INTERNAL EVALUATION – CFM COURSE – MMM Sem VI

• Review the case study provided below and answer the questions given at the
end of the case.
• This case-study will count towards internal evaluation
• Use Management Tools to analyse the case as appropriate
• In case you are using any other reference material, please provide detailed
references for the same
• Every group to make a presentation of around 20 minutes with 10 to 15 slides

CASE STUDY - THE MAGGI

NOODLES STORY

INTRODUCTION
Nestlé India Ltd. (Nestlé), the Indian subsidiary of the global FMCG major, Nestlé SA,
introduced the Maggi brand in India in 1982, with its launch of Maggi 2 Minute Noodles,
an instant noodles product. At that time, Indian consumers were thought to be rather
conservative in their food habits, preferring to eat traditional Indian dishes rather than
canned or packaged food. Nestlé in fact, was trying to create an entirely new food
category, instant noodles, in India. In July 2001, Maggi replaced Nescafé (Nestlé's
coffee products brand) as the company's core brand. Nescafé had been Nestlé's core
brand since 1998.

It extended the Maggi brand to a range of cooking products like soups, sauces and
ketchups and cooking aids among others. In May 2006, Nestlé launched a new instant
noodles product called Maggi Dal Atta Noodles under the popular Maggi brand. Nestlé
made use of the group's extensive research and development facilities in developing
this new 'healthy' product. The Dal Atta Noodles were made of whole wheat and
contained pulses, and positioned as a 'healthy' instant noodles product that provided
20 percent of the daily recommended dietary allowance (RDA) of dietary fibre and
protein for a child aged between 7 and 9.
Previously, during the 1990s, the sales of Maggi noodles had declined, and this was
attributed partly to the growing popularity of Top Ramen, another instant noodles
product. In order to improve sales and attract more consumers, Nestlé had changed
the formulation of Maggi noodles in 1997. However, this had proved to be a mistake,
as consumers did not like the taste of the new noodles. In March 1999, Nestlé had
reintroduced the old formulation of the noodles, after which the sales revived.

MAGGI AND ITS INITIAL PROMOTION

Initially, the company targeted working women on the premise that Maggi noodles
were fast to cook. However, this approach failed as was evident from the fact that the
sales of Maggi noodles were not picking up despite heavy media advertising. To get
to the root of the problem, Nestlé conducted research, which revealed that it was
children who liked the taste of Maggi noodles and who were the largest consumers of
the product. After this, Nestlé shifted its focus from working women and targeted
children and their mothers through its marketing. The product was aggressively
promoted through several schemes like distribution of sample, free gifts, inside Kids
games, gifts on the return of empty packs, etc. It advertised too much to convey the
benefits of the product to the customers.

Through advertising, the Maggi was positioned as a fun food for kids which mothers
can easily cook.

Ads which went

“Mummy, bhookh lagi hai”

“Bas 2-Minute”

And the “Fast to Cook Good to Eat” tagline effectively communicated message
amongst the consumers to consume the Maggi Noodles when they are feeling hungry.

Several studies showed that the ads were popular and the tagline “Bas 2-Minute” were
sustained in the minds of the Indian consumers even several years after the ads were
taken off the TV. Its first product extension was Maggi instant soups launched in 1988.

Martial Rolland, chairman and managing director, Nestlé India Ltd. in 2006, rightly said
that the Maggi has managed to enter Indian homes to change the traditional food
habits of Indian children on their promise of convenience. This brand had understood
the psychology of Indian mothers and positioned itself for mother-child indulgence.
OTHER BRANDS AT NESTLÉ
Nestlé prides itself on continuously focusing its efforts to better understand the
changing lifestyles of India and anticipate consumer needs in order to provide Taste,
Nutrition, Health and Wellness through its product offerings. The culture of innovation
and renovation within Nestlé and access to the Nestlé Group's proprietary
technology/Brands expertise and the extensive centralized Research and
Development facilities gives it a distinct advantage in these efforts. It helps Nestlé to
achieve international quality under internationally famous brand names such as
Nescafé, Maggi create value that can be sustained over the long term by Nestlé India.

It also manufactures products like, Milkybar, Kit Kat, Bar-One, Milkmaid and NesTea
and in recent years Nestlé has also introduced products of daily consumption and use
such as Nestlé Milk, Nestlé Slim Milk, Nestlé Dahi, and Nestlé Jeera Raita. Nestlé
India is a responsible organisation and facilitates initiatives that help to improve the
quality of life in the communities where it operates, offering consumers a wide variety
of high quality, safe food products at affordable prices.

After more than a century-old association with the country, today, Nestlé India has
presence across India with 8 manufacturing facilities and 4 branch offices. Nestlé India
set up its first manufacturing facility at Moga (Punjab) in 1961 followed by its
manufacturing facilities at Choladi (Tamil Nadu), in 1967; Nanjangud (Karnataka), in
1989; Samalkha (Haryana), in 1993; Ponda and Bicholim (Goa), in 1995 and 1997,
respectively; and Pantnagar (Uttarakhand), in 2006. In 2012, Nestlé India set up its
8th manufacturing facility at Tahliwal (Himachal Pradesh).
NESTLÉ PERFORMANCE AND PRODUCT MIX
Nestlé performance.

Product mix within Nestlé was as follows.

Maggi as a brand has presence in 130 countries with 5.2 billion Maggi noodles packs
sold across the world every year, has gross Domestic sales of Nestlé (Rs. 10,129
Crore in 2014) in India and Rs. 2,961 crores as Gross Domestic sales of Nestlé
Segment which mostly comprises of Maggi in 2014.

Noodles market the world over has been a lucrative one and Maggi had a significant
market-share in the Noodles market in India.

COMPETITION
In the three decades since introduction, Maggi had grown dramatically, mostly
because it did not have any serious competition. Maggi had grown exponentially to
become a generic brand, and had single-handedly taken the instant noodles category
from being almost non-existent to a Rs. 1,200 crore one, of which it had, as per
industry estimates, a 70% share, approximately.

Initially Maggi only had to face competition from the Japan based Nissin Group’s ‘Top
Ramen’, and the Nepal based CG Foods ‘Wai-Wai’ Noodles. Wai-Wai was restricted
to the eastern market of West Bengal and Sikkim, where it controlled 70% of the
market. Its strategy was to first build-up the distribution network, which it successfully
did, the brand was available on the shelves of super stores, as much as in the local
Kirana stores. It was then that they started building the brand. Top Ramen, on the
other hand, was aggressive in its marketing; it even roped in Shah Rukh Khan as the
brand ambassador, but failed to get its distribution network in place. The brand had
entered into a distribution tie-up with Marico, the owners of Saffola and Parachute.
Wai-Wai was also working towards a national presence. CG Foods’ which had
manufacturing units in Assam and Sikkim, set up a new plant in Rudrapur, in
Uttaranchal, and was also looking at acquiring a FMCG company in the South or West
India. Top Ramen also moved to set up its own distribution network, besides hiring a
new agency Dentsu, to give it a fresh marketing push. The brand planned to launch
itself with a new look and a new taste.

However, the year 2010 saw a sudden spurt in the instant noodles category. Two
major FMCG players, GSK and ITC, decided to venture into the market, almost 20
years after Nissin Group's Top Ramen had decided to try its luck. GSK launched
Foodles, while ITC launched Sunfeast Yippee. Unilever, too, tried to create some
competition with Knorr Soupy Noodles.

One reason for the spurt in this category was that it was still growing at the rate of
23%. While it was true that consumers, both in the urban and semi-urban markets are
aware of instant noodles, the markets in the hinterland and interiors are yet to be
tapped and that provides a huge scope for growth. The category was yet to penetrate
into the Indian hinterland. The other reason for the growth is that the profit margins in
the instant noodles category were very high. This was a lucrative proposition for
companies such as GSK and ITC, which were looking to diversify into other categories.
THE BAN: HOW MAGGI TWO-MINUTE NOODLES LOST
80% MARKET SHARE
Then, lightning struck. In the autumn of 2015, in its 103rd year in the country, and the
cookie crumbled.

Maggi 2-Minute Noodles, a brand it built over three decades in India and loved by
hikers, hostellers and housewives alike, was being banned! That June, the national
food safety regulator had banned the sale of Maggi noodles and directed Nestlé to
withdraw the product. As the flagship product went up in flames—38,000 tonnes,
literally—Maggi-branded jams, ketchups and beverages too took the heat. From
commanding 80% share of India’s noodles market, (as estimated by Nomura
Securities in May 2015) Maggi went down to zero in just a month.

It all began when a food inspector at the Uttar Pradesh government’s Food Safety and
Drug Administration, who spotted the label that claimed “no added MSG (monosodium
glutamate)" on the bright-yellow packets of Maggi noodles in March 2014 during one
of his routine raids on retail outlets. The inspector picked up a sample and sent it to
the state laboratory at Gorakhpur for testing. The result that came a few weeks later
was positive—that particular sample of Maggi noodles had MSG. Samples of Maggi
noodles were then sent to the Central Food Laboratory in Kolkata in June 2014. The
results that came after almost one year in April 2015 read: “MSG: Present and Lead:
17.2ppm (parts per million)". The amount of lead found was over 1,000 times more
than what Nestlé India Ltd had claimed.

The Uttar Pradesh food safety commissioner sent a formal notice to Nestlé seeking
clarification on presence of MSG and lead in Maggi samples. The company did mail
its response along with its internal monitoring documents on 5 May 2015, but did not
take any proactive step to counter any possible aftershock.

A check of Nestlé’s internal records showed no irregularities. So Nestlé India prepared

a stack of its internal monitoring documents and mailed a response to the Uttar
Pradesh food-safety officials on May 5. The company advised the state regulator that,
based on its review, no further action should be taken in the case.

In retrospect, it was a stunningly dismissive reaction—and one that would provide a

blueprint for more drama to come. Because of Nestlé’s inherent confidence in its own
processes and data, it couldn’t imagine that it might have a problem on its hands. That
attitude of detached if polite superiority would irritate officials and exacerbate Nestlé’s
problems, especially when the Indian press got wind of the story. On 7 May, there was
a small news item on the episode in one of the Hindi newspapers in Uttar Pradesh.

Still, Nestlé did not react. It never thought the news could lead to an estimated half a
billion-dollar loss for the company (including erosion of brand value) that would shake
the Swiss multinational and that the subject would be debated at length in television
studios.

Nestlé failed to gauge the depth of the crisis even after national newspapers started
writing about it. It did not issue any statement till 21 May. And in its first official
statement, it said there was “no order to recall Maggi noodles being sold" and the
popular instant noodle was “safe to eat".

Interestingly, Nestlé could have settled the issue according to the law under the
regulations with the Uttar Pradesh food safety department by paying a penalty of Rs.
3 lakhs as the Maggi sample contained MSG even though the pack said it didn’t,
making it a punishable offence.

On 5 June 2015, the day FSSAI asked Nestlé to recall Maggi noodles, the company’s
global chief executive Paul Bulcke met the regulators, and addressed the media in
New Delhi. Bulcke said: “This is a matter of clarification and we need to sit down
together and clear the air… We will look into the safety concerns. We do not add MSG
in Maggi noodles… We apply the same quality standards everywhere. Everything we
do is keeping consumers in mind. We will do everything it takes, and are fully engaged
with the authorities."

But by then, things had spun out of control. Nestlé was left with little choice but to recall
the popular noodles from the market.
• On 3rd June 2015, the New Delhi Government banned the sale of Maggi in New
Delhi stores for 15 days due to these findings.
• On 4th June 2015, the Gujarat FDA banned the noodles for 30 days after 27 out
of 39 samples were detected with objectionable levels of metallic lead, among
other things.
• Assam had banned sale, distribution and storage of Maggi’s “extra delicious
chicken noodles” variety for 30 days since 4th June 2015 after tests carried out at
the state public health laboratory concluded the particular variety to contain added
MSG and excessively high lead content.
• Some of India’s biggest retailers like Future Group which includes Big Bazaar,
Easyday and Nilgiris also imposed a nationwide ban on Maggi.
• On 4th June 2015 the Government of Tamil Nadu also banned Maggi due to
unacceptable amount of lead and other components.
• On 5th June the Andhra Pradesh Government Banned Maggi.
 • On 5th June 2015, Food Safety and Standards Authority of India (FSSAI) ordered
a recall of all nine approved variants of Maggi instant noodles and oats masala
noodles from India, suggesting them unsafe and hazardous for human
consumption.
• On the same day, Food Safety Agency of United Kingdom launched an
investigation to find levels of lead in Maggi noodles.
• On 6th June 2015 the Central Government of India banned nationwide sale of
Maggi noodles for an indefinite period.

Between 5 June and 1 September 2015, Nestlé teams collected 38,000 tonnes of
Maggi noodles from retail stores, and destroyed them by first crushing the noodles
and then mixing them with fuel and burning in incinerators at 11 cement plants across
the country.

THE EFFECTS OF THE BAN

Enraged consumers wasted no time venting their anger. In some cities protesters in
the street smashed and set fire to packs of noodles and photos of Bollywood stars
who were paid Maggi endorsers. 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 rage about this issue also spilled over to social media and an unending inflow of
tweets, messages, posts etc. on various social media channels started. The influx
continued over a long period of time and displayed variegated opinions. While most
people felt the ban was important, considering the harm it can cause to one’s health,
others still stood by the fact that they chose delicious taste and easy cooking over
good health.

As of 8th June 2015, a total of 4.43 lakh mentions happened via social media, with
more than 60% of the sentiment being negative. Some analysts felt this showed the
wrath of people towards Nestlé for its demeaning behaviour.
Twitter contributed the maximum number of conversations, a total of 4.37 lakh
conversations were received from twitter alone.

It was not just the people talking about it, but a number of media houses also took to
social media to express their opinions. Some of the influential media houses being
Zoom TV, Mashable, First Post and Hindustan Times, the situation became a little
more tense. What also made it worse was the fact that well known celebrities also
used the social media platform to talk about this disaster.

After the final decision of banning Maggi noodles all over India, the retail giants took
immediate steps to clear their shelves. This has increased the visibility of other noodle
brands, as a number of people were found talking about alternatives for Maggi as well.
The ban on Maggi went on to become the perfect time for newer players to enter the
category. They just needed to launch a good tasty product, and work on its distribution.
FINANCIAL IMPACT
The Maggi meltdown would prove costly. Nestlé lost at least $277 million in missed
sales. Another $70 million was spent to execute one of the largest food recalls in
history. Add the damage to its brand value—which one consultancy pegged at $200
million—and the total price tag for the debacle was estimated to be more than half a
billion dollars.

Nestlé’s stock price took a major hit as did their revenue and profit numbers. One
strange side-effect was that the size of the instant noodles market itself fell down with
the ban on Maggi. It was as if, faced with the prospect of Maggi not being available,
people decided not to eat instant noodles themselves. Such was the brand association
of Maggi with this category.
Struck by exceptional item charge of Rs. 451.6 crore on account of withdrawal of
stocks of Maggi noodles, Nestlé India reported a net loss of Rs. 64.40 crore for the
second quarter ended June 30, 2015, its first quarterly loss in at least 17 years. This
came on the back of a net profit of Rs. 287.8 crore in the corresponding quarter last
year and a profit of Rs. 320 crore in the previous quarter ended March 2015. This loss
was mainly due to ban on Maggi as it accounted for close to 20 per cent of Nestlé
India’s revenue.

The Maggi controversy not only impacted the profits but also the revenue of the firm.
Nestlé India reported 20.1% decline in net overall sales during the quarter. The net
domestic sales decreased by 20.6%. This came as a setback to the firm that registered
record profits in the last few quarters. While the company’s net profit crossed Rs. 300
crore mark for the first time in September 2014, it hit an all-time high of Rs. 326 crore
in December.

In addition to loss of sales from the business disruption, net sales worth Rs. 288.4
crore had been reversed during the quarter in relation to Maggi noodle stocks already
sold and withdrawn from the market.

THE BIG QUESTION – WAS THERE LEAD IN NESTLÉ’S

NOODLES?
The widest, most puzzling, and most important divide in the Maggi affair is over that
seemingly simple question. Several state governments in India tested Maggi samples
and reported elevated levels of lead. Nestlé ran its thousands of tests and declared
that no problem existed. Who was right?

Many Indians, including professionals with knowledge of the food industry, continue to
suspect that there was something wrong with Maggi. They find it hard to fathom that
so many government tests could be wrong, and they suggest the food giant got a little
sloppy in one of its factories, where lead-contaminated water or raw material or old
equipment—possibly combined with the lax oversight of contract workers—caused the
problem.

In the absence of a definitive answer, the next best thing would be a legal ruling and
the matter went to court, specifically the High Court of Bombay.

On June 30 the High Court of Bombay offered Nestlé some relief: It allowed the
company to resume manufacturing Maggi for export. Singapore and Australia had
already pronounced the noodles safe for sale and consumption; Canada, the U.K.,
and the U.S. would do so as well in the following weeks.
Finally, on Aug. 13, the High Court of Bombay delivered its judgment in the case. In a
ruling that was unusually long—145 pages—the court sided with Nestlé. It overturned
the ban, declaring that the FSSAI had acted arbitrarily. The judgment allowed Nestlé
India to resume sales of Maggi, on the condition that another round of samples—90 in
all—be tested for lead and cleared in the following six weeks by three labs accredited
by the National Accreditation Board for Testing and Calibration Laboratories.

THE RELAUNCH
The relaunch of Maggi was scheduled for Monday, Nov. 9—five months and four days
after the government ban, and an auspicious day in India known as Dhanteras. The
first day of Diwali, the Hindu festival of lights, it carries associations of well-being and
prosperity.

Nestlé India was eager to build demand after the product’s months-long absence from
shelves. The company’s marketers began with young people, who had proved a
forgiving and fiercely loyal fan base; they had been clamouring for Maggi’s return
practically since the trouble began, and for them Nestlé launched a #WeMissYouToo
campaign on YouTube. To court mothers, it got real moms to give video testimonials
about why they still trusted Maggi.

For symbolic reasons Nestlé delivered the product as widely as possible on day one.
Trucks loaded with instant noodles and festooned Indian-style with colourful tassels
and decals rolled out just after midnight. The “No Added MSG” label on the packages
had been replaced by a new logo reading “Our commitment to goodness you can
always trust.” There were Maggi-eating celebrations at Nestlé sites across the country.

By the end of 2016, Maggi was firmly back as the market share leader in the instant
Noodles category.
Meanwhile, Nestlé has a wily new competitor in the noodle market. A week after the
Maggi relaunch, Baba Ramdev introduced his new Patanjali noodles. They’re made
from atta, a “healthier” whole-wheat flour, and cost 10 rupees less than Nestlé’s Maggi
equivalent. As the robed guru whipped up a batch for media onlookers in a Delhi mall,
he noted that Patanjali’s product was lead-free and MSG-free.

LEARNINGS
When asked about the debacle and their handling of the crisis, CEO Bulcke and his
team acknowledge that they didn’t play the Maggi crisis perfectly. But they defend their
decision-making generally—particularly the choice to privilege communication with
regulators over reaction to the media.

For one of the world’s largest consumer-facing companies, Nestlé operates at a

surprising remove, beginning with its geography. “The Centre”—as its global
headquarters is known—is not near a major hub but in Vevey, a sleepy town of 18,000
on the northern shore of Lake Geneva.

Other than through its marketing, Nestlé hasn’t traditionally engaged much with the
wider world. It doesn’t generally seek media attention, and its communications
department is tiny relative to its size. Until three years ago, Nestlé didn’t have a
centralized PR team in the U.S., its largest market.

Chalk it up partly to a natural Swiss reserve, but Nestlé’s aloofness also has to do with
the long shadow cast by the company’s notorious baby formula scandal. In 1974 a
non-profit called War on Want published a 12-page pamphlet called The Baby Killer
that excoriated the formula industry for its marketing tactics. In pushing their products
over breast-feeding, the document alleged, companies like Nestlé had led to the
malnourishment and deaths of countless “third world babies.” The entire industry was
targeted, but Nestlé, as the largest formula company, took the biggest hit. A high-
profile boycott of Nestlé’s products ensued. The company tried many things to stem
the criticism, to little avail.

During the past decade Nestlé has embraced a version of corporate civic duty that is
in keeping with its reserved culture: creating shared value, or CSV. The philosophy is
that building a sustainable business naturally generates positive social by-products.

When it comes to the Maggi crisis in India, Bulcke and team talk about how they
managed the crisis with long-term rather than short-term outcomes in mind. Nestlé
has been in India for 100 years, Bulcke stresses, and it wants to be there 100 more.
You can’t achieve that in a country if you blow up your relationship with the regulators.
In any case, the global giant was given an important lesson in the unpredictability of
one its most promising growth markets.

SOME INTERNAL SOUL SEARCHING A YEAR LATER

It’s June of 2016, a year after the crisis. At the “Centre”, Nestlé SA’s global
headquarters in Switzerland’s picturesque Vevey, the global company’s board and
management are trying to finalize a three-year strategy for the India market. Maggi,
which returned to shelves in November, has since reconquered 57% of the market, a
far cry from its heydays, but a major fightback still.

“What’s at stake if we don’t take any action?"

The question was directed at 56-year-old Suresh Narayanan, chairman and managing
director of Nestlé India. The rest of the day, Narayanan briefed the top management
on what Nestlé should do in India over the next four years to ensure a safer future.
According to Narayanan, the company is looking at entering new business segments.
That’s some change for the company, which stepped out of its comfort zone last in
1990 when it launched chocolates.

Narayanan wants to push what he calls “motion initiatives", or initiatives that will help
the company grow faster, that will gradually ensure the company’s portfolio is a lot
more “balanced beyond the 30% dependence" that it has on Maggi today. But Maggi
is an important flagship for the company. The primary topic at Vevey even on the final
day of the strategy meet was on how to restore Maggi noodles to its former glory in
terms of market share, volume and trust.
Nestlé’s concern is understandable. In the three decades since it launched Maggi
noodles in India in 1983, Nestlé had a smooth journey. Growth was steady— Maggi
noodles earned 29.23% of Nestlé India’s total sales in 2014, more than double the
revenue share in 2001. Given the steady growth, the company even stopped looking
at new segments or product categories. Maggi reached every nook and corner of the
country—from remote villages in the plains to mountain ranges 18,000-ft above sea
level, to become the most popular packaged snack in India.

Enter new categories, build a balanced portfolio to reduce dependence on a single

product, focus on health and nutrition, increase penetration in top towns, beef up
advertising, and, most importantly, communicate much more with the consumers
directly: that was the crux of what Narayanan returned with from Vevey.

CURRENT SCENARIO
Nestlé India's instant noodles brand Maggi has attained over 60 per cent market share
and almost touched the pre-crisis level in value terms, said a top company official.
However, volume-wise Maggi is still away from the pre-crisis period, when Nestlé used
to dominate the market with 75 per cent market share.

"We are little over 60 per cent (market share). In business terms, we are almost back
to where we were (in terms of pre-crisis). In value terms, we are almost back there,"
said Nestlé India Chairman and Managing Director Suresh Narayanan.

He further said, "We still have some time to catch up that pre-crisis volume." Presently,
Maggi contributes around one-third of the total sales of the company. "Total
contribution from the prepared foods (Maggi and Maggi franchise) is about 30 per
cent," said Narayanan.

Nestlé India had crossed the Rs 10,000-crore sales mark in 2017.

QUESTIONS:

1. What role did perception play (if any) in blowing the crisis out of proportion?
What could Nestlé have done to manage this perception better? Enumerate the
factors that were in Nestlé’s favour and against Nestlé.
2. What were the Cultural factors (specific to the Indian market) that played a role
in precipitating this crisis and thereafter in aiding Maggi’s comeback?
3. What would a SWOT analysis of Maggi at the time of relaunch look like? What
strategies did Nestlé adopt to relaunch Maggi and regain the confidence of the
customers? How did the 4P composition for Maggi change after the crisis?
4. What strategies did/could Nestlé adopt to compete with the existing and new
competitors who have entered the market? What strategies did/could Nestlé
adopt to regain the loss which they incurred the period of ban?
5. What strategies did/could Nestlé adopt to rebuild its image in the Indian market?
What are the commonly encountered issues involved in sustaining the image
of a popular brand?
6. What do you understand by Brand Repositioning? What attributes of a brand
are typically considered while repositioning a brand? Do you know of any other
brands that have repositioned themselves – either out of choice or out of
compulsion?
7. Describe Maggi the brand from the perspective of
a. Nestlé
b. Its customers
c. Its competitors