America has the hamburger, Italy the pizza. But what about China’s national dish? In a country of rather refined culinary history, the candidates are relatively few. But perhaps the least controversial choice would be noodles. Popular throughout the country, China slurps its way through about 46 billion packets of them each year.
And the price of noodles, often a hot topic, just got hotter for French retailer Carrefour.
As WiC reported in issue 87, local governments have been putting pressure on supermarkets to hold down the price of staple goods, in their efforts to combat inflation.
But in the case of noodles, Carrefour didn’t need any encouragement to resist a price rise. The hypermarket has been holding off putting up its noodle prices in an effort to win market share from rival stores. That strategy has now led to a blazing row with the nation’s top instant noodle maker.
Taiwan’s Tingyi makes China’s most famous noodle (see WiC67). In fact, its Master Kong brand is one of the most well known products in China, accounting for 51% of instant noodle sales. Last month it decided to raise the price of its ‘classic bag-packed instant noodle’ line from Rmb2 (per pack) to Rmb2.2. The 10% rise was in line with cost increases the noodle firm was facing, and it expected all retailers to up the price of Master Kong packets accordingly.
However, a Carrefour store in Hebei refused to increase the price; a move that was then repeated by all of its hypermarkets nationally. According to the Economic Observer, Tingyi retaliated by refusing to supply its Master Kong noodles to Carrefour supermarkets; a situation that has been ongoing for the past month.
On December 8, Tingyi confirmed to the newspaper that it had ceased supplying Carrefour with its noodle brands. Its justification? It said that if Carrefour did not increase its prices in line with other supermarkets, it would create confusion among shoppers, which is the “last thing Master Kong wants to see”. It added that it only had a “supplier relations” problem with Carrefour, and no other retailers.
As battles go, this amounts to a clash of the consumer titans. Carrefour is China’s second largest supermarket chain, while Tingyi obviously is one of the country’s biggest foodmakers and owner of possibly the country’s top-rated brand. Underlying this spat over prices is a struggle that will determine which has the real power: the retailer or the brand.
It is not the first instance of a face-off between what the Economic Observer terms a “strong channel and strong supplier”. Last month, Lianhua Supermarket pulled Kraft products off its shelves temporarily following a dispute between the two parties.
For the makers of foodstuffs, the rapid growth of China’s supermarket industry has brought rising sales and wider distribution. But the downside is that the bigger players tend to be getting bigger, meaning they are forced to deal with a handful of major chains. These tend to have exceptional bargaining power, and are able to charge a range of fees for suppliers to get their products onto coveted shelves. Most food companies in China swallow this; not having the scale to outnegotiate the big boys. But thanks to its huge market share, Master Kong is one of the exceptions.
Its decision to take on Carrefour is also carefully calculated. As reported in WiC76, the French firm shut its first Chinese store this year, and has been supplanted as the country’s biggest supermarket group by RT-Mart, which originated in Taiwan and is partially-owned by France’s Auchan family. Carrefour has also been hit by management problems, as its local boss Eric Legros admitted to CBN Weekly. Its reluctance to raise the noodle price was partly to try and grab back market share from rivals. However, Tingyi’s aggressive response may suggest that it believes Carrefour cannot do without its products and will give in. The outcome will be interesting to watch…
Keeping Track:Just before Christmas, in WiC89, we described the battle between French supermarket chain Carrefour and Tingyi, the Taiwanese food firm that makes China’s leading noodle brand, Master Kong. The supermarket had balked when the noodle maker insisted it raise prices. Tingyi then pulled all of its products from
Carrefour’s shelves. As we asked at the time: who would come out on top, the big retailer or the brand itself (which has 51% of China’s massive instant noodle market). Well, three months on and a peace treaty has been signed and Master Kong noodles are back on sale in Carrefour. According to the Beijing News the fight ended in a draw, with both reaching “a consensus, meeting halfway, knowing a stalema te was good for neither”. Meanwhile, this week Tingyi announced that it would further increase the price of its cup noodles by Rmb0.5 (7
cents) – a 14% hike – due to rising commodity prices. (25 March 2011)
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