Kellog’s Indian Experience1

KELLOG’S INDIAN EXPERIENCE BY ARCHIBONG UBONG

OVERVIEW • Kellogg was the wholly owned Indian subsidiary of the Kellogg company based in Battle Creek,Michigan in the United States. • Founded in 1906,had manufacturing facilities in 19 countries and marketed its products in more than 160 countries.

HISTORY OF KELLOGG’S IN INDIA • In the 1990’s there was the desire by Kellogg’s to expand. • Stagnating sales in the U.S strengthened this need. • Set up its 30th manufacturing facility in India with a total investment of $30million. • Launched in September,1994,Kellogg’s initial offerings in India included cornflakes,wheat flakes and Basmati rice flakes.

FAILURE OF KELLOGGS IN THE INDIAN MARKET • Despite offering good quality products and being supported by the technical,managerial and financial resources of its parent,Kellog’s products failed in the Indian market.Kelloggs knew it will be difficult to get indian customers to accept its products hence it relied heavily on the quality of its crispy flakes.Indians liked to boil their milk and consume it warm or lukewarm,they also like to add sugar to their milk.The rice and wheat versions did not do well because sugar could not easily dissolve in cold milk which made it not sweet enough for the indians.Some consumers called the rice flakes, rice corn flakes.

MAIN REASONS FOR ITS FAILURE • Analysts believe that the major reason for Kellogg’s failure in the indian market was the fact that the taste of its products did not suit Indian breakfast habits. • The second mistake it made in the Indian market was its positioning front.Its advertisements and promotions focused initially on the health aspects of the product which was a fundamental departure from the successful ‘fun and taste’ positioning adopted in the United States.In the U.S, Kelloggs offered toys and other branded merchandise for children and had a Kellogg’s fan club. • In most third world countries pricing is believed to play a dominant role in the demand for any product but Kellogg did not share this position and this affected the demand for its products.At an average cost of Rs21 per 100gm,Kellogg products were clearly priced way above the product of its main competitor,Mohun Cornflakes(Rs16.50 for 100gm).Another smalltime brand,Champion was selling at prices almost half that of Kellogg’s.This gave Kellogg a premium image and unattainable for the average Indian consumer.

CONTINUATION • Due to the premium pricing problem faced by Kelloggs,it tried a dollar to a rupee pricing for its products,still it could not attract the mass consumer.Even those consumers at the higher end of the market failed to perceive any extra benefits in Kellogg’s products. • A Business Today report said that like other Multinational Companies,Kellogg had fallen into a price trap,by assuming that there was substantial “latent niche market” in India for premium products. • In order to maintain quality Kelloggs focused on Premium and middle-level retail stores.This decision made it difficult for the larger population to get its products.

CORRECTING ITS MISTAKES • In order to forge ahead,Kellogg decided to launch two of its highly successful brands-Chocos(September,1996) and Frosties (April,1997) in India. • These brands were very successful and sales picked up significantly. • Brands were even consumed as snacks and led to the launch of Chocos Breakfast Cereal Biscuits. • The success of Chocos and Frosties led to the total indianisation of the Company’s flavours in future which resulted in the launch of Mazza series in August,1998 in three local flavors Mango Elaichi,Coconut Kesar and Rose after one year extensive research to study consumer patterns in India.

CONTINUATION • Kelloggs was able to reduce prices by reducing its cost of production.For example Mazza was not positioned in the premium segment.The glossy cardboard packaging was replaced by poaches which helped in reducing the price. • Furthermore,Kelloggs saw advertising as a vital tool in promoting its brand .This made it attempt to indianise its campaign instead of simply copying its international promotions.The rooster that was associated with the Kellogg brand worldwide was missing from its advertisements in India.One of the adverts depicted a cross section of individuals from a yoga instructor to a kathakali dancer attributing their morning energy and fitness to Kellogg. • Kellogg saw distribution as an important area to look into to improve its market penetration.In 1995,Kellogg had 30000 outlets which was increased to 40000 outlets by 1998.

CRITICISM OF KELLOGGS RECOVERY PLAN • Though the decision to reduce prices was a step in the right direction,Analyst were still not convinced of the success of the product in the Indian market.They pointed Kelloggs did not have packs of different sizes to cater for the needs of different consumers.To repel this the company introduced packs of different sizes to suit Indian consumption patterns and purchasing power.The 500gm family size was launched which reduced the price by 20%.Also Mazza introduced 60gm pouches priced at Rs9.50

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In 1995,Kellogg had a 53percent share of the Rs150 million breakfast cereal market,which had been growing at 4 to 5 percent per annum. In 2000,Kellogg share had increased to 65 percent and the market share was Rs600 million,and Kellogg’s share had increased to 65 percent. Analyst claim Kellogg’s entry was responsible for this growth. The Company’s improved prospects was clearly traced to shift in positioning,increased consumer promotions and an enhanced media budget. Effort to develop products specifically for the Indian market helped Kellogg penetrate the Indian market. However,Kellogg was still viewed as a premium brand and its consumption was restricted to the high class in the Indian market.The company had to realise it will be very difficult to change the eating habit of the Indians.In 2000,Kellogg unfolded many new brands including Crispix Banana,Crispix Chocos,Froot loops,Cocoa Frosties,Honey crunch,All Bran and All Rasin.Kellogg also introduced Krispies Treat,an instant snack targeted at children priced at the Rs3 and Rs5,this product was placed to compete against the products in the impulse snacks category. Some Analyst believe the introduction of new cereals and the launch of biscuits and snacks could be attributed to the fact that the company had been forced to look at alternate product categories to make-up for the below expectation of the breakfast cereals brand.

SUMMARY • In a nutshell we have seen that the main reasons for Kelloggs failure in India was the westernisation of its products and high prices. • The indianisation of its products helped Kelloggs in penetrating the market. • The reduction in prices also helped Kelloggs improve its standing in the market.

RECOMMENDATION • In order to avoid the pitfallls by Kelloggs in India,I would advocate any company trying to establish its full presence in another Country has to do a thorough market research before going there. • Secondly,do not underestimate your competitors no matter how insignificant they may look.

REFERENCES • Mukund(2003)CFAI Centre for Management Research, • Brand Failures by Matt Haig • Google website • Wikipedia website