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Nestle faces brand crisis in India over lead in iconic noodles
[MUMBAI] If there is one product that can stake claim to being India's most popular comfort food cherished by everyone from toddlers to grandparents, it has to be Nestle SA's Maggi instant noodles. Now, they are not so sure.
A routine test on a pack from a small town supermarket produced a result that has unnerved many - the noodles' seasoning had too much lead, about 7 times permissible limits. The notion that a snack that mothers have been routinely feeding their kids for the last three decades may be tainted with a metal linked to learning difficulties and even death, has jolted the nation, with the story getting front page coverage in all major newspapers.
Nestle faces its biggest crisis in India to date and shares of its Indian unit have tumbled as officials in at least six states ordered independent testing of the products. Criminal complaints were filed against the company and its Bollywood star ambassadors, while India's food minister said he would consider class action suits.
"This is Nestle's moment of truth; events like this can be a make or break for a brand," said Piyush Sinha, a marketing professor at the Indian Institute of Management in Ahmedabad, the nation's top-ranked business school. "Not just the brand, but the company and its culture and ethos will be tested." WAL-MART HALTS SALES
Major retail chains including Future Group, Wal-Mart Stores Inc. and the army canteens, that sell discounted goods to military forces and veterans, have all temporarily suspended Maggi sales.
Nestle's shares dropped 4.9 per cent as of 9.54am in Mumbai, after plunging the most in nine years on Wednesday.
Lead is present in small amounts in the soil, and this can be absorbed by plants grown for food. Not all of it can be removed by washing or processing, and so many food products contain trace amounts of lead, often in the range of parts per billion, according to an explainer on the US Food & Drug Administration's website. The agency prescribes maximum permissible limits for each food category.
Nestle India has tested 1,000 samples at an accredited laboratory and "all the results show that the lead levels are well within the limits specified by food regulations" in India, spokesman Himanshu Manglik said on Wednesday in an e-mailed response to questions.
The "current negative newsflow and accompanying bans by state governments" will lead to a drop in sales this quarter, Morgan Stanley said in a report on Tuesday.
Maggi noodles account for about 20 per cent to 25 per cent of Nestle India's sales, the brokerage said. Taking local sales figures for 2014, that would've amounted to about US$390 million.
India's top food regulator is now checking samples from all over India, and its results will guide the federal government's next steps, Food and Consumer Affairs Minister Ram Vilas Paswan said.
Meanwhile the government filed a complaint with the National Consumer Disputes Redressal Commission, charging Nestle with "unfair trade practices," the Indian Express daily reported yesterday.
Kerala in the south stopped Maggi noodle sales from 1,700 state-run stores, until tests done at its own laboratories come out in a week. Delhi went a step further - banning sales across the nation's capital for 15 days starting on Wednesday.
'TOO HARD TO BELIEVE'
Tests done at laboratories in Delhi found that the seasoning had an average 3.5 parts per million of lead, Jain said. The maximum permissible limit according to government regulations is 2.5 ppm.
If similar past controversies involving global consumer companies in India are any guide, Nestle's sales could drop for a few quarters due to this crisis, BNP Paribas said in a note on Thursday.
In 2003, stocks of Mondelez International Inc's Cadbury's chocolates were seized by authorities after customers found worms in Dairy Milk bars.
Three years later, Pepsico Inc and Coca Cola Co drinks were banned in several states after a study found that the beverages contained traces of pesticides. All the companies' sales and profits fell as a result, before recovering a few years later, BNP Paribas said.
For 37-year-old housewife Shazia Shehnaz Haider, the news of the Nestle lead scare came as she was trekking with her family in the mountains bordering Tibet at about 18,000 feet above sea level. She says she can get only bread, omelets and Maggi in the remote place.
"For the last 10 days, we've been having three meals of Maggi daily," she said on the phone from Ladakh. The reports of the iconic product having excessive lead are just "too hard to believe," she said.
"Maggi is such a trusted name, and my kids love it. It will be really difficult for us not to have it," she said.