Maggi - Nestle's Problem Child?

Case Details:
Case Code : Case Length : Period : Pub Date : Teaching Note Organization : Industry : Countries : MKTG021 10 Pages 1997 - 2001 2002 :Available Nestle India FMCG India

Abstract:
The case examines the brand and line extension strategies adopted by FMCG major Nestl for its Maggi brand in India. It provides a detailed account of Nestl's promotion and advertising strategies for creating a noodles market from scratch. The various products and variants launched under the umbrella brand Maggi, and the rationale behind these launches (and their failure) is explored in detail. The case also discusses the company's attempt to change the formulation of its flagship brand Maggi noodles and how it was forced to bring back the old formulation.

Issues:
Understand the potential scope and limitations of adopting an umbrella brand for different product categories.

Contents:
Maggi Under Pressure Background Note The Story of Maggi What's in Store for Maggi? Exhibits Page No. 1 2 3 6 8

Keywords:

Brand, line extension, FMCG, Nestl, Maggi, Nestl, promotion, advertising, noodles, market, scratch, umbrella brand, Maggi, formulation, Maggi noodles

The Maggi brand revolutionized 'fast food' made-at-home." - A Financial Express News report, in March 1999.

Maggi Under Pressure

In late 1997, global FMCG major Nestl SA's Indian subsidiary Nestl India (Nestl) launched a 'new, improved,' formulation of its noodles brand, Maggi (a snack food cooked in water along with a flavoring agent called the 'tastemaker.') This change was the first since the brand's launch in India in the 1980s. The new formulation had thinner noodles and a different flavor. The company reportedly wanted to infuse fresh life into the brand to deal with stagnating sales. Nestl was in for a major shock. Maggi lovers all over the country rejected the new formulation. Sales started declining alarmingly and even maintaining the previous year's sales level of 13,000 tonnes seemed very difficult.

Around the same time, Maggi Macaroni, launched in mid-1997 with a Rs 10 million1 ad spend, was also faring badly. Against a target of 1000 tonnes, it managed to sell only 300 tonnes for the year 1997. Reportedly, many shops had stopped carrying the product.

To add to the company's woes, Maggi lost its leadership status in the soup segment to a new entrant, Knorr, in the same year. Knorr cornered a 55% market share of the 425 tonne soup market -around 75% of which came by eating into the customer base of Maggi soups. Competition had intensified in the ketchup segment as well. Unilever subsidiary Hindustan Lever Ltd's (HLL) Kissan brand had almost reached Maggi's market share figures. Other products under the Maggi umbrella -instant food mixes, seasoning cubes, and pickles -were also faring poorly with limited sales scattered in different regions of the country (Refer Exhibit I for products available under the Maggi brand).

Maggi Under Pressure Contd...

Even after more than 15 years of heavy advertising, promotion, and brand building, the Maggi brand remained a loss-making proposition for the company.

Though Nestl had successfully created an entire product segment afresh with Maggi noodles in India, analysts commented that the company had made some serious blunders somewhere down the line. Questions were raised about Nestl's marketing acumen and whether its brand/line extension decisions had stretched Maggi 'too thin.'

Background Note
Established in 1866, the Switzerland based Nestl S A was a wholly owned subsidiary of Nestl Holdings Ltd., Nassau, and Bahama Islands.

The Group produced, among other things, beverages, milk products, processed foods, cooking aids, bakery products, chocolates, confectioneries, and pharmaceutical products. Nestl Holdings had a presence in 83 countries worldwide with 509 factories spread across Europe, America, Africa, Asia, and Oceania.

Nestl S A was the world leader in many product categories like coffee, mineral water, snack foods, beverages, and chocolates. In 2001, the company earned revenues of $ 50.2 billion and a net profit of $ 3.9 billion, and was ranked 55 in the 2002 Fortune 500 list. With a workforce of around 229,765 people, Nestl had established itself as one of the world's most successful FMCG companies. The Group entered India in 1959 through Nestl India, a wholly-owned subsidiary of Nestl Holding Ltd. Initially, it imported and sold condensed milk and infant food. Manufacturing operations began in 1962 when a factory was set up in Moga, Punjab to produce Nestl's condensed milk brand, Milkmaid. In 1964, the company started manufacturing the Group's flagship coffee brand, Nescafe, at the same factory. The company set up another factory at Cherambadi in Tamil Nadu, for manufacturing infant food and coffee...

Excerpts

The Story of Maggi

Launched in five flavors initially -Masala, Chicken, Capsicum, Sweet & Sour, and Lasagna -Maggi had to fight hard to be accepted by Indian consumers with their hard-to-

change eating habits. The packaged foods market was very small at this point in time (Refer Exhibit III for a brief note on the Indian packaged foods market). Nestl had to promote noodles as a concept, before it could promote Maggi as a brand. It therefore devised a two-pronged strategy to attract mothers on the 'convenience' plank and lure kids on the 'fun' plank. Gradually, the market for instant noodles began to grow. The company also decided to focus on promotions to increase the brand's awareness. In the initial years, Nestl's promotional activities for Maggi included schemes offering gifts (such as toys and utensils) in return for empty noodle packs. According to analysts, the focus on promotions turned out to be the single largest factor responsible for Maggi's rapid acceptance...

What's in Store for Maggi?

In July 2001, Nestl revealed plans to increase its focus on Maggi. According to company sources, Maggi would now receive the same type of financial and marketing support that Nestle enjoyed.

Donati said, The focused approach on Nescafe, which was the company's flagship brand over the last few years has yielded rich dividends and we plan to replicate the same in case of Maggi as well. In 2001, Maggi noodles was able to sustain its leadership position by introducing small, 50 gm packs and launching of two new flavors -Tomato and Curry. The company rationalized the prices of Maggi soups and launched a new TomatoVegetable variant. New flavors were introduced in the Maggi seasonings range as well. Maggi sauces also reportedly showed good volume growth...