The global acquisition of confectionery-maker Cadbury would propel Kraft Foods straight to market leadership position in chocolate and confectionery segment in India. For Kraft Foods, this deal means making critical inroads into the world’s second largest market by population which could be a key to future growth as it has a negligible presence in the country as of now.
This deal could be as significant for the chocolate market in India as a similar one in the cement sector, where two bulge bracket deals (ACC and Ambuja Cements) propelled Holcim to near market leadership despite being a late entrant to the market behind the likes of Lafarge and Heidelberg.
Kraft, the world’s second largest food and beverage maker (after Nestle), will get distribution presence for its business which is largely spread across beverage, cheese and dairy products besides snacks foods such as biscuits. For one, it would get a strong presence in chocolate business that could help it compete with Nestle, also a strong player in the market.
Although it is unlikely that Kraft would straight away use Cadbury to start selling its products in India, it could consider such a possibility in the future. This is because Cadbury India would not be a wholly owned unit for Kraft as there are still some minority shareholders.
Cadbury India which got delisted from the Indian stock market just before the last bull run began in 2003– when many MNC subsidiaries bought back shares from the public– closed 2008 with net sales of Rs 1,588 crore a growth of 23% over the year ended December 2007.
In fact, the company has been maintaining over 20% revenue growth for the last three calendar years. Its profit after tax (PAT) growth has been even more spectacular with over 40% growth in the last three consecutive years.
Cadbury India’s revenues from chocolates and confectionery business was pegged at around Rs 1,200 crore for 2008. Against this, Nestle India’s chocolate business was less than Rs 700 crore in revenues in the same period.
Kraft’s acquisition of Cadbury will also pose a challenge to companies such as Britannia which banks heavily on the biscuit segment. Although Kraft’s products are in the premium segment a wider distribution muscle could have an impact on existing players.