Why the Maggi Noodle Recall Has Landed Nestle in Hot Water


When it comes to customer reach and brand value, Maggi, the line of noodles, instant soups and seasonings owned by Nestle, has been mentioned in the same breath along with such big names as Coca-Cola and Colgate.

In one such survey focusing on Indian brands, by Millward Brown, Maggi was ranked No. 18 with a valuation of $1.127 billion. According to a Euromonitor report, Maggi accounted for 60% of India’s noodle sales last year. In other words, noodles equal big money for Nestle, which is also home to Alpo pet food, Gerber baby food and KitKat candy bars, among other product lines.

But now Maggi noodles have been pulled off the shelves in India. The massive recall came after the Food Safety & Drug Administration of the state of Uttar Pradesh found excessive levels of lead and MSG (monosodium glutamate) in a sample batch of Maggi noodles. The government Food Safety and Standards Authority (FSSAI) subsequently collected fresh samples of Maggi and, hours after Nestle withdrew all varieties of the noodles on June 5, ruled the snack to be “unsafe and hazardous.”

Though Nestle has challenged the findings in court, it has taken a $45 million hit to withdraw and destroy the noodles. Nestle India stock dropped four days in a row, and the share only regained slightly when company CEO Paul Bulcke made a statement that Maggi noodles were safe for consumption. Bulcke also made a pit stop in Delhi for two days earlier this month to try and defuse the crisis.

On crisis management in such cases, Wharton management professor John Kimberly points to Toyota president Akio Toyoda’s response after Japanese police on June 18 arrested Julie Hamp, a senior company executive, for possessing a controlled substance. Within a day, Toyoda called a press conference and apologized for the incident, while maintaining that his company believed Hamp had no intention of breaking the law.

“To me, executives and staff who are my direct reports are like my children,” Toyoda said, according to a Reuters report. “It’s the responsibility of a parent to protect his children and, if a child causes problems, it’s also a parent’s responsibility to apologize.”

“The Maggi quality check story is a clear indicator of the power of social media.” –S. Raghunath

According to Kimberly, Toyoda’s response was “textbook — a quick response, but measured. Get out in front, but do it in a way that doesn’t prejudge the outcome.”

Can Maggi — and Nestle — recover? “Too little, too late,” was how B.N. Kumar, executive director of Concept Public Relations and national president of the Public Relations Council of India, described Bulcke’s efforts.

Observers note that while the FDA in Uttar Pradesh initially recalled Maggi on April 30, the Swiss firm waited until June to address the media in Delhi and to appoint APCO Worldwide, the U.S.-based lobby group, to represent its interests in India. “Nestle was clearly caught with its noodles in a knot,” adds Kumar.

Kimberly recommends a five-point crisis management strategy for companies in such situations to restore credibility: “One, acknowledge that there is an issue that needs to be examined carefully. Two, buy time to get the facts. Three, do not deny involvement/responsibility. Four, do not attempt to estimate the magnitude of the problem. And five, commit to a speedy but thorough investigation.”

According to Kimberly, the most common mistake companies make is to underestimate the magnitude of the problem. “This is an understandable effort to try to minimize the company’s role or involvement or potential culpability, but will inevitably come back to haunt it and will be a public relations disaster,” he says.

Other brands have weathered similar crises and managed to rebuild their reputations. And the recall could have positive implications if it becomes a catalyst for stiffer food safety regulation in India, observers say.

Equally Guilty

“The incomplete formulation and poorly-enforced regulatory system in the country has contributed to sporadic incidents of complacency in multinational safety standards and the oversight process,” says S. Raghunath, professor of corporate strategy and policy at the Indian Institute of Management (IIM) in Bangalore. “The weak grassroots supervision mechanism in India has partly contributed to the low transparency and public accountability of MNC activities.”

“Multinationals typically follow the law of the land. If it is inadequate, they do not bother to adhere to the standards that they do in their own home countries or in other developed nations.” –Naveen M.V.

But firms are facing increased pressure — and complaints of malfeasance are gaining broader visibility — thanks to social media. “Social media has turned the Internet into a powerful channel of stakeholder complaints and hence a source of challenge for MNCs,” Raghunath says. “The Internet facilitates low-cost and fast dissemination of complaints as well as coordination of protests. The Maggi quality check story is a clear indicator of the power of social media Twitter .”

Raghunath notes that Nestle made a contribution to the bottom of the pyramid nationwide with the introduction of Maggi noodles in 1983. “Demonstrating sensitivity to the dietary needs of working class families through the nationwide distribution of noodles … was seen as a key way to achieve societal advantages and to make the product line sustainable from a societal point of view,” he says.

He cites a possible reason for Maggi noodles being laced with lead. “MNC activities, including products and services, are connected with the raw materials they use. Lead can appear through groundwater used in the process, as well as through any other constituent ingredient used in the process.”

Then there is the issue of the lax laws of the land. “It is not just a perception; it is a reality,” says Naveen M.V., group managing director at First Agro, India’s first commercial grower organization with zero-pesticide produce complying with the World Health Organization’s Codex. “Multinationals typically follow the law of the land. If it is inadequate, they do not bother to adhere to the standards that they do in their own home countries or in other developed nations. Also, don’t forget that compliance costs money. When people run businesses, they are governed by their own profit motives.”

If MNCs are portrayed as villains in developing countries, Kimberly suggests they do some introspection on that. “More often than not, it has to do more with patterns of MNC behavior that have developed over time than with a particular incident,” he says. “The incident frequently is a trigger that brings long simmering resentment to the surface, resentment that stems from those patterns.”

Concerns over the use of pesticides were at the forefront in 2006, when a report by an Indian environmental group accused Coca-Cola and Pepsi beverages of being contaminated. The two soft drink firms countered that the groundwater contained a higher level of pesticides and if they were to use that groundwater for production, then their own products would reflect that.

But the two firms struggled to win back Indian consumers, despite forming committees in India and the U.S. to deal with the issue and commissioning their own laboratory tests. The two CEOs held a joint press conference, and when one faced embarrassing questions, the other took up the slack.

“Taking the high ground is tricky. It can generate positive public sentiments that can pay off in the short run, but at the same time implies a commitment to long term initiatives that the company has to be prepared to honor.” –John Kimberly

The Maggi episode, too, “is likely to become a case study in PR,” says Kumar. The only other company with a double-digit share of the noodle market is ITC’s Yippee, which is now planning to use its extensive network of mom-and-pop shops whose shelves have been denuded of a very popular product.

Any brand can fail any inspection, particularly in a world of a multiplicity of standards, experts note. “At CSE [the Center for Science and Environment], when we tested Maggi noodles in 2012 for sugar, salt and fat content, we found that the websites of many multinational fast food companies had very detailed labeling information in the U.S.,” says Amit Khurana, program manager for food safety at CSE. “But their Indian website did not have much information. This seems to suggest different standards.”

“One of the reasons multinationals get away with this in India is that we need a lot of improvement in our food and safety standards,” adds Khurana. “Another reason is the inadequacy of our implementing agencies. At CSE, we think the Maggi noodles issue is a very important one. This is perhaps the first time that an ultra-processed packaged food is being checked for heavy metal contamination and the results have been made public by the government authorities.”

In India, multinationals have generally had things their way. The first sign of consumer dissonance came in 2003 with claims of worms being found in Cadbury chocolates. “Impossible,” said the company and proceeded to ignore it. But, as sales of the iconic product plummeted, and company chairman Lord Cadbury was widely pilloried, the company roped in actor Amitabh Bachchan as brand ambassador. (Bachchan is also a onetime brand ambassador of Maggi; he and other brand ambassadors were warned of action by the government if their ads were found to be misleading.)

The Cadbury packaging was ultimately changed and even the storage arrangements were altered. This was done at all retail outlets and likely involved a major expenditure. Mondelez, the new avatar of Cadbury after its spin-off to Kraft, is doing fine in the Indian market today. The worms, whether real or not, have been overcome by successful PR.

Kimberly cautions MNCs that may attempt to quell public ire over quality with promises of higher standards in future: “Taking the high ground is tricky. It can generate positive public sentiments that can pay off in the short run, but at the same time implies a commitment to long term initiatives that the company has to be prepared to honor.” Reneging on a commitment “would be worse than not having made the effort in the first place,” he adds.


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