Kelloggs

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Kelloggs

  1. 1. 50 Kellogg’s in India 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
  2. 2. 156 Brand failures 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
  3. 3. Culture failures 157 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 strate- gic 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: l 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.’ l Lufthansa. Germany’s Lufthansa airline joined forces with Indian com- pany, 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.
  4. 4. 158 Brand failures l 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. l Whirlpool. When Whirlpool launched its refrigerators on the Indian market, it found the market unwilling to buy larger sizes than the standard 165 litres. l 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. l 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 experi- mented 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. l 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.’
  5. 5. Culture failures 159 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.
  6. 6. 160 Brand failures Lessons from Kellogg’s l Do your homework. Why did Kellogg’s cereals have a tough ride in India? ‘It was just clumsy cultural homework,’ says Titoo Ahluwalia, chairman of market research company ORG MARG in Bombay. l Don’t underestimate local competitors. Although Indian brands were worried they would struggle against a new wave of foreign competition following the market opening of 1991, they were wrong. ‘Multinational corpora- tions must not start with the assumption that India is a barren field,’ said C K Prahalad, business professor at the University of Michigan, in a Business Week article. ‘The trick is not to be too big.’ l Remember that square pegs don’t fit into round holes. When Kellogg’s first launched Corn Flakes in India it was essentially launching a Western product attempting to appeal to Indian tastes. Globalization may be an increasing trend, but regional identities, customs and tastes are as distinct as ever. It may be easy for brand managers of global brands to view the world as homogenous, where consumer demands are all the same, but the reality is rather different. ‘There is a bigger opportunity in localizing your offerings and the smarter companies are realizing this,’ says Ramanujan Sridhar, chief executive officer at Indian marketing and advertising consultancy firm Brand Comm. l Don’t try and make consumers strangers to their culture. ‘The rules are very clear,’ says Wahid Berenjian, the managing director for US Pizza (which has successfully launched a range of pizzas with Indian toppings) in an article for the Hindu newspaper, Business Line. ‘You can alienate me a bit from my culture, but you cannot make me a stranger to my culture. The society is much stronger than any company or product.’ Brands who want to succeed in India and other culturally distinct markets need to remember this.

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