Maggi: Nestls Hot mess

A Case Study for Consumer Behavior

Group 10 (Section B)
Akshay Purohit (7B)
Anima Nivasarkar (8B)
Himani Singh (22B)
Mayank Tewari (29B)
Nidhi Jindal (32B)
Ruchir Sahai (39B )
Background

It was October 2015, the festive season in India. But the mood in Nestl India headquarters was
not so festive. Mr. Suresh Narayanan, the newly appointed Managing Director of Nestl India,
had an uphill task ahead of him. He was appointed following the relocation of Etienne Benet, his
predecessor at Nestl India, in the aftermath of Maggi ban in India. These were no normal
circumstances or the usual challenges a business, even as big a giant as Nestl, faces in its course
of time.

Nestl had never faced such an issue in India ever before. What made it more worrisome was
that the product which was at the center of the whole mess was Maggi- the much loved instant
noodles of the country. What Colgate is to toothpaste, Maggi is to instant noodles in India. The
importance of the brand for the company can be gauged from the fact that of the $1.6 billion in
revenue in the country (in 2014), roughly a quarter of it came from Maggi and its variants.

Mr. Narayanan had two straight forward(only on paper) tasks cut out for him- To regain
consumers trust in the brand Maggi and to regain the lost market share to Maggis competing
brands. And he knew that just a marketing campaign isnt going to cut it out for him- they have
to be innovative and proactive everywhere- not only on social media or on marketing front but
also on the long left unchanged product front too.

Nestl S.A.

Nestl S.A. is a Swiss transnational food and beverages company headquartered in Vevey, Vaud.
It was formed in its present form in 1905, by the merger of the Anglo-Swiss Milk Company,
established in 1866 by brothers George Page and Charles Page, and Farine Lacte Henri Nestl,
founded in 1866 by Henri Nestl. With a market capitalisation of $235.7 billion and total sales of
more than $90 billion(for 2015), it is the largest food company in the world.

Nestl identifies itself as a Nutrition, Health and Wellness Company. It manufactures and
markets products in 189 countries with a portfolio of more than 2000 brands encompassing local
brands to some iconic global brands, like Nescafe, Kit Kat, Nestea, Cerelac, Gerber, Toll House
and Maggi.

Nestl has 9 distinct operating segments; for most of its food and beverages, it is divided based
on geography- Zone AMS (Americas), Zone EMENA (Europe, Middle East and North Africa),
Zone AOA (Asia, Oceania and Sub-Saharan Africa) with the exceptions of their globally
managed businesses which are Nestl Waters, Nestl Nutrition, Nestl Nespresso, Nestl
Professional, Nestl Health Sciences, Nestl Skin Care.

Nestl also has two major joint ventures for some of its brands- Beverage Partners Worldwide
with Coca Cola (to manage the Nestea business) and Cereal Partners Worldwide with General
Mills (which makes breakfast cereals like Fitness and Chocapic)
Nestls association with India

Nestl entered into India in 1912 as The NESTL Anglo-Swiss Condensed Milk Company
(Export) Limited, it imported and sold finished milk based products. After 1947 the Indian
Government wanted to start domestic production, this gave rise to Nestl India limited in 1956,
shortly after which it opened its first manufacturing facility in Moga, Punjab in 1961, where the
government wanted Nestl to develop the milk economy. Here the company set up their
Agricultural services to educate and help farmers in increasing the milk yield, it also set up milk
collection set ups to ensure fair prices and confidence in the dairy business.
The second manufacturing unit was set up in 1967 in Choladi, Tamil Nadu, followed by
Nanjangud, Karnataka in 1989, Samalkha, Haryana in 1993, Ponda and Bicholim, Goa in 1995
and 1997 respectively. In 2012 it set up its 8 th facility in Himachal Pradesh. The current
headquarters of Nestl India is in Gurgaon, Haryana (Exhibit 1).
Over the past century Nestl India has expanded its portfolio to gigantic proportions and has
become one of the largest food and beverage conglomerate in the country today. Its portfolio
consists of milk products, prepared dishes, cooking aids, beverages, chocolates and
confectionaries. The company now manufactures internationally famous brands like NESCAF,
MAGGI, MILKYBAR, KIT KAT, BAR-ONE, MILKMAID and NESTEA, recently the
Company has also introduced products of daily consumption and use such as NESTL Milk,
NESTL SLIM Milk, NESTL Dahi and NESTL Jeera Raita. (Exhibit 2)
The Company's activities in India have facilitated direct and indirect employment and provides
livelihood to about one million people including farmers, suppliers of packaging materials,
services and other goods. Over a century Nestl has become a part of Indian society, embedding
itself deeply into the households and minds of consumers, building a deep bond of trust and
creating value for consumers as well as shareholders.

Indias favorite Noodles: Maggi

Nestl launched Maggi in India in 1982. (Exhibit 3 and Exhibit 4 showing Maggi ads, 1983)
when the concept of instant food was completely alien to India where slow cooking had been the
norm much before it fashionable in global cuisine. On entry, the company targeted kids as they
realized that this segment was much more open to accepting a new product which tastes good, as
compared to grownups who were reluctant to try something this radical. Nestl being
experienced in entering new international markets, targeted consumers who would give them
maximum life-time value. They knew these kids would grow up to become loyal consumers of
Maggi. To promote Maggi among kids, Nestl started doing promotions in schools where they
gave out free Maggi samples to children during the brake. Maggi was positioned as fun and tasty
product, and this campaign saw Maggi getting its initial sales push in India.
This was also the time that India was seeing a shift in society, the Indian women had started
breaking the stereotypes and working full time. In its first advertisement communications Maggi
popularized the image of the Maggi Mom, she had a brood of happy hungry kids but being a
modern working woman did not have the time to cook the time-consuming meals. Here came the
2 Minutes concept it took only 2 minutes (a phrase in India meaning pretty soon, i.e. anything
from now to 1 hour) to cook Maggi. The ace in the hole for Maggi was the Masala which was
tailored specifically to Indian taste and has now become an iconic flavor that is instantly
recognizable.
Initially Maggi launched four flavors, namely Masala, Chicken, Capsicum and sweet & sour,
also Maggi started generating awareness by exchanging Maggi wrappers for toys and gifts. This
was supported by iconic campaigns like mummy bhook lagi hai , where children chant Maggi
Maggi Maggi enthusiastically led to Maggi seeing double digit growth in its initial years. The
initial success was followed expansions in the portfolio of Maggi, this led to Maggi capturing the
snacks market by clearly positioning Maggi as a in between meals snack. Maggi introduced
Maggi Soups, Tomato Ketchup which were huge successes. In the next ten years Maggi
ingrained itself into the Indian households and was common item in most homes, it was well on
its way to become one of the most trusted and iconic brands in the country.
The children who had been eating Maggi for over a decade had grown up and become loyal
consumers of the brands, other competitors like Top Ramen stood nowhere close to the giant.
Maggi went on to be a staple snack not only in households but college canteens and roadside
stalls, the icon red yellow logo and the promise of two minutes (Exhibit 5) had won over the
hearts of India. Maggi continued to reinvent itself and came out with the new variant Maggi
Vegetable Atta noodles with the tag line Taste bhi health bhi (Exhibit 6) and the Me and Meri
Maggi campaigns, these proved to be highly successful. This led to Maggi steadily increasing
its sales and operating profit margins (Exhibit 7) gaining market share and becoming the
dominant brand in the market (Exhibit 8).Maggi in 2009 completed it 25th year in India and
came out with a new range which included cooking aids like Bhuna Masla, flavoured Oats and
Maggi Pazzta.
By 2013 Maggi had become the meal of choice of college goers late in the night, office goers
going for a quick bite and it was adding new consumers every day. It had developed a cult
following, there was no place where you couldnt enjoy Maggi just the way you liked it whether
it be soupy, with eggs, vegetables or any other customization you fancied, this included Leh,
Rohtang Pass and any other remote place in the country. Small tea stalls had long since come to
be known as Maggi points and had gained legendary status of making the best Maggi dish ever
(Exhibit 9).

Strom Clouds brewing for Maggi

It was Monday morning in March 2014, as one of the food inspectors of Barabanki, a small town
in central Uttar Pradesh, Sanjay Singh picked a four pack of Maggi noodles at Easyday, a
modern trade store in Barabanki. Singh, like most Indians was familiar with Maggi and it was
regular in his home, but today he was acting on the orders of the Food safety commissioner of
Uttar Pradesh who had ordered raids on supermarkets. He sent of this four pack to a testing lab in
Gorakhpur, Uttar Pradesh.
Maggis labels clearly suggest that it has no added MSG (mono sodium glutamate), a legal
ingredient but one that requires disclosure and warning on the label stating that it isnt safe for
children under 12 months. The results were a surprise for Singh as the sample had tested positive
for MSG. This was a punishable offence with a fine of 3 lakh rupees, had Nestl paid the fine
this case would have been closed. Upon being informed of this Nestl denied this and appealed
this, as result another sample was sent to a different lab in Kolkata for testing in June 2014.
In April 2015, Singh received the reports of the new test, the test sample had gotten lost on the
way to Kolkata and when it finally reached it was ignored for a while. this delay has fuelled a
number of conspiracy theories. The report confirmed the presence of MSG in this sample as well,
this was a more detailed report and the level of lead caught Singhs eye, it showed the sample
containing 17.2 parts per million of lead which was seven time the permissible level and almost
1000 times what the company claimed. The large amount of lead could be the cause of serious
health problems for anyone eating the product especially children.

Nestls Response

The report from the Kolkata lab reached the office of Aris Protonotarios, technical director of
quality and safety in Nestl India on 1st May 2015. According to an article published in Forbes
magazine, Protonotarios said that Nestls quality assurance had systems in place just to check
for a large number of hazardous material including lead. Raw Materials as well as finished goods
were checked regularly and the monitoring systems would have picked up something if it was
not safe.
Since Nestls internal records showed nothing of this nature, they sent their internal reports to
the food regulator, and in a statement of polite superiority stated that according to internal
reviews no further action needs to be taken in this case. 48 hours after Nestl sent its reply to the
food regulator of U.P, the news broke on local news channel about problems with Maggi noodles
followed shortly by social media sites like Facebook and Twitter. In one week the situation had
spiralled, the comments of the media and the consumers were not kind and there was speculation
adrift about a ban on Maggi. Nestl issued its first statement on 21 st May, almost two weeks after
controversy started stating that there would be no recall of the product and it was safe for
consumption.
While Nestl stayed silent, to the outside world they looked helpless, even guilty. A lot of people
took silence to mean that Nestl had something to hide. The story had spread all over the country
and Maggi being unsafe shook the foundations of the trust Nestl had worked long and hard to
build in the country. However the test results were based only on two samples and this put
pressure on the FSSAI, the national food regulator, to gather more conclusive evidence. Yudhvir
Singh Malik, CEO of FSSAI instructed the food commissioners of all 29 states to test samples of
Maggi and report the findings by 1 st June 2015. This was the time when Nestl, Switzerland
realised that something had gone wrong in India.

CEO comes to India

Traditionally as a company, Nestl doesnt seek media attention and communicates with the
outside world only through marketing and its communications department which is relatively
small in size. But on 2nd June as Paul Bulcke sat in his office at The Centre he realised that what
he thought of as a straightforward technical matter had snowballed into a crisis. Bulcke knew
that a company the size of Nestl was bound to face issues now and again but it dawned on him
that it was time that he stepped in to take control of the situation in India, the next day he left for
India.
In India he attended a meeting with FSSAI, during this meeting both sides tried to prove that
they were right and the situation was turning ugly. As the meeting ended the first ban on stores
stocking Maggi came from Uttrakhand, bans in five states followed which included Delhi. This
was the time it was decided by the CEO that it would be a wise decision to recall all stocks of
Maggi and wait for the situation to settle. Nestl India at its official press conference announced
that even though Maggi was safe for consumption it would be taken off shelves and the current
stock would be destroyed, the emphasis by Nestl was still on safe for consumption. During this
time FSSAI implemented a temporary national ban of Maggi, giving Nestl 15 days to reply with
reason why all 9 variants of Maggi shouldnt be banned permanently in the country.
The recall would be a mammoth task even for a company like Nestl, it was estimated that
Maggi was sold in around 3.5 million outlets and roughly around 30000 tonnes would have to be
recalled. About 1600 of its direct labour, and around 12000 people associated with Maggis
distribution network were tasked with this huge recall. In one of the largest recalls in the history
of the company, Nestl estimated that 4 million cartons worth Rs.390 crores was recalled from
retailers, distribution centres and wholesalers. To help with task Nestl paid Ambuja Cement
Rs.20 crores to use 5 of its plants to destroy the recalled stock of Maggi, working even at full
capacity it would take 40 days to complete this huge task.

See you in court

Nestl had two options the first was to respond with an explanation to the FSSAI and the other
was to go to court over this issue. Filing a suit against FSSAI could be a risky proposition for a
food and beverage company, but the words used by the regulator hazardous and unsafe for
human consumption meant that anyone with health problems could now blame Nestl. This is
the reason Nestl filed a law suit against The FSSAI in the Bombay High court. Nestl argued
that this issue had caused huge financial as well as loss of reputation of the company, further it
said that the regulator had used findings of unaccredited labs while ignoring the 2700 lab reports
Nestl had submitted to them. At the same time the FSSAI argued that if the product was safe
why would a company recall and destroy more that 30000 tonnes of the product, when there was
no official mandate to destroy the noodles.

The final effects

Maggi which was among the top 5 most trusted brands of India in 2013 (Exhibit 10) did not
even feature in this list for the next year. The share of the noodles in the market fell from a
whopping 65% to 23% within one year (Exhibit 11). Nestl Indias stock price plummeted to an
all time low (Exhibit 12) and the companies executives have estimated it will take Nestl at
least three years to recover from this shock (Exhibit 13). Apart from the numbers Maggi which
had been a consumer favorite had broken the trust the Indian public had put in it and now its
future in the country was under threat.

The questions that we are looking to analyze are as follows:

What went wrong with Maggi? Was there really something wrong with Maggi? How should
have Nestl responded keeping consumer sentiment in mind? How did the consumers react to
this situation? How will Maggi make a comeback and win the trust of the consumers?
Exhibit 1: Nestl in India

(Image source: www.Nestl.in)

Exhibit 2: Nestls Portfolio in India

(Source : www.Nestl.in)

Exhibit 3: Maggi print ad

Exhibit 4: Maggi TV ad showing Maggi Mom

(Source : youtube)

Exhibit 5: Maggi logo

Exhibit 6: Maggi vegetable atta noodles - Taste Bhi Health Bhi

Exhibit 7: Sales and operating profit Maggi

(Source: Economic times)

Exhibit 8: Maggi dominant brand in India

(Data Source: Euromonitor)

Exhibit 9: Famous Uncle Tom Maggi point , Delhi University(North Campus)

Exhibit 10: Most trusted brands 2013 Vs 2015

(Source: Economic times brand equity survey, 2013)

(Source: Economic times brand equity survey, 2015)

Exhibit 11: Noodle Market share in India

(Data Source: Euromonitor ; Image Source : Forbes)

Exhibit 12: Nestl Indias stock performance

(Source: S&P capital IQ , Fortune)

Exhibit 13: Nestls loss of sales

(Data Source: Bloomberg ; Image source : Forbes)

 Case Analysis
of
Maggi: Nestls Hot mess
Brief Summary of the case

At the centre of this case lies the Maggis packaging which has distinctly written on it: No added
MSG (Mono Sodium Glutamate), an ingredient which requires warning label on the pack,
stating it isnt safe for children under 12 months.

On 10th March, 2014, at Barabanki, Uttar Pradesh, a food inspector under his regular inspection
raids, took 4 Maggi packs as samples for verifying the claims written on the pack. When the
results came back in later that month, the results were alarming- it contained MSG. This meant
branding violation by Nestl and could have resulted in a fine of INR 300,000 or $4500. Had
Nestl paid it then and there, the story would have ended. But what ensued was a scandal which
resulted in Nestl losing more than half-a-billion overall.

Nestl denied the claims of the report, appealed the findings, and a new sample was sent to
Kolkata labs. What followed was classic (and questionable) government red-tapism- the sample
reached the Lab after getting lost in the mail and taking a detour of 1200 miles via Shimla; then
the report resting on the bottom of pile- the report finally came back to the food inspectors
office a year later in April 2015.

The results were even more shocking- not only MSG, it also contained lead at a level 1000 times
over what company claimed. The report was mailed to Nestl, Nestl were not very proactive in
their response and they tried dealing directly with the authorities than via media (which has been
their strategy worldwide).

The questions at the end of the case are as follows:

1. What went wrong with Maggi?

2. Was there really something wrong with Maggi?
3. How should have Nestl responded keeping consumer sentiment in mind?
4. How did the consumers react to this situation?
5. How will Maggi make a comeback and win the trust of the consumers?
What went wrong with Maggi?

In retrospect, Nestl had a very dismissive attitude towards the reports by Indian food regulators.
When brought to the attention by regulators about the test results, Nestl had an air of polite
superiority about the whole issue. They stood adamant on the fact that there had been no mistake
from their side. When the regulators mailed Nestl their results from second test too, instead of
looking into the matter in a more co-operative and understanding way, Nestl reacted by
submitting internal monitoring reports to Uttar Pradesh food safety office advising the state
regulator, to take no further action (citing their reports as evidence of no wrong-
doing/malpractice).
This polite superiority was on display again in the meeting with FSSAI officials, which Mr.
Bulcke himself attended. Again, Nestl officials were trying to prove themselves right and turned
the situation from bad to worse soon after. Being a food and beverage company, it wasnt very
wise of taking food regulators head on.

Because of Nestls inherent confidence in its own processes and data, it couldnt imagine that it
might have a problem on its hands. This kind of attitude of polite superiority would irritate
officials and exacerbate Nestls problems, especially when the Indian press got wind of the
story.

Second mistake was overlooking the context of the situation. Nestl looked over the issue as a
purely technical one. What they failed to factor in were the social and political aspects attached
to it. Being the largest F&B company of the world, they failed to think ahead, as is rightly
expected from them. For weeks the company was caught flat-footed at every turn as the Maggi
inquiry exploded from a local matter to national level scandal. And all amidst a brewing media
storm. They were readily engaging with regulatory authorities but had no contingency plan put in
the place. They ultimately were unsuccessful and had failed to consider the alternative
possibility: What if that doesnt work?

Another thing which went terribly wrong from Nestls viewpoint was their lack of
communication and engagement with consumers. Although they acted wisely by laying low and
assessing the potential damages of any move they made, but missed a trick when it came to being
transparent and having an open channel of communication with the consumers. While Maggi
having any hazardous ingredient or not- the jury on it was still out, their silence on social media
over such a big accusation made them look guilty to the consumers. They reacted a bit late to all
the accusations and even when they did, it was in a very formal kind of statement. These doubts
worsened in peoples minds when various state governments starting banning Maggi and Nestl
decided to recall every Maggi packet on the shelf throughout the country. The final nail in the
coffin was when Nestl decide to destroy every single one of recalled Maggi packet.
This decision to keep low although seemed mature at the time, it led to stonewalling the
consumers from all the proceedings and progress in the story. And as the Indian media got a sniff
of the story, as it has been seen so often, they tried to compete a puzzle with pieces missing,
replacing them with their own whims and judgments. What then came across to consumer was a
third-part retelling of an incomplete story with inaccurate and missing facts.
The question which was still left unanswered in the consumers minds which exhibited the
apprehensions and doubts in their mind was If there was no problem or issues with Maggi
noodles, why did Nestl not only recall the packets, but also destroy them? After all, there was
no official mandate to do so.

How should have Nestl responded keeping consumer sentiment in mind?

In the way the incidents unfurled, it had become more of a moo point. This incident wasnt left
about whether about Maggi was safe for consumption or not;
We have seen people forget about Colas
Was there really something wrong with Maggi?

There have been arguments to both sides of this story.

Regulators argued that their tests were absolutely correct with no discrepancies. Having said that,
there had been no explanation from the government agencies side to explain why the test was
delayed for such along duration or why did the test sample wasnt directly sent to Kolkata but via
Shimla. It is very much probable that this unexplained delay and shoddy attention to details may
have spoiled the test sample and resulted in negative results. (Later on, the regulators case was
also weakened by the fact that the same Maggi when exported was cleared for consumption in
Singapore and US).
On the other hand, Nestl has been infamous in the past regarding similar incidents (The Baby
Killer incident of the 70s has a long-lasting effect on Nestls image in consumers eyes). When
Nestl submitted its report to the court having results from 2700 labs, there were suspicions in
some circle of them being even true in the first place (as they looked at Nestl as an evil MNC
that could very easily fabricate the results).

In the absence of a definitive answer, the next best thing would be a legal ruling.

How did the consumers react to this situation?

As expected, consumers emotions ranged from shock to anger in regards to this whole issue.
People were enraged as they saw it as a breach of trust. In India, Maggi is not just another noodle
product, not just any item. What Colgate is to toothpaste, Maggi is to instant noodles in India. So
any controversy of this scale would naturally leave people dumbfounded.

And in typical Indian style, people wasted no time in venting their anger. In many cities, people
started burning packs of Maggi noodles. Not only the company, the celebrities who have
endorsed Maggi over time were not spared and their effigies were burnt too.

(At some places, and with some people, thing went out of hand so much that One prominent
newscaster compared the situation to Bhopal, the worst industrial accident of all time, in which
a toxic gas leak at a Union Carbide pesticide plant in central India killed thousands of people)

The consumer reaction underlined the fact that from the time of its introduction, Maggi has
become an emotional need of India. Not even the die-hard Maggi fans defend it when it comes to
the nutritional value of the product and is ubiquitously considered unhealthy in India. But what
Maggi offers is great convenience unlike any other Indian dish. It is very easy to make, takes
little time to cook and tastes delicious- and all of it at a relatively cheaper cost. Maggi has
established itself in an unprecedented way and consumers angry reaction was coming after
scandal of such a scale broke out.
How will Maggi make a comeback and win the trust of the consumers?

To win trust, Nestl should start engaging with consumers more and come clean with them.
Already their communication hasnt been satisfactory with the consumers throughout the whole
ordeal. And their recall has already pitted the whole thing against them.

They should stop the blame-game and focus on resurrecting a positive image among the
consumers. They should take help of social media sites and try to explain their decision of
recalling the Maggi packs and destroying them.
They should also explain what the ban means and what its repercussions can be on the
consumers. Again, various digital channels should be employed in a consumer engaging way to
clear the air over its product and help them regain some momentum in the market.

Nestl should also try to come up with some campaigns which can connect with people on an
emotional level. We have seen how Maggi is more of an emotional need in India. Nestl should
try to come up with campaigns which particularly capture this emotional viewpoint of consumers
towards Maggi.

The trick for Nestl would be to stay relevant in consumers minds in Maggis absence on the
shelves. Nestl should try to minimise the losses particularly in terms of market share when
Maggi re-launches.

Another thing Nestl should consider is reducing their dependency on instant noodles under the
Maggi brand. This crisis showed how much big effect Maggi has on brand Nestl in India (It
contributes to almost 25% of their total revenues in India). Nestl should try to leverage the
brand Maggi to gain market share in new product categories and try out new products so as to
diversify their risks in case of similar crisis in future.

The important thing here for Nestl is to accept what has happened and try to make amends to
what has happened. We have already seen Indian consumers to be quite forgiving in nature when
it comes to the products/brands they love. There was quite a furore over COLA drinks when
reports of these drinks containing pesticides had broken out. But a decade later, we can still find
these drinks in every household. And Maggi is a brand loved even more in India. So, it would be
safe to assume that people would accept Maggi back albeit Nestl get its campaigns and
marketing right.