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HOW CAN CORNFLAKES COMPANIES EXPAND THE CATEGORY IN INDIA?

Submitted By: GROUP 5 Anosh Doodhmal DM14109 Mridula Mallya- DM14126 Susan Chandy- DM14152 Rachna Menon- DM14160 Shiven Saluja- DM14248
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TABLE OF CONTENTS Introduction Market share..3 Competitive Analysis3 Prospects3 Product mix4

Challenges faced by Kellogg5-6 Marketing & Positioning Efforts by Kellogg........6-8 Current Efforts at Expansion Line Extension..8 Brand Extension...9-10 Recommendations Line Extension10-13 Brand Extension.......13 Conclusion14 References....15

INTRODUCTION The Indian breakfast cereal market is a small market when compared to countries like the USA but it is growing rapidly. This segment was valued at $139 million in 2012 and has witnessed a doubling of market growth over the past six years. It is comprised of cold cereals like cornflakes and muesli which represent 60% of the market and hot cereals like oats which represent 40% of the market. The market leader in this segment is Kellogg, which is far ahead of its competitors. The room for growth of the cereal industry had reduced and thus the cereal industry had been stagnant for over a decade in its core countries like the US and the UK. Thus, in the beginning of the 90s Kelloggs had to look beyond the countries in the US and Europe. Deciding that India was a suitable target didnt take too long for Kelloggs. With a population of over 950 million, out of which 250 million were from the middle class, and lets not forget that India was a completely untapped market and had a huge potential for growth. Kelloggs decided to invest US $65 million in India in 1994 three years after the international trade barriers were lifted. They used this to launch Corn Flakes as its number one brand. It was estimated that even if Kelloggs grabbed two percent of the market share available it would result to 18 million consumers and this would make it the largest market above the entire US. MARKET SHARE Since the first attempt by Kellogg's at localisation, the market for convenience goods has expanded. The breakfast segment by itself is estimated at Rs 600 crore, growing at 18-20%, with Kellogg's the leader with a roughly 55% share. Others wanting a slice of this segment include PepsiCo, Marico, Bagrrys, Dr Oetker, Britannia and McCain. COMPETITIVE LANDSCAPE Although Kellogg India has maintained its lead in breakfast cereals, the company has been losing value share every year for a decade at least. This is because Kellogg mainly offers flakes products, while in India, much of the action has been taking place in muesli and oats. Kellogg does have a presence in muesli and in oats, though it was Bagrrys India which has been consistently leading the muesli sector. Within the oats category, Frito-Lay held the leading share of value sales in 2012 with its well-established Quaker brand PROSPECTS The expectation is that breakfast cereals will maintain high growth rate between 2012 and 2017. Oats and muesli will further gain a share of consumers spending. This is because of two reasons: Oats and muesli suit the Indian taste more than cornflakes do There is a rising awareness among the population that oats are healthy and good for the heart.

The trend that oats and muesli are more acceptable now in the Indian market is evident from the fact that almost half of the shelf space given to breakfast cereals in modern retail is taken up by oats and muesli, while the other half is flakes. This suggests that modern retail is pushing oats and muesli. PRODUCT MIX
KELLOGG'S CORN FLAKES Corn Flakes Corn Flakes With Real Honey Corn Flakes With Real Strawberry Puree Corn Flakes With Real Almond & Honey Corn Flakes With Real Mango Puree Corn Flakes With Real Banana Puree & Chips KELLOGG'S EXTRA MUESLI Nuts Delight Fruit Magic Crunchy Fruit & Nut Kellogg's Honey Loops Kellogg's Oat Bites

KELLOGG'S CHOCOS Chocos Chocos Smacks Chocos Duet Chocos Moons and Stars Kellogg's Special K Kellogg's All Bran Kellogg's oats

CHALLENGES FACED BY KELLOGGS Though Kellogg had few direct large competitors, the major challenge faced by them was to promote not only their products but also the concept of eating cereal for breakfast. Their main task was to change the behaviour of consumers by changing their mind-sets. The initial sales figures of Kellogg after it launched its corn flakes in India seemed to indicate that cereal consumption was increasing and it proved to be an encouragement to the company. It was believed that peoples perception of eating cereal for breakfast had changed and they were now willing to replace their traditional Indian breakfast items for cereal. However, it was soon revealed that most people had bought Corn Flakes as a one-off, novelty purchase and were not likely to repeat their purchase. They got swept away by the initial hype surrounding Kellogg corn flakes and hence wanted to try it out. Kelloggs was basically launching a Western product which was attempting to appeal to Indian tastes. Globalization is taking place rapidly but companies still need to respect and

understand regional customs, identities and tastes. This was one of the areas where Kellogg fell short. The products offered by Kellogg were too expensive as compared to its other local competitors, which cost around one third of what Kellogg cost. Kellogg was positioned as a premium product and hence was not affordable for the masses. Kellogg has always positioned itself as an alternative to the usual or regular breakfast consumed by customers. They continued with this same positioning in India as well. While this message worked globally, it did not succeed in India. The food eaten by people in India for breakfast consists of items like dosas, puris and parathas, all of which are very heavy. These dishes are very filling and make people feel that they have had a complete breakfast. However, a breakfast consisting of only Kelloggs Corn Flakes did not give consumers that feeling of fullness and satisfaction. They did not feel that they had had a full breakfast, and still felt hungry. Indian consumers are used to having a lot of variety for breakfast. There are several varieties of almost every breakfast dish ranging from dosas to idlis to chutneys. Once an item has been eaten on a particular day it is usually consumed only after several days. Hence it is a part of Indian culture to eat a variety of dishes over several days and not repeat them often. Hence when corn flakes was introduced and it was positioned as an everyday meal, it was too much of a cultural change for people to accept. Indians are used to having hot and spicy food for breakfast. They are not used to eating cold or sweet items and hence this again was too much of a change from what they were used to. Kellogg was not able to successfully convince people to switch to cereal in favour of their usual breakfast items. In its advertising campaign, Kellogg implied that the typical Indian breakfasts were not nutritious or very good for health. This hurt and offended the sentiments of Indian mothers and they felt that the company was criticizing their efforts. This turned them against Kellogg and they started getting defensive saying that such breakfasts had been served by Indian mothers for decades and centuries and their families had been fine. Hence once the ego of home makers was hurt, they developed a mental block towards the concept of having corn flakes for breakfast.

Kellogg corn flakes have to be eaten with cold milk. However Indians have been conditioned from childhood to drink hot milk every day. Hence the ordinary Indian family could not get used to eating corn flakes with cold milk and so they started pouring hot milk instead. Once the hot milk was added, the corn flakes became warm and soggy and no longer crisp and tasty. Since Kelloggs USP was crispy tasty cereal, it did not manage to appeal to the Indian consumers. Kellogg positioned its products on the basis of nutrition and health to attract the attention of mothers. However their focus should have been on the children since they are the ones who ask for the product and convince their parents to buy it. Hence rather than positioning themselves as healthy and nutritious, they should have marketed their products in such a way that they convey the message of enjoyment and fun to customers, especially children. Hence these are some of the reasons why Kellogg corn flakes was unable to succeed in India and faced so many challenges. MARKETING & POSITIONING OF KELLOGGS When Kellogg first entered the Indian market in 1994 they followed their international marketing strategy and positioned themselves on the health platform. Kellogg's initial offerings in India included cornflakes, wheat flakes and Basmati rice flakes. They highlighted the nutritional values of the brand. However what was conspicuous was that in both print and TV advertising, the famous `rooster identity of the brand, which symbolizes the morning, was absent. However after the massive failure of its positioning and marketing efforts in India, it revamped its entire positioning strategy to appeal more to Indian customers. Hence they took several steps such as 1. As a comeback strategy, they decided to launch two of its most popular brands in other countries, in India. As part of this strategy they introduced Chocos in September 1996 and Frosties in April 1997. The Chocos brand was positioned as The irresistible taste of Chocolate. This move was extremely successful and helped Kellogg get over their initial failure. This move led to increase in popularity of the brand and also led to a significant increase in sales.

2. Positioning of the brand as fun filled and exciting rather than just on the basis of nutrition. This appealed more to children and led to increased popularity of the brand. They launched a massive consumer promotions drive of around Rs.25 crore. 3. Reduction of prices to make it more affordable to the masses. A lot of people did not buy Kellogg because of its high prices. Hence they introduced retail packs of various sizes to make it more affordable for different consumer groups. They made sure that all their products were not positioned in the premium category. 4. They repositioned several of their products and the entire brand as tasty and nutritious food. Rather than focussing only on the health aspect, they also focussed on conveying the message to customers that Kelloggs was tasty as well. 5. Indianising the product by introducing new flavours to appeal to the Indian palette with the launch of a new cereal series called Mazza in August 1998. It was introduced in 60gm pouches and priced at Rs 9.50. The glossy cardboard packaging was replaced by pouches, which helped in significantly reducing the price. It did not position Mazza in the premium category. The three local flavours that were available were Mango Elaichi,' Coconut Kesar' and Rose.' They also suggested various accompaniments like curds, bananas and pistachios. Though these flavours did not appeal to consumers and failed to strike a chord the decision to decrease prices seemed to be the right move and worked well for the company. 6. They also had Indian themed advertisements with a Katha Kali dancer as well as a Yoga instructor attributing their energy and stamina to Kelloggs. The advertisements end with the line Jaago jaise bhi, lo Kelloggs hi. 7. Kellogg decided to expand into other categories and launched Chocos Breakfast Cereal Biscuits. This proved to be extremely successful and was a big hit especially among children. The media expenditure by Kelloggs on the Chocos brand was equally distributed between Chocos flakes and Chocos Biscuits. 8. Kellogg also conducted several other activities and initiatives to promote their brand. Though they had changed their positioning from healthy and nutritious to fun and exciting, they still promoted nutrition in a big way. In 1997 they launched The Kellogg Breakfast Week,' which was a community-oriented initiative to create awareness about the importance of breakfast. The program focused on preventing anaemia and they conducted several nutrition workshops for both Individuals and families. This initiative was launched in Chennai, Mumbai and Delhi. Following the success of these initiatives, Kelloggs launched the Iron Shakti variant in 2000.
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9. Their main forms of media communication were through the press, on posters, radio, cinema, direct mail and on the Internet. However, the main channel for its advertising is on television with a number of advertisements targeted towards children and adults. They had promotion activities like Kellogg Health Week and distributed free samples of one-serving sachets in schools and to housewives. The company also gave free water bottles, lunch boxes and pencil-boxes with every pack. Plastic dispensers offering the product at discounted 10. Kellogg positioned its different variants for different groups of people. For instance, Special K is targeted at women, Chocos is aimed at children while corn Flakes are aimed at the whole family. Thus Kellogg learnt several important lessons from its initial marketing and positioning failure in the market. But despite all these efforts, it hasnt been able to generate incremental sales and increase its market share. WHY SHOULD KELLOGGS EXPAND WITHIN THE CATEGORY AND OTHER CATEGORIES? 1. To tackle fierce competition that are expanding within the segment as well as expanding to other categories, it is necessary for Kellogg to be pro active and make its presence felt in growing segments 2. For products like these, it is important to introduce variants and to innovate to keep the consumers excited and interested and to remain ahead of the pack. 3. Brands extensions help in spreading the risk and avoiding the situation of having all the eggs in one basket 4. Image of the brand is extended when the product is expanded. The product seems rejuvenated and up to date.

CURRENT EFFORTS AT EXPANSION Line Extension: Kellogg is now facing increased competition with multinational and local competitors PepsiCo, Marico, GlaxoSmithKline and Dr Oetker entering the oats and muesli segments. Besides expanding their distribution extensively, shopper engagement programs have helped them to drive shopper off take. Also, Kellogg has kicked off a 'konsumer konnect' programme whereby the whole organisation steps out for one day in a year to meet with

consumers. Kellogg has been aggressively driving the distribution of its single serve packs priced at Rs 10, in tier I and II towns to attract new consumers. The premium brand went to the bottom of the pyramid by launching corn flakes at a price point of just Rs 10 to increase penetration. The company calls this Kpak format. The idea was to increase the penetration of the Kelloggs brands through affordability, as breakfast cereals still form a very small market in India. Low price points helped them to reach the Tier II and III towns. Kelloggs' Corn Flakes at Rs 10 has what the company calls Iron Shakti. The product positioning was changed as well: From a breakfast cereal, it was now also a Shaam ka Nashta or evening snack. The new positioning was aimed at promoting out-of-home consumption. Although the small-pack strategy will help Kelloggs push its sales in tier II and III towns, the company is not looking to hit rural markets yet as it feels that there is still a lot of room in urban India, bearing in mind the low penetration. Kelloggs has a market share of more than 70 per cent value share in the ready-to-eat cereal category. However, competition for Kelloggs is heating up with PepsiCo increasing its focus on Quaker and also planning on bringing more products from its global breakfast portfolio. Competition is also strong from the private labels of some retailers like the Future Group, which have achieved huge success out of its Tasty Treat cornflakes. While Tasty Treat cornflakes are priced at the same rate as Kelloggs, it is not available at the Rs 10 price point which gives Kellogg's an advantage. In 2012, Kelloggs India took a second shot at localising its India portfolio, more than a decade after the launch of coconut and elaichi variants of its cornflakes had met with tepid response. The maker of cornflakes, Chocos, Special K and Heart-to-Heart oats rolled out variants like pudina, tomato and garam masala as a part of its oats range and is likely to follow this with localised variants of its other products as well Brand Extension: After eight years in India, Kellogg's seems to have woken up to the fact that it needs a different bill of fare. So there'll be less of the cornflakes, more snap, crackle and pop coming from munchies. For Kellogg India, it represents the beginning of a two-pronged strategy. First, it's expanding its portfolio beyond cereals to the large, fast-growing snacks category. Second, it will use the wider and deeper distribution it's built up for these low-priced products to increase the reach of its 'core' business, which continues to be breakfast cereal. The cornflakes business accounts for two-thirds of Kellogg India's turnover - the rest is the biscuits brand Chocos. And it's likely to fall to 50 per cent or less, and that too in a year or so. Venkateish says that he expects snack foods to grow fast, to a quarter of the turnover in a year or two.

And, together with biscuits, the non-cornflakes business could be close to half total revenues in a year's time. That's more along the lines of Kellogg's international portfolio, in which noncereals went from just 29 per cent of turnover in 2000 to 45 per cent in 2001, post the global acquisition of Keebler. Another significant move by Kelloggs is that the cereal company took over Pringles potato chips from P & G Co. in a deal worth around $2.7 billion. This has now given Kelloggs huge diversification and has instantly made it a big player in overseas snacking. Now the acquisition of the Pringles brand will change its sales mix to 40% cereal, 40% snacks and 20% frozen foods and products sold in food service and vending channels. Kellogg has seen slow overall growth but now Pringles can help Kelloggs build on its snacks business and expand into a huge market since the snacks category is growing faster than cereals. While Pringles will give Kelloggs a larger canvas to operate in India but it wont be easy. The market has a value of Rs 2,000-crore but is dominated again by PepsiCo with Lays and its Kurkure brands along with ITC with Bingo while Haldirams and Parle have its Products firmly in the market. Pringles is going to be a new channel for additional revenues to Kelloggs which is already valued at an estimated annual turnover of Rs 350-400 crore at the moment in India. It is to be seen whether Kelloggs would opt to follow Cadbury-Kraft and setup its own local production factory of Pringles like they did with Oreos. RECOMMENDATIONS: Line Extensions: 1) Oats Oats comes under the category of cereal grain and are derived from a weed of the primary cereals wheat and Barley. It is an annual plant and can be planted in autumn or in the spring. The influx of the oat market is a thing of the recent past. It is widely gaining recognition and making a place for itself in the great Indian breakfast market and is now associated with words like hot, spicy, substantial and healthy. Oats alone is a Rs 200-crore market and according to experts is growing at a compounded average rate of 25%. The intensity with which the oats segment is increasing is a thing to watch. The flurry of marketing activity that has happened in the last 5 years imposes the fact that oats has become an active category. Brands like quaker oats launched oats that need no cooking. This was directly aimed at the people who dont have too much time to eat their meals. After an year, Saffola came up with its range of oats leveraging the strong health equity it enjoys. Within a few months, Kellogs entered the oats market with a claim that their variants were made for the Indian palate and how it helps to reduce stress. A year later, Horlicks launched oats with a promise that it will manage the weight of the consumer, control the blood pressure and reduce cholesterol, again

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a health appeal! In the same year, Brittania constituted 4 variants simultaneously: plain, strawberry, savoury and multi grain. The key stimulation of this category is the increasing income of people, double-income couples and the growing acceptance of western foods. The brands striking the right cord with the people will eventually come out on top. Based on the findings based on secondary research, the following are some recommendations that can be adopted by Kelloggs to expand the oats category: CUSTOMER COGNIZANCE The Indian people still have a mindset that oats are horse feed and are considered inferior, unrefined and unfit for human consumption. This makes it difficult for the product to be accepted by the masses. This misconception needs to be removed by marketing campaigns aimed at providing category awareness. The sooner it happens, the better it is for the oat industry. SPICY HOT AND FILLING BREAKFAST Indian palate is accustomed to having spicy treats like chutneys, pickles, parathas and dosas for breakfast. For oats to create a niche for themselves, they need to provide spicy breakfast solutions, and area where its competitors from another category, cornflakes and muesli have not entered. Though, it is unclear that an Indian variant of a western meal will appeal to the customers, history says whenever it has been done, the results have been positive.( Aloo Tikki burger, Tandoori Chicken Pizza). Surveys have mentioned that an average Indian doesnt find a western meal filling enough. Oats need to be marketed in a way that it changes the consumer perception. A campaign like a six-hour hunger challenge wherein you ask people to entrust you of the fact that they wont feel hungry for atleast six hours if they consume oats. HEALTH ANGLE India is slowly becoming a health conscious nation. The benefits that oats provide are unparalleled. They are an excellent source of proteins, carbohydrates and dietary fibre and also help in reducing cholesterol. Oats, with all the health benefits it provides, need to be marketed as a category differentiator. AREAS FOR FURTHER EXPLORATION: It is very easy for a category like oats to slip into commodity space as it is perceived to be something which keeps you healthy but doesnt help you to seek pleasure. It is imperative for the brands to come up with differentiating propositions from time to time to keep the buzz alive. Examples of this could be 1. Fastest cooking oats. 2. Special oats for working women and pregnant women. 3. Oats for growing children. 4. Oats for the aged.

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2) Muesli Bagrrys holds leadership share in the muesli market with about 50%. While categories such as muesli, oats and olive oil are not yet very profitable, they are expanding speedily due to increased awareness of health benefits associated with them. With lifestyle diseases and obesity becoming major concerns, an increasing number of people are adopting healthy foods habits in the country, thus opening growth opportunities for food marketers. Baggrry India has been able to gain increasing market share on the back of new product innovations and rapidly growing demand. The innovation behind their product is based on the fact that while making corn flakes the natural bran is lost hence making it very high in starch content, high GI and low in fibre. This according to Baggrry leads to high blood sugar leading to weight gain, low energy and cravings. Baggrry adds back wheat bran and oat bran to compensate for the loss of fibre during the manufacturing process. How Kellogg can expand in the Muesli market: Strategically, Kellogg's has a strong position in the market for both healthy foods as well as convenience foods. Muesli bars and snacks such as muesli biscuits have become the main growth driver, making up more than half of sales. They could also push the muesli bars and cookies and launch a bundled offer to attract customers. In order to compete with Baggrry in the muesli segment Kelloggs, can slash its prices. However doing this will lead to loss of its premium image in the market. Hence, instead of engaging in price wars, Kelloggs could introduce more variants of the product and bring in new and exciting flavours. 3) Blueberry, dark chocolate and similar flavoured cornflakes can be introduced to cater to the age category of 16-25 years and thus not limit themselves to the children's category. This age category has previously not been specifically targeted by the brand. This segment could be targeted via the social media as this medium has not been used by the brand 4) To make the breakfast experience fun for kids, they could change the shape of the cereals eg. Introduce alphabets, animal shapes etc. 5) Kellogg can also enter the baby food category by introducing cereal for infants. The brand is associated with nutrition and good health and since this is what most mothers will be looking for when they think of food to give their children, it would appeal to them. This category is expected to witness a substantial growth in coming years. The reasons for this are attributed to growing affluence of people, increasing disposable incomes, changing mind-set of consumers in smaller cities and young parents who are willing to spend more due to lack of time and for the sake of convenience. Kellogg would face severe competition from Nestl India which maintains the leadership position in baby foods in 2012 and had a market share of 80% in 2012. Its brand Cerelac has almost become synonymous with baby food in India. Nestls other
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brands are Lactogen, Nestogen and Nestum. The other players are Amul and Farex. Hence due to the high growth potential of this segment as well as strong brand recall and favourable brand image, Kellogg can enter this category.

The Breakfast Food Category should always be kept in mind with all the above brand extensions. Quality and Nutrition should be maintained so that it aligns itself with its Kelloggs Brand. Brand extension 1. Chocolate straws and chocolate spoons - it makes the process of eating a bowl of cereal into an experience. This would specifically appeal to children since it enhances the breakfast experience and makes it enjoyable and fun. This would also stay in line with the overall positioning strategy of Kellogg. 2. Popcorn - They can move beyond the breakfast category and move into snacks category. They can leverage on the Pringles brand which they recently took over to enter into the market for the salty food category. 3. Flavoured milk - They can introduce flavours that can be paired with different types of cereal to make a delicious combination meal. 4. Cocoa powder & chocolate sauce - Cocoa powder can be introduced as it is relatable to the consumer's idea of breakfast and this is what Kelloggs is associated with and chocolate sauce can be also be introduced the same way. 5. Flavoured yogurt - This is a product that is associated with breakfast and hence reinforces the message in the minds of consumers. 6. Milk Powder- milk powder would be complementary to cornflakes, chocos and similar products. For consumers that have difficulty in getting access to milk, like students staying in hostels, working adults etc, this would be very convenient for them. Also you could market this product on the boxes of various cereals saying that it tastes best with this milk. All the above brand extensions fall under the breakfast food category and are relevant to Kelloggs brand image of nutritional foods.

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CONCLUSION The breakfast cereal market has a lot of scope in India due to increased awareness levels about the importance of a healthy, nutritious and balanced breakfast to start the day. For Kellogg, while the growth of cornflakes seems to have reached saturation levels, there is a lot of action going on in related categories like oats and muesli. For Kellogg as well as other cereal companies, they must focus thrive on the current trend amongst consumers to eat healthy and nutritious food. Also, they must conduct several educational programs that spread the awareness about the importance of breakfast. By doing this, and by providing a rich and exciting variety of products, the cereal market can definitely be expanded.

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References: 1. http://www.iipmthinktank.com/functions/marketing/brand.pdf 2. http://brandfailures.blogspot.in/2006/11/brand-culture-failures-kelloggs-in.html 3. http://articles.economictimes.indiatimes.com/2002-06-19/news/27331748_1_kelloggindia-cornflakes-breakfast-cereal 4. http://online.wsj.com/article/SB10001424052970204880404577224792333830850.ht ml 5. http://articles.economictimes.indiatimes.com/2012-10-19/news/34584530_1_kelloggindia-localised-variants-nimbooz 6. http://www.business-standard.com/article/companies/with-pringles-buy-kelloggs-hasa-larger-canvas-in-india-112021700060_1.html 7. http://www.business-standard.com/article/management/kellogg-s-goes-snacking110041200097_1.html


8. http://www.euromonitor.com/breakfast-cereals-in-india/report

9. http://articles.economictimes.indiatimes.com/2013-01-18/news/36415721_1_cerealmaker-kellogg-heart-to-heart-oats-muesli 10. http://articles.economictimes.indiatimes.com 11. http://www.kellogghistory.com 12. http://www.greatstartgreatday.co.in 13. http://www.forbes.com


14. http://breakfastbowl.blogspot.in 15. http://insight.kellogg.northwestern.edu 16. http://www.marketingmagazine.co.uk 17. http://www.imd.org

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