Georgi, Germany a world leader in flavors
       •   Technical collaboration with Eurobase, Belgium for gum-base the world’s largest
           independent gum base manufacturer.
Outward foreign direct investment

During 2003, Candico invested US$ 1million to setup a 3,900 MT confectionery manufacturing
plant in Tanzania.
During 2004, Candico invested US$ 5million to setup a 6,000 MT confectionery manufacturing
plant in South Africa.

Distribution and future plans

       •   Candico products are sold through a 1,500 distributors countrywide network. The
           company has a direct or indirect distribution reach in most towns and cities with a
           population of over 25,000 individuals.
       •   Candico is into preliminary negotiations with international chocolate and
           confectionery manufacturers who wish to introduce their product range into India.
       •   Candico has identified candy retail as one of the potential segments for future growth
           and is actively exploring this opportunity.




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Perfetti van Melle India Pvt Ltd

Company name and ownership details

Perfetti van Melle India Pvt Ltd (Perfetti) is India’s leading confectionery manufacturing company
and is a wholly owned subsidiary of Perfetti S.p.a. Italy.

Perfetti started operations in India in 1994 as Perfetti India Ltd, a JV with Tecnova India Pvt. Ltd.
In 2001, Perfetti India Ltd acquired Tecnova’s shares and Van Melle decided to merge their
activities through Perfetti's global acquisition of all Van Melle shares in March 2001. The company
was renamed as Perfetti van Melle India Pvt Ltd.

Indian Private Limited Company.
Not listed on any SX.

Perfetti has two factories in India, located in Manesar, Haryana State and Chennai, Tamilnadu
State with total installed capacities of 45,000 MT/pa.

Recent performance

For FY ending December 31, 2003 Perfetti’s turnover was approximately Rs. 4,000m.

Main activities

A manufacturer and marketer of sugar based confectionery and is a leader in the candy and gum
segments. It is the second largest company in the Perfetti group in terms of sales volumes
world-wide.

Products and brand presence

Candies:
       −    Alpenliebe - milk and caramel based candy - is the largest selling candy in India.
       −    Cloromint - mint flavored candy.
       −    Cofitos - coffee and cream based candy.
       −    Herbasol - herbal breath freshener - mint, orange, strawberry and peach flavors.
Gums:
       −    Big Babol - non sticky bubble gum in 4 flavors - fruit, cream, strawberry and mango –
            is the largest selling gum in India targeted at children.
        −   Centerfresh – in spearmint and strawberry flavors, targeted at the teen segment.
        −   Brooklyn – targeted at the adult segment.




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Center Fresh was the first brand offering of Perfetti to be launched in India in 1994, followed by
Big Babol and Alpenliebe. Alpenliebe today is the largest brand in its portfolio. Big Babol ranks
second in size followed by Center Fresh and Chlormint. Alpenliebe Lollipop, Mentos, Cofitos,
Center Shock, Marbels, and Fruit-telta are other leading brands in the Perfetti portfolio.

With a basket of 13 brands, the company strives to leverage its international product expertise
while adapting flavors and blends to local tastes.

Perfetti has a 25% share of the organized confectionery market in India. It spends between 10 to
15% of its net sales on advertising each year.

With a focus on innovation and new product development, Perfetti launched 12 products across
several categories during 2004. It also forayed into the chocolate éclairs market with
“Chocotella” and the digestives market with “Chatarpatar”. Three to four more products are
expected to be launched in 2005.

Among the 2004 launches was ‘Happydent Protex', a specially formulated sugar-free chewing gum
containing Xylitol. Perfetti is positioning the sugar-free gum as an oral care product and
maintains that the contents of Xylitol assist in prevention of tooth decay and helps contain
bacterial growth.   The company intends to spend an estimated Rs. 20m in advertising to
promote “Happydent Protex'” over the next few months.

Outward foreign direct investment

During FY2003, Perfetti India, which is a wholly owned subsidiary of its Italian parent, set up its
first manufacturing plant outside India - in Bangladesh with an investment of Rs. 200m.

Distribution and future outlook

Perfetti markets its product to 1 million outlets across India. Pan shops plays a key role in the
company's growth, with its products stocked across 250,000 pan shops across the country.

Over the last 10 years, Perfetti has invested approximately Rs. 6,000m in India. During 2004, it
announced a planned further investment of Rs. 1,500m over the next two years in marketing and
brand building, and to increase its manufacturing capacity by upgrading its Chennai plant.




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Parle Products Pvt Ltd

Company name and ownership details

Parle Products Pvt Ltd is a Rs. 7,500m conglomerate owned by the Mumbai based Chavan Family
and is a leader in manufacturing and marketing of cookies and confectionery.

Indian Private Limited Company.
Not listed at any SX.

Parle has four factories located in:

        −   Mumbai, Maharashtra State - manufactures cookies and confectionery;
        −   Bahadurgarh, Haryana State - manufactures cookies;
        −   Neemrana, Rajasthan - manufactures cookies; and
        −   Bangalore, Karnataka - manufactures cookies.

Installed capacities:
         − Products manufactured at integrated plants and hence installed capacities cannot be
             ascertained.
         − Parle has 19 contract manufactures located in different parts of the country out of
             which 14 for manufacturing their range of biscuits and 5 for confectionery products.

Recent performance

For FY ending March 31, 2004 Parle’s sales turnover was approximately Rs. 8500m.

Main activities

Parle manufactures and markets cookies, sugar boiled confectionery, and cocoa and milk based
toffees.

Products and brand presence

        •   Eighty percent of Parle’s revenue is from the sale of biscuits and bakery products.
        •   It has 40% market share in the total cookies industry in India. Parle G remains the
            largest selling cookies brand in the world by volumes, accounting for more than half
            of Parle’s sales turnover.
        •   Parle has 15% market share in the total confectionery industry. Melody, Poppins,
            Mangobite and Kismi enjoy a strong imagery and appeal amongst consumers.
        •   Its brands are targeted at the lower and middle price segment.


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        •   Parle donates 25% of its income to public charities to support education medical
            care.
Parle’s main brands are as follows:
        − Cookies: Parle G, Parle G Magix, Parle G Milk Shakti, Monaco, Krackjack, Marie
            Choice, Hide-n-Seek, Fun Centre and Monaco Bites.
        − Confectionery: Melody, Mango Bite, Kismi, Poppins, Rol-a-Cola, Orange Candy,
            Smoothies and Chox.

Distribution and future outlook

Parle has 1,500 wholesalers, catering to 4,25,000 retail outlets directly or indirectly. A two
hundred dedicated field force services these wholesalers and retailers. Additionally, there are 31
depots and C&F agents supplying goods to the wide distribution network.

Parle seems to be focused on their cookies business as they enjoy a substantial market share of
this Rs. 350 billion market in India.

On the other hand, its confectionery business, which started operations in 1929, remains in a
slow growth mode.




Wrigley India Pvt Ltd and Joyco India Pvt Ltd

Company name and ownership details

Joyco India Pvt Ltd (Joyco) / Wrigley India Pvt Ltd (Wrigley)

Joyco India Pvt Ltd is a wholly owned subsidiary of Joyco Group, Spain.
Wrigley India Pvt Ltd is a wholly owned subsidiary of Wm. Wrigely Jr. Co., USA.

        •   During 2004, Wm. Wrigley Jr. Co. USA, acquired the confectionery business of Joyco
            Group, Spain. This transaction involved Joyco's operations in India along with China,
            France, Italy, Poland and Spain.
        •   As part of the restructuring, the corporate head office of Wrigley, India has moved
            from Bangalore to Delhi, which was Joyco’s base of operations.
        •   Both companies in India will operate as Wrigley India Pvt Ltd.
        •   This acquisition is expected to help in consolidating the brands of both companies in
            the confectionery market.


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        •   Joyco Group earlier named Agrolimen, Spain entered India during 1995 through a
            51:49 joint venture General de Confiteria Ltd with the New Delhi based Dabur
            Group.
        •   During 1999, Agrolimen, Spain bought out Dabur's share in the joint venture and
            General de Confiteria Ltd acquired the status of a 100% subsidiary of Joyco Group.
            At the same time, the company's name was also changed to Joyco India Pvt Ltd.
        •   Wrigley entered India in 1994 with the launch of Wrigley’s chewing gum.
Both are Indian Private Limited Companies.
Not listed on any SX.

Joyco has one factory in Nalagarh, Himachal Pradesh, and Wrigley has a factory in Bangalore,
Karnataka.

Recent performance

For the FY ending December 31, 2003, Joyco had and approximate turnover of Rs. 2 billion, and
Wrigley – of Rs. 316 million.

Main activities

Joyco manufactures and markets bubble gum, chewing gum, lollipop and candy.
Wrigley manufactures and markets a range of chewing gums.

Joyco is the third largest sugar confectionery company operating in India, and has 10-15% market
share in the Indian confectionery market.

Products and brand presence

Joyco’s brands are Boomer bubble gum, Pim Pom lollipops, Solano candy, Bonkers soft chews,
and Trex chewing gum. It has a leading position in the bubble gum and lollipops segments, while
it holds a second position in the candy segment. Sixty percent of Joyco’s turnover is derived
from its flagship brand Boomer bubble gum which it launched in 1995.

Wrigley’s brands are Doublemint, Wrigley’s Spearmint, Juicy Fruit, Orbit, Cool Air, and P.K.
chewing gums. In 2004, it launched Orbit, India’s first sugar-free chewing gum, priced at Rs 5.

So far Wrigley’s sales in India have not been very encouraging.




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Distribution and future outlook

Wrigley’s acquisition of Joyco brands will definitely consolidate the confectionery market in India.
Also, Wrigley will take advantage of Joyco’s distribution network, especially in Northern India.

Joyco currently has a retail presence in over 400,000 outlets, with a network of 1,650
distributors. It has the largest distribution setup in the confectionery industry, with direct
coverage in more than 350,000 retail outlets across the country. With a wide portfolio of
products they service a range of outlets, including grocery stores, general merchants, pan shops
and supermarket chains. They have regional offices in Mumbai, Kolkata, Chennai and Bangalore.
Besides this direct coverage, the company also has a very strong indirect channel serviced
through wholesalers.




Gujarat Co-operative Milk Marketing Federation Ltd.

Company name and ownership details

Gujarat Co-operative Milk Marketing Federation Limited (GCMMFL) is the largest
organization in the Indian food industry engaged in the marketing of milk and dairy
products, and chocolates and confectionery. It is India's leading co-operative
marketing federation and India's largest food products marketing organization.

Not listed on any SX.

Installed Capacities:
         • Liquid Milk Processing – 6.07m/day. GCMMFL has a membership of 12 district co-
            operative milk producer's unions spread over 10,183 villages and having 1.95m
            producer members. It is a state level apex body of milk co-operatives in the state of
            Gujarat.
        •   Chocolate manufacturing capacity – 1500 MT/pa
        •   GCMMFL has a manufacturing contract agreement with The CAMPCO Ltd for
            production of its brands.
        •   The CAMPCO Ltd will offer 3,000 MT of its chocolates manufacturing capacity
            exclusive for production of AMUL brands for GCMMFL.




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Recent performance

For FY ending March 31, 2004, GCMMFL had net sales of Rs. 27,480 million.

Main activities

Producers and marketers of milk, milk products, ice creams and processed foods.

        •   Produces and markets a wide range of dairy and non-dairy bread spreads, powdered
            milk & dairy whitener, fresh & UHT milk, a wide range of cheese, yogurt, flavored
            yogurt, flavored milk, cooking butter, ghee, a wide range of ice creams, malted foods,
            chocolates and confectionery and instant foods.
Products a brand presence

        •   GCMMFL currently has less than 2% share of the total chocolate market.
        •   GCMMFL is a success story of dairy and ice cream business in India and wants to
            have another go at its chocolate brand.
        •   GCMMFL is re-focusing on its chocolate business.
        •   GCMMFL wants a hold in the chocolate market that is seeing new international
            players like Mars.
        •   During FY 2003-04 introduced three new brands to add to its range. GCMMFL also
            re-launched Éclairs its confectionery brand, which was pulled out of the market two
            years ago.
        •   During FY 2003-04, GCMMFL also re-launched its gifting brand Rejoice.
GCMMFL chocolate brands (all sold under the AMUL brand) are Milk Chocolate, Fruit n Nut,
Almond Bar, Bindaaz, Fundoo and Éclairs. It also has Rejoice, a gifting brand.

Distribution and future outlook

GCMMFCL currently poses very little threat to the other two chocolate giants Cadbury and
Nestle, as it still needs to get its distribution and product attributes in place before it can make a
dent in the chocolate market.




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                                                   Appendix 2: Key manufacturers’ profiles



ITC Limited

Company name and ownership details

ITC Limited (ITCL) is the flagship company of the ITC conglomerate, India’s largest manufacturer
of cigarettes and tobacco products, is an agri-commodity trader with interests in greetings, gifting
and stationery products, safety matches and essence sticks, hotels, paper board and specialty
papers, packaging, information technology, lifestyle retailing and foods.

British American Tobacco Co. Ltd holds 45.33% stake in ITCL.

Indian Public Limited Company.
Listed at the Mumbai, Delhi, Calcutta, Cochin, Bangalore, Ahmedabad, Pune, Hyderabad,
Chennai, Uttar Pradesh and National SXs.

During 2002, ITCL, set-up a separate division for its foods business called ITC Foods. ITCL made
its entry into the branded and packaged foods business in August 2001 with the launch of the
Kitchens of India brand. A more broad-based entry has been made since June 2002.

ITCL Foods Division does not have its own manufacturing facilities for confectionery products.
Products are manufactured by contract manufacturers.

Recent performance

FY ending 31 March 2004:
       − Net Sales: Rs. 64704.40m (total sales of the group)
       − Net Profits: Rs. 15928.50m (total net profit of the group)

Main activities – Food division

Marketer of 45 value added products in four categories: staples, confectionery, snack foods and
cookies, and ready to eat meals.

Products and brand presence

        •    During 2002, ITC’s Foods rolled out its maiden confectionery brand- Mint-O, which
            it had acquired from the Delhi-based Candico India Limited. Mint-O is targeted at the
            young adult segment. Mint-O is also available in Lemon and Orange flavors.
        •   During 2003, ITC Foods later launched Candyman targeted at the under 12 children
            segment. Candyman is available in two variants - Wild Banana and Mango Delight.




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           •    ITC Foods sugar-boiled confectionery portfolio consists of just two brands Mint-O
                and Candyman.
ITC’s main brands include:
       − Aashirvaad brand Atta, one of the leading brands of atta in the country; 19
       − Sunfeast brand, cookies in butterscotch and orange flavors;
       − Mint-O and Candyman, hard boiled sugar confectionery; and
       − Kitchens of India brand, ready to eat meals and jams and preserves.

Distribution and future outlook

ITCL's traditional distribution strength has been convenience outlets that sell, among other
things, tobacco products. ITCL has the largest FMCG distribution reach in the country, and
directly services more than a million outlets across the country. Since confectionery is an impulse
purchase category, largely sold out of convenience outlets, ITCL is believed to be in a good
position to distribute its confectionery products.

ITCL has strength in terms of distribution of confectionery and is using its vast network of pan,
cigarettes and beedi shops in India. It is expected that ITCL confectionery business will need a
minimum of two years to break even.




Hindustan Lever Limited

Company name a ownership details

Hindustan Lever Limited (HLL) is India’s largest and leading Fast Moving Consumer Good
(FMCG) company manufacturing and marketing soaps, detergents, household and personal care
products, foods and chemicals, fertilizers and animal feed.

           •    Unilever Plc. holds 51% stake in HLL.
           •    HLL is focusing on a brand portfolio, which comprises of 35 powerful brands across
                categories, which caters to customers across various income categories.
Indian Public Limited Company.
Listed on Mumbai, Ahmedabad, Calcutta, Bangalore, Chennai, Cochin, Delhi, Guwahati, and
National SXs.



19
     Atta is wheat flour, primarily used for making Indian breads, such as Chapati and Roti.


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HLL does not have its own manufacturing facilities for confectionery products. Products are
manufactured by contract manufacturers.

Recent performance

For calendar year ending December 31, 2003 HLL had sales of Rs. 1,109.60million, and net profit
of Rs. 180.43million.

Main activities

HLL’s Food Division comprises the business of tea, coffee, ice creams, bakery products, staples
and confectionery.

Products and brand presence

HLL brand range includes hard-boiled candies, toffees, mint candies and crackling candy, such as
ChocoMax, MaxCream, MaxMint and MaxCrackler. All are priced at 25p, 50p and Rs. 2 and sold
under the brand Max.

       •   HLL launched the Max Confectionery range in FY 2001.
       •   HLL has a 6% market share in the hard-boiled confectionery market in India.
       •   Max is also HLL’s ice cream brand.
       •   Max candies are among the most popular confectionery brands in India.
       •   Max candies have an innovative marketing strategy targeting children. The Max
           brand story is about simple and imaginative play. The brand ambassador is the playful
           Max lion who rules the Kingdom of Max. Max Kingdom is a place full of mouth-
           watering confectionery and ice cream treasures that have to be continuously guarded
           against the designs of the Evil Shadow master. In this adventure, he is guided by Prof.
           Higgabottom. Max always wants to play and have fun, whereas Prof. Higgabottom
           always disciplines him and wants him to behave like a King and herein lies the
           conflict. Therefore, most kids identify with Max being one of them and his struggles
           and adventures as their own.
       •   During FY 2003 HLL’s Food Division turnover was Rs. 290m.
Distribution and future outlook

       •   HLL is aware that increasing the distribution reach would be the key to growth.
       •   HLL had plans to take its confectionery business to 400,000 outlets by the end of
           2004 and is developing its exclusive distribution system for the confectionery
           business.


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The CAMPCO Ltd

Company name and ownership details

The CAMPCO Ltd – The Cocoa and Arecanut Marketing & Processing Co-Operative Limited
(CAMPCO) is a procurement, processing and marketing co-operative agency dedicated to cocoa
and arecanut crops.

Not listed on any SX.

CAMPCO is a joint venture between Karnataka and Kerala Governments which commenced
operations in July 1973 encouraging growers in Karnataka and Kerala to take up cocoa
cultivation.

CAMPCO set up a chocolate manufacturing factory in 1986 with an investment of Rs. 116.7m.
The factory is located in Kemminje/Puttur in Karnataka.

Installed capacities:
         − Cocoa processing – 6000 MT/pa, which is an integrated independent facility.
         − Chocolates – 8800MT/pa out of which 700 MT is for their own brands.

The manufacturing facility allows CAMPCO to manufacturer products of different segment of the
confectionery segment – molded, enrobed, éclairs and pan confectionery.

During FY2003-04, CAMPCO modified its plant to also manufacture éclairs which used to be
manufactured by a contract manufacturer.

Recent performance

For FY ending March 31, 2004 CAMPCO had net sales of Rs. 2 billion.

Main activities

A manufacturer and marketer of chocolate and a wide range of cocoa based industrial products.

       •   CAMPCO had a 10-year contact-manufacturing tie-up with Nestle, which expired in
           2000. Nestle utilized 4,500MT of CAMPCO’s production capacity.
       •   CAMPCO undertakes processing of cocoa beans and supplies cocoa and other
           intermediary products to Cadbury and Nestle.
       •   CAMPCO currently has a manufacturing contract tie-up with GCMMF, which will use
           CAMPCO’s installed capacity of 3,000 MT.


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Products and brand presence

        •   During FY2003-04, CAMPCO adopted a new strategy, which is aimed at expanding
            the chocolate market for its brands in India.
        •   During FY2003-04, CAMPCO adopted a strategy of "low price point" to market its
            chocolate brands to the middle-class segment and introduced innovative packaging
            and a new look to its enrobed chocolate products – “Turbo” and “Treat”. Turbo
            was also introduced in Rs 3 pack, apart from the existing Rs 5 pack.
        •   Another brand, CAMPCO Bar, which is sold at Rs 10 for a 45-gm pack, was launched
            at Rs 2 for a 9-gm pack under CAMPCO Mini Bar segment.
        •   During FY 2003-04, CAMPCO launched Krust, a chocolate-coated wafer biscuit, and
            4Fever, described as a protein-rich bar enrobed with milk chocolate to compete with
            similar products being manufactured by Cadbury and Nestle.
CAMPCO also markets a wide range of chocolate products under its own brand and has small
presence in different segments of the chocolate market. Its main brands, all sold under the
CAMPCO umbrella brand, include:
       − Chocolate: Melto, Cream, Turbo, Treat, Megabite, Bar, 4ever, Krust, Éclair, Melto
           Éclairs, Brown Center Éclairs, Play Time; and
       − Drinking chocolate: Winner.

Distribution and future outlook

CAMPCO, being a co-operative, is unable to match the advertising budgets of MNC such as
Cadbury and Nestle. Instead, it is concentrating on event management activities to popularize its
products especially in schools.

CAMPCO has 22 area sales offices and regional offices in Kolkata, Lucknow, Delhi, Hyderabad,
Bangalore, and Mumbai. Delhi, Himachal Pradesh, Punjab, Haryana, and Uttar Pradesh account for
38% of the total chocolate market of CAMPCO. Its chocolate products are sold in nearly
100,000 outlets throughout the country. Nearly 40% of the outlets are in Uttar Pradesh.
CAMPCO has a strong market presence in Karnataka and Kerala, as most of the members of this
co-operative organization are from these States. This has helped it garner more than half of its
chocolate market in the southern states.

During FY2003-04, CAMPCO appointed a Bangalore based consulting company to train its sales
representatives, sales managers and regional heads in areas such as leadership, management, and
team-building initiatives.




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Lotus Chocolate Company Limited

Company name and ownership details

Lotus Chocolate Company Limited (Lotus) formerly owned by Network Foods International
Limited, Singapore (52%) is a leading manufacturer of chocolate and chocolate-based
confectionery in India.

        •   Until August 2003, Lotus was 52% owned by Network Foods International Limited,
            Singapore, a holding company belonging to Sunshine Allied Investments, Singapore,
            part of MUI Group, Malaysia. Lotus had obtained a total loan of US$2.33m from
            Network Foods International Ltd during FY1998 and FY1999 towards brand
            promotion and working capital requirements.
        •   During FY 2003, the ownership of the company changed hands and two Hyderabad
            based businessmen Mr. D. Durgaprasad and Mr. A. Ramakrishna acquired 42.25% of
            the equity from Network Foods International Limited, Singapore and also infused Rs.
            20m into the sick company.
        •   Lotus has been incurring losses over the past 5 years and performance has not been
            encouraging for this 13 years old company. Despite several efforts MUI Group,
            Malaysia could not revive the company’s operations.
Indian Public Ltd Company.
Listed on Mumbai and Hyderabad SXs.

Lotus has one factory located in Doulatabad, Medak, Andhra Pradesh State.

Installed capacity:
         − Cocoa processing – 3,800 MT/pa, which is integrated independent facility
         − Chocolates – 3,000MT/pa

The manufacturing facility allows Lotus to manufacture products of different chocolate segments,
such as molded, panned, and enrobed chocolate. Lotus has a facility for enrobing wafers and
cookies, and also has a sugar and chocolate panning facility for nuts, fruit bits, chips, cookies, etc.

Recent performance

For calendar year, ending December 31, 2003 Lotus had sales of Rs. 30.4m and incurred Rs.
20.3m of net losses.




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Main Activities

A manufacturer and marketer of chocolate and a wide range of cocoa based industrial products.

       •   Lotus currently has a cocoa processing and chocolate manufacturing agreement with
           Cadbury India Ltd, which is the major revenue earner for the company.
       •   Lotus is focusing on strengthening its industrial chocolate segment especially with
           exports of cocoa butter. The company presently exporting cocoa butter to countries
           in EU.
Product and brand presence

Lotus markets a wide range of chocolate products under its own brand and has small presence in
different segments of the chocolate market. Its main brands, all sold under the Lotus name,
include: Chuckles, Super Car, Kiddies, On & On, Kandos Maltys, Kajoos, and Tango.

Distribution and future outlook

Lotus is now focused on regaining lost ground and capturing the low-end market for its brands
through a focused campaign in schools, parks, and retail outlets. It has an excellent market
presence in its home state, Andhra Pradesh and is currently focusing its distribution in the
southern states.

Lotus also expects to strengthen its cocoa based industrial based segment and its new
management is in contact with the large MNC’s and manufacturers of bakery products, ice
cream, chocolate, malted beverages, breakfast cereals and confectionery products.

Lotus is looking at a turnover of Rs. 160m in FY 2004 out of which Rs. 40m will be from exports.

Lotus is currently negotiating with a few manufacturers of chocolates in EU to manufacturer
chocolates from them in India.




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                                                                 Appendix 3: Trade interviews



APPENDIX 3: TRADE INTERVIEWS


MANUFACTURERS:
Candico India, Ltd.                    Kayempee Foods                    Lotus Chocolate Co., Ltd.
Mr. Karan Gupta                         Pvt, Ltd.Mr. Sirish Kothapally   Mr. D. Durga Prasad
Executive Director                     Executive Director                Director
A-4/B-1, Mohan Co-operative            A-50/1, IDA, Kukatpally           # 403, IV Floor, Diamond House
Estate                                 Hyderabad – 500 037               Panjagutta
New Delhi – 110 044                    Tel: +91 40 2308 5739 / 2308      Hyderabad – 500 082
Tel: +91 11 26950580                   8559                              Tel: +91 40 2340 1966 / 2340
Fax: +91 11 26941665                   Fax: +91 40 23088581              4967
Email: karan@candicoindia.com          Email: sirishh@rediffmail.com     Fax: +91 40 2340 1312
Website: www.candicoindia.com          Website: www.chocomarco.com       Email: hyd1_lotus@sancharnet.in
                                                                         Website:
                                                                         www.lotuschocolates.com
Lotte India Corporation Ltd            Nutrine Confectionery
Mr. Shankar S.                         Company Pvt Ltd
General Marketing Manager              Mr. K. Siva Mohan Reddy
‘Dare House’, 234, N.S.C. Bose         Executive Director
Road                                   PB#38, B. V. Reddy Colony
Parrys Corner                          Chittoor – 517 001
Chennai – 600 001                      Tel: +91 8572 229969 (8 lines)
Tel: +91 44 2530 6338                  Fax: +91 8572 226646 / 226244
Fax: +91 44 2534 1135                  Email: nutrine@vsnl.com
Email: shankar@lotteindia.com          Website: www.nutrinesweets.com

IMPORTERS/DISTRIBUTORS:
Bajoria Foods Pvt Ltd / Virgo          Balaji Victuals Pvt Ltd           Rai & Sons Pvt Ltd
Mr. Sanjey Bajoria                     Mr. Sunil Rai                     Mr. Saswat Sengupta
Director                               President                         Chief Executive
Marketing                              W-28, Green Park Main             9-A Connaught Place
41/1623, D. N. Nagar                   Lower Ground Floor                New Delhi – 110 001
Andheri (W)                            New Delhi - 110016                Tel: +91 11 2332 1270 / 2332
Mumbai – 400 053                       Tel: +91 11 26965158              6655
Tel: +91 22 3090 7575 / 2670 5686      Fax: +91 11 26965147              Fax: +91 11 2332 7598
Fax: +91 22 2670 7110                  Email: sr@balajivictuvals.com     Email: saswatsengupta@rai-
Email: bajorias@vsnl.com                                                 group.com
                                                                         Website: www.raifoods.com
Optimum Marketing Metrics              Dugar Overseas Pvt Ltd            International Marketing
Pvt. Ltd.                              Mr. Sumit Khandelwal              Network
Mr. Atul Khanna                        Director                          Mr. Ravi Sureka
Director                               D-311 Crystal Plaza               Director
203, Okhla Industrial Estate, Phase    Link Road, Andheri (W)            Plot No. 7, Ashok Nagar Society
III                                    Mumbai – 400 053                  N.S. Road No. 11, J.V.P.D Scheme,
New Delhi – 110 020                    Tel: +91 22 56926778 / 70 / 80    Mumbai – 400 049
Tel: +91 11 5100 0034-35-36            Fax: +91 22 56914975              Tel: +91 22 2613 4826
Fax: +91 11 5100 0037                  Email: smk2@vsnl.com              Fax: +91 22 2618 4485
Email: optimum@ommindia.com                                              Email: imnindia@rediff.com
Website: www.ommindia.com




                                                        101
                                  THE MARKET FOR CONFECTIONERY PRODUCTS IN INDIA
                                                             Appendix 3: Trade interviews


Rangdev Holdings Pvt Ltd           Sunstar Confection & Trading       Vrinka Overseas Pvt Ltd
Mr. J. P. Bagaria                  (Pvt) Ltd                          Ms. Vrinda Rajgarhia
Managing Director                  Ms. Arti Manoj                     Director
46, Strand Road, 1st floor         Marketing Controller All India     46, Jolly Maker Chambers II,
Kolkata – 700 007                  “Sun-Ville”                        225 Nariman Point
Tel: +91 33 22580350               9, Dr. Annie Besant Road           Mumbai – 400 021
Fax: +91 33 22580340               Worli,                             Tel: +91 22 2202 7309 / 2202
Email: rangdev@vsnl.com            Mumbai – 400 018                   7335
                                   Tel: +91 22 2493 5546 / 2497       Fax: +91 22 2281 6122
                                   8082                               Email:
                                   Fax: +91 22 2492 1604              vrinda@sweetworldonline.com
                                   Email:                             Website:
                                   sunstarconfection@indiatimes.com   www.sweetworldonline.com
Kaivan Foods                       Essence Empire                     Candy Treats / Taurus
C. K. Balsara Group of             Mr. Anil Shroff                    Confectionery India (P) Ltd
Companies                          Director                           Mr. Sunil Saraogi
Mr. Kaivan C. Balsara              228-231, Kaliandass Udyoh Bhavan   Marketing Head – Western India
Director                           Premises,Co-op. Society Ltd.,      1, Rawdon Street
3, Kurla Industrial Estate         Century Bazar Lane,                "Shubham"
L.B.S. Marg                        Prabhadevi, Mumbai - 400 025       5th Floor, Room - 505
Ghatkopar (W)                      Tel: +91 22 5660 8260 / 5660       Kolkata - 700 017
Mumbai – 400 086                   2203                               Tel: +91 33 302 20300
Tel: +91 22 25138455 / 25116795    Fax: +91 22 2438 0426              Fax: +91 33 2280 1853
Fax: +91 22 25139318               Email: nilima@ essenceempire.com   Email: info@candytreatsindia.com
Email: kaivanbalsara@yahoo.com

RETAILERS:
Champion Sweet Mart                Ego Yum n Yumi Candy Store         New Regal Stores
Mr. Ramesh Bhai                    Ms. Bina Modi                      Mr. Sajjad Ratlamwala
Proprietor                         Director                           Partner
272, Bhat Bazar                    C/o HMA Udyog Ltd                  499, Inside Crawford Market
Narshi Natha Street                E49/11 Okhla Industrial Estate     Mumbai – 400 001
Masjid Bander (E)                  Phase II                           Tel: +91 22 2343 3484
Mumbai – 400 009                   New Delhi – 110 020
Tel: +91 22 23475616               Tel: +91 11 2638 5797
                                   Fax: +91 11 2638 9138
                                   Email: binamodi@satyam.net.in
Le Chocolat                        Nutty Affair                       Sweet World
Ms. Leela Thawani                  Mr. Mhod. Jafer                    Vrinka Overseas Pvt Ltd
Proprietor                         Proprietor                         Ms. Vrinda Rajgarhai
8/9, Joy Palace, 29th Road         # 1-8-91/19/1, Sindhi Colony       Director
Bandra (W)                         P.G. Road                          46, Jolly Maker Chambers II,
Mumbai – 400 050                   Secunderabad – 500 003             225 Nariman Point
Tel: +91 22 2640 8879              Tel: +91 40 5531 2807              Mumbai – 400 021
                                                                      Tel: +91 22 2202 7309 / 2202
                                                                      7335
                                                                      Fax: +91 22 2281 6122
                                                                      Email:
                                                                      vrinda@sweetworldonline.com
                                                                      Website:
                                                                      www.sweetworldonline.com




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