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operations 2015-06-08

Nestle spends more on advertising and less on quality check

According to an analysis the expenses towards employees have risen the most in the last five years - up by about 75 per cent from Rs 433 crore in the year 2010 to Rs 755 crore in 2014.

Nestle spends more on advertising and less on quality check

In the dock over alleged lapses of food safety standards in its famous Maggi noodles, Nestle India has disclosed having spent Rs 445 core on 'advertising and sales promotion' last year, while the expenses towards 'quality testing' was less than 5 per cent of such amounts.

Similar has been the trend over the last five years, when the 'advertising and sales promotion' expenses ranged between Rs 300-450 crore annually, while expenditure on 'laboratory or quality testing' moved between Rs 12-20 crore.

According to an analysis the expenses towards employees have risen the most in the last five years - up by about 75 per cent from Rs 433 crore in the year 2010 to Rs 755 crore in 2014.

In comparison, the advertising and sales promotion expenses has increased by 47 per cent from Rs 302 crore in 2010 to Rs 445 crore in 2014. In the same period, the 'laboratory or quality testing' expenses is up by 45 per cent from Rs 13 crore to Rs 19 crore.

However, according to experts, a similar trend could be seen at other such companies as all of them spend huge sums on brand promotions.

The financial accounts of Nestle India further shows that the expenditure towards heads like 'travelling' and 'training' was higher than the same towards quality testing.

While travelling expenses has risen by 27 per cent from Rs 54 crore in 2010 to Rs 68 crore in 2014, the training expenditure rose by 51 per cent from Rs 25 crore to Rs 38 crore in the same period.

The expenditure towards 'market research' was however lower at about Rs 16 crore in 2014, up by about 69 per cent from Rs 9.7 crore five years ago in 2010.

While, Nestle insist that Maggi noodles are safe, despite it had to withdraw the product from the markets after states and the retailers banned the famous '2-minute' instant food after tests showed them containing taste enhancer MSG (Mono Sodium Glutamate) and lead in excess of permissible limits.

Meanwhile, FSSAI the central food safety regulator has also ordered recall of all variants of Maggi noodles, terming them as "unsafe and hazardous" for human consumption.

Besides, FSSAI has also ordered recall of one variant 'Maggi Oats Noodles', which it said was being sold without a product approval and without undertaking the risk and safety assessment.

Incidentally, Nestle India Chairman A Helio Waszyk and managing director Etienne Benet wrote in their letter to shareholders, published in the latest annual report of the company, that 'Good Food, Good Life' is their mission.

Stating that India was "severely impacted by malnutrition," they wrote that Nestle India was "constantly researching and observing the role that food plays in the lives of consumers across the income pyramid."

"Our vision and ambition is to be the recognised leader of Nutrition, Health and Wellness in India," the letter said, while adding that Nestle India was "focused on understanding the changing lifestyles, evolving needs, and dietary preferences of consumers".

The Indian unit, they further said, relies on Nestle's extensive global R&D network and expertise "to develop products that enable consumers to lead better lives and help them to improve nutrition in their daily diets".

The company has also been criticised for lacking on the communication front, with experts saying that Nestle could have contained the damage if it had reacted swiftly when the first reports started coming in about the safety standards from Uttar Pradesh early last month.

Future Brands CEO Santosh Desai said there is a question mark now on the Maggi brand and there is a significant hit on the brand due to the controversy.

"There is a fundamental doubt due to safety issues. A lot will depend on how Nestle takes it forward," he said, while adding that the road ahead will be a difficult one.

"If Nestle is able to establish testing by authorities were done in a different way, it could be less difficult. However, if it turns out in the tests that there were actually issues with Maggi, then it will be all the more difficult.

"Either way, there is a serious hit to the brand. The company was slow to react and uncommunicative in initial days and when they came out with voluntary withdrawal of Maggi, it was a bit late. This is a company which is generally not communicative. They could have handle this better," he added.

Desai, further said that there is a positive side for the company that Maggi is a brand which has had a long relationship with consumers.

"There are brands which are not missed by consumers but Maggi is a brand which had a lot of loyal consumers and people want this brand in their lives." In their letter, Nestle India's chairman and MD further said that the company has "strong brands, a capable organisation, and immense trust and loyalty" of consumers.

"While doing this we will continue to protect our current business base and gear up to make the organization more efficient to take on the current and future trade evolution and competitive challenges.

"We are convinced that it is the winning strategy and will strengthen our ability to provide our consumers with Nutrition, Health and Wellness." they wrote.

On Indian markets, the two wrote that there was "inability to access or afford nutritious food is causing under-nutrition and related disorders".

"... it is also forecast that economic growth and related lifestyles changes will lead to over-nutrition related disorders such as obesity, and further aggravate the double burden of nutrition.

"The increasing demand for food from a population striving for a better life is further compounded by population growth. The economy is struggling to ensure food and nutrition security even as the demand for food continues to grow and the land available for agriculture reduces," the letter said.

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