Nestlé’s Maggi: Pricing and Repositioning a Recalled Product
In early June 2015, Paul Bulcke, Nestlé S.A.’s global chief executive officer, took an urgent flight to India, having been advised that one of the company’s highly popular brands, Maggi, was banned from its second- largest market. The issue was further aggravated when the ban spread to India’s neighbouring countries, Singapore and Nepal. Food safety agencies of various developed countries, including the United Kingdom, soon became concerned.1 India’s food regulatory body, the Food Safety and Standards Authority of India (FSSAI), labelled Maggi as unsafe to human health after samples showed excess levels of lead and monosodium glutamate (MSG).2 Following considerable outrage over food safety fears in India, Nestlé withdrew the entire stock of the product that had been distributed at retail channels across the country. Nestlé persistently claimed that the product was safe. However, the decision to recall the product was made to retain consumer confidence, as noted in a press release issued by the company:

The trust of our consumers and the safety of our products is our first priority. Unfortunately, recent developments and unfounded concerns about the product have led to an environment of confusion for the consumer, to such an extent that we have decided to withdraw the product off the shelves, despite the product being safe.3

The stock recalled from the market was worth ?2.1 billion,4 with an additional cost for materials valued at ?1.1 billion, affecting various stages of the supply chain.5 In terms of business share and potential, Nestlé had no way of avoiding the product line’s impact on its portfolio in the Indian market. Nestlé’s management team was busy drafting a new business strategy to relaunch its highly popular Maggi brand. Etienne Benet, then managing director of Nestlé India, stated, “We are determined to resolve the Maggi noodles issue in the best possible way. We will return Maggi to its rightful position as ‘the most trusted food brand in India.’”6 The management team was grappling with an improved re-positioning strategy to help retain its market share in India. Nestlé also wondered what critical role pricing would play in influencing consumer purchase decisions during Maggi’s proposed relaunch.

For the exclusive use of J. Huang, 2022.

This document is authorized for use only by Jun Peng Huang in BUS151 Brand Management taught by Malousak Seyednematollah , Other (University not listed) from Jun 2022 to Jul 2022.

Page 2 9B16A025 THE MAGGI CRISIS In India’s largest state, Uttar Pradesh, standard testing of Maggi samples revealed excess quantities of lead and MSG. The state directed the inquiry to the FSSAI and they confirmed the allegation. The FSSAI stated, “We have tested Maggi samples at Kolkata’s referral laboratory. The test results show that there are added monosodium glutamate and excess of lead. We have ordered further sampling.”7 The product was found to contain 17 parts per million (ppm) of lead, which exceeded the permissible limit of 0.01 ppm. Nestlé refuted all claims, asserting that the lead content in the product was actually less than 1 per cent of the allowed limit.8 The Nestlé spokesperson said,

We do not add MSG to Maggi Noodles, and glutamate, if present, may come from naturally occurring sources. Food regulators in India also do not specify any limit for the presence of MSG [and/or] glutamate.9 We are surprised with the lead content supposedly found in the sample. We monitor the lead content regularly as part of regulatory requirements, and tests at our own accredited laboratories as well as those by independent, external-accredited laboratories have consistently shown the results to be well within the permissible limit.10

Losses The controversy caused both tangible and intangible losses for the company. Nestlé India incurred a direct loss of 20 per cent revenue due to the Maggi ban and nationwide recall. According to Brand Finance, the brand value of Maggi was anticipated to fall by approximately ?13 billion.11 Nestlé’s stock fell by 15 per cent, resulting in a market capitalization loss of ?100 billion.12 However, analysts anticipated that the company would rebound very strongly with full volume recovery within a year. In addition, brokerage firms also predicted a sharp comeback on stock values. One analyst suggested, “Nestlé stock is a good long-term buy for investors as fundamentally the company has some great brands that give earnings growth visibility and cash flows.”13 The recall had an impact on the entire value chain. It affected all direct and indirect stakeholders. The 1,500 permanent employees directly involved with Maggi production were temporarily shifted to training activities and trade building exercises. Suppliers who had strong dependence on Nestlé were exploring the prospect of new customers. One supplier stated: “We were supplying around 200 tonnes of spices per month to Nestlé. That has been affected. Now, we are trying to find new customers, and in future we would try to reduce large dependence on a single client.”14 To recover all kinds of losses, it became imperative for Nestlé to design a comeback strategy. The relaunch strategy would require a focus on re-positioning, pricing, and other operational issues. It was highly likely that such a crisis could extend to other product lines or brands and also spread to different continents at any stage of the business life cycle. Nestlé needed to take various proactive measures to ensure that this major crisis would not be repeated at any point in the future. CRISIS MANAGEMENT IN THE PAST The business world had witnessed a number of similar crisis situations in the previous three decades. Some of the most widely known included Johnson & Johnson’s cyanide-laced Tylenol capsules in 1982, PepsiCo’s soft drink can tampering rumours in 1993, Texaco’s racial discrimination lawsuit in 1994, and Odwalla Foods’ apple juice E. coli15 outbreak in 1996. More recently, there were other similar issues including Cadbury’s worm-infested candy bars in 2003, JetBlue’s week-long operational breakdown in

For the exclusive use of J. Huang, 2022.

This document is authorized for use only by Jun Peng Huang in BUS151 Brand Management taught by Malousak Seyednematollah , Other (University not listed) from Jun 2022 to Jul 2022.

Page 3 9B16A025 2007, Toyota’s extensive recall in 2010, the Red Cross’s rogue tweet in 2011, and Taco Bell’s meat-filling lawsuit in 2011.16 An analysis of the successful corporate management of the above cases, effectively addressing all public relations, marketing, and operations aspects of the issue, would prove a useful model for ideal handling of a crisis situation. THE ROLE OF PRICING In 2014, Nestlé recorded its slowest sales growth in the previous five years. The Maggi recall had further spread the negative publicity among buyers. Bulcke admitted that “consumer trust [had] been shaken.”17 India was the second-largest market for its Maggi brand. The Swiss food giant confessed that “India is important to Nestlé,”18 and that it would strive to sustain its customer share in the Indian market. With respect to marketing, pricing could directly influence consumer purchase behaviour. The impact was expected to be even more significant when relaunching a product that had suffered a major market share loss due to a product recall. To use pricing as the centre of the comeback strategy, it was essential for Nestlé to achieve excellence at meeting the ideal product and market level.19 The strategy required managing the trade-off between benefits and price. A value map was the ideal tool to provide a snapshot of how consumers perceived that trade-off. All competing brands needed to be mapped, including Sunfeast, Bambino, Top Ramen, private labels, and other local brands. The exercise would provide useful insight for the decision-makers to formulate a strategy that could achieve ideal pricing at the best product and market level (see Exhibit 1). The increased demand-versus-supply gap created by the Maggi incident benefitted Patanjali Ayurved Limited (Patanjali), India’s fastest growing Ayurvedic company. The company had numerous product lines to diversify its business, so it was easily able to enter the noodles market. The product would be sold through the vast distribution network of Future Group, India’s major retail chain.20 The promoters of Patanjali’s Atta Noodles claimed that the upcoming product would be superior to Maggi, but would be sold at only ?15, compared to ?25 for an equivalent size of Maggi.21 Of the many possible strategies at its disposal, Nestlé concentrated on three key options to re-enter the Indian market: increase value with the same prices, increase value with lower prices, or increase value with higher prices. Undoubtedly, Maggi would increase both tangible value (making the product safe for consumption) and intangible value (promote awareness through effective labelling). As Nestlé prepared to relaunch its product with enhanced value, management was concerned about the decision over new pricing. Anticipating the customer’s response to the price change, the core team was busy pondering various factors that would influence the market’s response to a change in pricing. THE URGENCY FOR A COMEBACK Emerging economies already contributed 43 per cent of Nestlé’s overall revenues and were expected to further increase that share. Changing consumer lifestyle in emerging economies had increased demand for packaged food, whereas buyers in developed countries preferred fresh foods. In 2014, sales in emerging markets was growing at 8.9 per cent as compared to only 1.1 per cent in developed countries. With changing consumer tastes in Europe and China, Nestlé concentrated more of its focus on India.22 In 2014, Nestlé reported US$623 million in sales of Maggi noodles, table sauces, and other products in India.23 The brand name Maggi became interchangeably used to refer to noodles in India. India’s ?40 billion

For the exclusive use of J. Huang, 2022.

This document is authorized for use only by Jun Peng Huang in BUS151 Brand Management taught by Malousak Seyednematollah , Other (University not listed) from Jun 2022 to Jul 2022.

Page 4 9B16A025 noodle market24 had many players, but Maggi controlled 63 per cent of the industry (see Exhibit 2).25 A 2014 consumer survey declared Maggi one of the five most trusted brands.26 Future sales forecasts revealed a growth rate of 50 per cent by 2019 against base figures in 2014 (see Exhibit 3). Therefore, resolving the current Maggi crisis was of extreme importance to the Nestlé management team. The senior leadership team was confident that it could regain its market status as one of the most trusted and preferred brands in India. The relaunch strategy needed to be both effective and timely to retain control of the market, which was threatened by Maggi’s main competitors including Patanjali (Patanjali Atta Noodles), ITC Limited (Sunfeast YiPPee! Noodles), Nissin Foods (Top Ramen), and Hindustan Unilever Limited (Knorr Soupy Noodles). Nestlé’s international market was also a concern. Indian-manufactured Maggi products were directly exported to Canada, the United Kingdom, Singapore, and Kenya, and sold through third parties in the United States, Australia, and New Zealand.27 Regaining these markets after a long absence could become a very difficult task. THE EXISTING POSITIONING All previous promotional campaigns for Maggi had consistently communicated a sense of happiness. Some of Maggi’s most successful projects in India included the following three marketing campaigns. Me and Meri Maggi In 2009, Nestlé India launched the highly successful “Me and Meri Maggi” campaign. It was launched to celebrate 25 years of Maggi’s presence in India. The rationale was to bring consumers closer to the Maggi brand. Children who had grown up with Maggi as a regular food were now adults, and some of them had unique stories to tell. People were asked to share their memorable stories on any topic involving Maggi, such as “Maggi on a Roadtrip.” The campaign was a resounding success with over 40,000 stories submitted by devoted Maggi customers. The heartfelt stories included some emotional and private moments involving Maggi (see Exhibit 4), and the 50 best stories were printed on Maggi packaging. The project also asked customers to submit filmed stories, of which three were chosen to be featured in Maggi advertising commercials.28 The marketing group that managed the project for Nestlé was overwhelmed by the response, as they noted: