Debate: Can Nestle bounce back post Maggi crisis?

It's a brand loved by one and all, but now Maggi is a banned word in many households. It's a brand that brought in loads of revenues for Nestle, but now its very existence is under threat in India. Or, is it? In the past, Intel, PepsiCo, Cadbury and Nokia, among a slew of companies, were each caught in the eye of a storm but came out with valuable lessons learnt. Business Today asked Santosh Desai and Prakash Bagri to study the Nestle India's case. Here is their take on whether the company's disaster management will yield results.

Nothing hurts a packaged foods company more than questions about food safety. In the case of Nestle , these accusations come on the back of tests carried out by government agencies.

And while the company has raised questions about the method of testing, it has had little choice but to withdraw one of its lead brands from a market in which it holds a dominant position. For Maggi, the issue of health was already a point of vulnerability and fears about safety hurt it where it matters. The company and the brand's image have taken a significant hit.

It hasn't helped that the company's handling of the crisis has been less than exemplary. Never a communicative company to begin with, it seems to have gone into an inarticulate shell, lapsing into generic corpo-mumble at a time when it should have spoken with clarity, precision and transparent honesty.

In short, this is a crisis of potentially catastrophic proportions for Nestle. But, as things stand [now], there are reasons to believe that Nestle will be able to retrieve ground.

As a company, Nestle enjoys a reputation of quality. It has maintained a low profile for many years now, and is not today a magnet for controversies unlike some other brands in the consumer goods space. This is not a company that consumers love to hate or even have a view about (at least not in India), for it goes about its business with quiet efficiency. Nestle's generally positive image is useful at a time like this, but by itself not enough reason to believe that a crisis like this can be overcome.

Nestle's real strength in this case is the power of Maggi , one of the few brands which provide real meaning to the lives of people and it has done so consistently over many years. Its dominant place in the market is not a result of advertising spends nor does it ride on the back of celebrity endorsements. These have obviously helped, but are not the real source of strength for the brand.

Maggi is dominant because it has almost single-handedly ushered in an openness to new food ideas. It represented the exciting but accessible taste of modernity, in a form that was both new and familiar, and in a format that made it possible for everyone to cook up something delicious quickly. It gave mothers, harassed about getting some food down the throats of their recalcitrant children, a weapon that seemed to work every time.

It wasn't seen as the healthiest food around, but mothers found a way around that by rationalising that they made it healthier by adding their own special ingredients. In many ways, Maggi was an open source idea, well before we started talking about that concept, as everyone developed their own special Maggi recipes.

That is the strongest reason why Nestle will, in all probability, bounce back. The brand is owned by consumers and they have a stake in its success.

That trust will take a knock, but on balance, the brand has done enough to earn a second chance, if it handles the current crisis with transparent honesty.

It helps that the Indian consumer tends to be forgiving, and the flip side of the intense media attention the brand has received lately is that its moment in the sun will pass, and some other source of outrage will replace it.

But things will not go back to what they were, even as Nestle bounces back. It is likely that health will now come into sharper focus and Maggi might well find itself gradually facing a battle for relevance. Forgiveness for the brand and company is likely, but absolution is not. 

I spent the formative years (1990s) of my professional life in the packaged foods business. Addressing the PFA (Prevention of Food Adulteration) Act, 1954 cases were a part and parcel of our lives. Globally, this was also the period when companies woke up to the reality of viral spread of bad news. I spent sizeable time with Intel, which learned this the hard way during the Pentium bug issue of 1994. The engineers at Intel had already discovered a division error in the new Pentium chip, but choose not to make the information public.

However, within a few months Thomas Nicely (a Math Professor in Virginia) identified the chip within his systems as the source of consistent errors, and brought it to the notice of Intel, with the issue reported in an esoteric academic journal. Within a few weeks it started doing the rounds of the Internet and the story was picked up by CNN. Andy Grove, CEO of Intel, went onto set the record straight. He wrote a memo pointing out that the error would only affect "users who are engaged in heavy-duty scientific/floating-point calculations" and the company came up with a complicated replacement policy involving lengthy evaluations of whether the user required advanced math calculations!

The whole thing back-fired. The story spread like wildfire globally, with damaging headlines like Flaw Undermines Accuracy of Pentium Chips (New York Times) and Chinese Thaws and Pentium Flaws (The Irish Times), and customers were up in arms. This was the time when Grove showed his legendary skill to course-correct and Intel changed tack, offering to replace all flawed Pentium processors. Finally, only a small fraction of the consumers actually bothered to get their chip replaced. Though Intel spent $745 million to address this, it provided a valuable lesson to the company that it was no longer an innovative start-up but a global IT giant. It implemented several actions to win back the public's trust and confidence, going on to become the seventh most valuable brand and one of the most admired global companies.

Twelve years ago Cadbury India found itself in the eye of a similar storm, when a few instances of worms in its Dairy Milk bars were reported in Maharashtra. The Food and Drug Administration (FDA) seized stocks from the company's Pune plant. The company was slow to react, and maintained that it was not manufacturing but poor storage that could have led to the infestation. This led to allegations and counter-allegations and the FDA commissioner volleyed back stating sub-standard packaging was the issue, and either ways a company is responsible not just for manufacturing, but also how and where its products are stored before it reaches the customers.

The blame game did not help Cadbury, and its sales was down by 30 per cent during the festival period. However, what Cadbury India and Bharat Puri, its CEO, then did is important. The company took advertising off the air, launched Project Vishwas to educate its retailers and simultaneously invested heavily in modern equipment and better packaging. It subsequently relaunched with greater vigour roping in superstar Amitabh Bachchan for a mega-campaign blitz.

So, where does the current Maggi controversy fit in? Despite being forced to take action, Nestle India still seems to be in denial and victim mode. Whatever comes of this controversy, it will go down in the annals as one of the worst examples of disaster (mis)management by a business.

Here's a quick take on what Nestle did or did not do, and could have done.

>> Where is your management? During these periods the CEO should take the lead. Etienne Benet, who took over as CEO of Nestle India less than a year ago, is completely missing in action. Unfortunately in such cases, out of sight is not out of mind. Absence allows FUD [fear, uncertainty and doubt] to spread. During the Cadbury bar crisis, Puri was actively engaging with the media. For me the clincher during the whole period was when Puri appeared in a TV interview and as the reporter was showing some packages, chose to pick one of them up and munch away! This act more than anything else went a long way to assuage fears and reassure that all was well with the Cadbury bars.

>> How could you continue selling? An immediate decision to stop sales, and pull-back all stocks of Maggi till tests are conducted would have cost the company at best Rs 300 crore to Rs 400 crore, compared to its turnover of around Rs 10,000 crore last year (less than 0.1 per cent of its $250 billion market cap). A significant cost, no doubt, but completely reasonable when compared with its equity as the fifth most trusted brand in India (in its category). It still had to do it, but by now appears a step too little, and too late. Instead, one heard stray incidents of Nestle sales team pushing promotions to liquidate stocks. Compare that to 1982, and J&J [Johnson & Johnson] responding to the Tylenol crisis in the US (when a stray killer had laced some capsules with cyanide) when the company immediately withdrew $100 million worth of stocks and production rather than risking people's lives, and instead offered a $100,000 prize for capturing the killer!

>> Silence is not golden: Crisis does not need officious press releases and denial of guilt. What it needs is a clear expression of concern and humility, and more importantly an intent to correct the issue, rather than absolving oneself of blame. In 2007, when there were some concerns arose regarding Nokia's BL-5C batteries exploding, the company acted proactively with immediate replacement and advisory to customers, including its then India CEO D. Shivakumar actively engaging with media to address all customer queries. Instead, Nestle went into complete silence on the one hand, and even when bowing to pressure chose to play victim. Nestle's corporate website starts with "MAGGI Noodles are completely safe, but Nestle India has decided to temporarily take the products off the shelves"! Thank you so much, but playing victim won't help.

>> Solve the issue, goddammit! In the US, when Pepsi cans were rumoured to be tampered in 1993, the company came out strongly with reports and videos on the canning process and collaborated openly with the US FDA (including its CEO co-appearing with the FDA commissioner on prime-time TV to assuage people's fears, as well as investigating and finding miscreants responsible for the tampering). It's surprising that there is not a single story in the press talking about the whole issue of "permissible levels", and explaining what is the point. The hue and cry is completely understandable, since at the core of the issue is the lives of people, and that too mostly children, at stake. Reassu-rance is must and action critical. The most important thing is to take action. Nestle has been caught napping.

The key essence of managing a disaster is to acknowledge it, root-cause it and then get into solution. This is not the time to dilly-dally and count pennies. This is not the time to take a backseat. This is the time to lead. Nestle India has been sadly found wanting!

(Bagri is also visiting faculty and professor at IIMs Ahmedabad, Bangalore and Calcutta)