#6 MD Cadbury replies to Jake’s email

Jake received this amazing reply from Mark Callaghan, Cadbury’s Managing Director Aust & NZ, when Jake sent him an email about our blog post #4 regarding Cadbury’s referral marketing strategy. That is what we call great Connection:

Dear Jake,

Thanks for getting in touch, and please accept my apologies for the delay in coming back to you. As you might have guessed it’s been a fairly hectic couple of weeks for the business! I also wanted to thank you for giving us a ‘right of reply’, something that not everyone in the media has been prepared to do of late.

I guess the first thing I would like to get across is that we understand that changing something that is as well known, and as well loved, as Cadbury Dairy Milk was never going to be an easy process. However, I do want people out there understand why we did it.

Essentially, we decided to change Cadbury Dairy Milk for two main reasons: firstly, to make our chocolate slightly softer to bite; and secondly, to ensure our chocolate remained affordable. Both of these changes were actions our research showed that consumers clearly wanted.

The reality is also that the price of key ingredients, such as cocoa, has skyrocketed over the last two years. Much of this has been driven by speculative investors looking for short-term financial gains in commodities at a time when established equity markets are not delivering the returns they once did.

For confectionery manufacturers like Cadbury we have to live with the after-effects of this activity. Cocoa is our key ingredient, something we don’t use as financial hedge, rather as the foundation for all the chocolate we make.

For most of the last 2 years, in which cocoa prices have doubled, our business has taken this on the chin. We’ve soaked up the price hikes whilst trying to minimize the cost impact to consumers.

Of course, all good things come to an end. Faced with ongoing price rises of key ingredients, increasing labour costs and regular inflation we reached a point where, despite our best efforts, the price of a block of chocolate was reaching $5 in markets such as New Zealand. For many Kiwi families this took Cadbury Dairy Milk over the threshold of what they regarded was ‘affordable’ for a treat such as chocolate.

So as a business we had to change our approach – you can’t simply ignore the evidence that your flagship product may be going ‘out of reach’ for the everyday shopper.

Now let me tackle one of the central accusations head on: We’ve downsized our product to boost corporate profits and fleece the consumer. Simply untrue!

Like some of our competitors we could have reduced the size of our Cadbury Dairy Milk range without dropping the price. We could have claimed our product downsize was ‘portion control’ designed to respond to concerns around obesity, whilst keeping prices constant. We decided not to because we thought there was a better, more honest way of facing these issues.

As a business we thought it was better to reduce the size of Cadbury Dairy Milk, yes to decrease our exposure to expensive ingredient costs at a time when all business costs are under close scrutiny, but also to ensure that everyday consumers could still afford to buy our product. So we reduced the size of our blocks and the price we charge retailers and in doing so we have tried to do the right thing both as a business and by our consumers.

I am sure that you will understand far better than most that it would be commercial suicide for a company such as Cadbury to make all of these changes without considerable thought; and I can assure you that we tested and re-tested consumers throughout New Zealand and Australia to ensure that the changes we made to Cadbury Dairy Milk would be liked by the vast majority.

Despite the current uproar, I am confident that the overwhelming majority of people out there will continue to love our chocolate and I hope, in time, will better understand and appreciate the reasons why we made these changes.

Regards

Mark

Mark Callaghan
Managing Director – Aust & NZ
636 St. Kilda Road
Melbourne Victoria 3004