cadbury case sdtudy

1. ICMR Case Collection
ICFAI Center for Management Research
This caselet was written by Mylavarapu Vinaya Kumar, under the guidance of
Ramya Narsimhan, ICFAI Center for Management Research (ICMR). Caselets are
intended to be used as a basis for class discussion rather than to illustrate either effective
or ineffective handling of a management situation.
Cadbury and the Worm Controversy
CLSDM042
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2. 2
CLSDM/042
Cadbury and the Worm Controversy
“At all Cadbury plants, every manufacturing process is closely monitored by
experienced technical personnel, and a quality assurance team tests finished goods
before their dispatch for sale.”
-- A Cadbury spokesperson, after the FDA ordered seizure of all the company
products from its Pune unit.1
Cadbury India Limited (Cadbury), a subsidiary of the leading global beverages and
confectionery maker Cadbury Schweppes, was started in 1948. Cadbury gradually
carved a niche for itself in the Indian chocolate market by producing brands like Five
Star, Dairy Milk, Perk, Gems, etc. Health drinks like Bournvita were also from
Cadbury’s stable. As of December 2004, Cadbury held a major share of 60% in the
Rs 6.50 billion2
Indian chocolate market and was followed by Nestle (25%) and Amul
(15%). The company had a total of 650,000 direct and indirect retailers in India and
sold more than a million bars every day. Cadbury pioneered in targeting and
positioning chocolates as a consumption material for adults. Dairy Milk was
Cadbury’s major brand and contributed to about 30% of the company’s turnover in
2002.
In October 2003, a Cadbury stockist in Mumbai detected worms in Cadbury’s Dairy
Milk chocolate. When Cadbury failed to react to his complaint, he reported to the
Commissioner of Food and Drug Administration of Maharashtra, Uttam Khobragade
(Khobragade). Khobragade examined the sealed Dairy Milk packs and found worms
in them. He immediately ordered the seizure of all Cadbury’s Dairy Milk chocolates
from the company’s factory in Talegaon near Pune.
1
Ashraf, Syed Firdaus, “Worms found in chocolate packet,” www.rediff.com, October 03, 2003.
2
Gupta, Parul, “Cadbury’s loss is Amul’s gain,” www.rediff.com, October 15, 2003.
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3. Cadbury and the Worm Controversy
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In response, a company spokesman asserted that Cadbury maintained high standards
in manufacturing and storing its products. Also, these processes involved close
monitoring by technically skilled persons and a quality assurance team, which
eliminated possibilities of such occurrences. Cadbury also added that infestation
could occur on account of unhygienic storing. Indirectly, Cadbury indicated that the
dealers could be responsible for the infestation as Cadbury labels said the storage
conditions should be cool and hygienic. This attracted a lot of criticism from
consumer activists on lack of appropriate laws on storage. They also demanded
immediate government action against Cadbury. Another factor brought to light was
that the chocolates were delivered by three-wheelers, which did not have refrigeration
facility for appropriate transit maintenance of the product.
As a result, the Maharashtra government examined the manufacturing and storage
processes at Cadbury’s plants in Pune and Thane and found them to be in order.
Three days after this, another retailer in Central Mumbai handed over ten Dairy Milk
chocolate bars to the FDA (Maharashtra) laboratory in Mumbai, which confirmed the
presence of worms in the samples. These samples contained two dead worms and one
live one. Soon after the FDA confirmed the presence of worms, the Kerala state
government banned the sale of two batches of Cadbury’s Dairy Milk in the state
under Rule 7(4) of the Prevention of Food Adulteration Act, 1954. Further, the Kerala
government directed Cadbury to withdraw its stock from all over the state.
Meanwhile, there was an allegation by Khobragade that Cadbury was using political
pressure as a tool to gain favor with the authorities. Cadbury refuted this allegation
and reiterated its commitment to the consumers. The central government asked the
Maharashtra government to submit a report on the whole controversy. This
controversy erupted during Diwali, the festival time at which Cadbury sold almost
1000 tonnes of chocolate every year. As a result of the worm controversy, its sales
fell by 20%3
. However, its competitor Amul saw a dramatic increase in its sales. Its
sales increased from 60 tonnes of chocolate in September 2003 to 150 tonnes in
October 2003.
In response to sagging sales, Cadbury upgraded its packaging machinery by incurring
an additional cost of Rs 250 million. The company introduced new packaging where
bars were wrapped in aluminum foil and placed in a completely sealed heat resistant
3
Chakravarty, Chaitali, “Cadbury plans to blow it big,” The Economic Times, October 29, 2004.
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4. Cadbury and the Worm Controversy
4
poly-flow pack. Cadbury appointed a team of quality managers and 300 salespersons
to check the quality of its products across 50,000 Cadbury retail outlets in
Maharashtra and educate the retailers in storing the product effectively. Further, the
company went in for aggressive advertising by spending around Rs 400 million. To
regain consumers’ faith, the company signed up India’s popular film star Amitabh
Bachchan as its brand ambassador and designed advertisements to win back
consumer confidence in the products. All these measures saw an increase in
Cadbury’s sales in 2004, after they had hit a low during the fag end of 2003.
Questions for Discussion:
1. Examine the effect of the worm controversy on Cadbury. Explain the measures
taken by the company to overcome the problem.
2. Cadbury’s image took a beating during the worm controversy in 2003. The
company followed an aggressive strategy to reinforce its commitment to
customers. How would you evaluate the ethical stand taken by the company?
Additional Readings and References:
1. Ashraf, Syed Firdaus, “Worms found in chocolate packet,” www.rediff.com,
October 03, 2003.
2. De, Arijit and Zachariah, Reeba, “Worm queers Cadbury’s pitch,”
www.rediff.com, October 10, 2003.
3. Singh, Vijay, “More worm-infested Cadbury chocolates found,” www.rediff.com,
October 13, 2003.
4. Gupta, Parul, “Cadbury’s loss is Amul’s gain,” www.rediff.com,
October 15, 2003.
5. James, “Kerala state bans two batches of Cadbury’s Nestle chocolates,”
www.domain-b.com, October 21, 2003.
6. Chatterjee, Purvita, “Cadbury’s big bytes,” The Hindu Business Line, September
16, 2004.
7. Chakravarty, Chaitali, “Cadbury plans to blow it big,” The Economic Times,
October 29, 2004.
8. Majumdar, Sourav “Cadbury’s makeover,” The Financial Express,
April 16, 2005.
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