Cadbury entered the Chinese chocolate market with confidence and ambition*. With a strong presence already established in Hong Kong and Shanghai, its managers felt they were justified in setting an objective of selling one Cadbury Dairy Milk Chocolate bar to each of the country’s one billion people in a short period of time. Regrettably, something happened along the way; in the form of a supply chain that was unaligned to the specificities of China’s, emerging markets needs.
In the early 1990’s Cadbury Dairy Milk was the leading brand in Hong Kong and throughout the 1980’s it sold products into greater China through a distributor. Assuming it would be successful in meeting its objective of 1 chocolate bar to every person, Cadbury sought to expand its presence with the establishment of a manufacturing facility in Beijing in 1993.
Cadbury reasoned they could best reach the individual consumer through the sale of chocolate bars (as opposed to gift boxes) the kind that is found in most supermarkets throughout the world. The challenge would not be easy; Chinese would need to be converted to the taste of chocolate. The fact that all consumer goods tended to be bought in individual packs, Cadbury felt that that the supply chain side of the equation could be squared away quite readily. Based on Cadbury experience in chocolate sales in Singapore and Hong Kong and some other factors Cadbury determined it would sell its 250g chocolate bars through supermarket outlets in greater China.
With little hard market data to go on, Cadbury recognised it was critical that accurate forecasts were developed as these would be the primary driver in the determination of the size of manufacturing capacity it should build. What happened was devastating for Cadbury. The 250 gram bar turned out to be inappropriate for the consumption habits and disposable incomes of emerging Chinese consumers. Instead, consumers who were mostly trying chocolate for the first time chose Mars Dove brand over Cadbury as Dove could be bought in smaller, 47 gram bars. Similarly, few retail stores and distributers who moved or stocked the Chocolate bars had air conditioned facilities. This resulted in significant problems and accentuated the ‘seasonal’ nature of the product, a problem which in most traditional markets had been resolved some time ago. Cadbury was forced to copy Mars into smaller packs (ultimately as small as bags of 12 gram, bite size bars), an outcome that had a large negative impact on cash flow (lower volumes of product per sale); and an ensuing downsizing of production volumes. As Cadbury had built a plant to accommodate much greater volumes (and bigger sized packs) than it expected, it would take years before it could recover from this problem.
Alignment of markets to an uncertain supply chain has bedevilled the FMCG industry in emerging markets for years. Other examples are single serve shampoos, bought and consumed in the same hour, along with pharmaceuticals and other goods.
What is your experience? Do you have any other lesson that companies contemplating establishment of operations in emerging markets can learn from your experience?
(*Case based on Lawrence, L. Allen, “Chocolate Fortunes; the Battle for the Hearts and Minds, and Wallets of China’s Consumers”, AMACOM, 2010)