Impact of Maggi Row in India
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International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 46 Volume 4, No. 7, July 2015 Impact of Maggi Row in India Neha Garg, Student of M. Com., Department of Commerce, Kurukshetra University, Kurukshetra ABSTRACT which India won its first Cricket World Cup- they instantly caught everybody’s imagination. With its launch, Maggi, a well reputed brand, is known to all. Even a small an entirely new food category- instant noodle - was child can easily pronounce its name at a shop to buy it. It created in the Indian packaged food market. It was has become the favourite snack of most of the population primarily targeted at the working women who were having of India. Maggi is the great contributor to the revenue of little time to prepare meals. But after a survey, it was Nestle India Ltd., a subsidiary of a Swiss company. Maggi found that much of the consumers were children as generally has remained in publicity for its taste. Now also compared to women. So later on, Maggi was targeted at it is in publicity but there is a difference now, it is negative children and their mothers. Within its first 25 years, Maggi publicity due to the presence of monosodium glutamate was having 90% of the instant noodles market. Today, and dangerous excessive level of lead in its products as Maggi is particularly well known in India, Malaysia, tested by FSSAI. This has shaken the trust of the Pakistan, Nigeria, the Philippine and Singapore for its consumers fully. This Maggi row has become so much instant Maggi noodles. It has become the favourite snack critical due to the involvement of health aspect and of most of the population of India. Maggi is the great children in this case. As a result of this row, various contributor to the revenue of Nestle India Ltd. India is the sections of the society have been impacted like workers, largest market for Maggi noodles. Maggi generally has suppliers, share market, Government, Company itself, etc. remained in publicity for its taste. Now also it is in in India. Nestle India Ltd. has done a lot to control the publicity but there is a difference now, it is negative situation but it was half heartened in the beginning which publicity due to all the wrong reasons- presence of has worsened the issue. Since the Maggi row has impacted monosodium glutamate and dangerous excessive level of the whole India severely and owing to the importance of lead in its products. This has shaken the trust of the assessing the damage done, in taking remedial measures, consumers fully. it is vital to conduct research regarding the whole impact of Maggi row. So, considering this hot issue, I have HOW THE ROW BEGAN? conducted this research to assess the impact of Maggi row in India. For this, I have approached secondary source of The Nestle Maggi-2 minute noodles row has puffed up as data collection and collected information from various the India’s worst food scare in a decade after that of websites like website of DNA, Nestle India ltd., FDA, etc. presence of pesticides in soft drinks. The scare over Maggi along with various newspapers like The Hindu, Business instant noodles, India’s one of the most popular snacks, Standard, Economic Times, Financial Express, The has gripped increasingly the health conscious consumers. Tribune, etc. With the help of this information I have Nestle’s woes began last year on the eve of Holi- India’s assessed the impact of Maggi row in India. The festival of colours, when the inspectors were on lookout assessment shows that it has done a lot of damage within for adulterated foods at the retailers in Barabanki, a town just a month. of approximately 1,50,000 population in Uttar Pradesh. That was the time of aggressive checking of adulterated Keywords food products. Inspectors picked up the samples of Maggi Monosodium glutamate, Maggi, Nestle India Ltd., FSSAI, noodles from a local supermarket. The samples were sent brand value, BSE Sensex. to a state laboratory in Gorakhpur, which on April 24, 2014 reported that, the labelling- ‘No added MSG’ had INTRODUCTION violated Indian regulations as MSG was found in test. But Nestle appealed against the report stating that the noodles contained MSG, i.e. Monosodium Glutamate, as a result of Maggi, a well reputed brand, is known to all. Even a small a natural process and thus, the sample were sent for testing child can easily pronounce its name at a shop to buy it. It at the Central Food Laboratory in Kolkata, a Government is an international brand of instant noodles, seasonings and referral lab. After more than a year, Kolkata lab presented soups owned by Nestle since 1947. The original company its results in a report dated April 27, 2015, confirming the was set up by Julius Maggi in Switzerland in 1872 and violation of labelling rules. Along with it, the samples also merged with Nestle family in 1947. Maggi was first to tested positive for excessive level of lead content to 17.2 bring protein rich legume meal followed by readymade parts per million (ppm), compared with a legal limit of 2.5 soups to the market. When Maggi instant noodles arrived parts per million (ppm), a copy of the lab report seen by in India in 1983- a memorable year for Indian history in Reuters showed. i-Explore International Research Journal Consortium www.irjcjournals.org
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 47 Volume 4, No. 7, July 2015 After a meeting with Nestle bosses, FSSAI (Food Safety approval. It has led to the imposition of ban on 9 variants and Standards Authority of India) on June 5, 2015 ordered of Maggi product and shuffle in the whole food industry the withdrawal of Maggi Noodles by a notice that stated and Indian economy. It has impacted various parts of that the Nestle bosses argued that the tests at the Kolkata Indian economy. This study helps us to know the impact Lab had showed a very high level of lead because the of Maggi row in India. samples remained open for a long time period before being tested, but they were unable to elaborate on how that could RESEARCH OBJECTIVE have resulted in excessive lead and MSG, so the argument was rejected by FSSAI. The paper aims to: • To examine the root cause of the Maggi row. From there, what began as a minor labelling issue that • To assess the impact of Maggi row in India. according to a local Magistrate could have been settled with a fine of INR 25000, mushroomed into Nestlé’s worst public relations crisis to date in India since its presence. RESEARCH METHODOLOGY NEED OF THE STUDY In order to achieve the research objectives, the study is based on secondary data. The data has been collected from various websites like Wikipedia, nestle.org, reuters.com, Nestle India Ltd.’s Maggi-2 minute noodles row has led to www.dnaindia.com, etc. and newspapers like Business a sort of chaos in the whole country. Parents, children, Standard, Economic Times, The Tribune, etc. With the workers, investors, suppliers, etc. just do not know how to help of this data, the impact of Maggi row has been deal with the situation. This is the India’s worst food scare assessed. in a decade after that of presence of pesticides in soft drinks. The scare over Maggi instant noodles, India’s one of the most popular snacks, has gripped increasingly DISCUSSION AND ANALYSIS various sections of the society. So, the research is imperative to assess that upto what extent this Maggi row WHAT IS THE ROOT CAUSE OF THE MAGGI ROW has impacted India so that future plans for remedy can be The whole issue is all about health and safety. MSG and prepared accordingly. lead are the main culprit here. The presence of these two contents in Maggi products have brought them under the scanner of FSSAI. So, basically what are they and what is STATEMENT OF PROBLEM the problem due to their presence? The well renowned Swiss based Nestle company’s Maggi- MSG i.e. Monosodium Glutamate is a flavour enhancer 2 minute noodles has defaulted on FSSA (Food Safety and that occurs naturally in many foods, such as tomatoes and Standards Act)regulations owing to the presence of lead cheeses. People have been eating glutamate rich foods detected in product in excess of the maximum permissible throughout the world. USA FDA (Food & Drug levels of 2.50 parts per million (ppm), misleading labelling Administration) considers the addition of MSG to food to information on the package reading ‘No added MSG’, and be generally recognized as safe (GRAS). So, what is the thirdly, the release of a non standardized food product problem here? The problem is the labeling on Maggi ‘Maggi Oats Masala Noodles with Taste maker’ in the products of ‘No added MSG’. It was misleading and in market, without risk assessment and grant of product violation of the FSS (Packaging & Labeling) Regulation, i-Explore International Research Journal Consortium www.irjcjournals.org
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 48 Volume 4, No. 7, July 2015 2011.Another problem is the presence of lead content to the employees and their families have been told to act as 17.2 ppm in the noodles that is beyond the maximum Company ambassadors in these hard times. Nestle had also permissible limit of 2.50 ppm. This is a matter of serious moved to Bombay High Court for relief and to some concern given the fact that most of the consumers of extent has got some relief with the court allowing the Maggi are children and the children are more vulnerable to export of Maggi outside India. A visit organized for the the adverse effects of lead than adults. Lead accumulates media to the Company’s production facility at Moga in in the body and also gets absorbed quickly when taken on Punjab and Hassangarh plant in Haryana and opening the empty stomach. It can cause mental injury, learning doors of its production facilities to scrutiny is a sure sign difficulties, low IQ, growth delays, etc. Under FSS (Food that Nestle is trying to bounce back at the earliest. Safety & Standards) Act, every manufacturer has the According to media reports, in an attempt to do some responsibility to ensure that the food that he sells is safe in damage control, Nestle India is looking to tie up with US all respects and confirm to the standards prescribed under based public relations firm APCO Worldwide. Nestle has the law. So due to these violations of major food also conducted tests of the samples at their accredited labs regulations, various states have banned the sale of nine and are also cooperating with the regulators in the enquiry. variants of Maggi- Uttar Pradesh, Delhi, Gujarat, Tamil They are also answering the questions of the public Nadu, Maharashtra, Kerala,, Madhya Pradesh, Jammu & regarding Maggi on their website- www.nestle.com, for Kashmir, Telangana, Bihar and several other states. more information enquirer can contact the consumer services at consumerservices@in.nestle.com or WHETHER NESTLE COULD HAVE AVERTED THE 18002661188. Company has also provided the facility of CRISIS returning the bought but unused packets of Maggi so to Yes, the senior officials also admit that Nestle could have maintain better customer relationship. averted this crisis, and the impact would not have been so much had Nestle been proactive. Also according to a local Magistrate, the same could have been settled by paying a IMPACT OF MAGGI ROW IN INDIA fine of INR 25000. If Nestle would have paid INR 25000 fine in this case and not gone for appeal against the report, Maggi noodles, which at estimated INR 2500crore the situation could have been different now. It could also revenue that makes up over 30% of the Nestle’s revenue have changed the labelling to comply with the FSS and commands 80% of the market, has severely affected regulations. Later on also, as the matter intensified with India. Maggi noodles sales have been hit hard ever since it more states claiming Maggi as unsafe, the Company did was revealed that the samples tested by Government lab not do so much apart from issuing statements invalidating contained MSG and lead beyond permissible limits. The these findings. By the time, the FSSAI issued ban and brand Maggi which has become the generic name of recall order on June 5, 2015, the matter had gone out of noodles in India, has therefore also witnessed a severe hand. Even the presence of Paul Bulcke, Nestlé’s Global dent in its popularity and image. Following are the few CEO, in India could not help rescue. glimpses of the impact of Maggi row in India: WHAT NESTLE INDIA LTD. HAS DONE TO • Around 1500 workers and other employees HANDLE THE SITUATION impacted: Around 1500 workers involved in Nestle India Ltd. has been on firefighting mode ever since manufacturing of Maggi in India have been the Maggi row became the news headlines. No doubt, the impacted by the stoppage of production after ban on brand’s reputation has taken a serious hit and it takes some Maggi. According to senior company official, these time for the brand to regain the trust of customers. The workers have been redeployed, engaged in other Indian subsidiary of the $100 billion Swiss based major, units and in a way impacted. Company has not fired after a slow response to the crisis initially is now moving any of its permanent workers but has engaged them quickly to contain the damage and of course, to hasten its in other activities like training, team building comeback in the Indian market. Its crisis management exercise, etc. but their future is uncertain. Hundreds began on June 5, 2015, with the company releasing a press of contractual workers have lost their jobs due to statement to announce a voluntary recall of Maggi noodle Maggi production stop. Nestle India is not granting but maintained the product was actually safe as the leaves to the employees unless there is emergency company’s own analysis had shown. At press conference and the employees who were on leave have been in New Delhi, understanding the delicacy of the matter, called back. the senior management was there to answer the questions • Suppliers impacted: Owing to the Maggi ban, the and to maintain the trust of its customers. Global CEO production of Maggi has stopped and thus, the Paul Bulcke and Company Sri Lanka head Shivani Hegde, suppliers have also been hit. Suppliers have to look who is believed to be the key person behind Maggi’s for new customers after the ban on Maggi. Nestle success in early 1980s, were in the conference to control India’s largest supplier of spices, Moga based Paras the damage to the brand. Reports have also suggested that Spices Ltd., has already ended the services of some i-Explore International Research Journal Consortium www.irjcjournals.org
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 49 Volume 4, No. 7, July 2015 of the workers out of 200 temporary employees. economy’s position and also the benchmark index Due to Maggi ban, Paras Spices Ltd. has received a of Indian equities market. So, taking BSE Sensex as serious jolt as Nestle’s Maggi used to be its only the base, position of Nestle India Ltd. has been major client consuming about 45% of its production shown. Earlier during the year, the Nestle India Ltd. i.e. around 200 tonnes of spices per month. had performed better than the BSE Sensex on • Impact on share market: The Maggi row has not bourses. Its growth rate was better before the ban even spared the share market from its impact. This on Maggi was imposed on June 5 as can be seen crisis has made the investors bearish. Since BSE from the graph. Sensex is considered as the best indicator of the FIGURE 1: Graph showing growth rate of Nestle India Ltd. share prices and BSE Sensex from January 1, 2015 to June 30, 2015 Source: Business Standard (Nestle India Ltd. share prices live) Three months before the ban on Maggi i.e. on March 5, had performed better as compared to Nestle India Ltd. in the picture was totally different as compared to now. the share market. The situation worsened on June 8 as the Growth rate of Nestle India Ltd. shares was 18.71% as growth rate of Nestle India Ltd. went down to -9.61% as compared to 8.1% of BSE Sensex that means Nestle had compared to -2.64% of BSE Sensex. On June 29, the performed brilliantly well on bourses. On April 6, Nestle situation was recovering in the hope of getting some relief India’s growth rate was 15.91% as compared to BSE as Nestle India Ltd. showed the growth rate of -1.05 % as Sensex growth rate of 4.64%, also better progress than compared to 1.48% of BSE Sensex. On June 30, as a result BSE Sensex. On May 5, i.e. one month back from the of Bombay High Court relief of permission to export imposition of Maggi ban, the growth rate of Nestle India Maggi, Nestle India Ltd. showed the growth rate of 3.51% Ltd. on bourses was 11.08% as compared to 0.73% of BSE as compared to 1.98% of BSE Sensex. It showed Sensex; it was extremely well i.e. gap of 10.35%. On May improvement. Owing to Nestle India Ltd.’s nearly three 27, growth rate of Nestle India Ltd. was 15.21% as decade old presence and considerable size, stock analysts compared to 1.91% of BSE Sensex i.e. gap of 14.02%. are even now somewhat patient and adopting BUY, This all shows that Nestle India has performed well, HOLD strategies till the final results are out i.e. analysts earlier than the Maggi ban. But as the Maggi row began to are not in favour of selling Nestle India Ltd. shares. emerge in media, share market suddenly collapsed for • Other noodle making companies affected: Maggi Nestle India Ltd. On June 5, day on which Maggi ban was row has also affected other noodle making imposed, the growth rate of Nestle India Ltd. was -2.81% companies. It has provided an opportunity for its as compared to -1.74% of BSE Sensex i.e. BSE Sensex competitors to take advantage of the situation and i-Explore International Research Journal Consortium www.irjcjournals.org
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 50 Volume 4, No. 7, July 2015 grab Nestlé’s customers especially to the key that it is hazardous for consuming so where were competitor ITC (Yippee noodles). But upto some they since long? After Uttar Pradesh’s lab test, extent it has also affected them negatively also. As other states have started testing of Maggi samples Maggi has become the generic name for noodles, so and then are declaring it hazardous to consume. So, hearing anything wrong about Maggi make the why were they sleeping till now? Also after the first consumers conscious of all the noodles as they test report, when Nestle appealed against it, then it associate other noodles with Maggi. Increased took more than one year for the report to come frequency of advertisement by these competitor (such a long time for a report to come). Even a case companies during June and also more focus on of Maggi testing positive for MSG had come earlier quality as compared to earlier in these also in 2013 where only penalty of INR 25000 was advertisements are the evidence that these imposed and that was the end of the matter companies have also been impacted in some way or according to a local Magistrate in Barabanki. So, other. After this Maggi row, various companies are what about the food safety, what about consumers under the FSSAI’s lens of suspicion which can be who consumed that Maggi? Whether the duty for seen as under in figure 2. food safety is only upto imposing penalty. Again the same issue has heated up but now also, it is not FIGURE 2: Showing various companies under the the food safety network that have worked totally on FSSAI’s lens of suspicion its will but it is the media that is raising the issue thereby compelling the authorities to investigate the issue. • Hit Nestle revenue badly: The instant noodles market is estimated at about INR 2500crore. Maggi noodles contribute over 30% of the company’s total revenue (as can be seen under in figure 3) and have 80% of the market share. According to analysts, the Maggi noodles controversy is eating into the Nestle India’s maket size and could take away a big chunk of its revenue for a few quarters. As a result of countrywide ban on Maggi, large retailers like Reliance, Big Bazar, Nilgiris, etc. took the Maggi products off shelf. Some retailers said Maggi sales fell down by 30% after the issue came up. According to an analyst at a domestic brokerage, Maggi was perhaps the only growing brand (in Source: Business Standard volume) for Nestle India last quarter. Following this controversy, company’s volume growth in second quarter (April-June) could even be negative. Losses • Consumers have become more conscious of their due to safety concerns are INR 320crore as a result food eating habits: Earlier, the most of the of recalling and destroying Maggi. Maggi issue has consumers were ignorant about the ingredients of also affected the sale of other Nestle products like the packaged food. What tasted better, was Tomato Ketchup and soups. Maggi was the preferred by them. If in some cases, they would favourite snack for children, tourists, youngsters, bother, then it would be for MRP (Maximum Retail etc., but now, according to dhaba owners, many Price) and for manufacturing and expiry date and tourists now prefer paranthas and other alternatives not more than that. But after the Maggi row, the instead of Maggi. So, on an all, in every state of the eyes of consumers have opened up and they have country, Maggi row has affected Nestle’s revenue understood the importance of checking the adversely. ingredients of the products also and see what • Loss of $200 million in brand value: According to quality of food they are eating. Evidence can be brand Finance, an independent asset valuation seen as most of the people are discarding the consultancy, Maggi is going to lose $200 million in consumption of Maggi noodles all over the country brand value after imposition of ban on Maggi’s nine leading to decline in sale of Maggi. As said by variants (as can be seen from figure 3). Maggi is some retailers, Maggi sales fell nearly 30% after the going to destroy $50 million worth of noodles issue came up. labelled as ‘unsafe and hazardous’ after imposition • Highlighted the shortcomings in the country’s of ban by FSSAI. $50 million loss of goods include food safety network: Maggi has been in India the estimated sales value of the stock in the market since one decade. If the FSSAI has reported now including those with trading partners as i-Explore International Research Journal Consortium www.irjcjournals.org
International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 51 Volume 4, No. 7, July 2015 INR210crore and estimated stock at its factories drug as a different drug or preparation) and 420 and distribution centers of INR 110crore. (cheating and dishonesty). According to Brand Finance, the Maggi brand was • Central Government has used the provision of worth $2.4billion before the recall of Maggi complaining on its own to NCDRC for the first products. The brand was ranked as 23rd most time: In further troubles for Nestle over Maggi row, valuable food brand in the world as ranked by the Central Government has filed a complaint with Brand Finance. The consultancy calculated $50 the National Consumer Disputes Redressal million loss of goods along with a damage to brand Commission (NCDRC) on its own in the interest of that resulted in a reduced Maggi brand value of consumers. Usually, NCDRC acts on the $2.2billion. Any health concern raised by any complaints filed by a consumer but section 12-1-D reputed organization, such as FSSAI, most of the Consumer Protection Act, 1986 also provides negatively affects a food brand. Now, Nestle will for Government to register a complaint on its own have to ensure its dominance in the Indian market. if it deems fit. For the first time in three decades, the Central Government has used this provision. FIGURE 3: Showing industry estimates of Nestle India The raising of issue by the Central Government has analysts regarding various effects of Noodles crisis shown the seriousness of the issue. So, the Maggi row has impacted the workers, suppliers, NOODLES CRISIS share market, Nestle’s revenue, brand ambassadors, Central Government, etc. The final verdict has not come • Market size: Around Rs 2,500 crore till now, so the issue has yet to impact a lot. • Sales: Makes up over 30 per cent of Nestle India’s revenue DILEMMA! A SORT OF DOUBT • Losses due to safety concerns: Rs 320 crore • Brand value hit: $200 million (Rs 1,200 crore) The industry is unclear about testing mechanisms and Source: Nestle India, analysts, industry estimates standards in India. FSSAI, a young organization with Source: Business Standard limited resources and infrastructure, may not be final organization on food standards, argue the company • Brand ambassadors in trouble: Since an executives. With Singapore, Australia, Newzealand, UK, ambassador plays a vital role in endorsing a product Canada and other countries giving a clean chit to India to the consumers and the consumers are affected by, made Maggi noodles, it has added to the doubt of whether who is endorsing the product, a lot. So, nowadays, FSSAI is justified in its clamp down on Nestle on the basis companies are contacting and making the filmstars, of test samples from a few states. Even the test of some of famous sportspersons, etc. as their ambassadors. the samples in several states have tested lower level of This shot up the sale to large extent. In case of lead and no MSG. according to Anupam Gogoi, food Maggi also, Amitabh Bachchan, Preity Zinta and analyst at the laboratory in Guwahati, presence of MSG is Madhuri Dixit are the brand ambassadors whose not an offence in India since there is no prescribed limit fan following has resulted in more favourable for it. But misleading labeling of ‘no added MSG’ is the response of consumers towards Maggi. Now as the issue. The company is saying that the product is safe for Maggi row has blared up, it has also put its brand consumption and FSSAI is saying the product is ambassadors, along with the company officials, in dangerous for consumption. Both have been defending trouble as a brand ambassador endorsing the one’s own side. These have created a dilemma among the product in the advertisement is also equally consumers whether Maggi should be consumed or not but, responsible for making the consumers fool. A this row has impacted a lot in India and also will impact in district court in Muzaffarpur had directed police to future also, till the final outcome will come. This is all register an FIR against two Nestle officials and about what began as a minor labelling dispute that filmstars- Amitabh Bachchan, Preity Zinta, and according to a local magistrate could have been settled Madhuri Dixit, who have endorsed Maggi in with an INR 25000 fine, spiraled into Nestle’s worst advertisements, and to arrest them if required in the public relations crisis to date in India. This study will help course of investigation. The FIR was made by a a lot to understand the real impact of Maggi row in complainant claiming that he fell sick after eating simplified and clear way. Maggi purchased from a shop at Lenin Chowk of Muzaffarpur on May 30, 2015. The case has been SCOPE FOR FURTHER RESEARCH filed under IPC section 270 (malignant act likely to spread infection of disease dangerous to health), I have conducted research only for a limited time period 273 (sale of noxious food or drink), 276 (sale of i.e. upto June 30. Till June 30, the final outcome has not come. Court hearings are pending and there is a lot to be i-Explore International Research Journal Consortium www.irjcjournals.org
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