Nestle Maggi

The way forward for Indias most loved

Brand

.
Nestle has removed its popular Maggi instant
noodles from the shelves in India after a handful of
states banned the product due to fears of excess lead
levels. This has impacted the business of Nestle in
India and to recover from the situation they had to
review their business strategy.

GROUP 11

Vinit Durshetti (PGP/20/061)

Gaurav Kushwaha (PGP/20/371)
Sushil Kr Mohit (PGP/20/372)
Manav Surana (PGP/20/373)
Purnesh Prabhu (PGP/20/374)
Siddharth Bansal (PGP/20/375)
Content

Introduction 2
The Issue 3
Timeline of events 5
Strategic Point Of View 5
SWOT analysis 6
Nestls Reaction 7
Profitability 8
Way Forward 9
The future of Maggi 13
Appendix 1 : Balance sheet comparison 14
Appendix 2 : Profit and loss comparison 16

Table/ Illustration
Illustration 1: Market share of Noodle brands in India 3
Illustration 2: Nestle quarterly profits 8
Illustration 3: Number of Social Media conversations on Maggi 9
Illustration 4: Sample Maggi Relaunch Advertisements 11
Table 1: MSG Content in food items 4

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Introduction
Nestle is a swiss transnational firm specializing in food and drinks. The company has its
headquarter in Switzerland and has been ranked 33 in Forbes Global 200 list of largest
public companies. The product portfolio of Nestle includes medical food, baby food,
bottled water, ice cream, breakfast cereals, pet foods and other varieties of food. The
revenue for the company in 2016 was nearly 90 billion swiss franc and the market
capitalization for the same was nearly $240 billion. Nestle India is a subsidiary of Nestle
Switzerland and has over 8 factories.
Principles of Business Operation
Nestle operates with different principles for different stakeholders
1. Consumers The company follows the following guidelines when dealing with
customers
a) Nutrition, Health & Wellness
b) Quality Assurance & Product safety
c) Reliable Consumer Communication
2. Human Rights and Labor Practices The company follows the United Nation
Global compact principles to provide good and standardized human rights and
labor practices
3. Our People The company is guided by the following principles
a) Leadership & Personal responsibility
b) Safety and health at work
4. Suppliers and Customers The Company lays importance on maintaining healthy
relationships with suppliers and customers and also contribute to agriculture and
rural development.
5. Environment The Company is committed to following sustainable environment
practices and participate in improvement in water conservation.

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Maggi is a brand recognized in the international arena for seasonings, instant soups and
noodles owned by Nestle, acquired from the original owner Julius Maggi based out of
Switzerland in 1947. It is one of the most popular noodles brand across the world,
especially in India where it is one of the most successful brands, occupying almost a
63% market share in the 4000 crore industry. (Source:
http://www.euromonitor.com/noodles-in-india/report) The main reason is primarily due
to Nestls widespread and excellent distribution network and extremely high customer
loyalty. However, a recent controversy surrounding the high levels of MSG found in
Maggi portends serious trouble for the highly loved brand with the potential to
completely alter the competitive landscape in the market.

Illustration 1: Market share of Noodle brands in India

Background
The Issue
In May 2015, officers of the Uttar Pradesh food and safety administration based in
Barabanki ordered testing of samples of Maggi at the government laboratories in
Gorakhpur and repeat testing at the central laboratories in Kolkata. The Gorakhpur lab
tested for Monosodium Glutamate and came out with reports indicating high levels of
lead, about 17.2 parts per million and MSG, about 17 times the permissible limit.
Based on the findings, UP FDA filed a complaint in a Barabanki court. On Monday,
Union Food Minister Ram Vilas Paswan, directed the statutory regulator which is the
Food Safety and Standards Authority of India (FSSAI), to conduct nationwide tests on
Maggi.

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What is MSG?
MSG is one of the most common and naturally occuring amino acid, which is found in
food items like potatoes, mushrooms, tomatoes, Parmesan cheese and other vegetables
and fruits. In the food industry, it is used as a taste enhancer that increases the meaty
and savoury flavor of food. The typical effects of MSG on the human body include:
(http://www.oneindia.com/feature/the-maggi-controversy-what-is-msg-1766253.html)
Weakness of the arms or legs
Upset stomach in some cases
Burning sensations felt in the mouth, head and neck
Headaches observed in large cases
Hives or other allergic-type reactions with the skin
Damage to retina
Nervous disorders and brain damage
Hormonal fluctuations
Table 1: MSG Content in food items
Food Item MSG(grams)/serving
Maggi 1.72
Tomato Juice 0.83
Meat 0.19
Mushrooms 0.09
Corn 0.03
Peas 0.02
Parmesan Cheese 0.05
(Source:FSSAI)

According to Food Safety and Standards Rules, 2011, MSG should not be added to
food items for infants below 12 months of age. MSG addition is not permissible in
over 50 items, including Pastas and noodles but is allowed in their seasonings.
Under Food Safety and Standards (Contaminants, Toxins and Residues) Regulations,
2011, permissible levels of lead range from 0.2 parts per million in infant milk food
and substitute to around 10 ppm in other categories like tea, baking powder, dried
herbs, dehydrated onions and spices flavorings. For instant noodles like the maggi
the permitted level of lead is 2.5 ppm. Instant noodles like Maggi are categorized
under food category code 6.4.3 while the masala used in these noodles is covered in
code 12.2, which includes herbs, spices, masalas, seasonings, and condiments
intended to enhance the aroma and taste of food.
(http://www.fssai.gov.in/GazettedNotifications.aspx)

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Situation
Timeline of events

The reports led to a slew of testings across the country, all of which turned up similar
results. This has led to a series of bans on maggi across major towns and cities. On 3
June 2015, the New Delhi Government banned the sale of Maggi in New Delhi stores for
15 days followed by a ban by the Gujarat FDA for 30 days after 27 out of 39 samples
were detected with unreasonable levels of lead metallic in nature, among other things.
Indian state of Assam had completely banned sale, storage and distribution of Maggi's
"extra delicious chicken noodles" variety for 30 days since June 4, 2015 after tests
carried out at the public health laboratory facilities of the state government indicated
that the particular variety tested to contain high MSG and excessively high lead
content. Thereafter multiple state authorities in India found an unreasonable amount
of lead and it has been taken down in not less than 5 states in India including Tamil
Nadu, Andhra and Karnataka. On June 5, 2015, Food Safety and Standards Authority of
India (FSSAI) ordered removal of all the nine approved flavors of Maggi instant noodles
and oats masala noodles from India, suggesting them unsafe and hazardous for human
consumption followed by the Central Government of India banning nationwide sale of
Maggi noodles for an indefinite period. Nepal indefinitely banned Maggi over concerns
about lead levels in the product. Maggi noodles has also faced similar situation in five
African nations- Uganda, Tanzania,Kenya, Rwanda and South Sudan by a super-market
chain after a complaint by the Consumer Federation of Kenya.
(http://indianexpress.com/article/explained/explained-noodles-in-the-soup/)

Strategic Point Of View

The PESTLE analysis for Nestle

1. Political

a) Changing regulations and food standards by government agencies

b) Changing regulation in global arena molded by political forces in the

respective countries

2. Economic

a) Changing inflation, economic levels and growth rates of economies

b) Change in per capita income and consumer spending budgets for food

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 c) Rising price of raw material

3. Social

a) Change in attitude of consumers in migrating to healthier products

b) Change in lifestyle of consumers in returning to home cooking and

traditional food

c) Change in consumers choice in migrating to atta products instead of

maida

4. Technological

a) Social Media coming into play where consumers can interact with one
another and also with the firm

b) Development of E-commerce

5. Legal

a) Change in regulation by food authorities

b) Non standardized regulation across states and countries

6. Environmental

a) Environmental concerns with regard to packaging material and recycling

SWOT analysis

Strengths Weakness

Strong cultural values and Criticism based on low

commitment to create nutritional value of Nestle
value for stakeholders products

Internal Factors Quality leadership and Scandals such as baby milk

focus on customer scandal had tarnished
satisfaction image in past

Diversified portfolio

Reputation of Nestle brand

estimated to be around $ 7

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 Billion

Opportunities Threats

Reach new emerging Greater competition has

economies given more choice to
customer

Penetrate rural markets in Variability in government

existing serving countries regulations across different
states
External Factors
Innovative development of Local brands coming up
supply chain with healthier products

Backward vertical
integration to gain better
control

Nestls Reaction

Nestle replied by stating that they dont use MSG in the product and instead use
hydrolyzed protein, onion powder and wheat flour, all of which contain glutamine
naturally which is what would have been detected by the government. They also raised
doubts about the quality of testing in India compared to other countries. Nestle claims
to have regularly monitored its products for lead and MSG, conducting in-house testing
on 1000 batches in their own accredited labs and roping in external laboratories to test
close to 600 batches, leading to a total of 125 million packets tested. All their results
show permissible limits of the above mentioned ingredients.

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Profitability

However this crisis has significantly affected Nestle, one of the biggest FMCG brands in
the world. According to Illustration 2, Nestle India posted quarterly losses of 64.4
crores, for the first time in 17 years, coming on the back of profits of 278.8 crores in
the corresponding quarter the previous year.
(http://indianexpress.com/article/business/business-others/the-maggi-effect-nestle-
posts-first-loss-in-17-years/)

Illustration 2: Nestle quarterly profits

Brand Equity

It has significantly eroded the confidence of the customers and affected the brand
loyalty, one of the main pillars which had helped Maggi sustain its position as the
market leader in the industry. The brand value and brand equity have deteriorated with
brand value hit estimated at 1200 crores INR and it could take years to reach back to
the previous levels.

Employment

Further the ban on Maggi has led to shutdown of close to five big plants and numerous
subsidiary plants, directly endangering livelihood of close to 1500 employees. Nestle has
tried to relocate most of them to other plants but is having a hard time accommodating
an increasing number of unemployed workers and employees.
(http://articles.economictimes.indiatimes.com/2015-06-17/news/63540249_1_nestle-
india-maggi-instant-noodles)

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WAY FORWARD
Addressing Communication Gap

Nestle has never been a communicative company and with the crisis, it receded into an
inarticulate shell when it should have been clear, assertive and honest. Etienne Benet,
who took over as CEO of Nestle India less than a year ago, is completely missing in
action. Absence of any information from the company raises further doubt and fear.
Nestle should have learned from Cadbury, where the then CEO was publically
omnipresent to deal with the crisis. And it seems, Nestle has started to learn. Its crisis
management began on June 5, with the company releasing a press statement to
announce a voluntary recall of Maggi noodle. Later in the day, global CEO Paul
Bulcke took center stage at a press conference to explain the countrywide recall.
"People's trust was shaken," he said, but maintained the product was completely safe
as the company's own analysis had shown. They raised doubts about the efficacy of the
testing procedures and immediately ordered in-house testing of the product. They also
moved court against the FSSAI seeking natural relief.

Illustration 3: Number of Social Media conversations on Maggi

Damage Control

They have also started bringing in veterans from their ranks to handle the crisis. They
have brought in Sri Lanka head Shivani Hegde, who is the architect behind Maggi's

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success in the early 1980s, to control the damage to the brand in India, but also seated
her alongside Bulcke at the press meeting in capital New Delhi on June 5 to tackle
queries from the media. Reports have also suggested that employees and their families
have been told to act as the company's ambassador in these hard times. They have
also gotten clearances from regulators in Singapore, UK, Canada and USA which is
further helping their case. (http://www.business-
standard.com/article/companies/canada-follows-suit-seventh-country-to-clear-maggi-
noodles-115070300254_1.html)

Recall and Testing

Further, where Nestle went wrong was that when the crisis broke out, it should have
ordered immediate recall of products which would have cost them 300-400 crores at
most compared to previous year turnover of 10000 crores. But there were news items
about sales teams trying to liquidate stock. Compare that to 1982, and J&J [Johnson &
Johnson] responding to the infamous Tylenol crisis in the US (where a stray killer had
replaced some capsules with cyanide) when the company immediately withdrew $100
million worth of stocks and production rather than risking people's lives, and instead
offered a $100,000 prize for capturing the killer. They have recalled Maggi, but it should
have been done earlier.

Maintaining Confidence

Further maintaining customer confidence is the key, especially for a brand ranked fifth
on the brand equity index in India. Maggi has a very strong brand appeal and customer
base, all of whom are mostly eagerly waiting for Maggi to return. Nestle has tried to
leverage on this by launching a series of emotional advertisements aimed at
maintaining the connect with the customers and reassuring them. Such measures are
extremely important for Nestle to maintain its position as the market leader till Maggi is
declared safe. Company forecasts suggest two more weeks before Maggi is back on the
shelves. (https://www.maggi.in/whats-new.aspx)

Illustration 4: Sample Maggi Relaunch Advertisements

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The future of Maggi

The issue that Nestle faced was a dangerous one, especially in India, which is one of
the most sought after markets in the world and is famous for spitting up some the most
famous names of the world. Coca-cola has been banned in the country twice, Walmart
had to scale back its project in India because of its inability to comply with the Indian
regulations, Facebook also faced the problem when Indian regulators rejected its free
basics web access program. The managers at Nestle were unable to understand the
Indian psychology during the initial phase of the problem and Nestle faced losses which
could otherwise be prevented.

According to senior officials from Nestle India, it would take three years for Nestle to
recover from the Maggi crisis but the company has started reacquiring the strong
consumer base that it once had, one of the major challenges here is to compete with
Baba Ramdevs Patanjali aata noodles, which are getting famous in the consumers as a
healthier variety of noodles. The timeline of all the events can be seen in the figure.

By April, 16 Maggi was back as a market leader in India with a market share of more
than 50% but it was still 25% less than the share of 75% of the 800 million noodles
market that it controlled just before the Maggi crisis started. By the end of Jan 2017,
the company had grown its share to around 60%, thanks to its innovative marketing
strategies and new product introductions- The company has launched 35 products

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across categories to diversify its portfolio. The profit and loss statements of the
company are promising but still lagging behind the 2015, pre ban numbers and its
tough to speculate how much time would Nestle need to recover. As said by Nestle
India Chairman and Managing Director Suresh Narayanan on the same question in
January, 17, Its difficult to speculate. The energy and drive of the organization
remains to get back to the peak level, but it is going to involve a lot of efforts, a lot of
imagination and perseverance, which we are willing to do

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Appendix 1 : Balance sheet comparison
Parameter DEC'15 DEC'14 YoY
( Cr.) ( Cr.) %Change

EQUITY AND LIABILITIES

Share Capital 96.42 96.42 0.00%

Share Warrants & Outstandings

Total Reserves 2,721.42 2,740.79 -0.71%

Shareholder's Funds 2,817.84 2,837.21 -0.68%

Long-Term Borrowings 0.00 0.00 0.00%

Secured Loans 0.00 0.00 0.00%

Unsecured Loans 16.79 15.46 8.60%

Deferred Tax Assets / Liabilities 172.93 222.72 -22.36%

Other Long Term Liabilities 0.00 0.00 0.00%

Long Term Trade Payables 0.00 0.00 0.00%

Long Term Provisions 1,597.17 1,388.66 15.02%

Total Non-Current Liabilities 1,786.89 1,626.84 9.84%

Current Liabilities

Trade Payables 743.54 728.71 2.04%

Other Current Liabilities 465.93 409.57 13.76%

Short Term Borrowings 0.94 4.11 -77.13%

Short Term Provisions 265.32 213.06 24.53%

Total Current Liabilities 1,475.73 1,355.45 8.87%

Total Liabilities 6,080.46 5,819.50 4.48%

ASSETS

Non-Current Assets 0.00 0.00 0.00%

Gross Block 5,117.36 5,008.98 2.16%

Less: Accumulated Depreciation 2,191.29 1,824.23 20.12%

Less: Impairment of Assets 28.22 8.11 247.97%

Net Block 2,897.85 3,176.64 -8.78%

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Lease Adjustment A/c 0.00 0.00 0.00%

Capital Work in Progress 230.79 244.78 -5.72%

Intangible assets under development 0.00 0.00 0.00%

Pre-operative Expenses pending 0.00 0.00 0.00%

Assets in transit 0.00 0.00 0.00%

Non Current Investments 341.78 304.46 12.26%

Long Term Loans & Advances 130.01 129.65 0.28%

Other Non Current Assets 0.42 0.30 40.00%

Total Non-Current Assets 3,600.85 3,855.83 -6.61%

Current Assets Loans & Advances

Currents Investments 983.14 507.36 93.78%

Inventories 820.81 844.10 -2.76%

Sundry Debtors 78.42 99.10 -20.87%

Cash and Bank 499.55 445.82 12.05%

Other Current Assets 49.06 18.90 159.58%

Short Term Loans and Advances 48.63 48.39 0.50%

Total Current Assets 2,479.61 1,963.67 26.27%

Net Current Assets (Including Current Investments) 1,003.88 608.22 65.05%

Total Current Assets Excluding Current Investments 1,496.47 1,456.31 2.76%

Miscellaneous Expenses not written off 0.00 0.00 0.00%

Total Assets 6,080.46 5,819.50 4.48%

Contingent Liabilities 1.17 19.54 -94.01%

Total Debt 17.73 19.57 -9.40%

Book Value (in ) 292.25 294.26 -0.68%

Adjusted Book Value (in ) 292.25 294.26 -0.68%

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Appendix 2 Profit and loss comparison
Parameter DEC'15 DEC'14 Change %
( Cr.) ( Cr.)

Gross Sales 8,482.48 10,178.07 -16.66%

Less :Inter divisional transfers 0.00 0.00 0.00%

Less: Sales Returns 0.00 0.00 0.00%

Less: Excise 307.17 323.23 -4.97%

Net Sales 8,175.31 9,854.84 -17.04%

EXPENDITURE:

Increase/Decrease in Stock 11.97 -67.43 117.75%

Raw Materials Consumed 2,908.60 3,833.24 -24.12%

Power & Fuel Cost 221.99 384.33 -42.24%

Employee Cost 912.75 837.05 9.04%

Other Manufacturing Expenses 754.95 990.74 -23.80%

General and Administration Expenses 681.39 744.77 -8.51%

Selling and Distribution Expenses 914.11 924.92 -1.17%

Miscellaneous Expenses 186.40 167.31 11.41%

Expenses Capitalised 0.00 0.00 0.00%

Total Expenditure 6,592.16 7,814.93 -15.65%

PBIDT (Excl OI) 1,583.15 2,039.91 -22.39%

Other Income 110.09 87.32 26.08%

Operating Profit 1,693.24 2,127.23 -20.40%

Interest 3.29 14.23 -76.88%

PBDT 1,689.95 2,113.00 -20.02%

Depreciation 375.48 345.65 8.63%

Profit Before Taxation & Exceptional Items 1,314.47 1,767.35 -25.62%

Exceptional Income / Expenses -500.84 7.00 -7254.86%

Profit Before Tax 813.63 1,774.35 -54.14%

Provision for Tax 250.36 589.66 -57.54%

PAT 563.27 1,184.69 -52.45%

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Extraordinary Items 0.00 0.00 0.00%

Adj to Profit After Tax 0.00 0.00 0.00%

Profit Balance B/F 1,882.52 1,532.88 22.81%

Appropriations 2,445.79 2,717.57 -10.00%

Equity Dividend (%) 485.00 630.00 -23.02%

Earnings Per Share (in ) 58.42 122.87 -52.45%

Book Value (in ) 292.25 294.26 -0.68%

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References:

http://www.euromonitor.com/noodles-in-india/report
http://www.oneindia.com/feature/the-maggi-controversy-what-is-msg-1766253.html
http://www.fssai.gov.in/GazettedNotifications.aspx
http://indianexpress.com/article/explained/explained-noodles-in-the-soup/
http://indianexpress.com/article/business/business-others/the-maggi-effect-nestle-posts-first-loss-in-
17-years/
http://articles.economictimes.indiatimes.com/2015-06-17/news/63540249_1_nestle-india-maggi-
instant-noodles
http://www.business-standard.com/article/companies/canada-follows-suit-seventh-country-to-clear-
maggi-noodles-115070300254_1.html
https://www.maggi.in/whats-new.aspx
http://profit.ndtv.com/stock/nestle-india-ltd_nestleind/financials-profit-loss
http://www.moneycontrol.com/financials/nestleindia/balance-sheetVI/NI
http://fortune.com/nestle-maggi-noodle-crisis/
http://www.livemint.com/Companies/yjum6G5Wnr29NPb8p9TpgN/Maggi-regains-top-slot-in-
noodles-market-with-57-share-in-J.html
http://timesofindia.indiatimes.com/business/india-business/maggi-noodles-has-cornered-60-
market-share-nestle-india-cmd/articleshow/56838663.cms

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