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Research 10 Jun 2015

Maggi controversy stepping stone for packaged food industry: Nomura report

According to the Japanese financial services firm, the next logical step for FSSAI would be to tighten the labelling, packaging and testing norms for the entire sector, which in turn is positive for the consumer.

By RI Bureau edit@franchiseindia.net

The Maggi controversy is likely to be a stepping stone in the evolution of country's packaged and processed food industry, which could result in better labelling, packaging and testing norms for the entire sector, a Nomura report said.

"We see the entire controversy as a stepping stone in the evolution of India's packaged and processed food industry," said Manish Jain and Anup Sudhendranath of Nomura in a research note, adding similar tests are likely to be conducted on other similar products and companies.

According to the Japanese financial services firm, the next logical step for the Food Safety and Standards Authority of India (FSSAI) would be to tighten the labelling, packaging and testing norms for the entire sector, which in turn is positive for the consumer.

"This is a positive from the consumer's perspective and would help expedite the migration from the unorganised to the organised sector," the report said.

Maggi brand has been under the regulatory scanner due to allegations that the product contains higher than permissible levels of lead and traces of monosodium glutamate (MSG).

While Maggi's brand equity has more than likely been dented from a near to medium-term perspective, Nomura believes the company is taking all the right actions and will rebound strongly from the same.

"We strongly believe that Nestle India will rebound with a revamped product and packaging, which will slowly rebuild the brand equity," Nomura said and added that some other bigger brands of the company like infant nutrition portfolio and coffee business are likely to remain "insulated".

In October 2003, Cadbury brand was marred by a controversy when worms were found in their chocolates. However, recovery for the chocolate giant started by late 2004 and by June 2014, things were back to normal, Nomura said.

Another such incident was the coke pesticide issue. In 2006, the Centre for Science and Environment alleged that Coca Cola and Pepsi were among a dozen soft drinks that contained high levels of pesticides and insecticides.

However, as was the case with Cadbury, the giants emerged strongly from the controversy with sales of the brand doubling between 2008-14 at a compounded annual growth rate (CAGR) of around 17 per cent, Nomura added.  

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