Mondelez bets on rural market with cheaper products to boost sales

MUMBAI: Mondelez India Foods Private Ltd, the makers of Cadbury chocolates, is investing in its rural distribution network and lower-priced products to boost growth even as consecutive poor monsoons, demonetisation and now the goods and services tax (GST) have taken a toll on sales, according to a top executive.

“At least for the last 4 months, now with the impact of demonetisation all done and dusted, both wholesale and rural is growing fast,” said Deepak Iyer the firm’s managing director. “Rural is growing faster than urban.”

The company has doubled its reach to 40,000 villages compared to a year ago, Iyer said. Rural sales contribute about one-fifth of Mondelez’s sales now compared to 10-11% a year ago, he added. The firm has 350,000 outlets in these 40,000 villages.

A second aspect of this strategy is to “a significant amount of renovation efforts in our low unit price” products, said Iyer who took charge in August 2016.

These efforts included more ‘bonus packs’ for the company’s brand Gems, more pieces in the iconic Cadbury Dairy Milk, and more premium ingredients like caramel in the firm’s other brands at lower price points like ₹5 and ₹10.

Mondelez now has over 1,000 distributors and 7,000 sub-stockists who distribute the company’s products to small general stores and other retailers, Iyer said.

The firm has also been investing in its 12 manufacturing facilities to back this distribution network. The latest is a $230-million investment in a Sri City plant in Andhra Pradesh, expected to produce nearly 250,000 tonnes of chocolates and biscuits by 2020.

Still, there are major hurdles it has to clear to accelerate growth.

“A significant part” of the product portfolio has gotten into the higher tax bracket, Iyer said. “But that’s the roll of the dice. We are evaluating all options, not limited to just a price hike. But we have not made a decision yet.”

While the firm’s financial numbers for 2016-17 are not available with the Registrar of Companies, the numbers from the year earlier show its struggles. Sales fell 17% year-on-year to ₹5,400 crore while net profit fell 63.4% to ₹34.83 crore.

Mondelez declined to share financials for 2016-17.