China Consumer

Stomach for a fight

Two Taiwanese rivals are battling over China’s instant noodle market

Stomach for a fight

Tingyi sells 16 billion packets a year

In 1958, Momofuku Ando, founder of Nissin Food Products, created the world’s first instant noodle. Half a century later, it is the Chinese who are the leading noodle fans. Last year 42.5 billion packets were consumed, about 43% of global consumption.

The company that supplies the majority of this craving is Taiwan’s Tingyi. Its Master Kong brand controls 55% of the market (by sales rather than volume).

The company is run by Wei Ing-chou and his three brothers – who opened their first factory in Tianjin in 1992. The brothers were quick to grasp how fragmented the market was and did some very smart things: first, they spent aggressively on advertising and branding (their chubby chef mascot is recognisable to practically all Chinese); likewise they built their own distribution network, covering not just supermarkets but the smallest neighbourhood outlets.

But perhaps what really distinguished the brothers from the competition was their understanding that China is not one market, but hundreds of them.

From early on, Tingyi sent its market researchers to local eateries to fathom different culinary tastes. The firm used this grassroots understanding to create more than 300 different flavours. That upshot: its instant noodles appeal to different climates and cultures across the country, says China News Net.

But as any market leader will tell you – particularly the smart, paranoid ones – there’s always a competitor out there with a new product. Occasionally it is good enough to erode the leader’s market share.

As it happens this is exactly the challenge Tingyi is now facing.

Noodle rival Uni-President, which also hails from Taiwan, has been closing in on Master Kong. Its star product – Pickled Vegetable and Beef Noodles – is challenging Master Kong’s bestseller Braised Beef Noodles. While the latter remains the most popular in the market, raking in as much as Rmb7 billion ($1.1 billion) in annual sales, Uni-President’s new variety has helped it increase its own market share to 13.5% from 9.5% over the last year.

China Enterprise Post reports that Tingyi is worried by the rapid in-roads Uni-President has been making. It says the firm is already plotting a new commercial strategy to combat the competition.

Tingyi’s media-shy chairman Wei is also taking a more active role in raising the company profile. Last month he agreed to take on the role of director-general at the World Instant Noodle Association, an industry body. Master Kong will also serve as the lead sponsor of the association’s biennial summit.

A little more star power is important as the company tries to raise funds in the international bond market. Although Tingyi was on a roadshow last week, it is yet to reveal the planned size of the deal. Industry experts say it is raising money in order to compete better against Uni-President.

Last year the company posted a 17% increase in revenue but recorded its first decline in net profit in six years as earnings fell 12% to $420 million. Analysts say that’s most likely because it spent more on marketing and promotions to fend off Uni-President.

Still, the company retains an expansionary mindset and is looking to push beyond noodles and beverages. It recently announced that it has entered into a $20 million joint venture with Japan’s Calbee and Itochu to start producing crisps (also called potato chips) in China.

Though competitive, snacks promise higher margins compared to instant noodles, says CBN Weekly. Food industry research firm CIConsulting also believes that the snack market in China – said to be worth $1.9 billion annually – will post double-digit growth in the longer term as the middle class becomes more affluent. Braised Beef flavoured potato chips, anyone?

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