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Ferrero to tap into rapid Indian chocolate growth with new production site – analysts

By Oliver Nieburg , 27-Oct-2011

Italian chocolatier Ferrero has opened its first production facility in India; a chocolate market analysts have said has huge potential.

Ferrero recently opened its 28,000m2 site in Baramati, a rural area 100 kilometres from Pune in the Maharashtra region of India, where it will take on 1,300 staff.

The facility, which includes a warehouse, service areas and production facilities, will produce Kinder Joy Eggs and Tic Tac mints.

Indian growth potential

Lee Linthicum, head of food research at Euromonitor, told ConfectioneryNews.com that there was a lot of room for growth in the Indian confectionery market.

“They want to tap into the overwhelming growth of chocolate. Chocolate growth is larger than sugar growth confectionery and chewing gum which typically happens in emerging markets as consumers move to more expensive products.”

According to Euromonitor, the Indian confectionery market is worth an estimated €1.5bn. Within confectionery, chocolate is the largest market, standing at €760m, followed by sugar confectionery at €495m then chewing gum at €243m.

Since 2007 chocolate has overtaken sugar confectionery and to the present day the chocolate sector has grown by a whopping 230%.

Leatherhead Food Research analyst Jonathan Thomas, told this site: “More Indians, especially in urban areas, display an increasing appetite for western-style confectionery products, so the prospects for future growth appear to be promising.”

However he also warned that the Indian confectionery market was “unusual”.

“Many sectors can be split into the ‘organised’ and ‘unorganised’,” he said “Whilst the former includes mainstream retail channels, the latter refers to sales of confectionery through outlets such as street vendors and markets, and often cannot be quantified.”

Ferrero’s chances

Linthicum said: “They will still have strong competition from Cadbury and Kraft. Kraft has just launched Oreos in India so they will have strong competition.”

Thomas said Cadbury had it has roots in the country stretching back to the 1940s. “Its Dairy Milk brand is one of the largest in the Indian confectionery market, while 5 Star and Perk are strong within the countlines market. “

Kraft holds the largest share of the Indian chocolate market through its Cadbury brand, accounting for 60%. Nestle come next at 28% followed by Ferrero at 6%, according to figures from Euromonitor from 2010.

“Even though Ferrero is relatively small compared to its competitors there is potential. They have already grown their share quite significantly. But they won’t be knocking Kraft or Nestle off their perch anytime soon,” said Linthicum.

In 2008 Ferrero held just 0.5% market share in the Indian chocolate market, according to Euromonitor figures. By 2009 this had grown to 3% and in 2010 its share doubled to 6%.

However, according to Thomas, good news for Ferrero is that Hershey appears to be scaling down its interests in India, having recently sold its stake in its joint venture with Godrej Beverages & Foods.

Asked what he made of Ferrero’s choice of product for the Indian market, Linthicum said: “Tic-Tac is more cost effective and it broadens their reach while Kinder Eggs helps them tap into the middle classes.”

Asia take-two

Although the new production site marks Ferrero’s first move into India, it is not its first attempt to crack Asia.

Ferrero previously established a partnership with Asian confectioner Lotte in Japan. Lithicum said the move proved unsuccessful as Lotte failed to uphold its end of the bargain.

“Ferrero is aggrieved by this and while they know they must move beyond Europe, they are not really sure how to go about it,” he said.

Ferrero has also announced plans for another production site in Western Turkey. The 146,000m2 site in Manisa will produce chilled Kinder products and Nutella and will open in 2013.

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