India as a Potential Market for Tim Tam Biscuits - Essay Example

?India as a Potential Market for Tim Tam Biscuits Executive Summary As domestic markets mature and saturate, companies seek to go international, i.e.try to sell their products in international markets. The decision to go international assumes a lot of significance because such ventures tend to consume a lot of time, effort and money. Companies therefore engage in market research; collect relevant data so as to take the correct decision with regard to which market to enter, how to enter, what strategy to pursue in that market etc, before actually taking the plunge. The present paper deals with the expansion plan of Arnott’s Tim Tam biscuits in one of the BRIC countries. The BRIC countries refer to a group of four large, developing countries; Brazil, Russia, India and China. These countries, given their demographic and economic potential, have the potency to catapult into the world’s largest economies of the world. Home to over 40 percent of the world population and having recorded impressive growth rates in their gross domestic products (GDPs), these countries are on the radar for most companies willing to expand their businesses. This paper analyzes the strengths, weaknesses, opportunities and threats (SWOT) of Arnott’s in the Indian competitive market space. The marketing mix as well as the marketing strategy with regard to segmenting, targeting and positioning for the Indian market, the chosen BRIC country for expansion, has been detailed in the paper. The paper establishes that the competition in the Indian biscuit market is intense, however the Tim Tam biscuits, with their good taste and appropriate positioning on the health plank can carve out a market for themselves in India. It has been suggested that Arnott’s should give the marketing rights to sell its Tim Tam biscuits to one of the leading operators in the FMCG sector in India. Later, the company can set up its wholly owned subsidiary in India to manufacture and market its Tim Tam brand. Introduction Arnott's is a household name in Australia. In existence for the last 146 years, Arnott's is not just a food company; it’s a national icon and an integral part of the Australia’s history. Business Leverage Arnott's has emerged as one of the largest food companies in the Asia Pacific region. With Campbell Soup Company of the United States making investments in Arnott's, the latter is poised to take its growth levels to a new high. Primary Areas requiring planning for Arnott’s Arnott's is a market leader in the Australian biscuit market with a market share of 65 per cent and a ‘household penetration’ of hundred percent. Australia and New Zealand, put together, account for 80 per cent of Arnott’s business. These existing markets do not provide Arnott’s the prospect of stellar growth in the future. At this juncture the company has to further expand in the international market. The biscuit manufacturer exports its produce to Japan, United States, Canada, United Kingdom, Indonesia and Tahiti. Arnott’s has to plan and take decisions on the following aspects if it is to succeed in its endeavor of expansion in international market: a) Which country should it choose to sell its products? b) What should be the mode of entry in that country? c) What should be the company strategy with regard to STP (Segmenting, targeting and positioning)? d) What should be the marketing mix in that country? Selection of Country Brazil, Russia, India and China, collectively known as the BRIC countries are the four largest developing countries of the world. These countries, given their demographic and economic potential, have the potency to catapult into the world’s largest economies of the world. Home to over 40 percent of the world population and having recorded impressive growth rates in their gross domestic products, these countries are on the radar for most companies willing to expand their businesses (Oakley 2009). Goldman Sachs estimates that China would become largest economy of the world by 2050, while India, Brazil and Russia would capture the third, fifth and sixth slot respectively at that point of time. India as the Destination for Arnott’s Biscuits The chosen country for Arnott’s biscuits is India because of umpteen reasons. India is the world's second most populated nation after China. With a population of over 100 billion, India has become the cynosure of all marketing eyes, especially the sellers of fast moving consumer goods. Around 45 per cent of the population in India is below 20 years of age. This young population, whose aspirations have been fuelled by media exposure and high amount of money to spend, is set to rise further. India is the also largest biscuit consuming country in the whole world (Sharma 2010). According to the estimates of the Federation of Biscuit Manufacturers of India (FBMI), the India Biscuits Industry will continue to grow at a steady rate of 15 percent per annum for the next 10 years. An AC Nielsen study found that the Indian biscuit market grew at 17 percent in 2010, The per capita consumption of biscuits in India has grown from a meager 400 grams about a decade ago to 1.8 kg today. That compares with 9 kg in Britain, 7 kg in Australia and 7.8 kg in the US (Grant 2005) as depicted in Fig 1. The comparison suggests that the biscuit market can increase considerably by tapping and convincing, through appropriate advertising and sales promotion schemes, the existing consumers of biscuits. International players have started entering the Indian market to grab a bigger chunk of the lucrative, ever increasing biscuit market. India has seen the entry of United Biscuits and GlaxoSmithKline in the last two years. Kraft Foods, the world's largest confectioner, has also launched its Oreo biscuits with much fan fare in the country. Behemoth Pepsi is in the pipeline and is also seriously contemplating a foray in the Indian biscuit market. The great Indian middle class, constituting 30 billion people, has been the topic of discussion for most companies. A burgeoning set of population with rising disposable income constitutes the middle class. So while the number of people living in the country (total population) is extremely large, there is no dearth of people with considerable amount of money to spend. Thus, India as a market provides an opportunity for not just volume growth but also value growth. The rural market in India has also undergone a metamorphosis. The rural consumers in India have upgraded from unbranded products to low-cost branded products to high-cost, high-quality branded products. Most FMGC companies try to woo these customers with small packs of high-end products. The aforesaid discussion suggests that Arnott’s will have potential customers across the country; both in urban areas as well as rural areas. Desired State for Arnott’s Arnott’s endeavor should be to become a household name in India as well. This can be achieved in the long run if the company invests in the front-end on brands and market channels especially in the semi-urban and rural areas of the country. Arnott’s immediate aim should be to reach the shelves of hundreds of thousands of retail outlets pan India. Over a period of time, Arnott’s should look at innovation in packaging as a potential differentiator and market expansion, especially rural penetration. SWOT Analysis SWOT or Strengths, Weakness, Opportunities, and Threats, analysis is a tool for addressing complex strategic situations as it presents the requisite information which improves decision-making. The SWOT analysis for Arnott’s biscuits is presented below: Strengths Strong brand that is more than 146 years old and has become a household name in Australia. Unrelenting focus on delivering quality products to customers. Continuous investments in state-of-the-art manufacturing technologies. Supply chain automated and integrated with its internal applications; enables the company to get real-time visibility of supply chain events and respond effectively to market changes. Strong research functions with high capabilities in new development. Strong ethical values with commitment towards the environment. Weaknesses Too much reliance on Australian and New Zealand market which account for 80 percent of the company's business. High price of products vis-a-vis competitors offering similar offerings. Opportunities Massive scope for expansion of international operations. The low per capita consumption of biscuits in India vis-a-vis other countries is a huge marketing opportunity. Threats Bureaucratic delays, restrictive labor laws, and corruption plague India. The biggest stumbling block in India is its shoddy infrastructure. When it comes to power, roads, bridges, railways and airports, India is not so well placed. Cut throat competition with both Indian and foreign companies operating in India. Unfavorable general economic conditions adversely affect consumer spending and can have a direct bearing on biscuit sales. The business is dependent upon consumer’s discretionary spending. Competition Matrix If the potential market in India is huge, so is the competition. The oldest biscuit company in India, Parle, is also the market leader with 40 percent market share in the Indian biscuits market. Another domestic manufacturer Britannia is a close second with 38 percent market share. Priyagold is a distant third with 12 percent market share. Numerous other companies; regional, national as well as foreign, including Kraft Foods, vie for the rest of the 10 percent market share. The market share of various companies is depicted in Fig 2. Considering that Arnott’s will launch Tim Tam biscuits initially, the major rivals would be Parle, Britannia and Kraft Foods. Table 1 compares Tim Tam with the biscuit brands of Arnott’s major competitors in India. Table 1: Brand to Brand Comparison Company Name Brand Name Product Description Price (US Cents) Parle Hide & Seek Moulded chocolate chip biscuits. 40 Britannia Bourbon Thick, rich and delicious chocolate packed between two crunchy chocolate biscuits, topped with sugar crystals 35 Kraft Foods Oreo Cream sandwiched between two circular chocolate pieces 40 Arnott’s Tim Tam Two layers of chocolate malted biscuit, separated by a light chocolate cream filling, and coated in a thin layer of textured chocolate. 40* * Recommended for standard package weighing 200gms. Marketing Mix Product Arnott’s has a vast variety of biscuits in its product line which have been categorized as chocolate biscuits, cream biscuits and crackers. Tim Tam, Mint Slice and Family Chocolate are its brands of chocolate biscuits. Tiny Teddy, Fancy and Fruit, Snack Right fall under the sweet biscuits category while Crispbreads, Vita-Weat and Arnott’s Shapes constitute the crackers. While this report specifically chalks out a market entry and marketing strategy plan for Arnott’s Tim Tam biscuits in India, it is noteworthy to mention that the company will get derive synergies, especially in distribution, if it opts to market all its products in the country. Tim Tam, a chocolate coated Cookie with a creamy center, is one of the strongest brands in Arnott’s repertoire. The company claims that 1 in every 2 households contains a packet of Tim Tams. Every year the company sells 35 million packs or 400 million Tim Tam biscuits. The biscuit comes in four variants; Tim Tam Original, Tim Tam Double Coat, Tim Tam Chewy Caramel and Tim Tam Classic Dark. Price Tim Tam will mainly compete with Parle’s chocolate chip cookie brand Hide & Seek, Britannia’s Bourbon and Kraft’s Oreo biscuits. Arnott’s can keep the price competitive at USD 1 for two packs of Tim Tam. Place The Company will have to follow an extensive distribution model and will have to get Tim Tam placed at every mom-and-pop store, supermarket, retail chain and departmental store. Promotion The entry of Tim Tam biscuits should be done with a mega launch event in which the country’s who’s who is invited. Arnott’s will have to literally go berserk on promotion in order to succeed in India. The company will have to advertise heavily in the electronic media. It may choose one of the following as its brand Ambassador; Sachin Tendulkar, Shahrukh Khan or Amitabh Bachchan. All the three are immensely successful celebrities and are worshipped like Gods in the country. There are common traits in the personalities of these celebrities and those of Arnott’s; experienced, talented and successful. The Indian consumers are extremely value conscious and hanker after freebies and discounts. In order to induce trials of Tim Tam, Arnott’s should roll out consumer promotion schemes like scratch cards, buy one get one free, contests, prizes etc. This, along with the blitzkrieg in advertising will create the awareness and the ‘pull factor’ for Tim Tam brand. Thereafter the sumptuous taste of the product will satiate the taste buds of the Indian consumers and the repeat purchases will happen. The digital media, especially internet, and mobile communication are revolutionizing the promotional and distribution strategies of companies operating in India. The advent and acceptance of such mediums have ensured that marketers can reach out to the once inaccessible, willing to buy consumer. Tim Tam biscuits should also capitalize on this form of marketing. Recommendations for E-Marketing Arnott’s should get its press releases published online. This will increase awareness of the brand. To increase consumer engagement, Arnott’s should run contests on its website. The contests may be in the form of simple trivia questions relating to the company and its other products. Coupons redeemable for Tim Tam biscuits may be rolled out magnanimously as gifts. Arnott’s should have various blogs and articles written about various facets of Tim Tam biscuits and have them uploaded at various other sites. For Arnott’s, presence on social networking sites is of utmost importance. For Indians, word-of-mouth (WOM) is one of the key drivers of purchase. The company should harness the WOM through social networking sites like Facebook. Promotion Budget The Indian biscuit market is estimated to be $240 billion. Arnott’s target would be to capture 3 percent of the market within the first year of launch. The company will benefit from the HUL distribution channels (described later in the Market Entry Strategy) as well as the massive advertising that will be done in the print, electronic and digital media. It is for this reason that the advertising budget has fixed at USD 3.40 million. Table 2 illustrates the allocation of the advertising budget under various heads. Table 2: Allocation of Advertising Budget Budget Head Amount (USD Million) Cost of Celebrity 2 Advertising 1 Sales Promotion .25 Launch Event .15 Total 3.40 Market Entry Strategy While entering any new market it's important for a company to decide the right way to enter. A market entry strategy may be defined as the planned method of providing the product to the target market in the foreign country. This is a key business issue for Arnott’s. The company has to get this decision right because the risk of doing business, control over the business and commitment of resources depends on the mode of entry adopted by the company. Broadly speaking, entry modes can be categorized into equity and non-equity modes. The non equity modes include direct exports and contractual agreements like licensing of marketing rights. The equity modes of entry refer to entering into joint ventures and /or forming a wholly owned subsidiary in the foreign country. India should definitely be viewed as a country where Arnott’s can shift its manufacturing base. Alternatively it can outsource its production to India for cost cutting reasons. Many players now recognize the need to specialize on the core part of doing business; marketing their products. These players have left the production to specialist manufacturing companies (Corbett 2010). Initially, to test the waters and gauge the pulse of the Indian market, Arnott’s should ink a deal with one of the FMCG companies that are operating in India. This FMCG Company should be given the license to sell Arnott’s Tim Tam biscuits in India. By doing so, Arnott’s does not have to make any capital expenditure and will have a ready access to the existing distribution channel of this company. While there are many options available, Hindustan Unilever Limited (HUL), the Indian subsidiary of behemoth Unilever is recommended as the company which should be given the license to sell Tim Tam biscuits. In case, Arnott’s can enter into a co-branding deal with HUL for its Tim Tam biscuits in India, more than half the battle is one because Arnott’s would then have captured a considerable portion of the Indian consumer’s mind. This marketing alliance should be for a 1 year period. The big names operating in the FMCG and confectionary market in India include Nestle, Cadbury’s, Proctor & Gamble, ITC and of course, HUL. In addition to these there are the biscuit manufacturing and marketing companies. It makes strategic sense for Arnott’s to ink a deal with HUL because of the following reasons: Two out of three Indians use Hindustan Unilever products and therefore HUL is a household name in India. The company markets umpteen brands in India but is not present in the biscuit market. Thus there is no competing brand for Tim Tam within HUL. The company has one of the best distribution networks in the country. This will ensure that Tim Tam reaches every nook and corner of the country. HUL’s rural penetration in India has been hailed by one and all. That means access to large portion of 6.38 lakh villages in which some 775 million people reside (Vijayraghavan 2011). Once Tim Tam biscuits have made a mark for themselves, Arnott’s should consider the option of setting up its own manufacturing facility and its own distribution network in the country. The Indian regulations permit automatic investment approval (including foreign technology agreements within specified norms), up to 100 per cent foreign equity for most of the food processing sector. With its diverse agro-climatic conditions and availability of wide-ranging and large raw material base, the country is ideal for setting up food processing industries. The low labor cost in India will enable Arnott’s to keep its cost of production low. Marketing Strategy for Tim Tam (Segmenting, Targeting and Positioning) One brand cannot be everything for everyone. It has to address a specific need of a particular customer. As stated earlier, Tim Tam would face stiff competition in the Indian market. It has to therefore, highlight how it is different from other competing brands and appeal to its target market. Segmenting: McKinsey has classified the Indian consumers into five economic classes based on real annual disposable income. These classes are the Global Indians, Strivers, Seekers, Aspirers and the Deprived. Since the product in question is a low ticket item even though it commands a premium price and will cater to the top rung of the market, all income classes except the deprived will be able to afford Tim Tam biscuits. In general, aspirers will refrain from buying the Tim Tam biscuits even if they can afford them. A geographical segmentation does not hold water especially if Arnott’s ties up with HUL for distribution. The demographic segmentation appears as one of the possible criterion to segment the Indian market for the purpose of marketing biscuits. Targeting: The children and the young adults will be the target market given the delicious taste of Tim Tam biscuits. Additionally, the relatively older adults aged between 30 and 45 years of age should be targeted on the health plank. Arnott's has strived and managed to significantly reduce the level of harmful trans fatty acids (TFAs) in their biscuits. Majority of Arnott’s biscuits have TFA levels of less than 0.1percent, well within the limits recommended by the World Health Organization. One would have to ingest 40 Arnott's Tim Tam biscuits to reach the maximum daily amount of TFAs. That is indeed safe from a consumer point of view. Positioning: The Tim Tam biscuits would thus be positioned as a ‘tasty and healthy’ biscuit. Conclusion With many new foreign players entering the Indian biscuit market, the competition is likely to become all the more intense. The struggle for market shares will increase but at the same time collective marketing effort by these players will ensure expansion of the total market as well. Arnott’s Tim Tam will compete in the chocolate business segment where the margins are at least 30-40 percent higher than in the glucose biscuit segment. The established domestic players rely heavily on the glucose segment. For the top end of the market, Tim Tam will compete with the foreign players, all of which are relatively new entrants in the Indian market. With years of experience backing it up, Tim Tam has the ability to compete with the well entrenched Indian premium chocolate brands as well. Activity 1st Week of … Dec. 2011 Jan. 2012 April. 2012 July. 2012 Oct. 2012 Dec. 2012 Dec 31, 2012 Jan. 2013 Sign 1 year deal with HUL v Initiate proceedings for taking approvals for setting up wholly owned subsidiary in India. v Event to launch Tim Tam biscuits. v Initiation of advertising and sales promotion campaigns v Selling in Urban Areas v Launch of ‘Small packs’ for selling in Rural Areas v Mid Year Review v Work starts on building corporate office, factories v Identification and recruitment of channel members starts v Test product manufacturing starts in India v HUL deal ends v Full blown manufacturing and distribution from Indian Subsidiary v Plan Dec 2011-Jan 2013 References Arnott’s [Online] Available at http://www.arnotts.com.au/ [Accessed 17 November 2011] Arnott's Selects TIBCO to Accelerate Supply Chain 2002, , United States, New York. "CORPORATE: Kraft ready to explore all options for India entry", 2007, Businessline, , pp. 1. 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