Are Kellogg's, HUL victim of multinational ego in India?

R Jagannathan
Firstpost.com

Should a company that's crossed a turnover of Rs 500 crore after nearly 20 years in the business be congratulating itself? Especially when the business is food, an area where rank outsiders have scaled up in almost no time?

The company in question is Kellogg in India, which launched its entire range of corn flakes and cereals in 1994, but has managed to cross a sales turnover of Rs 514 crore only in the year to March 2013. The Economic Times notes today (27 December) that the company grew 31 percent last year , "helped by India-centric innovations and single-serve affordable packs that attracted new customers."

Does a company take 20 years to realise that the Indian market is different?

The problem with blue-blooded multinational companies like Kellogg or Coke or even a HIndustan Unilever, for that matter, is that they are often driven by policy evolved in headquarters – not in India. Plus, they are victims of what I would call the multinational ego – a state of mind that says what I sell in New York should be good enough for the natives of Mumbai. If I can sell corn flakes with cold milk in the US, why can't Indians learn to love it? If Coke is the darling of carbonated drinks in Yankistan, why can the people of Hindustan learn to drink it?

To be sure, these are not the articulated reasons for adopting an India marketing policy that is uninformed by Indian preferences, but they do underlie business decisions that ultimately prove costly for multinationals.

Kellogg's started out in 1994 with the idea of "changing India's breakfast habits" when it would have made more sense to adapt Kellogg's products to Indian habits – which is to have fresh warm/hot foods for breakfast. This is the market that believes in hot idlis, medu vadas, upma, poha, paranthas, etc – not cereal with cold milk. Even milk is largely consumed hot in India – after boiling, even if boiling is not required when consumed from tetrapacks. It is only lassi and curd that are consumed cold in India.

At a time when Nestle�had already figured out that Indians loved hot foods with its Maggi noodles, Kellogg's went for the all-American cold cereal approach. While both Nestle and Kellogg's were hell-bent on changing Indian food habits, Nestle at least had got one thing right – the hot part of Indian food habits. Not surprisingly, today India is the biggest market for Maggi noodles in the world. But it has taken Nestle then all of 30 years to build.

Kellogg's second brand – Chocos – came nearly 15 years after the launch of its corn flakes, suggesting that for much of a decade-and-a-half after launch, the management was brooding darkly on why Indians were not munching its stuff more willingly.

Kellogg's is now beginning to accelerate because the penny has finally dropped: India is different. Among other things, it has launched oats, which can be consumed hot with milk, and flavoured corn flakes more suited to the Indian taste (mango, etc) and savouries, The Economic Times says.

The multinational ego has finally yielded ground to common sense, but the same ego has held back other food giants too.

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Coke thought it would have a walkover when it bought Thums Up from Ramesh Chauhan of Parle around the same time Kellogg's entered the Indian market. The idea was to take the market leader out of a rival's hands, de-market it steadily, and then let Coke take over as numero uno. Today, 20 years later, Thums Up is still the market leader in colas , with a market share of about 16 percent, marginally above Pepsi's 15 percent. And Coke? It has half the market share of Thums Up at around 8-9 percent. In short, Thums Up is what is keeping Coke ahead as a company, not Coke, the iconic brand. (Coke, though, is learning new tricks in the non-cola place with Sprite ). The multinational ego around Brand Coke prevented the bosses in Atlanta from recognising this till they realised that Coke was naked in its fight against Pepsi's aggression without a Thums Up to take the latter on.

The commonsense thing Coke's bosses should have thought about when paying around $60 million to buy Thums Up in 1993 was this: when you own both brands, including the one that had 85 percent of the Indian cola market, does it make any difference if Coke won the battle or Thums Up? Does the tennis-loving Williams family in the US rejoice only if Serena wins at Wimbledon or also if Venus wins? Does it matter which amongst you brands wins?

One would have thought it was logical for the Coke management to invest heavily in the market leader they bought and allowed Coke to grow steadily at its own pace. But no, it hurt the egos of the top bosses to know that Coke was going to play second fiddle to that thing called Thums Up – a brand created in India for an Indian taste.

Something similar happened with Hindustan Unilever, too, which introduced Walls frozen desserts based on vegetable fats (rather than ice-cream, which is based on milk fat). When the company found that Indians still had a penchant for "real" ice-cream, it bought Kwality's, which had a strong distribution franchise and market leadership in several key consuming markets.

But what did Levers do after buying the Kwality's brand? It created a hybrid called Kwality Walls – neither fish nor fowl.

What is the point in buying a well-known brand if you are going to dilute it by hyphenating your own name – which then had no resonance in India - with it? The only sensible way to use two brands is to keep them separate, allowing each to grow a separate market. But Levers muddled it all up and to this day continues to play a distant second to Amul in the ice-creams/frozen desserts market.

To be sure, vegetable fats are cheaper, and this segment is helping the lower end of the fun foods market segment to grow faster, but there is little doubt Levers lost an early chance to make a two-pronged attack on the ice-creams business when it had a golden opportunity. At last count, Kwality Walls had a market share of around 14 percent while Amul had 38 percent. Amul is fighting the veg-oils based brands by emphasising the milk content in its ice-cream . Indians believe in the magical qualities of milk like none other.

And guess when Levers bought Kwality's: 1994.

Three MNCs entered India with strong local or owned brands in the early 1990s, but they all made the same mistake of thinking that what works in their markets will work here too.