When a Global Giant failed to understand Local Litigations: 2-minute Nestlé Noodle Case
It was almost a month since Prof. Joshi and many more like him were missing Maggi noodles due to the ban on all variants of its noodles, citing the presence of excessive lead by Food Safety and Standards Authority of India (FSSAI) and by the Maharashtra Food and Drug Authority (FDA). Prof. Joshi who holds a PhD in Strategic Management and teaches Strategy in a Top B-school of India was not only thrilled due to this ban but also inquisitive on how Nestlé India was handling this situation. Nestlé’s Maggi noodles were under scanner due to the seven times more levels of lead than the permissible limit of 0.01ppm and violation of labelling regulations on taste enhancer monosodium glutamate (MSG) set by FDA. This resulted in a legal suit under the unethical trade practices and violations of labelling and packaging norms.
Surprisingly, Nestlé India had reacted on this whole fiasco in a very passive manner, in spite of it being an important product portfolio for the organization. Maggi held 63% of India’s instant noodle market before the ban and thus resulted into a loss amounting to INR3.2 billion worth of inventory withdrawn from shelves, distributors and manufacturers.
All these facts and figures triggered Prof. Joshi’s mind to discuss the whole issue in his next Strategy class. But before taking this to his class, he wanted to track the events of Nestlé India, the whole Maggi Fiasco and how the organization could have reacted in a much better manner by learning from previous incidents of product recalls....................
Nestlé India
Nestlé SA was the second largest health and wellness company globally in 2014, with health and wellness sales of $31.7 billion. Nestlé SA was also the world leader in many product categories like coffee, mineral water, snack foods, beverages and chocolates. Nestlé India, a subsidiary of the global FMCG major Nestlé SA, Switzerland, entered India in 1959. Initially, it imported and sold condensed milk and infant food. Manufacturing operations began in 1962 with a condensed milk brand – Milk maid.
Nestlé India Ltd. had over eight manufacturing units and four branch offices in India by the year end, 2015. Targeting various segments, Nestlé owned around 2,000 brands and marketed more than 30,000 products.............
Maggi Noodles Fiasco
Nestlé 2 minutes Maggi fiasco started in March 2014, when Food Safety Regulators from Uttar Pradesh, a state in Northern India found the level of MSG, 7 times more than the prescribed limits. The broad sequences of events are:
March 2014
• Authorities in the State of Uttar Pradesh inform Nestlé India that MSG was detected in a sample of Maggi noodles that carried a “No added MSG” claim on the pack.
January 2015
• Another sample of noodles was received by the referral laboratory for testing MSG traces.
April 2015
• The referral government laboratory in Kolkata says it has detected lead levels above permissible limits and tested positive for MSG in its sample of Maggi noodles.
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Nestlé India Response
The whole squabble of lead and MSG was unpalatable for Nestlé India. During the whole debacle Nestlé India responded in following way to the whole Maggi fiasco:
March 2014
• Nestlé India stated that it never added MSG to Maggi noodles and requested a second sample to be sent to a referral government laboratory in Kolkata.
April 2015
• Nestlé India tested Maggi noodles samples- representing 16.5 billion packets - by its own accredited laboratories and independent accredited laboratories both the results showed lead levels to be within the limits set by the Indian food safety authorities.
May 2015
• Media picked up the issue. Nestlé blocked all lines of communications with customers, non- response to individuals’ queries for more than 15 days. While, automated replies were given on social media on Maggi queries, Nestlé global site did not even acknowledge the controversy in India.
• ...............
Prof. Joshi’s Discussion in his Class
Prof. Joshi (The Instructor): Good morning Class, hope you all enjoyed your long weekend and did not forget to read my emails and attachments.
Avinash(Participant 1): Prof. Joshi, so are we going to study Maggi debacle in our today’s strategy class? We already had discussion on Maggi fiasco in our marketing class. Is it on the same lines or we need to discuss it from the different perspective?
Vaishali (Participant 2): Yes Prof. Joshi, we need to submit a similar assignment in our marketing assessment. Thanks to your handouts and suggested reading that would help us a lot in our assignments.
Prof. Joshi: That’s really great that my handouts are helping you in your other courses but certainly our discussion point is not solely on the one aspect of marketing communication. There must be some thoughtful reason to include this discussion in our strategy class. Unquestionably, we are going to assess this debacle from many other angles. Interestingly, Nestlé had a past history of controversies attached with its name and lawsuits filed against its business lines Nestlé had issues of forced labour in its supply chain in Thailand10, controversies related to its baby food.............
Assignment Questions
I. What were the drivers of Maggi Fiasco? Was it only the failed PR or anything else?
II. As far as the Corporate Legal Strategy is considered, what is your opinion on Nestlé India’s take as more of denial rather acceptance of situation?
III. What lessons and strategy, Nestlé India should have followed from the response of earlier product recalls happened across different sectors and geographies?
IV. ...............
Exhibits
Exhibit I: Company Shares of Noodles in India: % Value 2012-2015
Exhibit II: Nestlé India Share Price movement – NSE (May 2015-April 2016)
Exhibit III: Cost to Nestle‘ India Due to Maggi Ban
Exhibit IV: Previous Product Recalls and Firm’s Strategy to Combat
