Hyderabad: The worms in the chocolate bars controversy has hit Cadbury India where it hurts most and that is in sales. The company today faces tough times ahead as the business environment for its chocolates becomes increasingly negative with rising raw material prices and low consumer sentiments, post the worms controversy in October this year.

While the sales of chocolates (institutional and retail) fell by 3 to 4 per cent last month and are predicted to be down by 10 per cent in November by the trade, Cadbury India has had to incur additional costs in upgrading packaging and damage control promotional efforts. To add to all this, prices of milk and cocoa have been on the upward path in recent months, adding further to the costs.

The largest impact on sales has been in Maharashtra, and specifically in Mumbai, which is where the whole controversy arose as worms were found in Cadbury chocolates in allegedly eight outlets across the state.

If it weren't bad enough that the controversy blew up at the festival season when the chocolates sales are at their peak, the company may also just have to shelve plans of becoming a major sourcing hub for British chocolates and beverages giant Cadbury Schweppes. As part of a global realignment of its supply chain management, the company was giving finishing touches to a plan that might have seen Cadbury India emerge as a major supplier of chocolates to the Asia-Pacific region and the Middle East.

The outsourcing model could have resulted in significant revenue generation for Cadbury India. Initially the company blamed retailers for not storing the products properly but is now engaged in putting in place a regular monitoring and checking system of the storage of the chocolates.

Cadbury India managing director Bharat Puri says the company has made substantial investments in packaging in order to maintain product quality from the manufacturer to the customer. And now it is making all attempts to reassure the consumer and win back their confidence and interest in the category.

It has initiated Project Vishwas, a three-step programme involving wholesalers and retailers in which the company partners with the traders on a war-footing to build awareness about storage requirements for Cadbury products.

In Maharashtra where the maximum damage has been done the company has involved a team of quality-control managers along with 300 salespeople to carry out checks of over 50,000 retail outlets which retail Cadbury products. The products in upgraded packaging are expected to hit retail stores early next year.

Analysts say in the past couple of years in the face of increasing competition from Swiss chocolates major Nestle India and the home-grown Amul, Cadbury has been pushing its products aggressively and targeting the adult audience especially to expand the market.

This has led to a major thrust in increasing the number of distributors and retailers across the country with the result that Cadbury chocolates are available at any paan and cigarette shop in every nook and cranny of India. From 400,000 outlets about four years ago the company now has over 650,000 retail outlets spread across the country.

While retailers cannot be absolved from using improper storage methods, part of Cadbury's problems can be put down to its lack of efforts to educate retailers and ensure adequate hygienic storage conditions at retail outlets. And, most importantly, there are no government norms for chocolates storage with the result that companies, which are in the business of selling chocolates in India and abroad, are "vague" in their instructions to stockists and the retailers, say consumer groups like Voice, which have conducted a study about the segment.

While the central health ministry has asked for a report on the chocolate controversy from the Maharashtra government, sources in the ministries of health and food processing admit that there are no norms in terms of storage for chocolates.

Government officials say companies are supposed to make information available to stockists and retailers on how chocolates need to be transported and stored. In a tropical country like India chocolates tend to spoil fast and should be transported in refrigerated trucks. Usually, however, they are transported in ordinary cartons.

When a chocolate that has melted during transportation is refrigerated, a white powdery layer, called fat bloom, forms on its surface due to migration of fat to the surface of the bar where it re-crystallises. As a result of all this, chocolate also does not taste as it should.

Consumer activists say because of the lack of regulations on the matter, companies tend to be extremely lax on the issue of storage. They say the onus is on the company to ensure safety of the product, whether it is placed next to open unpacked items that are susceptible to worms or whether it is simply because of bad transportation and storage methods.

They add that Nestle makes no statement on its label to this regard, and Cadbury makes a general statement that chocolates should be stored in a "cool, dry and hygienic place" instead of specifying the temperature at which they should be stored.

The size the chocolate market is about 4,000 tonne and is valued at Rs 650 crore (Rs 6.50 billion) a year. Cadbury India has the biggest market share at 60 per cent while Nestle is the second largest at 25 per cent. The rest is held by Amul.

Cadbury's Indian operations are not just the largest in Asia. Cadbury has been the fastest growing fast-moving consumer goods company in the last three years in India, with a compounded annual growth rate of 12.5 per cent.