Nestle gearing up for Maggi's comeback
By Jim Hollen | June 19, 2015
While its fate is still uncertain, Nestle says it will take about two weeks for Maggi to be back once its safety issues are fixed
The Indian subsidiary of the $100-billion Swiss food major, after a slow response to the crisis initially, is now moving quickly to contain the damage, and, of course, to hasten its comeback in the Indian market. Its crisis management began on June 5, with the company releasing a press statement to announce a voluntary recall of Maggi noodle, which at an estimated Rs 2,500 crore makes up over 30 per cent of its India revenue and commands 80 per cent of the market.
Â· Market size: Around Rs 2,500 crore
Â· Sales: Makes up over 30 per cent of Nestle India's revenue
Â· Losses due to safety concerns: Rs 320 crore
Â· Brand value hit: $200 million (Rs 1,200 crore)
Later in the day, global CEO Paul Bulcke took centre 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.
Even as the food regulator took the thunder away from Bulcke's voluntary recall, ordering the company to shut down its production and calling the product "hazardous'', Nestle moved the Bombay High Court for relief. The company sought "natural justice'' in its case against Food Safety and Standards Authority of India at the Centre and the Maharashtra Food & Drugs Administration. This was its second court outing in the case, having sued the Uttarakhand food safety office earlier over banning production of Maggi noodles at the Pantnagar facility in the state.
While the Maharashtra court hearing, which may give some clarity on the fate of Maggi, resumes on June 30, the company's own calculation is that it will take about two weeks for Maggi to be back on the shelves once things are sorted out with the authorities. The forecast came during a visit organised for the media to the company's production facility at Moga in Punjab this week. Earlier, it had organised a similar trip for the media to its Hassangarh plant in Haryana. For an otherwise reticent company, opening the doors of its production facilities to scrutiny is a sure sign of Nestle trying to bounce back before Maggi goes out of public memory, says an analyst.
About the likely duration of Maggi noodles being out of the market, FSSAI CEO Yudhvir Singh Malik has said that "it is up to Nestle to carry out the due diligence and come back to us''.
While the pace of the company complying with the food safety norms will decide how quickly it can restart production, the regulator subsequently asking for other brands of noodles, pasta and macaroni to be tested too could stretch the issue longer.
But analysts are optimistic. Arvind Singhal, founder of Technopak, a leading retail consultancy, says Maggi will be back as the market leader within a year. The company is sure to go for a relaunch of the noodles soon enough with an advertising blitz, according to Singhal. ''But it should go ahead with a full understanding of the compliance mechanism.''
At this point, Nestle has called all hands on deck. Not only did the company get Sri Lanka head Shivani Hegde, who is believed to be a key person behind Maggi's success in the early 1980s, to control the damage to the brand in India, but also seated her alongside Bulcke at the press conference in New Delhi on June 5 to tackle questions. Reports have also suggested that employees and their families have been told to act as the company's ambassador in these hard times.
Pinaki Ranjan Mishra, partner and national leader, EY, says brands need to have consumer confidence, without commenting on the Maggi controversy. Once trust is restored in the product, a comeback will be easy.
However, the industry is unclear about the food testing mechanisms and standards in India. FSSAI, a young organisation with limited resources and infrastructure, may not be the last word on food standards, argue company executives. That regulators in Singapore gave a clean chit to India-made Maggi noodles adds to the debate of whether FSSAI is justified in its clampdown on Nestle on the basis of test samples from a few states. In an interview to Business Standard, Malik of FSSAI had said that its order against Maggi was based on reports from Gujarat, Tamil Nadu, Uttar Pradesh and Delhi, which showed considerably high levels of lead in large samples. Many test results from other states hadn't reached him and some were inadequate, he had admitted.
It's early to say if investor sentiment would be hit because of the action against Nestle, says Gurcharan Das, a former chief executive at Procter & Gamble India. "We have to get down to the bottom of it to assess the impact. Everything will depend on the final outcome." If the product is found safe and government action wrong, then investors could have reason for distrust, says Das.
Arnab Dutta in New Delhi contributed to this report