Nestle in a soup

The Swiss food multinational finds reality catching up with its claims of producing healthy food for the masses.

In 2014, Nestle India spent Rs.445 crore on advertising and a paltry Rs.19 crore on quality and testing. Many of the advertisements are targeted at children.

NOTHING is as effective as a ban to highlight an issue. That is exactly the case with the ban on Maggi noodles, which is perhaps the most ubiquitous pan-Indian food brand. Nestle, arguably the biggest global food products multinational—depending on how one defines “food” —finds itself in the soup as its products head to incinerators instead of shop shelves. The company that has basked in the image it has created through a massive advertising campaign since Maggi first hit Indian kitchens in the mid-1980s now faces a serious image problem. The noodle brand, popularised by the “two-minute” tagline, a reference to the time it takes to get a meal to the table, now runs the risk of a backlash because of the lead and monosodium glutamate (MSG) it has been found to contain.

Nestle India, the multinational’s Indian subsidiary, in a filing with Indian stock market exchanges, said stocks of Maggi noodles worth Rs.210 crore were being “withdrawn”. In addition, it said noodles worth Rs.110 crore were caught in the pipeline, in factories and with its distributors. “These are broad estimates because it is impossible to calculate the final figure while the withdrawal is taking place,” the company said in its filings. It said there would be “additional costs” that would arise from the cost of transporting the withdrawn material, apart from the cost of delivering the material to the destruction centres and the cost of destroying the banned material. The company said a “final figure” on the cost and losses involved could only be confirmed later. In another statement issued earlier, it said the ban had created “an environment of confusion for the consumer”.

Specifically responding to the findings of high lead content, the company claimed that tests conducted at its own accredited laboratories on 1,000 batches of the instant noodles showed the lead content to be within regulatory limits. It claimed that these tests were complemented by 600 more tests conducted at “external laboratories”. On the question of MSG in the noodles, the company reaffirmed its claim to have “no added MSG” (as stated in packets). However, it admitted that naturally occurring MSG used in ingredients could have caused the “confusion”. This has been countered by food scientists who argue that the “no added MSG” label is misleading because it does not categorically deny the use of other variants of MSG that are used as taste enhancers.

Although Nestle India moved the Bombay High Court against the ban, it has failed to obtain immediate relief from the court. The court has now issued notice to the Food Safety and Standards Authority of India (FSSAI), the regulator, and other respondents and posted the matter for hearing on June 30. The Swiss multinational’s Indian subsidiary asked the court to revoke the ban on the sale of all nine variants of Maggi noodles and its oats variant in the Indian market. But more trouble was in store for Nestle India, when it admitted on June 17 that it was “investigating” a complaint from a Coimbatore-based couple that its popular baby milk supplement Cerelac contained live beetles.

The company’s counsel argued in the Bombay High Court that the fact that Maggi made in India was being imported by Singapore, Canada, the United States, the United Kingdom and Australia was proof of it meeting regulatory standards. However, this claim has been belied by recent reports. For instance, just a day prior to the hearing in the Bombay High Court, the federal Department of Food in Australia issued a “holding order” on Maggi noodles imported from India as a “precautionary measure”. Reports also indicate that earlier this year the U.S. Food and Drug Administration (FDA) had refused to allow import of Maggi noodles for failing to cite the relevant nutritional information in its packaging. Reports indicate that the FDA has sent samples for testing after the crisis erupted in India in June.

The multinational Nestle SA emerged in 1905 from the merger of two milk-producing companies. It now owns more than 190 companies and employs more than three lakh persons globally. The Maggi brand, originally a soup mix product, became part of its portfolio in 1947, when it acquired Fabrique de Produits Maggi SA, which was founded in 1884. Nestle’s revenue was 91.6 billion Swiss francs in 2014 (about Rs.64 lakh crore). It owned assets valued at 120 billion Swiss francs (about Rs.83 lakh crore) at the end of 2014. Its clout in the global food business rests on its domination in four market segments—milk and milk products, chocolates, coffee, and instant and ready-to-eat foods such as the now much-maligned Maggi soups and noodles. These four product groups are also the key pillars for the Indian subsidiary.

A story, perhaps apocryphal, is often told of how V. Kurien, the man who set Amul on the path to stardom, was rebuffed by the bosses at Nestle when he ventured to seek advice on how to establish a plant in India for manufacturing milk powder for infants. Subsequently, the late H.M. Dalaya became the technical mastermind behind Amul’s foray into milk powder production using indigenously available buffalo milk, which was considered unsuitable by the foreign experts. As the story goes, after Amul had established itself, Nestle sought a collaboration to market its own products, but Kurien, in his characteristic style, refused the offer.

Nestle’s Indian subsidiary registered net sales of Rs.9,855 crore in 2014; it made a net profit of Rs.1,185 crore that year. Although the company does not reveal segmented sales figures pertaining to each of its four core pillars, some indication of how much Maggi matters to it can be gleaned from figures it revealed to analysts in November 2014. According to these figures, the company’s earnings from the “Milk Products and Nutrition” business accounted for a little less than half of its overall earnings; earnings from “Prepared Dishes and Cooking Aids”, under which Maggi noodles would fall, accounted for almost one-third of its sales, which do not include exports of Maggi, which is now in the crosshairs of regulators across the world. About 10 per cent of the revenues came from “Beverages”, which would include the Nescafe brand of instant coffee; chocolates, the fourth pillar, contributed the remainder.

The story of the transformation of Maggi from a product for the elite to a product that invaded every kitchen across every demographic is a classic in the history of Indian advertising. The company’s leadership, by its own admission, understood that it needed to shift consumer perception that healthy food meant boring food. The peppy advertisements, aided by Bollywood stars such as Amitabh Bachchan and Madhuri Dixit, and sprayed across every conceivable platform, was key to this successful transformation. A noticeable aspect of Maggi’s advertising campaign has always been its systematic targeting of children, using them to rope in sales. There is much irony in this in the context of the recent ban because MSG is particularly harmful to children, the very target of the advertisements that Nestle unleashed. The invasion of the Internet has only amplified this tendency further, offering companies like Nestle a much wider marketing and advertising scope.

The second critical aspect of Nestle’s strategy rested on the use of the packaging revolution, which evolved in the 1990s, to deliver smaller pack sizes, and consequently cheaper unit prices, to poorer consumers. This, coupled with the advertising blitzkrieg, expanded Maggi’s reach exponentially. It was no longer a product for wealthy kids in the metropolises but one that could now be sold in small towns and villages across the country. Maggi thus became synonymous with noodles across the country, much like Colgate was synonymous with toothpaste a couple of generations ago in rural India.

In a poor country where the inequalities in income are mirrored in the way people consume, taking advantage of the packaging was vital. When Maggi started selling for Rs.5 a pack, it suddenly increased its reach simply because it was notionally cheaper for consumers. The noticeable change in the style of advertising, which also portrayed semi-urban and rural characters, was aimed to maximise this reach. It is not insignificant that newer advertisements on TV are specifically targeted at less well-heeled citizens.

This advertising blitzkrieg is reflected in Nestle’s financial priorities in India. In 2014, the company spent Rs.445 crore on advertising and sales promotion; contrast this with the Rs.19 crore it spent on quality and testing its products that are now in the eye of a storm.

Faced with the serious crisis in India, Nestle has turned to using the route it knows best: hire a public relations firm. Recent reports indicate that APCO Worldwide, a global communications consultancy, the one that handled the Vibrant Gujarat campaign when Prime Minister Narendra Modi was Gujarat Chief Minister, has been entrusted with the campaign to cleanse Nestle’s image in India. APCO is known to operate more on the political connections of corporates instead of the traditional corporate communications side of the business. In 2013, the global PR agency handled a similar crisis for Johnson & Johnson’s talcum powder.

It is evident that the adverse publicity that Nestle has attracted will not go away soon, especially because its advertising has ensured that it remains seared in public memory. A company that sold its noodles by saying Health ko mazeedar banao (healthy can also be fun) is now being paid in its own coin.