India's Getting (More) Crowded
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In a nation where critical power outages are almost as common as US jobs are outsourced, there certainly appears to be a growing appetite for indulgence. Indeed, the chocolate market is among the fast growing segments in this Southeast Asian economy.
In India, the rising demand for cocoa has many parallels to the growth trajectory in the economy. Chocolate is a luxury that is already embedded into the culture in Western nations. But in what have developed into boom economies, such as the case in India - despite recent headwinds, the proliferation of comfort foods like chocolate is lodged in novelty status.
India's confectionary industry, under which chocolate is grouped, is among the fastest growing sectors in the country. Factors such as a rising middle class, higher educational standards, and larger disposable incomes are driving this phenomenon. In fact, some of India's residents include chocolate in various forms as part of their daily consumption.
But it's not all sweet nothings in India. The country's has problems that extend beyond its power grid - like much of the rest of the world at the moment - and into the very fiber of India's future: the economy. There appears to be a push-pull unfolding between the financial markets and the economy there, not unique to India, where equities are posting gains but economic expansion hit a standstill.
Chocolate genius The Hershey Company (NYSE: HSY) is not deterred by the challenging conditions and is bolstering its presence in the region. Just last week, Hershey acquired the remaining 49% stake in an Indian partnership with Godrej Industries, which gives Hershey full control of the venture. The business was formed as a joint venture between Hershey and Godrej in 2007 but disappointing sales results have pushed Godrej Industries to the sidelines. The business generated some $80 million in sales last year and was in the red.
As a result of the acquisition, the value of which was not disclosed, Hershey inherits $47 million in debt but also regional brands Maha Lacto and Nutrineas as well as soymilk name Sofit and a string of factories. Hershey's newly acquired business will be dubbed Hershey India, which resembles the format used another consumer player in the region - Pepsico India.
Indeed, PepsiCo (NYSE: PEP) has invaded India too. In its 2011 annual report, the maker of Pepsi and Cheetos indicated that India is among the economies to present "important growth opportunties" for Pepsico. The business recently increased its commitment to Indian snack brand KurKure with the rollout of two new products. As Pepsico India attempts to capitalize on consumer loyalty, a marketing blitz is planned.
The competitive landscape in India is taking a page out of the US's book as The Coca-Cola Company (NYSE: KO) ramps up its marketing efforts in the region. Coke is committing $5 billion in India for the remainder of the decade. Coke will be re-introducing its RimZim beverage, which is a masala cola that the company purchased in the 1990s that is rich in several spices, according to Bloomberg.
The consumer market is an international playing field in India. The chocolate market segment is dominated by Cadbury Kraft, a Kraft (NASDAQ: KRFT) division. The division enjoys 70% of India's chocolate market share followed by Nestle and a handful of smaller players. Hershey's position in that landscape has yet to play out, but the regulatory environment and consumer demand have made India a more attractive playing field for international companies, according ot a Cadbury Kraft spokesperson cited in The Times of India.
From a broad perspective, India's markets are growing. The Bombay Sensex is up more than 14% year to date. In recent days, however, India's markets have been flat amid inflationary pressures and uncertainty surrounding any type of interest rate easing.
Jagannadham Thunuguntla, Head of Research, SMC Investments and Advisors Limited, told Reuters India that investors are taking a wait-and-see approach to the markets. This is in anticipation of what the US monetary policy setters - the U.S. Federal Reserve - will do in terms of QE3, yet another Large Scale Asset Purchases (LCAP) program.
Perhaps even more telling than the gains in the Bombay Sensex is a reversal of fortunes for capital inflows into the region. Foreign institutional investors have poured some $12 billion into India's equities versus net outflows of $358 million in 2011, according to HSBC data cited in Reuters.
And despite evidence to the contrary, such as credit rating downgrades by Fitch and Standard & Poors, India's economy seems to have some bright spots. Deutsche Bank analyst Taimur Baig is cited by CNBC as stating:
"Our recent trip to Delhi where we met with policy advisors left us with the impression that there may be an undue concentration of pessimism which may be ripe for some upside surprise."
Indeed some upside surprise could be beneficial not only to Hershey but other consumer brands including Colgate Palmolive and Kellogg in the region. For its part, Chocolate may not prevent India's massive blackouts, but it may help citizens ease the stress that accompanies intrusive power failures that have become just about as troublesome as outsourcing.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. Motley Fool newsletter services recommend PepsiCo and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.