Corporate: Resurrecting Brand Maggi

Calling it a “crisis” that no company should have to go through, Nestlé India chairman and managing director Suresh Narayanan recalls the five-month ban on Maggi (June-October 2015) as an “unfortunate” incident. “People dragged the brand through fire and mud. The brand not only survived, it came out cleaner and stronger,” says the 56-year-old Narayanan who took charge of Nestlé India in July 2015, amidst the worst crisis that hit the company in its 100-year history in India. On 9 November, 2016 (the day demonetisation kicked in), Nestlé India completed one full year of the successful relaunch of brand Maggi.

According to Narayanan, the popular instant noodles brand Maggi is nowhere near its dominant 75 per cent market share in 2014, when the entire instant noodles category was estimated at Rs 2,200 crore. “Today, we are inching towards 60 per cent market share. A lot of work still remains,” he says. This is because the entire category of instant noodles has shrunk in size. “Many consumers gave up on instant noodles since Maggi was not present. Now they are back,” says Narayanan.

If you remember, the 150-day absence of brand Maggi from the market was because of a recall ordered by the Food Safety and Standards Authority of India (FSSAI) on 5 June after testing 78 samples of Maggi from across locations, of which 30 samples were found carrying excess lead. In terms of value, Nestlé India lost around Rs 500 crore. “We took back 35,000 tons of stock worth Rs 320 crore and burnt it,” recalls Narayanan.

But there were bigger ramifications. For instance, Nestlé India reported a 17 per cent drop in revenue and 53 per cent dip in its net profit for 2015 because of Maggi fallout.

During the ban, five out of the eight plants of Maggi were closed. About 400,000 farmers could not supply their wheat to millers from whom Nestlé India bought. About 15,000 suppliers had almost no supplies to the company because Nestlé India was not able to actualise it. The distributors, some of whose 25 per cent to 40 per cent of business depended on Maggi, did not have the business.

On The Path To Recovery
Of late, the company has started demonstrating recovery as reflected in its latest quarterly results. For the quarter ended 30 September, 2016, the company posted a net profit of Rs 269 crore compared to Rs 124 crore for the same quarter a year ago. The company’s total income too increased to Rs 2,400 crore for the quarter compared to Rs 1,769.6 crore in the corresponding period a year ago. Says Narayanan: “Our growth was broad-based across categories aided by spate of innovations and renovation of over 25 new products launched in the recent past. We are now clearly in the leadership position in the instant noodles category, which vindicates consumer confidence and trust in brand Maggi.”

“We are now looking at value growth across categories and we are not playing the price game,”says Narayanan.

As a result, Nestle India has completely revised its schedules. For example, the packaging material that took 42 days on average, takes nine days today. Raw materials now come in five days compared to 21 days before. Point of sale material now takes 20 days instead of 60, while the system’s readiness is now kept at five instead of 21 days previously. Similarly, campaigns take 20 days instead of 45.

In order to further consolidate its India business and give it a big push, Nestlé plans to launch at least half-a-dozen new products and categories sourced from its global portfolio.Consumers can expect new products in categories such as pet care (Dolce Gusto), coffee (Nespresso), cereals, skin care brand (Galderma) and products in the specialty health products among others. “We are evaluating as to which products and categories can be introduced first in India. One can expect these in the first or second half of 2017,” says Narayanan.

Under Narayanan’s stewardship, Nestlé India has already injected 20-25 new products in the market in the past four to five months. To bolster’s Maggi, the company introduced at least seven variants including Maggi noodles no onion no garlic masala, Maggi Cuppa noodles under masala, chilly chow, hot heads periperi and hot heads barbeque pepper flavors. It also introduced smaller packs and added chilli chicken and green chilli to its portfolio. Other launches include Maggi pazzta in masala, cheese and mushroom flavors.

Under its Nestea brand, new flavors such as passion fruit, mango and pineapple, watermelon and coconut and rose were introduced. For toddlers, it launched Ceregrow cereals and cerelac with iron fortification.

Lessons Learnt
So what lessons did Nestlé India learn from this crisis?

“We learned the power of our relationships,” says Narayanan with confidence. “Despite zero production, there was no labour unrest. Our suppliers were badly affected, but they chose to stand with us. Same thing happened to our distributors and shareholders who all stood with us. So we learned the strength of our relationships,” he adds. According to brand expert Harish Bijoor, brand Maggi was “shaken” and “stirred” during its absence. “And from it all has emerged a stronger Maggi. A learned Maggi. Not only has Maggi learnt a lesson, but the entire FMCG industry has learnt a lot from what happened,” says Bijoor. In response to the question regarding the challenges involved in relaunching a food brand and whether Nestlé India managed to tackle it with some degree of success, Bijoor says, “Food brands are sensitive to body and mind. With one pack amiss, one product gone astray, there can be chaos.” “Re-launching a food brand means a complete due-diligence that is totally quality-besotted. I do believe Nestlé has tackled all of this with the highest standards and stringency in mind,” he adds.

Was there any adverse impact on consumer sentiments because of the ban? “Yes, there certainly was. Trust is the basic buzzword for brands. The Maggi trust was questioned. Many consumers stayed away from the brand even. I am sure, even now, the loss has not been completely recouped,” says Bijoor.“Consumer sentiment can get shaken to different degrees. Those who were slightly shaken are back. Those who were roughed up on this count will take time. And that is the brand task ahead for Maggi,” he adds. A recent IIFL report on Nestlé India reflects this. “We expect revenues to grow at 15 per cent in calendar year 2016 (estimate),” the report said. This will be mainly due to low sales growth because of slower than expected rise in demand for Maggi. “Noodle consumption is still a concern for some consumers (especially mothers, who migrated to other food options),” the report went on to add.

All said and done the re-launch of brand Maggi has been a success story so far. Narayanan has met the first challenge to some extent, but the bigger challenge of expanding Nestlé India still remain a ‘work-in-progress’.

SURESH NARAYANAN, MD & CEO, Nestlé India

‘We Are As INDIAN As Anyone Else’

What were your learnings from the Maggi crisis?
Among several things, we learned the power of our relationships during the period. There was no labour unrest even though we had shut production. Our suppliers were badly affected, but they chose to be with us. Our shareholders were with us and so were our partners. We learned the strength of our relationships where the chips were down. Five of our factories were shut for five months. The employees were re-deployed and re-trained. We did not have a single disruption in our business relations during that phase. The crisis taught us the power of digital engagements. Our digital activations are quite high today. Now digital marketing is central to our plans. From 2,500 consumer calls in a year, today we are getting half a million calls or interface on social media which gets addressed in less than 24-48 hours.

Can you recount the losses suffered during this crisis?
In value terms, we lost about Rs 500 crore. That is there on our books. But as a ripple effect of this crisis, the value of loss to our suppliers, distributors, 4 million retailers and shopkeepers, cannot be computed. There was one shopkeeper in Ahmedabad who told me his daily sales of Maggi alone was around Rs 3,000 before the ban. I can only imagine what he must have gone through.

What was the loss to the stock which was already seeded in the market just before the ban?
We took back 35,000 tons of stock worth Rs 320 crore which were burnt. But even in those stocks, we were much below the permitted levels of lead. We have also done tests at every stage of the manufacturing and we had been doing this for years. That work goes on.

What is your strategy after Maggi re-launch?
We have launched 25-30 new products in past three to four months including different flavours within the instant noodles category. This is the largest introduction of new products in the history of Nestlé India.

How do you fight the perception war of desi vs videshi debate when it comes to food products?
There is a lot of half-truths and disinformation being constantly spread around. Almost 100 per cent of our employees are Indians, so are our suppliers, distributors and retailers. We have one lakh shareholders and they are Indians. So we are as Indian as anyone else. But that does not mean that I have to stamp a Trimurti logo on my products to prove that point.