North India Food Company

NORTHERN INDIA FOOD COMPANY Consumer Behaviour in Coffee Buying

‘NORTH INDIA is the fast growing, affluent section of India’, said Ranbir Singh, sipping his steaming hot cup of Ole coffee. ‘The young , the trendy, the outgoing, the fun loving crowds are in the urban centres of North – in the Delhi, Amritsar, Chandigarh, Simla, Lucknow, Meerut, Jaipur. The new prosperity of agriculturists in Punjab, Haryana, Western UP and Eastern Rajasthan has created a whole generation of consumption oriented modernized farmers.’ Ranbir Singh put down his cut of Ole on the table. ‘I tell you, Satish, the north is ready for a new market of instant coffee. We have to drive a wedge between Ole and Gusto. You get your boys on the job, Satish, and with luck we should hit the market like a thunderstorm in mid- 1976....’ Ranbir Singh and Satish Mirchandani were the Marketing Manager and Product Development Manager of Northern India Food Company (NIFCO) – a fast growing firm marketing a range of food products.

Background of NIFCO NIFCO was established in the 1930s by a prosperous grain merchant who started a flour milling and grain processing business. The company was soon making malted beverages, breakfast cereals, jelly crystals, custards and jams. In 1961, a line of flavoured tea was introduced. Later two brands of regular (leaf and dust) tea wer e added. The company’s products were sold in all metros but its major distribution strength was in North India. A network of 150 dealers distributed NIFCO products in all large and small markets in Delhi, Punjab, Haryana , Himachal Pradesh, UP and parts of Bihar, Rajasthan, MP and J & K. All NIFCO products were well supported by media advertising as well as trade and cons umer production schemes. Many NIFCO brands were household names in North India. These products had a premium image.

The Coffee Market Since mid -1970s, NIFCO’s management had been toying with the idea of introducing a branded coffee. For a variety of reasons, the prospects in the coffee market looked good. Wholesale price index of coffee had been increasing over the years. Production had also been increasing (Exhibit 1). The yield pattern of coffee plants followed a cycle with a peak every five years or so. The ‘peaks’ had been getting higher, 1970 being a record output year. Regional Differences Coffee drinking habits and pattern varied by regions. There were considerable differences between coffee drinking habits of people in the coffee growing areas ( the southern states ) and those of people in non- growing areas ( rest of India ). In South, coffe was a beverage of daily use. Freshly ground coffee prepared in a percolator was preferred to other forms of coffee. Acceptance of ‘quick and easy’ methods and instant coffee was low. For example, the sales figures from Coffee Board depots and vans indicated that over 70 per cent of the raw coffee bought from such outlets in South was in the form of coffee beans. The corresponding figure in North was slightly less than 50 per cent. A major part of this figure is probably attributable to Southerners residing in North. (EXHIBIT 1) PRODUCTION AND PRICE INDEXES FOR COFFEE Year Production Wholesale Price Index Index 1961 100 100 1962 122 104 1963 151 111 1964 132 122 1965 139 131 1966 170 156 1967 125 147 1968 159 165 1969 137 163 1970 240 265 1971 150 165 1972 198 164 1973 188 174 1974 NA 215

Source: Coffee Statistics 1973-74, issued by the Coffee Board, India. In North, coffee drinking was a comparatively recent phenomenon. Unlike South, there was no tradition of coffee brewing and consumption at home. In fact, coffee consumption started out of home – in coffee houses and restaurants, men being the primary consumers. Later, coffee did become an acceptable beverage in some upper income families. The preference was for instant coffees and other easy to make powders. Some idea of the growth trends in Northern markets is available in Exhibit 2. This shows the sales of liquid coffee in selected states by the prom otional outlets of Coffee Board. It is noteworthy that sales in metropolitan Delhi are growing rather rapidly. NIFCO executives believed that this was indicative of the growing consumption of coffee in urban ar eas of North India. ‘Trendy’ brands of instant coffee like Ole and Gusto were becoming the ‘in’ drink with many young, well-to-do urbanites. Many restaurants had Ole coffee listed specifically in their menu cards. EXHIBIT 2 COFFEE SALES BY COFFEE BOARD OUTLETS IN SELECTED STATES States Sales of liquid coffee in cups 1971 1972 1973 Bihar 94,000 113,400 135,400 Delhi 490,600 600,400 855,200 J & K 104,300 94,500 104,800 Non Growing Areas 939,600 1,038,400 1,334,000 1

Notes: All areas except the coffee growing states of Karnataka, Tamil Nadu and 1

Kerala. Source: Coffee Statistics 1973-74, issued by the Coffee Board, India.

Coffee VS Tea Satish Mirchandani, NIFCO’s product development manager, was a bit sceptical of the casual ‘trend-watching’ type of inferences about coffee market in North. He knew that tea continued to be the dominant hot beverage in North. Even if there was a growing urban segment of instant coffee drinkers, it was firstly a small segment and secondly dominated by heavily promoted national brands like Ole, Gusto, Chic, Nelson and Riviera (see Exhibit 3).

Mirchandani came across a study of coffee drinking habits in a medium sized, fast growing industrial town in North India. He felt that the findings of this study were perhaps more representative of the ‘average’ urbanite in North India as compared to the observations of the ‘jet set’ people in Delhi. Some of the points brought out by this study were: (i) Tea was the most popular beverage. Ninety-four per cent of the sample drank it, almost all of them regularly. Milk was used by 50 per cent, about two-thirds of them being regular users. (ii) Although 35 per cent of the people sampled drank coffee, only 4 per cent did so regularly. There was substantial seasonality, consumption being more in winter. Consumption was more pronounced in upper income and educated strata. EXHIBIT 3 DETAILS OF INSTANT COFFEE BRANDS IN MARKET Brand Years in Company Product type Market 1

Ole 20 Europa 100% pure coffee Gusto 7 Sunrise Coffee & Chicory Mixture Riviera 9 Europa 100% pure coffee 2

Chic 6 Sunrise Coffee & Chicory Mixture Nelson 28 Nelson Coffee & Chicory Mixture 3

Diamond 4 Sunrise 100% pure coffee 4

(iii) Tea has the highest s ocial value as a drink offered to visitors, followed by soft drinks and coffee. (iv) Instant coffee had the greatest usage in all income groups, normal buying quantity being 50 gm. There was very little knowledge as well as practice of brewing fresh-ground coffee. (v) When buying coffee, people looked for aroma, flavour and taste. Nondrinkers thought coffee was ‘expensive’ and disliked its taste. (vi) Coffee was perceived as a stimulating drink used by young people. Situations like watching a game, interval in a movie, chatting with friends, etc., were associated with coffee drinking.

Personality of a Coffee Drinker From their preliminary investigations of the coffee market, Singh and Mirchandani felt that in North India the coffee drinking habit was prevalent mainly in urban, educated,

affluent strata. Instant coffee was gaining ground with younger people in middle and above income classes. Most coffee drinkers thought the leading brands of instant coffee were good quality, standard brands. Although no convincing reasons were given, brand preference was strong. Mirchandani also observed that different brands tried to project different life-styles and images. He felt it would be necessary to understand how different brands were viewed by different types of people. He commissioned a study of coffee consumers in Delhi for this purpose. The study was carried out in selected localities of Delhi. Ninety-five households with monthly consumption expenditures greater than Rs. 800 were interviewed using a structured questionnaire. Only instant coffee consuming households were selected. Questions were asked regarding physical, economic and psychological attributes of various brands of coffee. A personality inventory was also administered. Some of the relevant findings of the study were: (i) There was not much difference in the perception of various brands of instant coffee in physical attributes like strength, bitterness and aroma. Whatever differences existed seemed to favour Ole as the stronger, more bitter drink. (ii) There was not much difference in the perception of ‘value’ provided by individual brands of instant coffee. They were considered to yield similar values in terms of price, quantity and use of other additives like sugar, cream, etc. Ole appeared to be perceived as a slightly more expensive brand among those available. (iii) In terms of ‘feeling’ received from drinking coffee, Ole was considered to be significantly more relaxing and refreshing followed by Gusto. (iv) While Ole’s packaging was singled out for its attractiveness, Gusto was considered to be more conveniently and handily packaged. No suc h distinctions were made with respect to the other brands. However, the major perpetual distinctions between brands were made with respect to psychological and social symbolisms conveyed by the brands. Ole was considered to be a popular international brand with a known social reputation. Its use was associated with rich, active, educated and westernised people. Gusto was considered to be an Indian but trustworthy brand name which was used by middle class, knowledgeable and non-traditional instant coffee drinkers. Riviera’s social status was perceived to be high with some association of it as an international brand. It was seen to be drunk by modern people especially in social gatherings. Chic was found to evoke very neutral perceptions, with the respondents having difficulty in evoking a clear image of the brand on the socio-psychological attributes. The personality inventory applied to the housewives in the study yielded some interesting findings:

(i) The pure instant coffee brands (e.g., Ole, Riviera) attracted similar personality types. Consumers of these brands were found to be more emotionally unstable, introverted, submissive and socially dependent. (ii) The blended instant coffee brands (e.g. Gusto, Chic) on the other hand, appeared to appeal to a different personality type. The users of these brands were more emotionally stable, extroverted, socially independent with a tendency to dominate in face to face situations. (iii) When the personality pr ofiles of specific brand users were analyzed, it appeared that there were some differences between users of eac h brand. Gusto, for example, appealed more strongly to those who wer e characterized by a much higher degree of emotional stability, extrovertedness and a domineering tendency. Chic users were more socially independent and characterized by a strong feeling of selfadequacy. (iv) While Ole and Riviera drinkers were similar yet Ole drinkers were found to be more emotionally unstable, submissive and socially dependent than Riviera users.

Recent Activities A recent flurry of activities in the marketing of instant coffee was also brought to the attention of Mr. Ranbir Singh by the market researchers. Casual observations of point of purchase displays and media advertising indicated that the makers of Gusto and Chic were attempting to differentiate themselves on the basis of economy and coffee strength. The economy motive was being differently translated with Chic emphasising package quantity and Gusto appealing on the basis of re-usable containers. Pack design has been changed in both cases to match the new promotional theme. The two brands were also promoting themselves as stronger coffee and attempting a firmer association with a refreshing, relaxing feeling. Changes could also be observed in the marketing of Ole and Riv iera. Ole appeared to have stepped up its media adv ertising stressing its strong social association as a popular refreshing drink used by the ‘in’ people. Riviera advertisements; on the other hand, were hardly to be seen. It appeared that its marketing was stressing trade promotions. However, it was not known whether trade margins had also changed to accompany this ‘push’ strategy. NIFCO’S Options A decision to enter the instant coffee market was required at this stage. One option was to let the product development group formulate one or several compositions of instant coffee. Then the marketing strategy could be designed in terms of target segment(s). However both Singh and Mirchandani felt that it would be more fruitful if

a brief was given to the product development group, a brief which outlined the market position to be achieved by a new brand of instant coffee. The brief had to address itself to the following: (a) Product Market Considerations: The two groups of products already available consisted of the 100 per cent pure instant coffee and the coffee chicory blend. New brands had the option of entering any of these two product formulations or developing an entirely new one. Characteristics of the product in terms of strength, bitterness, aroma, coffee bean flavour and type had to be determined. Market options existed at several levels. One was the option of entering the traditional coffee growing or non growing areas with their distinct coffee consuming habits. While the coffee growing area was small, it represented a larger volume because of the extent and frequency of use. The non coffee growing areas were much larger geographically and widely dispersed. It was also a market which attracted the attention of all other instant coffee brands. Variations within this area in coffee taste and preferences were not well known and could lead to different interpretations regarding coffee formulations if these were major differences. (b) Segmentation: The relative emphasis of product attributes would depend on the segment(s) chosen for introducing new brands of instant coffee. The current brands appeared to be appealing to two segments on the economy motive and two segments based on personality profiles. Other segments could be identified with the use of these two major variables or with other variables. The identification and measurement of these segments would be an important determinant of the entire marketing strategy. (c) Product Positioning: Although 4-5 brands were available in the market, they had not each adopted a different positioning strategy. Ole and Riviera and now Diamond had adopted a similar positioning strategy emphasising status, popularity, and social acceptability through attractive packaging, advertisements depicting ‘trendy’ social situations and higher price. Gusto and Chic, on the other hand, while attempting to create a brand position different from Ole and Riviera were still very similar in their approaches. They were both positioned as economical instant coffee with a new vigorous taste. Alternative brand positions were identifiable but needed to be assessed on their relative attractiveness.

Questions for Discussion 1. Is there a possibility of introducing a new brand of coffee in the north Indian market? 2. What is the nature of the coffee market in north India? What marketing strategies are likely to succeed for branded coffee in general? 3. What are the options available to NIFCO in terms of positioning a new brand of coffee? What marketing strategy should be followed to successfully introduce a new brand?