Maggi case

Will Maggi Bounce Back? Would Nestle be able to Leverage the crisis and Gamble
on the Indian Market?

Introduction:

Maggi GMBH was originally founded in 1872 and was into readymade soup and
legume meal market. In 1947, Nestle Inc., a Swiss Company acquired Maggi GMBH
and started to operate Maggi brand separately. It initially operated variety of
products like bouillon cubes, sauces and powdered soups under this brand and
slowly made its way into a new product category, instant noodles.

Maggi made its way into India in 1983. It captured a market share of 90% in the
instant noodles segment in the next 25 years. An online resource even stated that
Maggi noodles was the third most staple food consumed in India after wheat and
rice. Earlier to this, noodles was always supposed to be available only at a few
Chinese joints. Maggi has made the name noodles a household product.

Economic Times once mentioned that What Xerox is to photocopier, and Colgate
to toothpaste, MAGGI is to noodles in India. Economic Times, 2003. The
advertising campaign of Maggi popularized with the image of Maggi Mom was an
instant hit. The phrase two minute noodles connected with the people strongly and
made Maggi a household name. It majorly targeted kids, youth, working
professionals and working women. Quick urban lifestyle is Maggis psychographic
target segment It also introduced many more variants of Maggi like Masala,
Chicken etc. In 2008, Maggi introduced a new advertising campaign running me
and meri maggi which struck the sentimental chord of the households.

The annual Brand equity survey ranked Maggi as the most trusted food brand in
India and 10th most trusted consumer brand in FMCG market. In 2013 its annual
turnover is almost Rs.10000 crores. The total brand equity of Maggi brand is 2.4 bn
$ according to a consumer survrey report. Maggi is one of the very few brands
which has touched Rs.2000 crore mark in India.

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Background
High amounts Lead and Msg are found in tests conducted by FSSAI led to a
countrywide ban on all 9 variants of Maggi noodles.
Food safety commission from Uttar Pradesh first reported that very high amounts
of Monosodium Glutamate(MSG) and Lead are found in Maggi samples collected by
them. Later, New Delhi also issued a ban on sale of Maggi for 15 days due to these
findings until further introspection. It is then followed by a ban in Gujarat and
Assam. Even Big retailers like Future Group and Nilgiris have backed off from selling
Maggi noodles in their stores. Despite all these after events, Maggi tried only to
prove that the findings were wrong. It took very less efforts to gain the trust of the
people over the brand. Multiple authorities from different states have issued a ban
on Maggi due to unacceptable amounts of lead samples found in their variants.
Fssai has ordered a countrywide recall of all Maggi noodle variants all over India.
Later, Central Govt has issued a countrywide ban on Maggi noodles for an
indefinite period.
Nestle kept on maintaining its stand that Maggi is safe for consumption by showing
that the regulators from other countries have approved Maggi from contention and
the content of lead in their samples were well within level. Nationwide ban was
called off later. But by that time necessary damage has been done and Maggi has
decided to keep the product out of the market temporarily.
Entire Controversy in a nutshell:

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Referred from Times Of India, May 13

Role of Food Safety Authority

FSSAI (Food Safety and Standards Authority Of India) is a standard body under
Ministry of Health & Welfare which acts as a regulator in food safety across India. It
has been established under the Food Safety And Standards Act, 2006. FSSAI can
recall a marketed food from distribution, sale and consumption if it is deemed to be
unsafe and violate the provisions of the act and the rules & regulaions under the
act. It has also the right to levy a penalty on the manufacturer if it finds that the
quality is substandard.

Effects of Lead & MSG

FSSAI norms suggest that lead in food products beyond a permissible level renders
the product as very much unsafe and dangerous. FSSAI produced a reference
document prepared by Food Safety Authority of Ireland on the side effects of high
consumption of lead. The report on Mercury, Lead, Cadmium, Tin and Arsenic in
Food (Issue No.1, May 2009 in its Toxicology Factsheet Series) says that, short
term exposure to high levels of lead can lead to brain damage, paralysis, lead palsy
, anemia and gastrointestinal symptoms. Long-term exposure to high levels of lead
result in damage to the kidneys, reproductive and immune systems in addition to
affects on the nervous system. The most critical effect of low-level lead exposure is
on intellectual development in young children and like mercury, lead crosses the
placental barrier and accumulates in the foetus. Infants and young children are
more vulnerable than adults to the toxic effects of Lead, and they also absorb lead
more easily. Even short-term low-level exposure of young children to lead is
considered to have an effect on neurobehavioural development. Consumption of
food containing lead is the major source of exposure for the general population.

Maggis reaction:

Nestle India tried to act victim all the time and defended its products by going into
denial mode. It filed counter petitions against FSSAI doubting the laboratories in
which the experiments were conducted further dilapidated the issue. Though Maggi
maintained its stand that its products were safe, there was a lot of uncertainty
everywhere. They could not properly connect to the people and act at the right
time to dilute the situation. The hue and cry around Maggi is certainly justified as
health of consumers especially children is at stake. Nestle's corporate website
starts with "MAGGI Noodles are completely safe, but Nestle India has decided to

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temporarily take the products off the shelves"! This has further raised doubts on
the brands credibility.

Situation

Biggest concern for any packaged foods company is accusations on its food safety.

For Maggi, the issue of health was already a point of vulnerability and fears about
safety hurt it where it matters. It wont be that easy for a brand to comeback after
such a huge crisis and even if it somehow regains its brand value, it is more likely
that health will be the key focus and Maggi might start fighting about these
concerns for relevance.

Nestle instead of allaying the fears of public that spread like wildfire, chose to
maintain that their products are completely safe only to wait until a ban is served
on them. Had Nestle decided to pull back all stocks of Maggi till further tests are
conducted, it would have costed the company at best Rs 300 crore to Rs 400 crore.
Although its a significant amount, it would be far less when compared to its total
turnover of around Rs 10,000 crore in 2013. Instead Nestle has totally gone into
intricate silence and decided to temporarily call off Maggi.

Comparing this situation with a similar crisis that reputed brands like Cadbury and
Johnson & Johnson have faced earlier and the way they regained the trust of the
people by actively engaging with people & media is definitely a reference for
Nestle India. Despite having such historical references, Nestle India has completely
gone into a denial mode. It instead retaliated to the authorities citing concerns
about the way in which food safety tests were concerned, only to withdraw one of
its lead brands from a market in which it holds a dominant position.

Impact

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Post the ban, Nestle said it incurred a loss of Rs 320 crore due to the recall. Besides
this, the government has also asked the Swiss company to pay a penalty of Rs 640
crore in damages.
Fssai has also faced criticism regarding the fashion in which it acted throughout the
process. Nestle also argued that the food regulator had not served any notice
before ordering a ban. However FSSAI has refuted back saying that it has served a
very long notice to Nestle, to come out of the situation, instead, Nestle chose to do
nothing but refute the allegations by FSSai.

There is also a standpoint that at a time when India is pitching in to promote

companies to setup base in India, all this chaos goes against its larger vision of
making India as a manufacturing and investment hub, However a government
should not act at the behest of any company and should act in the best interest of
its people. Analysts have also felt that the government have overreacted to the
situation and should have given more time to Nestle to come back from the
situation. Make Food Safe India needs a transparent and hassle-free regulatory
environment to spur investment and growth. There is no reason why clearances for
setting up food processing companies should take years. Accountability can only be
fixed through a regulator which works with industry to make food safe.

Way forward/ Recommendations

The recent series of ads that they have been released over the internet vouching a
coming a comeback of the brand has already pulled the attention of many people.
They strike the right chord of the consumers and touches the sentimental
attachment that all the Maggi lovers are associated with the brand. However to eye
a bigger comeback, health and safety should be given a higher priority and
connecting the chord of the audience who have been utterly confused with the
entire fiasco has to be its comeback statement.
The support so far from people in social media has been overwhelming. Maggi is
one of such brands which has occupied a place in every household kitchen and it is
very difficult to distance away from peoples minds.
Many facebook communities and pages have been formed on Come Back Maggi
and people have been sharing their childhood experiences with the brand on these
pages. This shows that consumers are attached to the brand very much and they
see their childhood attached with the brand. So, Maggi has the potential edge to
make a bounce back.

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Nestle must Keep the dialogue constantly with the consumers and show that it
cares for people unlike the earlier scenario. It should try to transform itself into a
brand which is conscious about the health of consumers and regain their trust.
Open dialogue will regain their love. Entire process would have been a lot smoother
had they acted proactively.

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