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With Maggi in hot water, Nestle India could be in instant trouble

AP Photo/Lai Seng Sin
Noodles in a soup?
By Madhura Karnik
Published Last updated This article is more than 2 years old.

For decades now, Maggi—the two-minute instant noodle brand owned by Nestle—has been an Indian favourite. And for the Swiss multinational, it’s been a critical part of its growth in Asia’s third largest economy.

In the last nine years, a May 4 report by Nomura said, the Maggi brand has grown in double digits on the back of expanding modern retail, urbanisation, targeted promotions and consistent innovation. For the medium term, the report added, this growth is likely to continue.

But Maggi has suddenly found itself in hot water—and that could put Nestle India in a lot of trouble.

Earlier this week, Uttar Pradesh’s Food Safety and Drug Administration (FDA) found monosodium glutamate (MSG) and excessive lead content in some of the Maggi samples they tested. MSG, typically used as a flavour enhancer, can cause headaches, chest pain and nausea.

Four days later, on May 20, the FDA in Uttar Pradesh ordered Nestle to recall a batch of products—dating back to March 2014—after they found that two dozen packets of Maggi contained almost seven times the permissible levels of lead, alongside high levels of MSG.

Nestle, however, maintains that it does not use MSG (pdf) in manufacturing any of its products. Emails and messages sent by Quartz to Nestle remain unanswered.

Risk factor

Together, these two developments may not only potentially hurt the trusted brand name—Maggi was among India’s five most trusted, brands according to the 2014 Brand Equity survey—but could also hit Nestle’s growth trajectory in India.

Currently, the prepared dishes and cooking aids category, which includes Maggi, contributes nearly 30% of Nestle India’s revenue, according to a January 2015 research report by French banking and financial services firm, Societe Generale. This is the second largest revenue contributor after milk products and nutrition, which forms 43% of the sales.

Moreover, volumes for all categories except for the prepared dishes and cooking aid category saw a drop in 2014, according to the company’s annual report (pdf).

Out for a bite

“Nestle is facing competition in most of the segments as local companies like ITC and Amul among others, are ramping up their presence,” an analyst tracking the consumer sector told Quartz, requesting anonymity. “So Maggi remains an integral part of the portfolio.”

Maggi currently commands a market share of 80.2% in the instant noodles category, according to the Nomura report. But competition is heating up.

“From Mondelez in chocolates, ITC in noodles, Amul in dairy and more recently to Danone and Abbott in baby foods–everyone is now keen to have a share of the lucrative Indian market,” the Societe Generale report added.

Now, with Maggi landing in a soup, rivals will surely be lining up to take a bite out of Nestle’s market.

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