CADBURY DAIRY MILK

AMITY UNIVERSITY ECONOMIC ANALYSIS PROJECT REPORT

THE SWEETEST WORD FOR AN INDIAN---CADBURY

SUBMITTED TO: MS.NAMITA KAPOOR

SUBMITTED BY: AKANSHA JAYASWAL04 SAHIL DHAWAN26 ABHISHEK AGARWAL27 KESA PRANEETH KUMAR36 ASHIL JOHN PANICKER37 SANDEEP SINGH--48

CADBURY DAIRY MILK

CONTENTS Topic
SUMMARY COMPANY OVERVIEW ISSUES IN THE CHOCOLATE INDUSTRY HOW IS A CADBURY MADE? SUPPLY FACTORS COST CONDITIONS DEMAND FACTORS DEMAND FORECASTING MANUFACTURING UNITS COMPETITION PROBLEMS AND CHALLENGES ACHIEVEMENTS CONCLUSION AND RECOMMENDATIONS

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EXECUTIVE SUMMARY
Dairy Milk is a brand of milk chocolate currently manufactured by Cadbury; except in the United States where it's made by The Hershey Company. It was introduced in the United Kingdom in 1905 and is made solely of milk chocolate. In June 1905, Cadbury launched its first Dairy Milk bar, with a higher proportion of milk than previous chocolate bars, and it became the company's best selling product by 1913. George Cadbury Junior, responsible for the development of the bar, has said "All sorts of names were suggested: Highland Milk, Jersey and Dairy Maid. But when a customers daughter suggested Dairy Milk, the name stuck." Fruit and Nut was introduced as part of the Dairy Milk line in 1928, soon followed by Whole Nut in 1933. In 1933 dairy milk went out of production briefly then came back in 1934. By this point, Cadbury's was the brand leader in the United Kingdom. In 1928, Cadbury's introduced the "glass and a half" slogan to accompany the Dairy Milk bar.

COMPANY OVERVIEW
Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. With annual revenues of approximately $50 billion, the combined company is the world's second largest food company, making delicious products for billions of consumers in more than 160 countries. We employ approximately 140,000 people and have operations in more than 70 countries.

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In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New Delhi, Mumbai, Kolkota and Chennai). The corporate office is in Mumbai. Our core purpose "make today delicious" captures the spirit of what we are trying to achieve as a business. We make delicious foods you can feel good about. Whether watching your weight or preparing to celebrate, grabbing a quick bite or sitting down to family night, we pour our hearts into creating foods that are wholesome and delicious. Cadbury India operates in four categories viz. Chocolate Confectionery, Milk Food Drinks, Candy and Gum category. In the Chocolate Confectionery business, Cadbury has maintained Its undisputed leadership over the years. Some of the key brands in India are Cadbury Dairy Milk, 5 Star, Perk, clairs and Celebrations.

Cadbury enjoys a value market share of over 70% - the highest Cadbury brand share in the world! Our billion-dollar brand Cadbury Dairy Milk is considered the "gold standard" for chocolates in India. The pure taste of CDM defines the chocolate taste for the Indian consumer. In the Milk Food drinks segment our main product is Bournvita - the leading Malted Food
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Drink (MFD) in the country. Similarly in the medicated candy category Halls is the undisputed leader. We recently entered the gums category with the launch of our worldwide dominant bubblegum brand Bubbaloo. Bubbaloo is sold in 25 countries worldwide.

PRODUCTS OF CADBURYINDIA LTD

CHOCLATES

5 star perk celebrations temptations eclairs gems

SNACKS

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BEVERAGES

CANDY

GUMS
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CADBURY WORLDWIDE Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals. they are currently the world's No.1 confectionery and biscuit company. They are also the worlds second-largest food company with sales in approximately 160 countries. They employ approximately 140,000 people.

Some facts on the company: Global Reach o Approximately $50 billion in revenues o 25%+ of global revenue from emerging markets o #1 in global confectionery o #1 in global biscuits o More than 50% of global revenue from snacks and confectionery Brand Portfolio o 11 brands with more than $1 billion in revenue o 70+ brands with more than $100 million in revenue o 40+ brands over 100 years old o 80% revenue from #1 share positions
VISION & MISSION

Working together to create brands people love & quote Mission statement of Cadbury India Ltd.saysCadbury means Quality
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This is our promise. Our reputation is built upon quality; Our commitment to continuous improvement will ensure our promise

ISSUES IN THE CHOCOLATE INDUSTRY

World Cocoa Foundation Map There is a dirty little secret lingering in the world of chocolate. There has been a problem with child labor and slave labor in cacao producing countries. The World Cocoa Foundation is the most prominent organization in the world addressing this monumental problem. Slaves from Africa once provided harvesting on the cacao plantations in the 19th century. Eventually, cacao plantation workers were paid a wage, but it was the smallest wage imaginable. The workers were provided with so little of a life causing the price of cocoa to go down more and more so people would buy it. African workers are still paid a minimal amount and a Brazilian cacao plantation worker earns approximately $850 year. The Ivory Coast in Africa is now the leader of production with their workers making about $165 per year. In 2000, the BBC presented a documentary on children who where stolen from their families to work as slaves on the cacao plantations. The children work over twelve hour days, some do not get breaks, others are not fed properly, some are beaten, and others are put in prison-like conditions. Child slaves are now only common on a few of the larger plantations. Out of the one million cacao farms in West Africa, that is a start but until the problem is eliminated, no child in Africa is safe. According to The Cocoa Tree NonProfit Organization, the cocoa industry has stated that the following are abusive labor practices for children: *If a childs health or safety is at risk, the cocoa industry wants to prevent it. *If children cant attend school because they are forced to work, their work must be changed. *If children arent free to run and play with their friends, they must be given freedom.
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The industrys goals are to understand the problem, find experts to help, and create and implement a plan. UNICEF is one of the premier world organizations that help to protect the children of the world and they are a constant force against child labor. The BBC stated this was due to the huge candy industry in the United States that purchased their cocoa beans from the Ivory Coast. Since that time, there have been numerous articles and documentaries covering the subject of child slavery. This severe and disturbing problem brought an idea to the forefront that everyone has become familiar with in our lifetime, the idea of fair-trade chocolate. This is an idea that had been previously implemented, and quite successfully, in the coffee market. The fair trade certifies that the producers follow the given rules and they are paid top dollar for the cacao beans. The official rule of fair-trade is There are two sets of generic producer standards, one for small farmers and one for workers on plantations and in factories. The first set applies to small-holders organized in cooperatives or other organizations with a democratic, participative structure. The second set applies to organized workers, whose employers pay decent wages, guarantee rights to join trade unions and provide good housing where relevant. On plantations and in factories, minimum health and safety as well as environmental standards must be complied with, and no child or forced labor can occur. There are extensive organizations working together so that cacao farmer get paid fairly and in return educate the children of their workers and pay their workers well.

HOW IS A CADBURY MADE?

The cocoa-bean -- the heart of the sweetest delicacy in the world -- is bitter! This is why, up to the 18th century some native tribes ate only the sweetish flesh of the cocoa fruit. They regarded the precious bean as waste or used it, as was the case among the Aztecs, as a form of currency.

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Raw Materials Product Name Cocoa Beans/Butter/Powder Milk Powder/Liquid Milk/Cream Glucose-Liquid Others Edible Oil Malt Extract Dry Fruits Price variances of Raw Mtls. Credit for Purchase tax / VAT Entry Tax Octroi

Unit Kg Kg Kg NA Kg Kg Kg NA NA NA NA

Quantity 16,922.74 39868.99 54,763.22 0 6,006.18 17260.66 1,133.90 0 0.00 0 0.00

Value (Rs.cr) 363.33 197.52 156.03 65.51 47.07 46.68 27.67 0.00 0.00 0.00 0.00

Cost(Rs.) / Unit 214,699.27 49,542.26 28,491.75 78,369.28 27,044.16 244,025.05 -

Mentioned above are the raw materials required.

1)The Varieties seen 2)The Harvest picked 3)Fermentation done 4)Drying 5)Cleaning 6)Roasting
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7)Crushing 8)Blending 9)Grinding 10)Cocoa Butter made 11)Cocoa Powder made 12)Kneading 13)Rolling 14)Conching

SUPPLY FACTORS OF DAIRY MILK

The Supply of a good quantities of the good that sellers are willing to sell at different price levels. The Law of Supply as the price of the good rises, sellers are willing to sell greater quantities of the good, ceteris paribus.
P e Dyik r oa M i f i c r l 5 1 0 1 5 2 0 2 5 3 0 Sp ul p y 3 0 2 5 2 0 1 5 1 0 5

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Factors affecting supply of Dairy Milk: Producers expectations Cost of production Technology Competitiveness of the market structure Market size Institutions.

Shift in Supply curve:

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When more units of goods are supplied at higher price, it is called the extension of supply, and when less units of the good are supplied at a lower price is called contraction of supply. A movement upwards on a supply curve shows extension in supply and a movement downwards on a supply curve shows contraction in supply. When the supply of Dairy Milk goes up (down)in response to price rise(fall), it is a movement along the supply curve.

S1 = perfectly elastic supply and is equal to infinity. S2 = perfectly inelastic and is equal to zero. S3 = Unitary elastic supply and is equal to 1. S4 = Relatively Elastic supply and is >1 but <. S5 = relatively inelastic supply and is <1 but >0.

Pricing of Cadbury Dairy Milk

The pricing strategy used by Cadbury in India is weight vs. Price. The price of the good is decided basing upon its weight. Weight: price 20g: 10Rs 50g: 30Rs 150g: 90Rs
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200g: 120Rs The above pricing is for normal chocolate bar. The prices are further varied with the addition of extra contents in the bar. Example: 20g of plain Cadbury cost 25Rs,whereas 20g of fruit n nut Cadbury cost 35 Rs.

COST CONDITIONS FOR DAIRYMILK:

Fixed Cost: Fixed costs are those cost which in total do not vary with the changes in output. Fixed cost for Dairy Milk are borrowed capital, rental payments, salaries of top management, depreciation etc. Variable Cost: Variable costs are those costs which increase with the level of output. They include payment of raw materials, charges on fuel and electricity, sales commission etc. Total cost: The total of fixed cost and Variable cost is Total cost.

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INDEPENDENT VARIABLES AFFECTING DEMAND OF CADBURY DAIRY MILK

Price: This product is a brand loyal product, so if there is a slight increase in the price, the

demand of the product will remain unaffected. But if there is a decrease in the price, the demand of the product may slightly increase.
Income: If the income of the people increases, the demand of the product also increases

and if the income of the people decreases, the demand of the product decreases because then people will go for lower price chocolate like clair or melody of Rs.1 or Rs. 2. So, there is a positive relationship between income and the product demand.
Consumers taste and preferences: Cadbury produced milk chocolates by using the high

quality of cocoa bean and the taste has still remained the same which has touched the heart of the consumers. So, they will not like to go for any other product.
Competition: There are many competitors like Cadbury 5-star, Nestle Kit-Kat, Parle

Chox, foreign chocolates (Chinese), Lotee etc. in the market so if the price of the competitors increases, the demand of the dairy milk also increases. But if the price of the competitors decrease, the demand of the dairy milks not much affected by it.
Price of Complementary Goods: Cadbury dairy milk is made from the milk, sugar, cocoa

bean and cocoa powder. If the price of these complementary goods increases then there will be no change in the demand. Because Cadbury dairy milk is a brand loyal product so there will not be any effect on the demand of the product.
Population & Age group: This product is meant for the children, adults and also for the

old people so the age groups are not much affected the demand of the product so demand remain same and by the increase in the population, the demand of the product also increases.

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Advertisement campaign: Advertisement campaign has played a vital role in attracting

the major part of the population towards the Cadbury dairy milk. Cadbury has associated dairy milk to celebrations and every moment of achievement and success. So, it is through advertisement that Cadbury has gained social acceptance which has played a major role in increasing his demand.
Celebrations & Occasions: During the festivals and occasions, the consumption of

Cadbury increases because its a product for enjoying the taste of each and every moment with harmony.
Brand Image: The brand image of the Cadbury plays an important role in the demand of

the Cadbury. This product has built such a brand image that it has much attracted the mind of the consumers so they will not like to switch over to the other brand.

DEMAND FORECASTING
A demand forecast is the prediction of what will happen to your company's existing product sales. Demand forecasting is the activity of estimating the quantity of a product or service that consumers will purchase. It involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market. It would be best to determine the demand forecast using a multi-functional approach. Estimate of expected demand over a specified future period. Also called forecast demand. The inputs from sales and marketing, finance, and production should be considered. The final demand forecast is the consensus of all participating managers. You may also want to put up a Sales and Operations Planning group composed of representatives from the different departments that will be tasked to prepare the demand forecast. Determination of the demand forecasts is done through the following steps: Determine the use of the forecast
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Select the items to be forecast Determine the time horizon of the forecast Select the forecasting model(s) Gather the data Make the forecast Validate and implement results

The time horizon of the forecast is classified as follows:

Description Short-range Duration Medium-range

Forecast Horizon Long-range More than 3 years

Usually less than 3 months to 3 3 months, years maximum of 1 year Job scheduling, worker assignments Sales and production planning, budgeting

Applicability

New product development, facilities planning

How is demand forecast determined? There are two approaches to determine demand forecast (1) the qualitative approach, (2) the quantitative approach. The comparison of these two approaches is shown below: Description Qualitative Approach QUANTITATIVE APPROACH

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Applicability

Used when situation is vague & littleUsed technologies)

when

situation

is

stable

&

data exist (e.g., new products andhistorical data exist (e.g. existing products, current

technology) Considerations Techniques Involves intuition and experience Jury of executive opinion Sales force composite Delphi method Consumer market survey Involves mathematical techniques Time series models Causal models

DEMAND FORECASTING OF CADBURY DAIRY MILK Cadbury plan their production process by using a time series method as this helps Cadbury to accurately produce the needed amount of chocolate at the correct period of time. A time series shows historical data that can be used and analysed to predict future trends. Christmas and Easter are peak selling times for all chocolate manufactures including Cadbury, this is obviously because chocolate products make good gifts for these occasions. Time series analysis does not explain the casual relationship between variables & how they will be in future also. It simply assumes thatpast behaviour of the variable will continue in future also. Hence time series analysis tries to find out the factors which affect the behaviour of the variable. The changes in the variable over a period of time are divided into 4 components. They are TRENDS SEASONAL VARIATIONS CYCLICAL VARIATIONS RANDOM FLUCTUATIONS
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Demand Forecasting Advantages Disadvantages

The data helps Cadbury to reduce Cadbury needs to have a lot of past wastage and produce the amount of products purchase. The data is reliable if collected properly/accurately. that customers data in order for the time series predict sales figures. If the external environment doesnt stay stable then there will be problems with the forecast for example if the prices of the raw materials used to produce Cadbury products increases then the price of the product has to increase in order for Cadbury to make a profit from the product produced. This may affect the customers purchasing trends. The forecast helps Cadbury to make The data may products efficiently as it helps representative. Cadbury to set a target of the amount of products needed; there are always enough products to supply to customers.
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would method to be used accurately to

be

biased

or

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MANUFACTURING UNITS
In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of existence, it today has five company-owned manufacturing facilities at thane, induri (pune) and malanpur (gwalior), bangalore and baddi (himachal pradesh) . Cadburys manufacturing operations started in Mumbai in 1946, which was subsequently transferred to Thane. In 1964, Induri Farm at Talegaon, near Pune was set up with a view to promote modern methods as well as improve milk yield. In 1981-82, a new chocolate manufacturing unit was set up at the same location in Talegaon. The company, way back in 1964, pioneered cocoa farming in India to reduce dependence on imported cocoa beans. The parent company provided cocoa seeds and clonal materials free of cost for the first 8 years of operations. Cocoa farming is done in Karnataka, Kerala and Tamil Nadu. In 1977, the company also took steps to promote higher production of milk by setting up a subsidiary Induri Farms Ltd near Pune. In 1989, the company set up a new plant at Malanpur, MP, to derive benefits available to the backward area. In 1995, Cadbury expanded Malanpur plant in a major way. The Malanpur plant has modernized facilities for Gems, Eclairs,Perk etc. Cadbury also operates third party operations at Phalton, Warana and Nashik inMaharashtra. These factories churn out close to 8,000 tonnes of chocolate annually.

COMPETITORS
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There -are many competitors of Cadbury dairy milk like Nestle munch Nestle kitkat Parle chox Foreign chocolates (Chinese) Lotee Hersheys , etc Due to competitors the demand of Cadbury dairy milk is affected. If the price of competitors raises the demand for Cadbury dairy milk also rises & with fall in price of competitors the demand of Cadbury dairy milk falls.

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The major competition faced by the Cadbury industry is the competition from its competitors. In spite of the pleasant nature of the end product, the chocolate market is a fight market - a true battlefield. The chocolate industry is characterized by a high level of consolidation and fierce competition between the companies on all levels of the value chain. This competition has resulted in erosion of prices and margins for all concerned. According to a new study of Rabobank International, this now begins to show its limitations. New structures and price mechanisms are required to be able to safeguard supply of cocoa beans of good quality. Competition in the chocolate industry. While competition is not new for the chocolate industry - the illustrious battle between Mars and Hershey in the USA stands example for that - it became fiercer when the traditional chocolate markets such as the USA and Western Europe began to show signs of saturation a decade ago. Growth became more difficult to achieve and the battle for market share intensified. Innovative and brand and distribution power became crucial weapons on the route to growth. Focus is on the market rather than on sourcing. The chocolate industry has historically shown a tendency to incorporate all activities in the process from `bean to bar' - from the grinding of the cocoa beans up to the marketing of the final tablet or bonbon. However, the capital and the resources it requires to have and to hold own processing and chocolate manufacturing facilities can hardly be spared from fighting the current competition in branded chocolate; product innovation and brand power demand considerable resources, too. Additionally, the low margin character of processing means a drain on shareholder value for most companies, while increased brand awareness or product introductions add to this. As a result of both aspects - resources and shareholder value - chocolate companies need to rationalize their activities, focusing more on their core business of producing and marketing branded chocolate. They increasingly outsource the earlier activities to specialized actors in the chain, eg. cocoa bean processors and the industrial chocolate manufacturers. Shifting demand has further stimulated chocolate companies to focus on the market. Whereas demand for the traditional and easy to make tablets is flat, growth opportunities still exist in the snacking segment and luxury chocolates, which products require much more support in terms of innovation, branding and distribution. A side effect of this change is that the cocoa content of these products is lower that for those traditional products and therefore has an impact on overall cocoa demand. There is some dichotomy though in the chocolate industry's tendency to withdraw from earlier stages. While branded chocolate manufacturers opt out of own processing, they do show increased concern for and involvement with the supply of cocoa beans.

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Realizing that their future and the future of the whole industry depends on the continuous availability of good quality cocoa beans the branded chocolate manufacturers are involved in initiatives and programmers that aim to secure a sustainable supply of cocoa beans - both from an economic and environmental perspective. Concern for supply; quality and volume continuing pressure on prices and structural changes in cocoa bean producing countries, such as liberalization, have taken their toll on the quality of cocoa beans and on the geographic spread of cocoa bean production - only the low cost producers survived. These producers appear to be small holders in some African countries - mainly Ivory Coast and Ghana - as well as Indonesia. As quality, however, is hardly paid for in the present market structure, farmers get no incentives to increase quality. The treadmill of pressure on prices and quality is a real challenge to the whole industry and should be broken. Add to this quality issue the high pressure of pests and diseases in cocoa as well as a certain degree of climatic and political risk, and an uncertain supply of cocoa beans is the resultant. Not in the short run - given the present stock level - but on the longer term some of the worries seem certainly justified. By taking an active stance, the chocolate industry tries to pre-empt possible problems. New structures required while it is unlikely that the chocolate industry itself gets involved with cocoa bean production, there is certainly a rationale for this. For the upstream actors - processors and traders - pressure on prices and margins have eroded their reserves being lean and mean. They have no resources left or interest to get involved in cocoa bean production. In addition production is not considered to be a traders function. At the same time though the branded chocolate manufacturers have realized that it may give them a competitive advantage to have access to certain types and qualities of cocoa beans. New structures at origin countries, as well as price incentives for quality are required to safeguard supply of quality beans.

PROBLEMS AND CHALLENGES

1.TEMPERATURE23

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A peculiar problem that hinders the distribution to far-off places is the tendency of chocolates to melt under even moderate heat. The temperature can reach up to 48 degrees in summers, whereas chocolate starts melting at a mere 37 degrees. Manufacturers have to take precautionary measure to ensure the preservation of chocolates especially in summers. 2. UN-AVAILABILITY OF CONTROLLED REFRIGERATION Indi does not have a controlled refrigeration distribution. Air- conditioned supermarkets are limited. Cadbury loses 1.5 percent of annual sales of Rs. 6.8 billion to heat damage. Companies revise ingredients to make chocolates withstand heat, and so Indian chocolates are more resilient to heat than their European counterparts by 2 degrees. Nestle and Cadbury have for long tried to provide retailers with loans to buy fridges, but to hold down the electricity costs the shopkeepers switch of the fridges at night. As a result the cocoa fat melts and migrates to the main body of the chocolate. When the cooling is switched on , the cocoa fat solidifies and turns white, presenting a bizarre, un-sellable white on the black form. 3. RAW MATERIALS Cocoa is the key raw material and accounts for around 35% of the total material cost(including packaging) of chocolates. The price of cocoa has been hitting a new high of late. Cocoa prices are at a near 20 year high at $2358 per ton, up from $900 a year back. India does not produce cocoa to a noteworthy extent but is a large consumer of chocolates. An enormous & sudden hike in the prices will adversely affect demand 4.TRANSPORTATION Chocolate needs to be distributed directly, unlike other FMCG products. 90% of cadburys products are sold directly to the retailers. Building this direct network in the rural areas is a daunting task.

5. THREAT FROM IMPORTED BRANDS Free availability of imported brands brought through illegal channels pose a threat to the domestic chocolate industry. Usually, these imported chocolates taste better than domestic ones
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due to a difference in recipe. Consumers, who have the purchasing power, often prefer these brands over the Indian ones. The premium brands ,however, cater to only a niche and do not pose a very serious threat. There is however a lot of dumping from countries like Dubai, Nepal etc of inferior quality chocolates. Most of these dont even meet the Indian Food regulations.

ACHIEVEMENTS OF CADBURY DAIRY MILK

Cadbury Dairy Milk Crowned As Consumer Super Brand

Cadbury dairy milk wins the effies 2006

CONCLUSION & RECOMMENDATIONS

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The estimation of future demand helps the business firms to analyze their production, distribution, selling, advertisement & promotional activities & the cost involved in covering these activities.

There is an immense scope for chocolate industry in India Indian chocolate industry is unique mix with extreme consumption patterns, attitudes, beliefs, income level and spending Understanding consumer preferences and demands is the key to growth Pricing, quality , flavors and pack size are some of the important factors Economical distribution using proper supply chain management is necessity Brand loyalty should be maintained Recommendations can be considered by business firms to enhance their performance in serving its customers the best. Cadbury should bring out new products for health conscious people It should continue to promote itself as substitute to mithai Choco-biscuits should be introduced Should use Indian ads and avoid global ads in India Should consider attractive display or its own Chocolate boutique (retail store). Special chocolates for Christmas should be introduced e.g. rum, champagne flavored New flavors like strawberry,orange,vanilla etc Customers complaints should be welcomed & handled effectively. A quick response to customers complaint can bring a positive impact on part of business firms. Suggestions from customers should be taken into consideration.

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