Nestlé has handled a product safety scare stunningly badly, appearing to have learnt little from its multinational experience over many decades
Nestlé has found itself in hot water in India after the local food safety regulators said the company’s instant noodles contained unsafe levels of lead and traces of monosodium glutamate (MSG), contrary to the food’s labelling. Nestlé’s handling of the situation has created a new case study on how not to handle a crisis.
First, let’s look at the potential and actual severity of the crisis and the damage. Maggi, Nestlé’s instant noodles brand, has been a household name in India for 30 years. According to market estimates, Maggi contributes more than 20% of the $1.5bn annual sales Nestle has in India. Maggi accounted for 60% of India’s noodle sales last year, according to a Euromonitor report.
Maggi ranked among the top five most trusted brands last year in a survey-based ranking issued by India’s leading business newspaper the Economic Times.
Nestle introduced instant noodles to India, where noodles were not previously part of the culinary culture and instant food was not common. An aggressive advertising campaign with a catchline of “two-minute noodles” proved so effective that Maggi became the breakfast of choice for parents struggling to get their children ready for school in the morning. The advertised idea of a delicious and nutritional meal that could be cooked in just two minutes appealed to millions. Maggi became a preferred snack for children, singletons and working couples. In more recent years, hundreds of thousands of Maggi stalls have opened across the country making it a popular street food.
First signs of trouble ignored
The first sign of trouble emerged on 30 April this year when the local food safety regulator in Lucknow, the capital of the most populous state of Uttar Pradesh, demanded the company recall a batch of Maggi noodles. The regulator said it found dangerous levels of lead and traces of MSG – Maggi labels claim no added MSG – in samples tested in its lab. This was the first known recall of the nation’s much loved instant noodles.
The recall order appeared in the local press and was quickly circulated through social media. India has more than 125 million Facebook users and more than 800 million WhatsApp users, a formidable online community and a PR nightmare in the event of a crisis.
Nestlé’s first mistake was to underestimate the size of the problem. It kept quiet for almost three weeks after the recall order. The company issued the first press release on 21 May admitting it had received a recall order. The press release stated: “The company does not agree with the order and is filing the requisite representations with the authorities.” It added: “People can be confident that Maggi Noodle products are safe to eat.”
However, a disaster was brewing. Alarmed by the public anger, several states ordered tests and started issuing bans on the sale of Maggi noodles. It had become a full-blown crisis by the first week of June. Nestlé then decided to fly its global CEO, Paul Bulcke, to New Delhi to handle the crisis.
After his meeting with the national food safety regulators, Nestlé said it was withdrawing Maggi noodles from stores “despite the product being safe”. Almost simultaneously, the national food safety regulator ordered Nestlé to recall all Maggi noodles from store shelves.
Nestle says it has recalled 27,000 tonnes of Maggi noodles, making it the country’s largest food product recall. The only pleasant side of the recall is that Nestle is incinerating the packets in cement factories to convert the waste into energy, a relatively environmentally friendly way of destroying the unwanted stocks.
Nestlé has adopted a defiant position, challenging the tests conducted by the government labs, and insists that its own tests found the product safe. The company tried to challenge the ban through a judicial review in the Bombay High Court, but the court has rejected the petition to review the ban order.
To make matters worse, reports have emerged in the media of contamination in at least three of Nestlé’s formula milk products including Cerelac, Lactogen and Nan-Pro3, prompting the company to make official statements that the products are safe to consume.
A brand that created an entire product category and dominated the market for three decades came crashing down in just three weeks. Nestlé’s stock price in India has lost nearly 15% as a result of the crisis.
Four mistakes that Nestlé made
Mistake number one was that Nestlé simply ignored the issue for the first three weeks, even though its flagship brand was involved. Mistake number two was to issue an impersonal and unattributed company statement, instead of fielding the company CEO, when it realized that the issue was becoming serious. The third mistake was to underestimate the power of social media in India. The final mistake was to take a confrontational and defiant approach with a strategy to discredit Indian regulators instead of a constructive engagement.
What Nestlé should have done
The company should have immediately recognised the risk when the first recall was issued. The CEO should have faced the media from day one to explain the company position and what it was doing to address the concerns. The company should have promptly formed a credible and independent multi-stakeholder committee to speedily investigate the matter with daily updates to media. The company should have engaged with the regulators instead of publicly making arrogant statements questioning their test methodologies and insisting their own tests were the right ones.
What it should do now
Nestle is probably relying on lawyers to win this battle, an odd strategy in the modern era. If the company wants to have the ‘licence to operate’ it should engage the critical stakeholders to find a solution that helps it get back onto shelves and reclaim consumers’ trust.
It is surprising that a company such as Nestlé, which has a long experience in handling crises around the world, has failed miserably in using that experience in India.