BUSINESS ECONOMICS PROJECT

BY TANMAY GHARAT

TO PROF. SHAILJA MAM

NESTLE’S MAGGI
 INTRODUCTION

We eat this very frequently but do not know the history of it. Let's explore a little more today
about our most favourite snacks, Maggie. Though it has faced some quality issue from June to
October 2015, once again came back with a bang in November 2015.

History

The MAGGI brand was initially originated in Switzerland in 1884. It was formed with a purpose
by Swiss entrepreneur Julius Maggi who had the vision to make food with good taste and
nutritious and should be accessible to busy and working families especially for women who are
working and do not get time to prepare healthy food. Initially, he invented a powdered pea and
bean soup, to provide nutritious and easy to cook food.

In 1947, Maggi was acquired by Nestle and now after 120 years, we strive to build on Julius
Maggi's creation of making delicious, quality and nutritious food which are accessible to all.

Maggi Noodles

Maggi instant noodles are very popular in India, Pakistan, Singapore and some other countries as
well. It has 90% market share in India prior to a nationwide ban by the Food Safety and
Standards Authority of India which is now reduced to 53%.
Currently, in India, Maggi noodles carry a green dot, which means they are specifically
formulated to serve vegetarian only in India. And apart from noodles, Maggi has sauces and
soups available in various flavour and also products like Maggi Cuppa Mania, Maggi Masala and
Maggi Magic Cubes are quite popular and well adapted by Indians.

This first MAGGI product was followed two years later with the invention of ready-to-use soups
and liquid seasoning. Nestlé acquired the MAGGI brand in 1947 and today, more than 120 years
later, we strive to build on Julius Maggi's ambition of making delicious, quality and nutritious
food accessible to all.

Today the tradition continues around the world. Whether it’s MAGGI bouillons, soups, or
seasonings, consumers have come to know and trust the MAGGI brand for its high quality,
convenience and nutrition.

Maggi Noodles brand was in their growth stage in 1990s till late 2006 with brief period of
declining sales due to faulty product innovation and formulae change from conventional maggi
noodles in the form of launch of Dal Atta Maggi Noodles to noodles similar to TopRamen
Noodles, noodles from stable of IndoNissinFoodLtd. Maggi was quick to revert back the original
formulae to minimize damage.

Post 2009, there has been host of new entrants in the instant noodles market in India. ITC
Launched its instant noodles under Sunfeast brand. GlaxoSmithKline consumer health and HUL
also introduced instant noodles in 2010. The communication from Maggi has shifted from 2
minute noodles to Taste bhi Health bhi through introduction of variation in instant noodles.

The competition has led to gradual fall in market share vis-a-vis other new entrants. New players
are innovating in product packaging like launching noodles in circular shape so as to enable
users to enjoy their noodles in full length.

The Brand Maggi is strongly established as a Family Brand with crisp brand equity in Indian
market. The brand has always been known to have the first movers advantage in the portfolios
like noodles, ketchups, soups, sauce, etc. The parent brand Nestle has been the strong symbol of
family, shelter and warmth which brand Maggi has innovatively capitalized.
The future of noodles sectors seem good with growth in retail sales of 19% in 2010 in value
terms and forecasted to grow at12% CAGR over next few years.Being a sector with low entry
barrier, the segment share is vulnerable to new entrants like in-house brands of BigBazaar retail
chains of Future group, More of Birla Group, Star Bazaar from TataGroup etc. and host of
foreign players entering the market lately.

In the 90s, Maggi used to have black and white ads denoting how kids craved for some snacks
and their mothers would indulge in boiling a packet of Maggi to satiate their hunger. This made
this brand one of the best snacks of the urban region. With changing lifestyles, quick fix
solutions became the need of the hour for most working class professionals. The best part about
Maggi was that it could be made in 2 minutes.

MARKET STRUCTURE OF MAGGI

Meaning Of Oligopoly

Oligopoly markets are markets dominated by a small number of suppliers. They can be found in
all countries and across a broad range of sectors. Some oligopoly markets are competitive, while
others are significantly less so, or can at least appear that way.

Features of Market

1. A Few Firms with Large Market Share

A market may have thousands of sellers, but if the top 5 firms have a combined market share of
over 50 percent, it can be classified as an oligopolistic market. This is because the power is
concentrated between a few sellers who are able to exercise power over the market.
2. High Barriers to Entry

Oligopolistic firms maintain their position through a number of barriers to entry. For instance,
brand loyalty, patents, and high start-up costs are but to name a few. These make it difficult for
new entrants to build a presence in the market and attract customers. In industries such as retail –
brand loyalty is a significant barrier to overcome.
This barrier to entry makes it difficult for new firms to join and sets it apart from perfect
competition. As a result, these barriers to entry allow oligopolies to make higher profits due to
limited competition.

3. Interdependence

Any action a firm takes in an oligopolistic market will strongly affect the actions of its
competitors. As a result, we have what is often referred to as the ‘Prisoners Dilemma’, under
Game Theory. For those who are not familiar with these terms: an oligopolistic firm will operate
based on how they believe competitors will react. In other words, Company A expects Company
X to reduce its prices, so will do so as well.
This can be sub-optimal as it reduces the power of a competitive market. For example, if Apple
was to reduce the price of its iPhone by $200, Samsung would likely follow suit. So when Apple
looks to take that decision, they will consider how they will benefit. They won’t receive a boost
in demand because the competition is also the same price, so any initial benefit is lost. Often this
can lead oligopolistic firms to just maintain the status quo and keep prices constant.

4. Each Firm Has Little Market Power In Its Own Right

Leading on from interdependence; each firm has little market power, because other firms are
quick to take advantage. For example, an oligopolistic firm cannot raise prices in fear that
customers will flee to its competitors. One oligopolistic firm cannot dictate prices or supply
because competitors are equally as ‘powerful’. On an individual basis, this keeps the firm in
check. Yet it equally incentivizes collusion as one firm is unable to get ahead.
5. Higher Prices than Perfect Competition

Under perfect competition, prices are just above marginal cost, leaving firms with small profits –
if any. As oligopolies have combined market power, they tend to keep prices higher to obtain
larger profits.
If any firms were to reduce prices, others would also follow suit, thereby reducing profits for all.
This is where it becomes tricky in distinguishing between collusion and a natural state of
oligopolistic competition. Do firms naturally keep prices higher due to fear that their actions will
reduce their profits? Or, do they collude to keep prices and profits high?

6. More Efficient

Oligopolistic firms benefit from high levels of market share. At the same time, they benefit
from economies of scale – meaning it can produce at a lower cost. For instance, there are
markets that have high fixed costs such as car manufacturers. If new competitors want to enter,
they have to spend millions on new factories and other infrastructure.
Consequently, this would increase costs for existing firms as the benefit they receive from
economies of scale would decline. This means higher prices for customers and it is for this
reason that such markets are better served under an oligopolistic market structure.

PRODUCT DIFFRENTIATION OF MAGGI

In a very pioneering move Nestle created instant noodles category in mid 1980s when they
launched Maggi brand. Being the first mover the brand become category representative. To
many people instant noodle is Maggi. It has become generic to the product category. Positioning
is an important aspect of marketing strategy. Market segmentation is first step in strategy
development. It is impossible for one marketing package to make sense to everybody. By
dividing customer on the basis of their similarities, it becomes easier for a firm to decide where
to direct its marketing efforts. This allows better allocation of finite marketing resources by
maximizing efficiency and effectiveness.

Nestle also had a lot of options. The noodles market can be divided into different groups
depending upon the choice of segmentation variable. For instance, there is domestic and
professional segment for noodles. The market could be divided on the basis of age of consumer, r
consumption quantity, geographic location and culinary treatment. Market segmentation is a
matter of perception. There are people who look at the market the way everyone sees, whereas a
limited few are able to uncover new customer groups who have not been uncovered by generally
followed basis of segmentation. Nestle chose to target the children segment. Children frequently
demand something to eat. Back then the market of snacks was not evolved. Therefore whenever
mothers were pestered they were forced to provide home cooked snacks or light food like
parantha, pulav, pakora, sandwich and vada

The next question was to decide upon its value proposition and positioning. How should the
brand Maggi be placed in consumer’s mind? Essential to positioning was that Maggi must be
perceived distinctively and of relevance to target market. Maggi was positioned as ‘fast to cook
and good to eat’ 2 minutes noodles. It offered distinctive advantage to mothers in terms of ‘fast
to cook’ proposition. The Maggi noodles unique formulation reduced the long grind involved in
making traditional quick food. All that Maggi needed was two minutes boiling time and adding
of a tasty masala called ‘taste maker’. For kids, the brand offered ‘good to eat’ proposition.

Maggi opened an entire new market for instant noodles. The next brand to arrive in the market
was Top Ramen from Nissin. The challenge for the brand was how to position itself so that it
could create a distinctive position. It tried to take at dig at Maggi by directly calling itself ‘
Smoodles’ or smooth noodles. It urged customers ‘Don’t be a noodle. Be a Smoodle’. The brand
adopted product attribute based positioning and highlighted its smoothness.
Sensing the opportunity, HUL jumped the fray and entered the market with their Knorr brand.
Knorr, originally a soups brand in HLL’s portfolio was extended to noodle category. Knorr
Soupy Noodles also targeted the in home children market. It boasted of a unique product in
instant category and aimed at combining the fund of noodles with the health and goodness of
soups. The brand positioned itself as noodles with soup for children to satisfy the in between
meals hunger pangs. The brand’s communication focuses on a situation where a child demands
something to eat before dinner at about 7 o’ clock.

GSK the makers of Horlicks entered the instant noodles market with their Foodles brand. GSK
continuing with health and nutrition platform created Foodles. The brand’s launch was based on
research inputs that instant noodles were not considered healthy and serving them induced guilt
in mothers. The key ingredient in instant noodles, maida or refined flour, was not as healthy as
whole wheat. While the positions of convenience and taste were already occupied, Foodles
sought to play the game on nutrition positioning. Foodles tried to break into the monopoly of
Maggi with Foodles positioned as nutritious instant noodles. The company used its Horlicks
brand as mother brand to support its noodles brand..

Homegrown cigarette giant studied the instant noodles market and discovered some ways to cut
into Maggi’s dominance. Its studies found chinks in Maggi’s armour. Maggi came in rectangular
shape. It needed to be broken into two pieces for placing it in the pot for boiling. Pots used in
kitchens always come in round shape like frying pan and cookers. This broke noodles and
rendered them small in length. Second, kids often do not eat the noodles immediately. Noodles
are also taken to schools in tiffin. Maggi noodles if not eaten immediately tend to turn lumpy and
soggy with time. They stick together which was not really a fun to eat. Maggi’s masala
contributes major share to its sale.  ITC leveraged its skills and created two tasty variants to give
customers a choice.  ITC extended its Sunfeast brand into instant noodles category by launching
Yippee. Yippee was positioned as noodles for the curious kids as long noodles which can be
played around with while eating. The brand communication very cleverly but subtly aimed to
promote its unique points of differentiation as longer non sticky tasty noodles which are ‘play’ to
eat.
A market is an evolving organic system. There are many other brands which wrestled for share
in the instant noodle market. One of the innovative concepts was launched by Nissin Cup
Noodles. The brand point of difference was its out of home access to noodles when kids are on a
picnic or an adventure trek and need an escape from the cooking process however small.The
other brands which operate at small scale are Ching’s Secret, Smith & Jones and Wai Wai
noodles. Future Group competes with its Tasty Treat brand which is sold in its retail chains like
Big Bazaar and Food Bazaar.  These brands are pushed through the retail and compete on price
positioning.

The story of noodles shows positioning is not about product because instant noodle is an instant
noodle. How it is converted into a consumer relevant and competitively different concept is the
question.

PRICING STRARTEGY OF MAGGI

Maggi uses cost-based pricing strategies so that it can enter different markets around the world.
It shows that competition and cost are the two main factors for its marketing mix pricing
strategy. It has a clear-cut policy about pricing and has kept the policy low since the early years
as Nestlé tries to capture maximum market share with low price and high quality. 

To keep up with the changing economic times, Maggi has reduced the amount instead of price.
In addition, Maggi offers packets of different sizes at different prices for middle and low-income
customers so that everyone can buy according to their budget.

Pricing strategy for the existing variants of products based on the objective of “Maximizing
Market Share”. These variants are competitively priced. Since it is extremely price-sensitive, any
price change triggers an instant price check response from the competitor. Nestlé tried to survive
if they were afflicted by intense competition. They tried to cover variable costs and some fixed
costs to remain in the industry. 

It adjusts prices by using promotional pricing techniques. For example, they offer ‘Buy One Get
One Free’ during the mega sales season. Furthermore, Nestlé also implies segmented pricing. For
the different locations and different flavours, the price sets of Maggi products are different.

COMPETITORS OF MAGGI

There are various competitors of Maggi let’s see it one by one.

1. Sunfeast YiPPee.
  Sunfeast Yippee Noodles is a blend of Aashirvaad Atta with different masalas, in a
process that does not allow the formation of lumping. ... Classic Masala Noodles.
 These non-sticky strands of noodles have a classic Indian taste and flavours. The round
shape is given to make the noodles longer while eating.

2. Wai Wai Noodles

The company's managing director since 1998 has been Pricha Napapruekchat, the eldest son of
the founder. In 1984, the Chaudhary Group, in collaboration with TPFF, introduced Wai Wai
instant brown noodles in Nepal.

3. Top Ramen

Instant noodles were invented in 1958 by Momofuku Ando, the Taiwanese-born founder of the
Japanese food company Nissin. He used Chicken Ramen as the first brand of instant ramen
noodles. Nissin established the brand Top Ramen in 1970. ... It is currently a top selling instant
noodle brand.

4. Knoor Soupy Noodles

Knorr Soupy Mast Masala Noodles has the goodness of soup along with the fun of noodles,
making it a fun evening snack for kids. Knorr Soupy Noodles are spicy and slurpy and make for
a tasty meal.

5. Chings Secret Noodles

6. Patanjali Atta Noodles

Indulge in the amazing spicy taste of patanjali atta noodles chatpata. Made from high quality
ingredients, the noodles are 100 % vegetarian. The seasoning mix comes packed with healthy
spices such as turmeric powder, cumin seeds, onion, ginger and garlic. Noodles Made with
whole wheat flour and rice bran oil unlike palm oil used popularly. Ready to eat in 5 minutes.
Open a pack and have a mouth watering and nutritious feast ready in minutes. “Jhatpat banao,
Befikr khao..."
  Maggie is the leading noodles brand in India. Greatest competitors of Maggi are Yippee,
Knorr, Ching's Secret, Nissin Group's Top Ramen, Patanjali, ITC Sunfeast. Maggi has
near 57% market share, though ITC Yippe noodles holds an offer of 22%, Knor 2.2%,
Patanjali 1.3%, Chings Secret 1.9%, Several lesser known brands such as Joymee, Paam
Eatables, Marwari noodles and others too have gained over 2% market share of the Rs
4,000erore noodle market.
 Ching Secret and Patanjali noodles in market has a considerable gainers in terms of
market share. Pricing strategy of Patanjali had been very aggressive and have been
offering 15-20 % less than market price and Health are the two clements which can get
purchasers. Patanjali noodles has bring down cost of around 33% contrasted with Maggi,
by which it has the focused edge over Maggi.
 Patanjali has been growing on fast pace and inereasing its production capacity In any
case, Maggi itself has made a benchmark from all the brund to such an extent that, it is
troublesome for whatever remains of the contenders to cut down Maggi and takes top
position. In June 2015, Maggi was declared unsafe by the Food Safety and Standards
Authority of India (FSSAI) after some of its samples were found to contain excessive
lead, Several other brands were also taken off the shelves in its aftermath.
 Since then, the company has taken various steps bounce back, "This year they launched
the Maggi Masalas of India using signature herbs and spices used in various regional
cuisines of India to create Indian flavours with a delicious Maggi twist, "Oats Herbs &
Spice Masala Noodles".

CONCLUSION
As we can see Maggie is a leading product in noodle industry. Thus, Maggie enjoys small but
huge market share of competitors that’s why maggi comes in Oligopoly Market and because of

its features.