Using its noodle

Chinese slurp billions of them

Company folklore at Tingyi, Taiwan’s leading noodle maker, holds that the eureka moment came on a train steaming through Inner Mongolia.

On that journey was one of the four Wei brothers, then running Tingyi as a struggling edible oils firm.

Hungry, he boiled up some noodles from a packet that he had brought with him from Taiwan. Suddenly he was surrounded by fellow passengers, intrigued by the aroma and pestering him for a taste.

Cue the birth of the Master Kong brand, and the first steps of Tingyi towards packaged food giant status.

Tingyi’s first China noodle factory opened in Tianjin in 1992. The goal was to sell high-quality instant noodles at an affordable price to the mass market. Master Kong brands now command a 51% share of the instant noodle market, says ACNielsen. 46 billion packs of noodles were made in China last year.

Much of Master Kong’s success stems back to a decision to invest heavily in distribution. In 1998 Tingyi launched a “Better Access, Broader Reach” strategy, which aimed to develop a dense distribution network of warehouses, sales offices and production centres across the country.

Rather than rely on wholesalers, Tingyi dispatched specialised staff to market its products and to ensure store presentation and display, says the China Post, an English-language newspaper in Taiwan. The company still employs many more sales staff than its competitors.

And they do not just target large supermarkets and convenience stores, but also the smaller mom-and-pop outlets, where many Chinese shoppers still make a large share of their daily purchases.

“Tingyi has been able to garner significant market share due to its distribution network,” says Renee Tai, an analyst at CIMB-GK in Hong Kong. “It’s not just advertisements and promotional activities, but it’s really getting the products through to customers.”

The network gives Tingyi advantages over many of its competitors, including Uni-President, also a Taiwanese company, and Nissin-Hualong (a Japanese joint venture). Together with Master Kong’s strong brand presence, it helps to maintain Tingyi’s lead in higher-end “bowl noodles”, as well as the lower-priced packet noodle segment.

Different instant noodle meals are designed according to provincial palates, and for the young and the old. Currently, the company is pushing a cheaper sub-brand called Fumanduo, which typically costs less than Rmb1 (15 American cents) a pack and is aimed at rural areas and cities with less spending power.

So well is Master Kong recognised by Chinese consumers (he’s an ebullient looking chap, sporting a chef’s hat) that he also adorns a range of other products that Tingyi now sells through its nationwide distribution structure. It is now the market share leader in ready-to-drink tea and bottled water, for instance, with a little over half of company turnover coming from beverages. It is also a leading seller of sandwich crackers and egg rolls.

Master Kong’s position in the ready-to-drink tea market puts it head-to-head with the big international beverage firms like Coke and Pepsi, especially as more affluent and health-conscious consumers trade fizzy sodas for tea. Ready-to-drink teas and fruit juices now account for 24% of Coke’s growth in Asia (sodas less than 9%). Sprite, owned by Coke, recently released a new drink Spritea, combining Sprite with green tea (see WiC57).

Tingyi’s chairman, Wei Ing-chou, does not see Coke catching up any time soon. To the contrary, he has told investors that Tingyi will challenge the American giant in other beverage segments, ousting it as China’s largest beverage maker within five years. Chief executive Frank Lin recently told analysts that the company will invest $500 million in China this year, the bulk of it on the beverage segment.

Keeping track: In last week’s issue we featured an article about Taiwan’s Tingyi, which aims to displace Coke as China’s biggest beverage maker within five years. This week Coke launched one of the products with which it hopes to protect its market share in the non-fizzy drinks segment. Its Glaceau Vitaminwater is being marketed to the health conscious – priced at Rmb15 for a 500ml bottle. It will also target younger, hipper drinkers. Sally Wang, a 23 year-old designer with a Beijing accessory company told China Daily she’d drink it: “I’m really excited that I’m able to enjoy the trendy drinks which have been featured as eye catching accessories in the American hit series Gossip Girl.”(9 July 2010)

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.