Excerpts: How Nestle Overcame the 2015 Maggi Crisis
Nestle India Ltd (FY15 revenue Rs 8175 crore or $1.25 billion) is the Indian arm of Nestle, the $92 million food giant ranked 66 in the Fortune Global 500 list. Nestle has been in India since 1912 and its brands, Cerelac, Nescafe, Kit Kat, EveryDay, and Maggi, among others, are household names.
For over a hundred years, Nestle went about its business quietly in India and even has a little ditty to celebrate its success: In a rice country we make noodles; in a tea country we sell coffee; in a sweets country we sell chocolates; in a freshmilk country we sell powder.
That complacency was shattered by an event that everyone in the company refers to as ‘the crisis.’ In April 2015, a government referral laboratory in Kolkata, following up on an initial report from Barabanki in Uttar Pradesh, reported excess lead in samples of Maggi, Nestle’s instant noodles brand that then commanded 63 per cent share of India’s Rs 5,000 crore noodle market. Following a public outcry, the product was pulled from the market and banned by the Indian government in June 2015.
Nestlé insisted on the safety of its product and contested the ruling. In August 2015, the Bombay High Court overturned the government’s ban. In November 2015, Maggi was relaunched after court-mandated tests. Various Maggi-related cases are still working their way through other Indian courts.
Suresh Narayanan (born 1960), chairman and managing director of Nestle India, was brought in to manage the crisis. Narayanan, whose slightly academic demeanour has not stopped him from implementing major sales and structural changes, previously headed Nestle units in Singapore, Egypt, and Philippines.
An alumnus of the Delhi School of Economics, Narayanan has attended executive programs at IMD Switzerland and the London Business School. At our meeting in the sinuous glass-clad Nestle building in Gurgaon, Narayanan spoke about how the crisis has made the company innovate and execute faster.
Amit Narain, head of human resources, says the company ‘learned more in the five months of the crisis than in five years.’ By June 2016, Maggi noodles had climbed back to a 57 per cent market share, a remarkable comeback indeed.
Leader Speak: Suresh Narayanan
There is a lot of innovation that goes on at Nestle within the boundaries of our quality and food safety guidelines. Our roots are in baby food, Cerelac, and that makes us fanatical about food safety. Our factories regularly win accolades and awards for hygiene, quality, safety, and community work.
In fact, Nestle as an organisation is structured to insulate quality from the pressures of short-term business goals; so much so that my technical director has a dotted line reporting to me, but a straight line to Switzerland.
That’s true in every country and this is to ensure that the country head cannot compromise quality to satisfy business exigencies.
So when a laboratory in Barabanki said that our noodles were unsafe, it was a complete shock. We are the world’s biggest spender on R&D as a company and that is valorised in the science that goes into the products that we make.
‘Think Global, Act Local’
We also have a clear philosophy: think global and act local. As long as you operate within quality boundaries, local leaders are given plenty of freedom to innovate. Maggi Noodles are a great example of this decentralisation. Not many people know that Maggi is a completely Indian innovation. We had something similar in Malaysia at the time, but the noodle brand we introduced in India in 1983 was a local creation.
It was a huge leap of faith because we were introducing noodles in a rice and wheat eating country. It says a lot about the long-term vision of Nestle that in spite of Maggi being a dead loss for the first ten years, the company persevered. It recognised that food habits take a long time to change and of course, the rest is history. India is now world’s biggest market for Maggi noodles.
There are variants that are either manufactured in or exported to a handful of other markets, but India is the biggest one for Maggi. There are other product innovation success stories out of India.
Take the case of Munch. Nestle is big in wafers and Kit Kat is a big brand, but Munch is a tropicalised variant that was created in India and has now spread to China, Middle East, and Africa.
Innovation demands a certain ability to stay the course. Nestle is not a company that says, okay, let’s give a project two or three years and shut it if it doesn’t work. If we see a proposition with traction in terms of either brand, or association, or usage, or penetration going up over a period of time, the company is willing to invest in it for the long term. So we nurse a portfolio of brands.
Some are mature brands and we expect them to drive growth for an extended period of time. Some are a middle category of products that we need to tweak or invest in more to grow into giants. Then we have our nursery, which has all those brands that need a lot of support before they can grow.
Many of our new launches are in this last category: our Nestle Grekyo brand of Greek yoghurt is a totally new concept in India. Nescafe Sunrise Insta-Filter is a product where we offer the South Indian filter coffee experience with a dry decoction. EveryDay Masala Fusion is a dairy whitener impregnated with a blend of spices so that you can enjoy an instant cup of masala tea.
Innovating with Existing Products
We’re even tweaking existing brands. We’ve introduced six new variants of Maggi called HotHeads. They have high levels of spice and they come in exotic flavors because young India loves to experiment. Who knew what peri peri was when we were growing up? But the kids today do and they like new tastes and new experiences. Hence the new flavours. Then there is Munch Nuts, a chocolate wafer with peanuts. And Nescafe Cappuccino ready-to-drink premixes, and so on.
In all, we’ve launched 25 new products or variants since the Maggi crisis. All of these are in the incubator. Some will gallop in the future; others will canter, some may die. People ask me, what has changed? How did Nestlé suddenly acquire this pace? We’ve never had so many product launches in such a short time in the history of the company.
(Excerpted with permission from Innovation Stories from India Inc: Their Story in Their Words by Vijay Menon that profiles success stories of 23 companies from India Inc, including The Quint.)