Nestlé Group

It is the largest food company in the world, measured by revenues and

other metrics, since 2014. ... Nestlé was formed in 1905 by the merger of
the Anglo-Swiss Milk Company, established in 1866 by brothers Farine
Lactée and Henri Nestlé, founded in 1866 by Henri Nestlé.
Nestlé currently has over 2000 brands with a wide range of products
across a number of markets, including coffee, bottled water, milkshakes
and other beverages, breakfast cereals, infant foods, performance and
healthcare nutrition, seasonings, soups and sauces, frozen and
refrigerated foods, and pet food
But for the analysis of demand and supply we are considering Maggi as a
product of nestle .

ANALYSIS OF MAGGI
Maggi, one of the biggest and fastest growing FMGC product which is
popular leading noodles brand globally manufactured by Nestle. It was
the first to bring the protein rich legume meals to the market. This product
was introduced by julips Maggi 1897.

The company recently introduced new variety of flavours

of Maggi like whole wheat i.e. (Atta noodles) etc. in India
. The company was also very precise their product and
consumers that the noodles contained ‘no MSG’, less salt
and no trans-fat along with taste health precaution was
also the main moto for Maggi.
 DEMAND ANALYSIS-
INTRODUCTION TO LAW OF DEMAND
Law of Demand states that other factors being constant, as the price of a
commodity increases, quantity demanded decreases; conversely when
the price of the commodity decreases, quantity demanded increases. In
ordinary sense, Demand means desire.
We can also elaborate demand of Maggi as:-
DESIRE+ ABILTY TO PAY+ WILLINGNESS TO PAY= DEMAND
Price of “Maggi” (in Quantity Demanded
Rs.) of “Maggi”(in units)
10 50
20 40
30 30
40 20

d
40
Price of Maggi (In Rs)

c
30

20 b

10 a

0 20 30 40 50

Quantity of Maggie (in units)

DETERMINANTS OF LAW OF DEMAND-

• Price.
• Income
• Price of Substitute goods.
• Price of complimentary goods.
• Nature of the product.
• Expectation about the future prices.
• Population.
• Advertisement.
• Taste, habits, preferences, fashion.
• Level of taxation.
• Climatic Conditions.
• Other Factors.

FLUCTUATIONS IN DEMAND-
1. VARIATION IN DEMAND ( PRICE )
• Expansion in Demand- Expansion in Demand refers to rise in
the quantity demanded due to change in price, other factors
remaining constant.
• Contraction in Demand- Contraction in Demand refers to the
quantity demanded decreases due to change in price of the
commodity, other factors remaining constant.

2. CHANGE IN DEMAND ( OTHER FACTORS )

• Increase in Demand- Increase in Demand refers to the rise
in demand due to changes in other factors, price remaining
constant.
• Decrease in Demand- Decrease in Demand refers to fall in
demand due to changes in other factors, price remaining
constant.

EXPANSION IN DEMAND OF MAGGI

Price of Maggi (in RS.) Quantity Demanded(in
units)
20(P1) 10(Q1)

10(P2) 30(Q2)
 D

A
PRICE OF MAGGI ( in RS.)

P1

B
P2

Q1 Q2 QUANTITY OF MAGGI (in units)

 In the above demand curve of Expansion of Demand, the price of Maggie
falls by Rs.20 (P1) to Rs.10 (P2), quantity demanded INCREASED hugely
from 10 units to 30 units.

CONTRACTION IN DEMAND OF MAGGIE

Price of Maggi (in RS.) Quantity Demanded(in
units)
30(P2) 10(Q2)
20(P1) 30(Q1)

D
B
P2
PRICE OF MAGGI in RS.)

A
P1

0 Q2 Q1 QUANTITY OF MAGGI (in units)

In the above demand curve, we have the price and quantity demanded
for Maggie. In the case of Contraction in Demand, the price of Maggi
increases from RS. 20 to Rs.30, then the quantity demanded decreased
heavily from 30units to 10 units.
 INCREASE IN DEMAND OF MAGGI
Price of Maggi (in RS.) Quantity Demanded(in
units)
10(P1) 20(Q1)
10(P2) 30(Q2)

In the below increase in demand curve, the price of Maggi (P1 & P2)
remains constant by RS. 10 whereas the quantity demanded Increased
from 20 units to 30 units, due to change in other factors.

A B
Price of Maggi (in Rs.)

P1

D2
D1

0 Q1 Q2 Quantity of Maggi (in units)

 DECREASE IN DEMAND OF MAGGI
Price of Maggi (in RS.) Quantity
demanded(in units)
10(P1) 30(Q1)
10(P2) 10(Q2)

D1

D2

B
P1 A
Price of Maggi (in RS.)

D1

D2
0
Q2 Q1 Quantity of Maggi (in units)

In the above decrease in demand curve, price of Maggi (P1&P2)

remaining constant by RS. 10, the quantity demanded is
Decreased by 30 units to 10 units, due to change in other factors.
SUPPLY ANALYSIS-
Overview of supply for Maggi noodles:
Law of supply: The Law of Supply states that “other things being equal
(ceteris paribus), lower the price lesser the quantity supplied and vice
versa. It indicates the positive relationship between price and quantity
supplied. The supply curve will be upward sloping.
Listing of the various quantities that the seller is willing to supply at
different prices in a given period of time is called the supply schedule.
If we assume the quantity supplied by the Nestle company in accordance
with its price, it can be shown using a tabular format which is termed as
supply schedule.
The below graphs represent the quantity supplied in normal circumstances

QUANTITY SUPPLIED TO CONSUMER(Per packet of RS10)

6

4
PRICE

0
10 20 30 40 50
QUANTITY SUPPLIED BY A
SHOPKEEPER(Per packet of 1 2 3 4 5
RS10)

QUANTITY SUPPLIED BY A SHOPKEEPER(Per packet of RS10)

 QUANTITY SUPPLIED BY NESTLE(PACKETS)
14

12

10

8
PRICE

0
10 20 40 60 80 100
QUANTITY SUPPLIED BY
1 2 6 8 10 12
NESTLE(PACKETS)

QUANTITY SUPPLIED BY NESTLE(PACKETS)

EXCEPTIONS IN THE SUPPLY OF MAGGI:

• The supply of Maggi was shattered because of the ban on noodles
due to the presence of lead and MSG. It was banned in May 2015
nation-wide, by central government.
Maggi has a market share of 90% in India, until FSSAI imposed wide
national ban on it and today it contributes 53% of the market’s noodles
supply. FSSAI noted some major violations:
1. The label of Maggi was false as it contained MSG.
2. Presence of lead detected in the products in excess of the
maximum permissible levels.
• Also, in the current ongoing pandemic, the demand for Maggi rose
to high extent, but the supply was affected because of shortage of
labours.
“It is natural that in situations like these there are some delays to
delivery of both raw materials and finished goods; this is a public
health emergency situation and our priority is to continue supply
under challenging conditions,” Narayanan , chairman of Nestle, said,
as companies continue to battle the dual issue of a national lockdown
and acute shortage of labour.
DECREASE IN SUPPLY OF MAGGI:
Decrease in the willingness and ability of sellers to sell a good at the
existing price, illustrated by a leftward shift of the supply curve.
A decrease in supply is caused by a change in a supply determinant and
results in a decrease in equilibrium quantity and an increase in
equilibrium price.
Decrease in supply of Maggi has many reasons,
• Though the consumers are willing to buy the product which have
taste but also includes ingredients which are good for health of the
consumer. The demand of Maggi went down due to its ban in year
of 2015 as the reasons are aforesaid results in decrease in supply.
• The second most reason of decrease in supply is due to this COVID-
19 pandemic,
1. Shortage of labours
2. Delay in delivery of raw material and finished goods
3. Less production
4. Transportation problems

INCREASE IN SUPPLY OF MAGGI:

An increase in supply means that at each of the prices there is now
an increase in the quantity supplied.
Since the Maggi ban in 2015, After removal of ban from Maggi, Nestle has
reworked its strategy and again cope up with the supplying market
situations with proper marketing and with increase in production etc. for
increasing the supply of Maggi as it was there one third most contributor
product in selling business amongst all Nestle products.

“In its full-year earnings declaration last week, Nestle had said that
growth of its Zone AOA (Asia, Oceania and Africa) region, at 0.5%, was
“seriously impacted by the Maggi noodles issue in India”.

In June last year, national food regulator Food Safety & Standards
Authority of India (FSSAI) had banned the instant noodle brand on
allegations of higher than permissible lead content and flavour enhancer
monosodium glutamate. The brand, which used to contribute 30% to
Nestle India’s to ..” This was the article posted by ET on 24th Feb,2016.
https://economictimes.indiatimes.com/industry/cons-
products/food/maggi-ban-impact-nestle-india-may-take-3-years-to-
recover/articleshow/51114562.cms?utm_source=contentofinterest&utm
_medium=text&utm_campaign=cppst
ELASTICITY OF DEMAND-
ELASTICITY
Elasticity measures the responsiveness of one variable with respect to
changes in the other variable. The concept of elasticity is used in
production and cost analysis to determine the effect of changes in the
input on the output and effect of output changes on costs.

ELASTICITY OF
DEMAND

PRICE INCOME CROSS PROMOTIONAL

ELASTICITY ELASTICITY ELASTICITY ELASTICITY

PRICE ELASTICITY OF DEMAND

Price elasticity of demand measures the responsiveness of change in
quantity demanded due to change in price meanwhile, other things
remains constant.

PRICE
ELASTICITY OF
DEMAND

RELATIVELY RELATIVELY UNITARY PERFECTLY PERFECTLY

ELASTIC INELASTIC ELASTIC ELASTIC INELASTIC
DEMAND DEMAND DEMAND DEMAND DEMAND

ED>1 ED<1 ED=1 ED= ∞ ED=0

Formula to compute price elasticity of demand is –
𝑷𝑹𝑶𝑷𝑶𝑻𝑰𝑶𝑵𝑨𝑻𝑬 𝑪𝑯𝑨𝑵𝑮𝑬 𝑰𝑵 𝑸𝑼𝑨𝑵𝑻𝑰𝑻𝒀 𝑫𝑬𝑴𝑨𝑵𝑫𝑬𝑫
𝑷𝑹𝑶𝑷𝑶𝑻𝑰𝑶𝑵𝑨𝑻𝑬 𝑪𝑯𝑨𝑵𝑮𝑬 𝑰𝑵 𝑷𝑹𝑰𝑪𝑬
OR
∆𝑸 𝑷
×
∆𝑷 𝑸

PRICE QUANTITY
10 100
15 95
20 85
25 80

If we calculate price elasticity of demand,

∆Q=05, Q=100
∆P=02, P=02/-
120
100
80
60
40
20
0
10 15 20 25

quantity

Putting everything in the above formula we can find the Price elasticity of
demand is less than 1. Therefore we can comment that the price elasticity
of demand is relatively inelastic.
 Y

P2

P1

X
O Q2 Q1

Maggi has been an all-time snack option for all classes of the society. The
brand has made an almost irreplaceable spot in the market and the
customer loyalty also helps it to flourish with a reasonable change in
price. In short run, the demand might fall because of change in price but
in the long run it won’t affect drastically. In popular opinion and also
Mumbai based marketing agency claims Maggi as a third staple for the
country.

INCOME ELASTICITY OF DEMAND

Income elasticity of demand is defined as the degree of responsiveness of
demand for a commodity to a given change in income of the consumer.
 INCOME
ELASTICITY
OF DEMAND

RELATIVELY RELATIVELY UNITARY NEGATIVE

ZERO ELASTIC
ELASTIC INELASTIC ELASTIC ELASTIC
DEMAND
DEMAND DEMAND DEMAND DEMAND

ED>1 ED<1 ED=1 ED=0 ED<0

Formula used to calculate income elasticity of demand is-

𝑷𝑹𝑶𝑷𝑶𝑻𝑰𝑶𝑵𝑨𝑻𝑬 𝑪𝑯𝑨𝑵𝑮𝑬 𝑰𝑵 𝑸𝑼𝑨𝑵𝑻𝑰𝑻𝒀 𝑫𝑬𝑴𝑨𝑵𝑫𝑬𝑫
𝑷𝑹𝑶𝑷𝑶𝑻𝑰𝑶𝑵𝑨𝑻𝑬 𝑪𝑯𝑨𝑵𝑮𝑬 𝑰𝑵 𝑰𝑵𝑪𝑶𝑴𝑬
OR
∆𝑸 𝒀
×
∆𝒀 𝑸
INCOME LOWER MIDDLE UPPER HIGHER
GROUP MIDDLE
DEMAND 2 4 4 6
(PACKS
PER
MONTH)
 7
6
5
4
3
2
1
0
LOWER MIDDLE UPPER MIDDLE HIGHER

Through the graph, we can see with increasing income group, there is an
increase in the consumption of Maggi.
As the income increases for a consumer, there won’t be a relevant effect
on demand of Maggi. Because Maggi is almost a necessity for the
consumer, therefore the increase in income of the consumer will be
allocated to other wants of the consumer.
Therefore, we can say the income elastic of demand is relatively inelastic.
The income elasticity of Maggi is more than 0 and less than 1.

Y D

Y2
10%

Y1
>10%
D

O Q1 Q2 X
CROSS ELASTICITY OF DEMAND

Cross elasticity of demand (XED) measures the percentage change in quantity

demand for a good after a change in the price of another.

XED= % Change in Quantity demand for product A

% Change in Price for product B

WE ARE CONSIDERING HERE THE EXAMPLE OF MAGGIE

POSTIVE CROSS ELASTICITY OF DEMAND-

Positive cross elasticity refers to substitute goods in which if price of A
product increases then the demand for B product increases if price of
tom ramen increases the demand for maggie noodles increases

P2 15

P1 10 P=PRICE OF TOP RAMEN INCREASES BY P1 TO P2

Q=DEMAND FOR MAGGIE RISES FROM Q1 TO Q2

ED >1

100 200

Q1 Q2

XED= % Change in Quantity demand for product A

% Change in Price for product B
 = 100/50

= 2 ED>1

NEGATIVE CROSS ELASTICITY OF DEMAND-

Negative cross elasticity refers to complementary goods in which if price

of a product increases then the demand for b product decreases. If the
price of the Maggi Ketchup, Maggi Tastemaker and other
complementary goods like plastic packaging materials will increase
constantly than the cost of the production will increase and demand will
decrease.

P2 20

P=PRICE OF MAGGIE TASTEMAKER AND PLASTIC

P1 10 Q=DEMAND FOR MAGGIE NOODLES

ED<1

100 150

Q2 Q1

XED= % Change in Quantity demand for product A

% Change in Price for product B
 = 50/100

= 0.5 ED<1

ZERO ELASTICITY OF DEMAND-

Zero elasticity of demand refers to unrelated goods if the price of
product A increase then the demand for B is constant as they are not
related to each other. If price of cake increases the demand for maggie
will not change as the products are not related to each other.

P2 20 D

P1 10 P= PRICE OF CAKE INCREASES BY P1 TO P2

Q= DEMAND FOR MAGGIE REMAINS CONSTANT

ED=0

XED= % Change in Quantity demand for product A

% Change in Price for product B
= 100/0

= NO CHANGE ED=0

PROMOTONAL ELASTICITY OF DEMAND

Promotional elasticity of demand (AED) is a measure of a market's
sensitivity to increases or decreases in advertising saturation.
Promotional elasticity is a measure of an advertising campaign's
effectiveness in generating new sales. It is calculated by dividing the
percentage change in the quantity demanded by the percentage change in
advertising expenditures. A positive advertising elasticity indicates that
an increase in advertising leads to a rise in demand for the advertised
good or services.

ED= Proportionate change in quantity demanded

Proportionate change in advertising price

In the case of Maggie noodles as it is a fairly inexpensive product so a

change in advertising expenditure may lead to quick bump in the sales
for Maggie noodles.

YEAR
QUANTITY ADVERTISING
DEMANDED PRICE

FOR FOR
MAGGIE
MAGGIE

1 1000 50000

2 2000 200000

ED = % change in quantity demanded

% change in advertising price
 = 50/25 = 2
ED>1

So for the maggie it is positive promotional change in demand. Demand

changes at a higher rate than change in advertisement expenditure.

PRICE ELASTICITY OF SUPPLY

Price Elasticity of supply refers to the percentage change in quantity
supplied of product due to a one-percent change in its price. This can be
denoted in an equation form:
Elasticity of supply (Es) = Proportionate change in quantity supplied
Proportionate change in price

A small change in quantity supplied (∆Q)

Original Supply (Q)
= A small change in price (∆P)
Original price (P)

= ∆Q
Q
∆P
P
If the price of maggie increases by 10 percent then there will be increases
the supply of the maggie by more than 10 percent .The resources to
make additional supplies of Maggi are readily available and the total
cost would be minimal to ramp production up or down.

P2 20
10%
P1 10

100 250 x
Q1 Q2

= 150/100
10/10
= 1.5 = 1.5 ES > 1
1
ASSUMPTIONS:-
There are possibilities of change in technology and chances of product
innovations in the long run.
There are possibilities of increasing good quality cadbury
manufacturing units.

TASTE AND PREFERENCES:-

• Family Pack. (super saver, money saver).
• Change in traditional food habits.
• Loved by kids as well as adults.
• Youth quick and odd time snacks.
• Convenience for school going kids as their lunch box.

These factor make Maggi a popular food snack that has ruled heart of
millions for years together.
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