Nestlé’s Noodle Mess Has Entangled One of India’s Hottest Industries
New Delhi,June,20,2015:-As Nestlé SA clambers to recall 400 million packets of instant noodles in India, its struggle serves as a cautionary tale for all the food companies that have recently rushed in to set up shop in Asia’s third-largest economy.
Food processing has been one of the hottest industries in India in recent years, attracting billions of dollars in investment from abroad. Only the pharmaceutical industry has had more foreign direct investment growth in the last five years, government data show.
Total FDI in India’s food-processing industry grew more than 500% to $6 billion in the five years through March. International investment in the pharmaceutical industry grew close to 700% over that period.
While other sectors—including telecommunications, construction and services like banking and outsourcing—have attracted more dollars, none have seen more growth than food and drugs.
Global food and beverage brands tend to be trail blazers in developing markets. They are often among the first to recognize the potential in countries like India. PepsiCo Inc., Unilever PLC and others arrived in the country decades ago and have been investing ever since.
A country with a billion consumers and rising incomes is a no brainer for consumer-goods companies. Whether its chocolate bars, carbonated drinks or frozen french fries, the middle-class households of the subcontinent are getting increasingly addicted to the taste and convenience of readymade foods. Global brands, including Mondelez International Inc., Danone SA, Mars Inc., Kellogg Co., Kraft Foods Group and McCain Foods Ltd., have been piling into the country to serve them.
As it grew with the market its staff in the country has grown to more than 7,000 people and its sales have ballooned to more than $1.5 billion.
With all that experience, Nestlé should have been able to head off its food scare but it says it was caught off guard by an unexpected interpretation of some basic rules.
Indian food safety regulators say they found illegally high levels of lead in packets of the food giant’s popular Maggi 2-Minute noodles, asking for a ruling on the correct way to test noodles.
The Maggi noodles contain two main components—noodles and flavor packets. Nestlé says the noodles and powder should have been tested together.
Indian regulators are trying to protect consumers but the fact that the one the biggest foreign investors in the country, from one of the sectors that invests the most in India, was caught off guard shows just how tough it can be to do business in India.
As Prime Minister Narendra Modi has pledged to clarify regulation to convince more companies to “Make in India,” cautious global executives are bound to ask how one of the industries that has been the most enthusiastic about building factories and creating jobs in his country has become so entangled.
