Kellogg’s is, of course, a mighty brand.

Its cereals have been consumed around the

globe more than any of its rivals. Sub-brands such as Corn Flakes, Frosties and Rice
Krispies are the breakfast favourites of millions.

In the late 1980s, the company had reached an all-time peak, commanding a
staggering 40 per cent of the US ready-to-eat market from its cereal products alone.
By that time, Kellogg’s had over 20 plants in 18 countries world wide, with yearly
sales reaching above US $6 billion.

However, in the 1990s Kellogg’s began to struggle. Competition was getting

tougher as its nearest rivals General Mills increased the pressure with its Cheerios
brand. Kellogg’s management team was accused of being ‘unimaginative’, and of
‘spoiling some of the world’s top brands’ in a 1997 article in Fortune magazine.

In core markets such as the United States and the UK, the cereal industry has been
stagnant for over a decade, as there has been little room for growth. Therefore,
from the beginning of the 1990s Kellogg’s looked beyond its traditional markets in
Europe and the United States in search of more cereal-eating consumers. It didn’t
take the company too long to decide that India was a suitable target for Kellogg’s
products. After all, here was a country with over 950 million inhabitants, 250 million
of whom were middle class, and a completely untapped market potential.

In 1994, three years after the barriers to international trade had opened in India,
Kellogg’s decided to invest US $65 million into launching its number one brand,
Corn Flakes. The news was greeted optimistically by Indian economic experts such
as Bhagirat B Merchant, who in 1994 was the director of the Bombay Stock
Exchange. ‘Even if Kellogg’s has only a two percent market share, at 18 million
consumers they will have a larger market than in the US itself,’ he said at the time.

However, the Indian sub-continent found the whole concept of eating breakfast
cereal a new one. Indeed, the most common way to start the day in India was with a
bowl of hot vegetables. While this meant that Kellogg’s had few direct competitors
it also meant that the company had to promote not only its product, but also the
very idea of eating breakfast cereal in the first place.

The first sales figures were encouraging, and indicated that breakfast cereal
consumption was on the rise. However, it soon became apparent that many people
had bought Corn Flakes as a one-off, novelty purchase. Even if they liked the taste,
the product was too expensive. A 500-gram box of Corn Flakes cost a third more
than its nearest competitor. However, Kellogg’s remained unwilling to bow to price
pressure and decided to launch other products in India, without doing any further
research of the market. Over the next few years Indian cereal buyers were
introduced to Kellogg’s Wheat Flakes, Frosties, Rice Flakes, Honey Crunch, All Bran,
Special K and Chocos Chocolate Puffs – none of which have managed to replicate
the success they have encountered in the West.

Furthermore, the company’s attempts to ‘Indianize’ its range have been disastrous.
Its Mazza-branded series of fusion cereals, with flavours such as mango, coconut
and rose, failed to make a lasting impression.

Acknowledging the relative failure of these brands in India, Kellogg’s has come up
with a new strategy to establish the company’s brand equity in the market. If it
can’t sell cereal, it’s going to try and sell biscuits. The news of this brand extension
was covered in depth in the Indian Express newspaper in 2000:

The company has been looking at alternate product categories to counter poor off
take for its breakfast cereal brands in the Indian market, say sources. Meanwhile,
the Kellogg main stay – breakfast cereals – has seen frenzied marketing activity
from the company’s end. The idea behind the effort is to establish the Kellogg brand
equity in the market.

‘The company is concentrating on establishing its brand name in the market

irrespective of the off take. The focus is entirely on being present and visible on the
retail shelves with a wide range of products,’ explains a company dealer in Mumbia.

As per the trade, Kellogg India has disclosed to the dealers its intention of launching
more than one new product onto the market every month for the next six months.

These rapid-fire launches were supported with extensive ‘below-the-line’ activity,

such as consumer offers on half of Kellogg’s cereal boxes. Although most of the
biscuit ranges have so far been a success with children, due in part to their low
price, Kellogg’s is still struggling in the cereal category.

Although the company tried to be more sensitive to the requirements of the market,
through subtle taste alterations, the high price of the cereals remains a deterrent.
According to a study conducted by research firm PROMAR International, titled ‘The
Sub-Continent in Transition: A strategic assessment of food, beverage, and
agribusiness opportunities in India in 2010,’ the price factor will restrict Kellogg’s
from further market growth. ‘While Kellogg’s has ushered in a shift in Indian
breakfast habits and adapted its line of cereal flavours to meet the Indian palate,
the price of the product still restricts consumption to urban centres and affluent
households,’ the study reports.

Kellogg’s tough ride in India has not been unique. Here are some further examples
of brands which have managed to misjudge the market:

_ Mercedes-Benz. In 1995 the German car giant opened a plant in India to produce
its E-class Sedan. The car, which was targeted at the growing ranks of India’s
wealthy middle class, failed to inspire. By 1997, the plant was using only 10 per
cent of its 20,000 car capacity. ‘Indians turned up their noses at the Sedan – a
model older than those sold in Europe,’ reported Business Week at the time. ‘Now
Mercedes has to reassess its mistakes and start exporting excess cars to Africa and
elsewhere.’

_ Lufthansa. Germany’s Lufthansa airline joined forces with Indian company, the
Modi Group, to launch a new domestic private airline, Modi-Luft, in 1993. However,
three years later ModiLuft had gone bust and Lufthansa filed a lawsuit against one
of the Modi brothers, claiming he had used funds obtained from the German
company in other ventures. In return, the Modi Group accused Lufthansa of
charging too much and of producing defective planes.

_ Coca-Cola. The Coca-Cola company understood that distribution was the key to
building a strong Indian brand. It therefore decided to buy out one of India’s most
successful soft drink companies and manufacturers of popular soda brand Thums
Up. However, although this gave Coca-Cola an instant distribution network, Thums
Up remained more popular than Coke for many years. Most Indians initially thought
that the new entry to the market wasn’t fizzy enough.

_ Whirlpool. When Whirlpool launched its refrigerators on the Indian market, it found
the market unwilling to buy larger sizes than the standard 165 litres.

_ MTV. When MTV India was launched, the aim was to bring Western rock, rap and
pop to the sub-continent. Now, however, the music policy has shifted to
accommodate Indian genres such as bhangra.

_ Domino’s Pizza. Initially, Domino’s Pizza transferred its Western offerings direct to
the Indian market, but the company eventually realized that it had to bow to local
tastes, as Arvind Nair, chief executive officer at Domino’s Pizza India explains.
‘Initially, our focus was to stay only in metropolitan areas, but in the last two years
we have felt the need to spread ourselves into “mini metros” and B-category towns.
We have also experimented with our taste options, especially when we went into
smaller towns. We have focused on more regional flavours now,’ he says. As a
result of this change of strategy, Domino’s came up with localized toppings such as
‘Peppy Paneer’ and ‘Chicken Chettinad’. This move was greeted with a wry smile
from Domino’s main Indian competitor, US Pizza, which was the first to offer local
topping. ‘In 1995, when we offered tandoori chicken and paneer toppings, some
made fun of us saying, why not offer spaghetti and pasta toppings? The same
companies are now offering chole and spicy masala pizzas,’ says Wahid Berenjian,
the managing director for US Pizza. He told the Hindu newspaper Business Line that
US brands such as Domino’s made the mistake of thinking that US tastes are
universal. ‘You cannot change the taste buds that were developed more than a
thousand years ago,’ he said.
_ Citibank. When Citibank entered the Indian market, the firm’s aim was to target
only high-income earners. But, in the words of the Business Line newspaper,
Citibank soon realized that ‘in India it makes sense to go the mass banking way
rather than the class banking way.’

One of the reasons why Kellogg’s and these other brands’ passage to India was not
smooth was because they had been blinded by figures. The Indian population may
be verging on 1 billion, but its middle class accounts for only a quarter of that
figure. However, a 1996 survey conducted by the Indian National Council on Applied
Economic Research in Delhi found that the sub-continent’s ‘consumer class’
numbers are around 100 million people at the most, and that buying habits and
tastes vary greatly between the Indian regions. After all, India has 17 official
languages and six major religions spread throughout 25 states.

As a result, only those companies which are in tune with India’s many cultural
complexities can stand a chance. One of the companies which has managed to get
it right is Unilever. However, the conglomerate has had a head start on those
Western companies which entered the market after 1991. Indeed, Unilever’s soap
and toothpaste products have been available in India since 1887, when the sub-
continent was still the crown jewel of the British Empire. The secret to Unilever’s
longevity in India is distribution. Hindustan Lever Limited (Unilever’s Indian arm)
has products available in a staggering total of 10 million small shops throughout
rural India.

As for Kellogg’s, it remains to be seen whether its move into other product
categories, such as snack food, will be able to help strengthen its brand. The
dilemma that it may face is that if it becomes associated with biscuits rather than
cereals, core products like Corn Flakes could become a marginal part of the
company’s brand identity in India.

‘Kellogg’s is caught in a bind,’ one Indian brand analyst remarked in India’s

Business Line newspaper. ‘It realises that cornflakes can make money only in the
long haul, so it needs a product which will give it some accelerated growth and the
tonnage it is desperately looking for. However, its area of strength worldwide lies in
breakfast cereal and not in the snack food category.’

However, other impartial Indian commentators are more optimistic about Kellogg’s
future prospects within the sub-continent. Among those who believe Kellogg’s will
eventually succeed is Jagdeep Kapoor, the managing director of Indian marketing
firm Samiska Marketing Consultants. ‘With every product offering, Kellogg’s chances
improve based on its learning in the Indian market,’ he says.

Only time will tell.

QUESTION: CRITICALLY ANALYZE THE CASE IN DETAIL ?