Kraft to invest in chocolate in India

Kraft to invest in chocolate in India

FMCG SUPPLIER NEWS

IOL Business - Dec 6th 2011, 08:28

Kraft Foods has boosted spending in India by more than half, targeting annual sales growth of 30 percent for chocolate, a product it expects to resist any consumer slump.  

India’s biggest chocolate maker had increased its annual investment in advertising, capital expenditure, sales and marketing by more than 70 percent since acquiring Cadbury last year, said Anand Kripalu, Kraft’s president for south Asia and Indo-China.

The world’s second-largest food company has invested more to fend off rivals including Nestlé in India, where the Cadbury unit controls 70 percent of the chocolate market, and as the US-based company boosts its reliance on growth in developing countries.

Kraft’s revenue from emerging markets has almost quadrupled since 2004, propelling sales at the international business past North America’s last year for the first time.

“There are some categories in the world that people consume in good times and bad times, and chocolate is one of them,” Kripalu said.

He declined to say how much Kraft was investing in India or to say what the company’s profit margins were.

India’s economy grew 6.9 percent last quarter, the slowest pace in more than two years, after the central bank raised interest rates by a record to try to tame inflation.

The maker of Lu cookies and Philadelphia cream cheese is betting on its chocolate business, Oreo biscuits and Tang powdered drink to propel growth in India after paying about £13.6 billion (R169.5bn) for UK-based Cadbury last year.

“Cadbury’s distribution and marketing in India are top notch,” said Abneesh Roy, an analyst at Edelweiss Financial Services. “Food is doing well in India. Nestlé, Cadbury should do well.” Cadbury would need to introduce new products to keep meeting a 30 percent sales growth target, he said.

Kraft started selling Oreos, a chocolate sandwich biscuit, in India last year as it expanded into the growing market for biscuits, a $3bn (R24bn) business that was growing as much as 20 percent a year, Kripalu said.

“If we can get a substantial percentage of that market it would be very good.”

Rising sugar prices and declines in the rupee against the dollar may hurt earnings at Kraft, which makes the Oreo biscuits and Cadbury chocolates it sells in India locally.

Sugar has jumped 19 percent in the past six months based on futures traded on the National Commodity and Derivatives Exchange in Mumbai. Sugar for December delivery fell 0.5 percent to 2 978 rupees (R460) for 100kg on Saturday.

“In addition to commodity headwinds, there is also the added cost of the depreciating rupee which will make imports more costly,” Kripalu said.

The Indian rupee has depreciated 13 percent against the dollar this year, Asia’s worst performance, according to data compiled by Bloomberg.

Kraft might raise prices as a last resort, Kripalu said.

“Affordability is the key driver of our business,” he said. “Chocolate gives consumers a small moment of joy.” – Bloomberg