Nestle Is Facing Heavy Metal in Indian Instant Noodles
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 tumbledas 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
Major retail chains including Future Group and Wal-Mart Stores Inc. as well as the army’s canteens have all temporarily suspended Maggi sales. Nestle’s shares closed 3 percent lower in Mumbai Thursday, after plunging the most in nine years on June 3.
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 U.S. Food & Drug Administration’s website.
Nestle has tested 1,000 samples at an accredited laboratory and the results indicate “that Maggi Noodles are safe, with lead levels well within the food safety limits specified by Indian regulations,” the company said in a detailed posting on its website.
State Bans
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 Tuesday. Magginoodles account for about 20 percent to 25 percent of Nestle India’s sales, the brokerage said. Based on local sales figures for 2014, that would’ve amounted to about $390 million.
India’s top food regulator is now checking samples from across the nation, 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 newspaper reported Wednesday.
Sales of the noodles have been banned in the states of Delhi and Uttarakhand. Gujarat became the latest to issue a ban, the Press Trust of India reported Thursday.
Tests done at laboratories in Delhi found that the seasoning had an average 3.5 parts per million of lead, while the government-prescribed maximum limit is 2.5 ppm.
If similar past controversies involving global consumer companies in India are any guide, Nestle’s sales may drop for a few quarters due to this crisis, BNP Paribas said in a note Thursday.
‘Too Hard to Believe’
In 2003, stocks of Mondelez International Inc.’s Cadbury’s chocolates were seized by Indian authorities after customers found worms in Dairy Milk bars. The company added extra layers of packaging to the bars and ran a campaign to educate consumers.
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.
