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Maggi Brand To Bounce Back In 6 Months: Analysts

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Analysts believe that the Maggi brand will emerge stronger in a matter of just 3 to 6 months before the issue finally gets settled citing that the bigger concern for the brand would be revive its volume growth

As the future looks uncertain for Nestle India’s Maggi noodle brand with the company withdrawing 400 million packets from the market and destroying it, following an order from the Food Safety and Standards Authority of India (FSSAI) over quality issues, analysts in the Consumer and FMCG space believe that the much maligned brand will revive sooner than anticipated.
 
“We are confident the Maggi brand will emerge stronger, but it might take 3-6 months before the issue is finally resolved,” says Nitin Mathur, research analyst, Emerging Markets, Consumer, at French financial services firm Societe Generale. Mathur said adding that the bigger concern for Nestle would be to revive the volume growth. “Nestle’s strategy of focusing excessively on gross margins proved to be short-sighted as volumes have remained elusive for the past three years,” points Mathur.
 
Maggi noodles contributes two thirds of sales in prepared dishes and cooking aids, which was the only category to demonstrate positive volume growth in CY14.. The estimated sales value of Maggi noodles in the market is Rs 200 crore while related materials in the factories and distribution centres have an estimated value of Rs 1.10 crore, according to a recent filing with the exchange. Having been in India for over 100 years, Nestle India is present in 26 per cent the total packaged foods industry.
 
Companies in the oligopoly market structure must focus on volumes and constantly expand their distribution network to maintain high barriers to entry, unlike companies enjoying a monopoly (ITC in tobacco).
 
“Competition is heating up, even in categories where Nestle India has historically enjoyed a monopoly. From Mondelez in Chocolates, ITC in Noodles, Amul in Dairy, and more recently to Danone and Abbott in baby foods – everyone is now keen to have a share of the lucrative Indian market,” says Nitin.


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