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Rebuilding Nestlé: No instant fix

Maggi was Nestlé India’s biggest crisis, but the company is not out of the woods now that the instant noodles are back. New chairman and managing director Suresh Narayanan’s task is to put the sheen back on brand Nestlé.

EVERYONE TOLD HIM it would be an easy job. In late 2010, Suresh Narayanan was given control of Nestlé’s operations in Egypt, Sudan, and Libya. It was a job that, he says, insiders told him was a “nice posting, usually given to people who are closer to retirement”. Within three months, the Arab Spring had begun in Egypt, and violent protests erupted across the country, seeking to overthrow premier Hosni Mubarak and put in place a new government. Eighteen days later, the young rebels were celebrating Mubarak’s ouster in Tahrir Square in Cairo, the centre of the demonstrations.

More than 800 people were killed, and Cairo was in flames. The police were off the streets, because where they showed up, they were being thrashed by the rioters. But having stayed offline for 18 days, Narayanan decided to open Nestlé’s Egypt factory. With many factory workers living in and around the city centre, Narayanan and his technical director reckoned that attendance would be paltry.

They entered the factory and found that every single worker had shown up. “I told them: ‘I don’t know what to say. All of you have come,’” recalls Narayanan. “They just looked at me, and finally said: ‘But you never left. How do you think we would have left?’” It was, he says, an object lesson in how different people react to crises. Nearly five years and several riots later, Narayanan says: “Nestlé [Egypt], in those years, didn’t lose even a day to work stoppage [once we reopened].”

Narayanan has a track record of handling crisis situations. Before Egypt, he managed Nestlé Singapore—at the height of the 2008 financial downturn. So it’s really not surprising that he’s the man Nestlé HQ in Vevey, Switzerland, chose to parachute into India to manage the mess surrounding the sudden ban on Maggi instant noodles.

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Note that he is Nestlé India’s first Indian head in more than a decade and half. It is fairly obvious that his Indian roots (born and brought up in India, and much of his career has been forged in the rough and tumble of sales in the country with the who’s who of the consumer goods universe: Nestlé, Colgate-Palmolive, and Hindustan Unilever) would have been a factor. “[To manage the crisis] Nestlé felt it needed a different set of skills,” he says, explaining why he was chosen for the job. He doesn’t exactly explain what those skills are, but it doesn’t take a genius to figure that managing the Indian government is an important part.

Sitting in Gurgaon, in Nestlé India’s sunny ‘creative kitchen’, I ask Narayanan if he’s becoming Vevey’s firefighter. He laughs and says that till now, events happened after he had taken over. This is the first crisis he has been brought in to manage. 

Reading between the lines, however, it appears that Narayanan’s reputation in Nestlé may well be as one of its most effective troubleshooters. A quick scan of Nestlé’s controversies globally (infant formula, water issues, product safety, etc.) shows that CEOs of the subsidiaries have rarely been recalled to Vevey during the crisis. The water controversies in the U.S., for instance, impacted Nestlé’s image and sales, but successive CEOs (from Joe Weller in the late 1990s to Brad Alford to Paul Grimwood) stayed on at their jobs till they retired. That’s not the case in India, where incumbent Etienne Benet was called back to corporate HQ, and Narayanan, who was barely three months in Manila, shot into Gurgaon. 

The message couldn’t have been clearer: Narayanan was at home with crisis; Nestlé’s century-old India subsidiary wasn’t.

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A QUICK RECAPE OF THE EVENTS that led to Narayanan’s new job. Earlier this year, tests in Uttar Pradesh found heavy metals to the tune of 17.2 parts per million—the allowable limit ranges between 0.01 and 2.5 ppm—in Maggi. It didn’t take much time for the issue to snowball into one of India’s biggest food safety scares, along with the time a decade or so ago when worms were found in chocolate (with Cadbury, now Mondeléz, the hardest hit) and traces of pesticides were found in Coca-Cola. 

Maggi was soon banned in various states and Nestlé was forced to initiate what many are dubbing the largest food recall in India, with 35,000 tonnes of the familiar yellow packets disappearing from shelves across the country. The company was forced to destroy Rs 320 crore worth of Maggi. (In addition to other costs associated with a recall of this nature, reports say Nestlé paid Ambuja Cement Rs 20 crore to destroy the instant noodles at its cement plant in Maharashtra.)

Nestlé, even without this trouble, was going through a relatively rough patch.  In a report from leading brokerage CLSA, Vivek Maheshwari and Bhavesh Pravin Shah point out that “weak macro, aggressive price hikes, [and] portfolio rationalisation, coupled with volume decline for the first time in 15 years, weighed on revenue growth”. 

For the first time in half a decade, revenue growth fell below 15%. Nillai Shah, vice president at Morgan Stanley, says prepared dishes and cooking aids was the only category that reported growth in volumes last year. And with the Maggi fiasco, this took a beating.  

The results for the last two quarters have outlined the damage. In July, Nestlé reported its first quarterly loss in more than 15 years and followed it up in October with a 60% drop in third-quarter profit. 

Narayanan’s mandate is simple: Get Nestlé out of this hole.

Maggi isn’t the only Nestlé brand to have been scarred in the recent past. For instance, in June this year, a customer in Tamil Nadu claimed to have found worms in NAN Pro 3 infant formula. The product was tested at a lab in Coimbatore and declared safe by the food safety authorities there. As a category, milk products and nutrition forms the largest chunk of business for Nestlé (around 45%). There has not been any impact on infant formula sales yet, although the category has seen negative growth in volumes over the past three years. 

Beverages, another important category (think Nescafé and Nestea), has gone through alternative troughs and crests in volume growth over the last four years. Confectionery, with brands like KitKat, has also found the going tough over the past four years. It is also the only segment to record negative revenue growth in the last calendar year. Input costs, across categories, have put margins under pressure as well.

The Maggi crisis seems to be in recession for the time being, with a Mumbai court ruling in favour of Nestlé and production starting again at most of its factories (there are reports that the Maharashtra government will contest the verdict). Now that the yellow packets are back on the shelves (the employees store in the Gurgaon office was bathed in yellow the day I visited, and I wondered for a minute if that’s just a Maggi store), what’s Narayanan’s focus? 

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Growing volumes, he says instantly. “I’m an old-school salesman and my belief has always been that you sell packs and cases; you don’t sell rupees. Volume growth takes time.” He goes on to explain that everything else—categories, longevity, market share—will grow only when consumption increases, and “not when you just do a price change and get incremental value”. (This despite the fact that Nestlé has, over the past several months, been raising prices across categories. Insiders say it’s because of rising input costs, but the fact remains that the company has got some value out of repricing.)

Increasing consumption is going to be crucial in getting Nestlé back to the days of heady double-digit growth. Much of the volume growth that Narayanan wants while keeping the margins high will happen only if his hypothesis that buyers increasingly do not mind paying a premium for Nestlé products is validated by numbers. That explains why there would be a renewed focus on marketing and brand building.

As a former adman, I am impressed with how well Nestlé India has understood the inherent strength of Maggi as a brand and used that strength to help it get through the current crisis. A little history is in order here. Packaged food brands really took off in the 1980s, with companies trying to capitalise on changes in behaviour, catalysed by an increasing number of women starting to work. Maggi, launched in 1982, was quite direct in targeting this segment, with its ‘fast to cook, good to eat’ campaign. But research showed that it was kids who were slurping up instant noodles, so the brand positioning pivoted, addressing mothers and kids. And that’s where it stayed for many years, notwithstanding debates every now and then about the nutritional value and health impact of noodles. 

BEING AT THE RECIEVING END of controversies is not new for Nestlé SA. Internationally, many activists look at the company with the same suspicious eye that is usually reserved for Coca-Cola or McDonald’s, firms that are perceived to embody all that’s evil about capitalism. Nestlé actually gets it worse at times because it is accused of aggressively marketing baby formula in developing nations. Then, Greenpeace has accused Nestlé of sourcing palm oil from outfits involved in illegal logging that leads to deforestation. In 2010, their activists dressed up as orangutans in a much publicised protest at the London office of Nestlé. In the U.S., Nestlé has had to counter many accusations of groundwater exploitation as well.

You’d expect the company to be ace at handling controversies. Au contraire. In most cases globally, the company learnt from its initial, somewhat ham-handed dealings with the media and non-government organisations. In India too, it followed that playbook. In the days immediately following the bans by various states and the increasingly negative publicity, Nestlé seemed to have lost its way. In the hit-and-run world of social media, an academic rebuttal of a lab report (uploaded as a heavy PDF) is not what works, as Nestlé soon found.

Harish Bijoor, a Bengaluru-based brand consultant, says Nestlé was slow in the first few weeks, especially in getting its point across in the social media. “When earlier controversies like Coke and Cadbury hit, there was no social media to amplify. It took Nestlé a while to react.” 

Hemant Mishra, CEO of Publicis Capital (earlier he headed the Delhi branch of Publicis India, the advertising agency for Maggi), says there was absolute disbelief at how the controversy was flaring up. “We had many meetings. Both Nestlé and the agency were more concerned about having an appropriate response than shooting from the hip,” he says. 

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The response the company eventually came up with was the #WeMissYouToo campaign, Nestlé’s attempt to regain some traction with Maggi loyalists. It was essentially a series of three short films featuring regular consumers of Maggi, a brand that’s never named in the film. Narayanan says that this campaign was not the result of a traditional ad agency brief. “It came out of listening to consumers.” That’s another of his oft-repeated phrases, “listen to consumers”. (The other is ‘old-school’, but more on that later.) If you listen to what the consumer is saying, he tells me, you can’t shrug your shoulders and sit back. And so, expect a “bolder” Nestlé that focusses on engaging with the consumer “because that is what the consumer wants”. 

Equally, he wants to invest in enhancing the marketing for the current portfolio. “We have a number of powerful brands in our portfolio. I feel that we have to rejuvenate them. We have to, in a sense, reposition some of them.” Expect a bunch of happy branding and advertising agencies to come out of Nestlé’s office in the days ahead.

Lessons from the crisis? Narayanan says it is still too early—much of the time and resources of the last few months for him and his team have gone into relaunching Maggi—for a post-mortem into what happened and how it could have been avoided. But he wants to ensure that structures are in place to deal with incidents before they become unwieldy. Environmental sensitisation, “to be able to sense what is happening and to be able to take appropriate actions at the appropriate levels rather than allowing them to simmer and then to cascade into something much, much bigger”, is key, he says.

I tell Narayanan that I was among the critics of the company’s initial inertia during the Maggi crisis. “We are not guys who go straight to the media,” he says in defence. Instead, the Nestlé culture is to have one-to-one conversations. What Nestlé officials were trying to tell anyone who’d listen was that food needed specialised testing. “It is not just about putting it in a beaker on a Bunsen burner. It needs sophisticated equipment. There are protocols that have to be followed. There are trained people who should be doing the testing.”

The Food Safety and Standards Authority of India (FSSAI) maintains that its testing was fine. While the Bombay High Court has ruled in favour of Nestlé, the case is still being heard by the National Consumer Dispute Redressal Commission (NCDRC) and tests are still on at the time of going to press even though the product is back on the stands. Results haven’t yet come in but in case they are negative, that will be a punch in the eye for Nestlé and Narayanan’s revival plans. 

ONE OF NESTLE'S MAJOR MAGGI factories is in Nanjangud, a small town south of Mysuru, on the banks of the Kabini. I have visited the factory a short while after Maggi production was restarted, but it is the irresistible aroma of coffee that draws me, Pied Piper-like, to the factory gates. The factory produces Maggi as well as Nescafé. Murthy, a cheerful security guard at the parking lot, is happy to chat, and I learn from him that a few months ago, all was gloom there.

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As Maggi was pulled from the market, truckloads of noodles had to be destroyed at the plant. Workers were reassigned to work on the Nescafé floor. But, says Murthy, today is a different story. Workers are back to making Maggi. The entire plant celebrated when the first batch of “new” Maggi was shipped to Guwahati in late October. “Sweets were distributed in the canteen,” Murthy tells me with a broad smile. I ask more questions, and he explains that the new packaging has been introduced to tell people that this is a new (read safe) batch of Maggi. 

I want to know more, so Murthy asks me to go to the other gate, from where trucks leave the factory. There I meet Eashwaiah, who runs a tiny tea stall near the ‘out’ gate. That’s where drivers stop for a quick cuppa before their long hauls. When Maggi wasn’t being produced, business fell drastically, Eashwaiah tells me, because the number of trucks was far less. Now that Maggi is back, there are more trucks, and more drivers wanting tea and cigarettes. Business, he says happily, is booming. (Eashwaiah is not able to answer me when I ask why, when he stocks the ubiquitous Parle-G biscuits and Gold Flake cigarettes, he doesn’t stock Maggi noodles.)

AN OFF-REPEATED PHRASE in my conversation with Narayanan is ‘old-school’. It is a useful phrase to describe his demeanour: He seems calm, and his team says he’s totally hands-on, and very hard-working. He hasn’t updated his LinkedIn profile, and I call him out on that. He grins and admits he has not had the time. Instead, he has been busy clocking between 9,000 and 10,000 steps on his Jawbone, mostly, he says, climbing up and down the stairs at the Nestlé office in Gurgaon to meet and sit with his teams. 

It’s something he has taken away from Egypt: the importance of teamwork and keeping the team motivated by being with them. He mentions this several times during our interaction, particularly when he talks about the long hours everyone has been putting in. “In the initial stages of the crisis, we had call centres being manned by employees; our staff visited 10,000 consumer homes. Some of these conversations were difficult conversations. They didn’t sit back and say: ‘It is not my problem, let the top management or some big leader face it’.” 

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The team is prepared to fight, and everyone I meet seems aware that once questions have been raised and fingers pointed at the company, it will take some time before much of this is forgotten. Narayanan is cognisant of the impact Maggi could have had on Nestlé’s other brands. “People say if something is happening in Maggi, maybe it is happening in XYZ brand of the company too. How much collateral damage could be caused by that is difficult to establish,” he says.

The company can take some pointers from the relatively divergent experiences of Coca-Cola and Cadbury in India. Mondeléz, then Cadbury, went all out to assuage fears after worms were found in some of its chocolates. First, it changed packaging from paper to plastic. Then, its celebrity spokesperson, Amitabh Bachchan, was used to soften the mood in a range of commercials, and the company also opened its factories to the public to show them the quality standards being followed. 

Coca-Cola’s problems were not so easily solved, and a faint shadow of the pesticide and groundwater contamination controversy still hangs over the company. 

Nestlé could have ended up being the next Coca-Cola if it had stuck to its initial response. The fact that it realised the need to change its communication—and did so effectively—helped it out of a tight spot, so much that Maggi flew off the shelves when it returned. The initial fix could happen almost instantly. For Nestlé and Narayanan, the wait to get back to the earlier days of boring stability that Nestlé India is known for, is going to be far longer.