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Kellogg’s Failure In India

September 13, 2010


Kellogg’s Failure In India:

  • 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 cerealeating consumers.
  • 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 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.

Came Back Strongly:

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 and visible on the retail shelves with a wide range of products,’ explains a company dealer in Mumbai.
  • 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.
  • ‘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.

Learn From It:

  • 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 corporations must not start with the assumption thatIndia is a barren field,’ said C K Prahalad, business professor at theUniversity of Michigan, in a Business Week article. ‘The trick is not to be too big.’
  • 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.
  • Don’t try and make consumers strangers to their culture.
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