Things are just getting worse for Nestle India. Not only have the shares of the company a tumbled 10 percent in trade today, as the controversy over the quality of its high brand equity noodles 'Maggi' escalates, but now India's biggest retailer, Future Group, too has stopped stocking Nestle's noodle brand Maggi on its shelves amid its safety concerns by several state governments.
Kishore Biyani's retail formats - Big Bazaar, Easy day and Nilgiris - have imposed a nationwide ban on the product.
"In the interest of consumer sentiment and concerns we have taken Maggi noodles off the shelves from all our stores for the time being. We will wait for more clarity from authorities to take the further course of action," a Future Group's spokesperson said in a statement.
India Today even reported that Army canteens have suspended sales of existing Maggi stock.
At least 10 states have either ordered the withdrawal of Maggi noodles from shops or testing of noodle samples. State governments of Kerala, Tamil Nadu, Haryana, Maharashtra and West Bengal deployed officials to randomly collect Maggi samples of different batches and dates for testing the safety of its content.
Nestle India on Wednesday said it has not received any order from the central or any state FDA authority for recall of its Maggi noodles as the controversy over safety issues deepened.
It further said: “We wish to state that we have till now not received any orders from any state/Centre FDA authorities to recall Maggi noodle products in the market except an order from the Uttar Pradesh FDA dated 30.4.2015 asking us to recall a batch of Maggi noodles manufactured in February 2014, which had already reached the ‘Best Before date’ in November 2014.”
But the damage is already done. Maggi has witnessed a serious dent in its popularity and image with sales down 15-40 percent in metros. This fall is largely in organised retail due to the heightened awareness about the product's quality concerns among consumers who are on social media, watch TV and read newspapers.
"The controversy has impacted sales significantly and is not good for Nestle India since Maggi constitutes 20 percent of their portfolio and India is Maggi's biggest market in the world," an industry expert told Firstpost. Maggi noodles are Nestle’s fastest selling food item in India, clocking around Rs 1500 crore in annual sales.
According to CLSA, this row may have a negative impact on Nestle’s near-term operational performance as Maggi noodles contribute over 20 percent to revenues. More so, as this comes at a time when the company has already been facing growth pressures due to weak macro and its own aggressive pricing strategy. In the Nestle basket, quick foods like instant noodles, pasta, ketchups under the brand Maggi has been the fastest growing segment in the past few years.
“While the probe impacts only noodles, this could have an implication even for products like pasta, ketchups etc. due to common branding. Medium to long-term impact will be dependent on the final outcome of the probe and Nestle’s strategy to address issues around product safety, change brand perception,” CLSA says in a report.
Even Morgan Stanley said that the current negative newsflow and accompanying bans by state governments are likely to adversely impact the sale of Maggi noodles for the quarter.
"Maggi Noodles is now facing the biggest and fastest PR disaster in the social media age. Cooked in less than 2 minutes this time," Chetan Bhagat rightly pointed out on Twitter.
Maggi, selling for 3 decades. In 3 days, complaint, test, result and now decision. Waah.
— Gappistan Radio (@GappistanRadio)
And since Maggi is generic to the noodles category the controversy could impact sales of the entire category, which includes similar products sold by competitors too.
Spurred by the Maggi noodle scare, the government is readying a new law to deal with cases in which consumers of essential commodities and foods were misled through wrong information.
Companies and individuals would be liable for prosecution under the new law which would prescribe up to life imprisonment for violators.
A case has already been lodged against Nestle India by UP food regulator FSDA in a Barabanki court in UP. Actors Amitabh Bachchan, Madhuri Dixit and Preity Zinta were also separately dragged into the matter for endorsing the noodles brand.
Updated Date: Jun 03, 2015 20:22 PM