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The world’s leading food giant, Nestlé, is facing a food safety scandal in India over its popular Maggi noodles. In India, the Maggi brand is synonymous with noodles, and completely dominates the market with 63% share in 2014. This means that the brand has a lot to lose. The severe drop in popularity as a result of this scandal is likely to have been exacerbated by the media which are keen to highlight public safety issues especially when connected with multinational organisations. Whilst the Indian government has now ordered Nestlé to stop selling and producing Maggi noodles nationwide, this could negatively impact other brands, as Maggi is so strongly associated with the product. Indeed, the government has launched investigations into other brands. Seeing as Maggi is such a significant player, will this scandal have negative repercussions for Maggi outside of India? Moreover, how will this scandal affect the brand’s sales in the long run?
Source: Euromonitor International
To put the scandal in context, India is the second largest market for Nestlé’s Maggi brand, with retail sales worth US$623 million in 2014 across noodles, table sauces and other products. Nestlé’s strategy in India has been to provide affordable products that cater to a wide consumer base, including within tier 3 and 4 cities. In India the rural population represents the vast majority at a penetration of 68%. By building a strong image in an affordable product such as noodles, Nestlé has been able to broaden the Maggi brand’s remit, and extend into products with higher margins such as cooking sauces and meal solutions for the more affluent consumer. This strategy has, however, been dependent on the trust that consumers have in Maggi and this is what is at risk.
This scandal is damaging for Nestlé in the short run as it affects its whole business strategy in India, especially after India’s national food safety authorities have now ordered Nestlé to stop selling and producing its Maggi noodles in the country. It should be pointed out, however, that Maggi has been around for a very long time in the country and food scandals are frequent in the food industry. It will not be long until another comes along and distracts consumers -and the media – from the Maggi food scandal of 2015. Taking a lesson from the European horse meat scandal back in 2013, whilst frozen ready meals have seen a dip in sales in 2013 of -6.5% in the UK for example, a year after the scandal the category has in fact returned to its normal growth of 1.8%, which is in line with the average CAGR growth seen over 2009-2014.
India’s food scandal is very much an isolated case with Nestlé having many factories worldwide. This means the noodles eaten in India are not the same as in China, for example. A global leader such as Nestlé will be sure to invest whatever is necessary to turnaround this bad publicity.
From a wider industry perspective however, this scandal underlines the importance of food safety as consumers grow more sceptical and government watchdogs raise their standards. Large multinationals are under scrutiny. This is especially true for Nestlé, which has a history with food scandals and so is more susceptible to scepticism concerned around the credibility of their claims. Whilst it will take some time for Maggi noodles to return to the shelves and to restore consumer trust, ultimately it will be a matter of time before consumers return to Maggi’s popular and affordable snack.