1. 1. mn stands for Million
2. CAGR stands for Compounded Annual Growth Rate
3. bn stands for Billion
What used to be the staple food of China, Noodles has
gradually became a go-to food option for most of the
Indian consumers in recent years. Indian noodle market
was valued at about US$830 mn(1)
in 2014, growing at a
CAGR(2)
of 20% between 2010-14. Interestingly, Nestle
used to have lion share ~63% until marred by the
allegations that Maggi noodles contain dangerous level of
MSG (Monosodium Glutamate). Nestle India, a 62.8%
subsidiary of its parent Nestlé S.A. of Switzerland, is
India’s third largest FMCG company after HUL and ITC
with a market capitalization of more than US$247 bn(3)
as
of May 2014. Discussing Nestle, what comes at the top of
the priority list are brands such as Maggi, Nescafe,
Lactogen, Kitkat, Milkmaid, and others.
Maggi Fiasco
Maggi, a well-established brand, with a strong brand recall, accounts for ~25% of overall revenue (INR25
bn(2)
revenue in CY14). Maggi is the significant contributor to Nestle India’s revenue, has always remained
in publicity. However, there is a complete change in the game - what is kenned as “Maggi Crisis”. Nestle
which used to enjoy leadership position and recognised for developing products around nutrition, health
and wellness was alleged to have a higher MSG content well beyond the permissible limit. This became a
matter of serious concern given the fact that most of the consumers are children and children are more
vulnerable to the adverse effects of lead than adults. The problem was the misleading packaging labelled
as “No MSG Added”, violation of the (FSS) Food Safety and Standards (Packaging & Labelling)
Regulation.
This led to the ban on the distribution of Maggi noodles across the country leading to significant erosion
of its brand equity in India which impacted the growth of other brands as well. The Maggi -2 minute
Nestle India
Ltd
ITC Ltd
Bambino Agro
Industries Ltd
Indo Nissin
Foods Ltd
Capital foods
Ltd
MTR Foods Ltd
Source: Passport by Euromonitor
Fig 1. Company Share (by National Brand Owner)
Noodles – India Retail Value 2014
Brand Erosion

2. noodles row has erupted as the India’s worst food scare in a decade after that of presence of pesticides in
soft drinks.
Business Impact
Maggi noodles’ sales volume declined by YoY 29.0% which
translated into 17.0% decline in value during 9MCY15.
Shares of Nestle India, which has a market value of about
US$9 bn, have slumped by 12 percent since mid-May 2015,
when reports of the excess lead surfaced.
Core categories remain under
pressure: A weak demand
environment, portfolio rationalization
and ban on Maggi sales have led to a
36.7% YoY decline in domestic volumes
in 9MCY15. Decline in comparable
volumes in the same period is indicative
of continued pressure on other core
categories. Adhering to the ban on Maggi
sales on June 5, the company undertook its biggest withdrawal process – recalled stocks from 3.9 mn retail
outlets and other trade channels (1,357 distributors) and from thereon to its 14 incineration centres. This
led to significant exceptional cost resulting in poor profitability for the period.
Fig 3. Overall Nestle Volume Growth
8.3%
13.8% 16.9%
14.9%
17.0%
6.8%
0.8%
1.9%
-1.6%
-36.7%
CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 9MCY15
Source: Passport by Euromonitor International, Dion Research & Analysis
-29.0%
-16.9%
Volume Value
Fig 2. Steep Decline in Maggi volume
& Value sales
• The crisis impacted entire
value chain, comprising
Wheat Farmers (397,000),
Spice Farmers (15,000),
Suppliers (>10,000),
Contract Staff (3,000),
Distributors (1,357) & 3.9
mn Retail Outlets
Social Impact
• Nestle reported net sales
reversals of INR3 bn,
exceptional cost of INR4.76
bn while stocks of worth
INR2.43 bn were destroyed.
In volume & value terms
Loss of US$200 mn in brand
value after the imposition of
ban
Financial
Impact
• Affected peer noodle
making companies, market
value of shares plummeted,
highlighted the
shortcomings in the
country’s food safety
network, and brand
ambassadors too were
impacted
Other Impact

3. Other players started filling the void created by
Maggi players……
· All instant noodles players are trying to gain as
much ground as possible. Players like ITC,
Nissin, Wai Wai and Inbisco were making the
most of the situation in the absence of Maggi.
Inbisco resorted to national advertisement
unlike earlier when they refrained from
advertisement
· ITC trying to gain consumer confidence by
showing production process in its media. ITC
has started a helpline for consumer to address
their issues on safety.
The birth of an appealing and well-timed
product
Patanjali, a Yoga guru fastest growing consumer product brand seized the opportunity and launched
Patanjali’s Atta noodles in the absence of Maggi and other brands under the FSSAI (Food Safety and
Standards Authority of India) scanner. They have launched this product with Safety Concern as their USP
(Unique Selling Proposition) and that it is made up of Atta (wheat) and does not contain MSG, Lead and
Maida. A direct attack to Maggi, this product is priced at INR15.0 for a 70gm pack which is priced 30%
lower than Maggi’s Atta variant.

4. The Analyst’s View
References & Bibliography
1. http://www.irjcjournals.org/ijmssr/July2015/7.pdf
2. Euromonitor, Dion Research & Analysis
3. Passport by Euromonitor International
4. https://en.wikipedia.org/wiki/Nestl%C3%A9
5. Business Standard
“A brand reputation is sacrosanct
and once damaged requires a
herculean effort to restore the faith
of its end users. Quasi-Monopolist
like Maggi upon the loss of
reputation suffered erosion of
market share allowing the fringe
players to take centre stage such as
Patanjali”