Effect of various

environmental forces on
Maggi Controversy

BUSINESS ENVIRONMENT MINI PROJECT

Submitted By: Submitted To:

Tanvi Agarwal Prof. Swagat Mishra

Preety Lata Assistant Professor,
Ankita Singh Economics
Ajay Kumar
Rajat Tripathi
Shashank Pareek
 INDEX

S. No Topic Page No.

1 Abstract 2

2 Introduction 3

3 Literature Review 4-6

4 Data and Methodology 7

5 Findings and Discussions 8-14

6 Conclusion 15

7 Appendices

7.1 Consumer Questionnaire 16

7.2 Retailer Questionnaire 17

7.3 Online return form 18

7.4 Online query questions 19

7.5 Financial Statement 20

8 References 21
 Abstract
Nestle India ltd., the Indian subsidiary of the global FMCG major recently faced the
controversy regarding Maggi which resulted in its pan India ban on 5th June 2015 by
FSSAI.

The excess content of lead and added MSG in Maggi found by a food Inspector at FDA
lab of Barabanki District, UP led to the ban. Till today , it is bizarre for the people of
India as Maggi was one of the leading brands and was highly consumed by everyone.

This case looks at the various environmental forces acting on Maggi.Its specifically talks
about the legal and socio cultural aspect of the environment.

The legal aspect deals with the legal issues which show how it affects the financial
performance of the company. It further discusses the use of social media and the cultural
impact of Maggi controversy on its various stakeholders.

Keywords: Nestle, Maggi, Controversy, Impact, Environmental forces, Financial, Socio -

Cultural, Stakeholders.

2
 Introduction
The Maggi brand, which came into existence in Switzerland in 1872, and came into the
Nestle fold in 1947, had products ranging from soups and noodles to sauces and
seasonings. In India, it was launched in 1982-83.

Today, after 32 years, it ranks amongst the most recognised brands, almost synonymous
with instant noodles. While it cannot really fade away from memories -- nor will Nestle
allow it -- salvaging the trust will also require pro-active action by the firm.

It is not just about the quality of products. It is also about the lackadaisical regulatory
approach to food safety standards and their implementation. The fact that the FSSAI was
formed as recently as in 2006, and the rules were enacted only in 2011 - Food Safety and
Standards (Food Products Standards and Food Additives) Regulations, 2011 and Food
Safety and Standards (Contaminants, Toxins and Residues), 2011 - speaks volumes.

Affected by a countrywide recall and destruction of its instant noodle brand, Maggi,
Indias largest food company by revenue, Nestl India, posted its first quarterly loss in 17
years.

Rise in the popularity of digital media has resulted in social media being used not only by
individuals for networking purposes but also by brands for activities like promotion,
starting conversations, discussing controversy and maintaining public relations with their
customers and followers. Social media channels like Face book, Twitter etc. are flooded
with brands and their posts competing for attention in the otherwise cluttered newsfeeds
and timelines which also include the Maggi controversy.

According to Simplify 360, a social media monitoring product, the Maggi crisis generated
a total of 4.43 lakhs conversations on social media. June 5th saw more than 76K
conversations with more than 19K average conversations per day. With 4.37 lakhs
conversations, Twitter contributed the maximum to the controversy.

Around 1,500 workers involved in manufacturing of Maggi have been 'impacted' by the
stoppage of production after ban of the instant noodles brand. Besides suppliers, retailers
have also been hit by the Maggi ban. Nestle India's largest supplier of spices, Mega-based
Pares Spices Ltd, has also ended services of "some workers" out of the 200 temporary
employees it had.

Objectives

1. Role of FSSAI in Nestls Loss.

2. Role of social media in Maggi controversy and the impact of controversy on its
retailers .
3
 Literature Review
Regarding Objective 1:

Nestls loss

As per an article published in Economic times on 09 July 2015 written by Saubhik

Chakrabarti Nestle India has suffered around INR 12000 Crores due to ban on Maggi
which can be classified under four broad heads : Direct business loss. Brand value loss.
Stock price loss. And the cost it will incur in relaunching Maggi.

Role of FSSAI in Nestls loss:

An excerpt of court room conversation on Maggi Ban was published in The Indian
Express on 29 July 2015. In which Bombay High Court asked the Food Safety and
Standards Authority of India (FSSAI) if it was influenced by information on the internet
while ordering a ban on Maggi noodles. As Mehmood Pracha appearing for the FSSAI,
submitted several reports stating that he downloaded them from the internet.

Nestle argued that the CEO of FSSAI, while passing the order, had acted in an emergent,
drastic and arbitrary fashion. Nestle also argued that the food regulator had not served
any notice before passing the ban order.

The Bombay High Court also asked if Indias food regulator had found non-permissible
levels of lead in three variants of Maggi noodles, then why it banned all the nine variants
of the product. The high court also observed that of the 72 samples tested by the food
authority, 30 were found to have high levels of lead. In such a scenario, wasnt it
necessary to give them (Nestle India) time to give explanation? said Justices V M Kanade
and B P Colabawalla.

4
Regarding Objective 2:

What is Maggi doing online?

The Face book page and Twitter handle of Maggi India have been busy ever since news
of the controversy broke.
On their Face book page named, Meri Maggi several posts have been uploaded.
One of the posts dated 19 May had a caption that read Message from MAGGI
http://www.nestle.in/info/message-from-maggi. Link in the caption directs the user
to a press release titled No order to recall MAGGI Noodles being sold.
Another post which was uploaded on 21 May read, Dear Fans, your favourite
MAGGI Noodles being sold in the market has not been recalled. Link in the
caption directs user to the same press release. This post has more than 50 thousand
likes as on 7 June 2015.
Another post took ten days to come and read, Extensive testing reveals no excess
lead in MAGGI Noodles. Link in the caption directs the user to a press release
titled MAGGI Noodles and lead concerns. This post has more than 60 thousand
likes as on 7 June 2015.
A post was uploaded on 4 June which read, Here is what you need to know. Link
in this caption directs user to the About us section of the Nestle website. Here, the
user can find answers to the nine questions (Appendix 4):
This particular post is also promoted as it has 845 retweets and is a favourite of 586
users (as of 7 June 2015). Number of followers too has surged from 35.9K on 3 June to
36.8K on 7 June.

Online channels were flooded with jokes and memes mocking the crisis and also
aggravating it to some extent.
One of the headlines on the First post news website read, The two-minute death of
India's favourite noodle brand.
One of the tweets by one Sneha Nambiar who goes by the Twitter handle
@drsnehanambiar read,"Et, tu #Maggi ?",#MaggiInASoup#Nestle#NestleIndia
Another tweet by one Cartoon Corner @cartoon corner mocked both Maggi and
Indian spiritual and yoga guru Baba Ramdev. The tweet read, Breaking #Nestle
India controversy over #Maggi has made #BabaRamdev happy as he is ready to
launch #Patanjali Herbal Noodles(First post Staff, 2015)
These were only a few of the many tweets, posts, memes, and jokes that made the
rounds on social media. Several hash tags like #Maggi, # MaggiBan,
#MaggiInASoup, #MaggiKeSideEffects were trending on Twitter for a few days.
 An online debate was held on the question, Whether action should be taken against
actors who have endorsed Maggi in the past? Some were for it, others were against
but the controversy kept blazing on the internet.
The Twitter handle @MaggiIndia is a lot busier than the Face book page. The
number of tweets by Maggi India is 2722 (as of 7 June 2015). A large amount of
these have come in the last couple of weeks. To give an idea about the frequency
of tweets from Maggi Indias official Twitter handle, the number of tweets was
2407 at 23:55 hours on 3 June 2015. 315 tweets were made between 3 June and 6
June, 2015.
All questions on the MAGGI Noodles issue were being answered
at http://bit.ly/1Fs6xVx. A request was made to share this information with ones
friends & family.
A total of 4.37 lakhs conversations on social media with 61% negative
sentiment

Maggi, which has a market share of nearly 75% in the noodles segment, was an absolute
must on retail shelves and any shortage would create a panic, inventory would barely last a
week.

Worried over the inventory pileup as well as possible legal liabilities, the All India
Consumer Products Distributors Federation has approached Nestle for financial
support."We have sent a letter to the company to cooperate with the distributors or we will
call up all the stocks from the market and resend it to the company as our distributors are
at risk financially and as well legally. Distributors whose products have been seized have
been labelled as party No 1 and cases filed against them too.

6
 Data and Methodology
Regarding Objective 1:

Methodology : To evaluate the losses of Nestle we are considering only direct business
loss and Stock price loss .

Data Collection and Specification

To understand the role of FSSAI in Nestls loss we have conducted In-depth interview
and to calculate loss of Nestle we have taken secondary data from companys quarterly
results and stock exchange in which company is trading.

Regarding Objective 2:

Methodology and Data Collection :

A survey was conducted on fifty respondents from the city of Bhubaneswar. They were
chosen using purposive sampling and varied in age-group from eighteen to forty-eight
years.
They were asked the following questions (Appendix 1 & Appendix 2):

1. Have you heard about the Maggi controversy?

2. How often did you consume Maggi before the controversy?
3. What were the sources of information of Maggi Controversy
4. Is there any change in the consumption pattern of Maggi after the controversy until
it was completely banned ?
5. If Maggi steers its way through this crisis and is available in the market again, will
your consumption pattern be the same?
6. Was majority of your earning from Maggi and its related products?
7. If yes, what is your source of livelihood at present?
8. If no, does the controversy affect your shop?
9. Has company taken any action that benefits you ?
10.Are you in favour of selling Maggi again at your shop, if you are allowed to do so ?

7
 Findings & Discussions
Regarding Objective 1:
Net Sales from Operation of Nestle India

A closer look at the numbers on Nestls operations reveals how Maggi dents its top line.
Among the four divisions of Nestle India, the category of "prepared dishes and cooking aids", which
broadly translate into Maggi, accounted for 31.5 per cent of sales in 2014, as per the last presentation the
company made before analysts.
Among the remaining divisions, the category of "milk products and nutrition" had the largest share of
47.1 per cent, followed by 12.2 per cent for "chocolates and confectionery" and 9.2 per cent for
"beverages".
The Maggi unit saw a 1.8 per cent increase in volumes in 2014 over the previous year and 8.1-per cent
rise in value at Rs 21.4 billion. "Value of market share is stable at 80 per cent in noodles. Good response
to Maggi oats noodles. Strong performance of fortified seasoning," it said.

Net profit /Loss of Nestle over 5 quarterly results

Quarter Profit/Loss
Jun 2014 287.86
Sept 2014 311.29
Dec 2014 326.29
Mar 2015 320.28
June 2015 -64.40

Quarter EPS
Jun 2014 29.86
Sept 2014 32.28
Dec 2014 33.85
Mar 2015 33.22
June 2015 -6.68

8
Stock loss

Nestl India's market cap loss from last week of May , when the controversy hit headlines, to closing
price on July 6 was 9,319 crore.

Outcome of In-Depth Interview on Role of FSSAI in Nestles loss:

Maggi was pronounced unsafe by a food quality inspector in Uttar Pradesh based on test result of
Lab which was not accredited by FSSAI.
 Nestle Indias lawyer Iqbal Chagla had questioned the validity of the tests as the government labs
were not equipped to conduct the tests as they were not accredited by NABL to test either for lead
or cereals and spices used in the product.
FSSAI announced Ban on Maggi on mere suspicion and based on report available on internet.
Anil Singh, additional solicitor general representing FSSAI, told the two-judge bench, citing
various sections of the FSSAI Act 2006 that The Food Safety and Standards Authority of India
(FSSAI) began its arguments in the ongoing Maggi ban case before the Bombay high court on
Wednesday by saying it can act against products even if there is mere suspicion that the food
may present a risk to human health. The food regulator is empowered to issue directions for sale
and distribution of safe and wholesome food, and can act on the basis of available information and
pending scientific assessment,
However, the bench comprising justices V.M. Kanade and B.P. Colabawalla was not satisfied. It
asked Singh to formulate the actions of the food regulator by validating and justifying them. It
also asked for clarifications on terms such as accreditation, notification and recognition used in
connection with labs.
FSSAI did not give companies a chance to respond and said 'no added MSG' is technically correct
since it was not separately added as a taste enhancer. "It is a known fact that it is not possible to
distinguish between naturally occurring glutamate and added glutamate in foods,".
The Bombay High Court asked if Indias food regulator had found non-permissible levels of lead
in three variants of Maggi noodles, then why it banned all the nine variants of the product. The
high court also observed that of the 72 samples tested by the food authority, 30 were found to have
high levels of lead. In such a scenario, wasnt it necessary to give them (Nestle India) time to
give explanation? said Justices V M Kanade and B P Colabawalla
Singapore and Britain have declared made-in-India Maggi, which they import, to be safe.
Jignesh Parikh, quality control manager at RCA Laboratories in Mumbai, says there have been
several enquiries from companies to have their products tested for MSG. "But we have turned
them down because there are no guidelines for testing MSG." The lack of clarity or the absence of
guidelines about certain ingredients in foods and what they contain, according to many, is one of
the many problems plaguing food safety in India.

BK Rao, group product manager at biscuits maker Parle Products says there needs to be better
scrutiny by the FSSAI and NABL.Many labs are not very well-equipped. That could be an area of
concern. The FSSAI should have a panel of about 100 scientists who can ensure whether the
equipments in labs are properly calibrated and the manpower is well-trained,"


Regarding Objective 2:
Questions asked from customers of Maggi

Q1 Have you heard about the

Maggi controversy?
0% Question Have you heard about the
Maggi controversy?
Yes 50
Yes
No 0
No
100% Total 50

Q2 How often did you

consume Maggi before the
controversy? Question How often did you consume
Maggi before the controversy?
Not even Not even once a week 23
10% once a week Once a week 19
6%
Once a week Twice a week 3
46% Three or more times in a 5
week
38% Twice a week
Total 50
Three or
more times in
a week
Q3 What were the sources of
information of Maggi Question What were the sources of
Controversy? information of Maggi
Traditional Controversy?
Media
Traditional Media 15
Instant Messaging / Social 15
12% Media Channels
Instant
30%
Messaging / Both Traditional and 14
28% Social Media
Channels Social Media Channels
30% Word of Mouth 6
Both
Traditional Total 50
and Social
Media
Channels

Q4 Is there any change in the

consumption pattern of Question Is there any change in the
Maggi after the consumption pattern of Maggi
controversy, until it was after the controversy, until it
completely banned ? was completely banned ?
Same as before 27
Same as
before Reduced 13
20% Switched to other brands 10
Reduced
26% 54%
Switched to
Total 50
other brands

Q5 If Maggi steers its way

through this crisis and is Question If Maggi steers its way through
available in the market this crisis and is available in the
again, will your consumption market again, will your
pattern be the same? consumption pattern be the
same?
No 18
No Yes 32
36%
64% Yes
Total 50

Questions asked from retailers of Maggi

Q1 Was majority of your

earning from Maggi & its Question Was majority of your earning
related products ? from Maggi & its related
products ?
Yes 9
35% yes No 17

65% no Total 26
Q2 If yes, what is your source
Question If yes, what is your source of
of livelihood at present?
livelihood at present?
Switched to Switched to other brands 4
other brands
Waiting for government to 2
33% 45% Waiting for take action
government to
take action Want company to take 3
22%
some action
Want company
to take some Total 9
action

Q3 If no, does the controversy

affect your shop?
Question If no, does the controversy
affect your shop?
12% Yes 15
No 2
Yes
No Total 17
88%

Q4 Has company taken any

action that benefits you ?
Question Has company taken any action
that benefits you ?
Yes 18
31%
Yes No 8
No Total 26
69%

Q5 Are you in favour of selling Question If you are allowed to sell Maggi again at your shop,
Maggi again at your shop, if will you be in favour of it?
you are allowed to do so?
Yes, taking its 6
Yes, taking its
quality and after
quality and
affects into after affects
consideration
Yes
into
19% 23% consideration
Yes 15
No
No 5
58%
Total 26
Findings for Consumers Survey:

1. From the survey, it was found that all the respondents were aware about the Maggi
controversy.
2. Out of 50 respondents, 38% of them consumed Maggi once a week, 6% twice a
week and 10% thrice or more times a week.
3. People received the information of Maggi controversy mostly from traditional
media which was 30% out of 50 respondents. The same was seen with instant
messaging or social media channels. 28% of them also said that they received the
information simultaneously from both the Medias. And only 6% people found the
information through word of mouth.
4. 27% respondents continued to consume Maggi after the controversy until it was
completely banned while 13% of them reduced their consumption and 10%
switched to other brands.
5. In response to consumption pattern for the availability of Maggi again in the market
safely 32% responses were in favour whereas 18% were against it.

Findings for Retailers Survey:

1. From the survey, it was found that 65% of the respondents did not had their
majority of earnings from Maggi and its related products whereas 35% said that
they were totally dependent on the earnings from Maggi and its related products.
2. Of the 35% who were totally dependent on Maggi and its related products 45%
switched to other brands whereas 22% are waiting for government to take the
action and at the same time 33% want the Nestle to take some action.
3. Of the 65% who were not totally dependent on Maggi and its related products 88%
said that the controversy still affected their business while 12% had any affect.
4. 69% of retailers specified that the company has taken the action to benefit them. It
was told by them that the company allowed them to go on the Nestle homepage and
under the about Maagi section they can fill the return form asking for the
information regarding the location and personal information of the retailer which
was then used by Maggi representative to pick up the Maggi and compensate for
the same (Appendix 3).
5. In response to selling Maggi again at their shop after it will be declared safe 23%
retailers were in favour but only after taking its quality and after affect into
consideration whereas 58% retailers were directly in favour of selling it again and
only 19% denied for its resale.
 Conclusion

Regarding Objective 1:

Once Maggi is proved to be safe for health, FSSAI should pay for its losses to some
extent especially the cost company incurred on recalling of its product and relaunching
cost.

Regarding Objective 2:

New media brings new challenges. The rise of social media has given more power to the
user to produce and disseminate content as we have seen in the case of Maggi. The user is
a stakeholder with the power to dictate terms making social media intensely personal and
public.

We can conclude that, Nestle has given due attention to its retailers and retailers also
have a positive feedback regarding the re launch of Maggi.

15
 Appendices

Consumer Questionnaire
1. Have you heard about the Maggi controversy?
Yes
No

2. How often did you consume Maggi before the controversy?

Not even once a week
Once a week
Twice a week
Three or more than three times in a week

3. What were the sources of information of Maggi Controversy?

Traditional Media ( television, newspaper, radio)
Instant Messaging and Social Media ( Face book, Twitter, WhatsApp )
Both Traditional and Social Media Channels
Word of Mouth

4. Is there any change in the consumption pattern of Maggi

after the controversy until it was completely banned ?
Same as before
Changed / Reduced
Switched to other brands

5. If Maggi steers its way through this crisis and is available in

the market again, will your consumption pattern be the
same?
Yes
No

16
 Retailer Questionnaire
1. Was majority of your earning from Maggi and its related
products?
Yes
No

2. If yes, what is your source of livelihood at present?

Switched to other brands
Waiting for government to take action
Want company to take some action

3. If no, does the controversy affect your shop?

Yes
no

4. Has company taken any action that benefits you ?

Yes
No
If yes, Kindly state

5. Are you in favour of selling Maggi again at your shop, if you

are allowed to do so ?
Yes (taking its quality and after effects into consideration)
Yes
No

17
18
19
 Quarterly Results of Nestle India ------------------- in Rs. Cr. -------------------

Jun '15 Mar '15 Dec '14 Sep '14 Jun '14

Net Sales/Income from operations 1,933.84 2,506.79 2,516.10 2,557.80 2,418.91

Other Operating Income 23.17 9.69 14.84 12.62 13.06
Total Income From Operations 1,957.01 2,516.48 2,530.94 2,570.42 2,431.97
EXPENDITURE
Consumption of Raw Materials 718.80 1,110.50 1,124.79 1,084.16 1,123.47
Purchase of Traded Goods 28.51 25.87 21.17 24.67 32.85
Increase/Decrease in Stocks 108.03 -73.80 -23.78 71.40 -5.43
Power & Fuel -- -- -- -- --
Employees Cost 188.00 201.28 204.31 191.27 191.85
Depreciation 72.00 95.01 84.82 84.62 84.18
Excise Duty -- -- -- -- --
Admin. And Selling Expenses -- -- -- -- --
R & D Expenses -- -- -- -- --
Provisions And Contingencies 7.81 8.61 9.11 9.01 9.39
Exp. Capitalised -- -- -- -- --
Other Expenses 511.23 684.51 645.52 642.35 572.60
P/L Before Other Inc. , Int., Excpt. Items & Tax 322.63 464.50 465.00 462.94 423.06
Other Income 30.13 25.47 17.73 15.54 23.12
P/L Before Int., Excpt. Items & Tax 352.76 489.97 482.73 478.48 446.18
Interest 0.06 3.41 -- 0.20 3.77
P/L Before Exceptional Items & Tax 352.70 486.56 482.73 478.28 442.41
Exceptional Items -471.26 -- 7.00 -16.23 -16.38
P/L Before Tax -118.56 486.56 489.73 462.05 426.03
Tax -54.16 166.28 163.35 150.76 138.17
P/L After Tax from Ordinary Activities -64.40 320.28 326.38 311.29 287.86
Prior Year Adjustments -- -- -- -- --
Extra Ordinary Items -- -- -- -- --
Net Profit/(Loss) For the Period -64.40 320.28 326.38 311.29 287.86
Equity Share Capital 96.42 96.42 96.42 96.42 96.42
Reserves Excluding Revaluation Reserves -- -- -- -- --
Equity Dividend Rate (%) -- -- -- -- --
EPS Before Extra Ordinary
Basic EPS -6.68 33.22 33.85 32.28 29.86
Diluted EPS -6.68 33.22 33.85 32.28 29.86
EPS After Extra Ordinary
Basic EPS -6.68 33.22 33.85 32.28 29.86
Diluted EPS -6.68 33.22 33.85 32.28 29.86
Public Share Holding
No Of Shares (Crores) 3.59 3.59 3.59 3.59 3.59
Share Holding (%) 37.24 37.24 37.24 37.24 37.24
Promoters and Promoter Group Shareholding
a) Pledged/Encumbered
- Number of shares (Crores) -- -- -- -- --
- Per. of shares (as a % of the total sh. of prom. and -- -- -- -- --
promoter group)
- Per. of shares (as a % of the total Share Cap. of the -- -- -- -- --
company)
b) Non-encumbered
- Number of shares (Crores) 6.05 6.05 6.05 6.05 6.05
- Per. of shares (as a % of the total sh. of prom. and 100.00 100.00 100.00 100.00 100.00
promoter group)
- Per. of shares (as a % of the total Share Cap. of the 62.76 62.76 62.76 62.76 62.76
company)
Notes

Source : Dion Global Solutions Limited

 References
Nestlecom. (2015). Nestlecom. Retrieved 17 August, 2015, from http://www.nestle.com/aboutus/ask-
nestle/answers/maggi-noodles-india-msg-lead-ban-recall

Indianexpresscom. (July). The Indian Express. Retrieved 12 August, 2015, from

http://indianexpress.com/article/cities/mumbai/maggi-ban-did-info-on-the-web-influence-your-decision-
hc-asks-fssai
Wwwetretailcom. (2015). ETRetailcom. Retrieved 15 August, 2015, from
http://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/half-baked-safety-
standards-nonchalant-attitudes-to-hygiene-is-every-food-item-prone-to-contamination/48221964
Intodayin. (2015). Intodayin. Retrieved 10 August, 2015, from http://indiatoday.intoday.in/story/brand-
maggi-nestle-consumer-trust-safety-noodles/1/442847.html
Indiatimescom. (2015). The Economic Times. Retrieved 6 August, 2015, from
http://economictimes.indiatimes.com/industry/cons-products/food/nestle-india-cuts-maggi-production-
by-third-as-nationwide-bans-affect-sales-unsold-stocks-pile-up/articleshow/47547072.cms

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