China Consumer

On the boil

What is breathing new life into China’s instant noodle market?


Instant noodles go more upmarket

Forget the Walkman, the electric rice cooker or the QR code. It was instant ramen that the Japanese considered their greatest invention over the last century, according to a poll in 2000. Ando Momofuku, founder of Osaka-based food giant Nissin, is widely credited as the inventor of the noodle product (which is ready to eat mere minutes after boiling water is added). He is said to have launched the product in 1958 in a bid to ease post-war Japan’s food shortages. What is less known about Ando is his origins: he was born in 1910 in then Japanese-ruled Taiwan. “Ando had lived in Taiwan up to around age 20,” wrote Nojima Tsuyoshi, a journalist, suggesting Ando’s brainchild – made by dehydrating the steamed ramen in oil – took its inspiration from the deep-fried noodles typically consumed in southern Taiwan.

China’s love for noodles can be gleaned from the vast variety of noodle-dishes across the country. Categorising them by basic ingredients, one can get rice vermicelli, egg noodles, shrimp roe noodles, or even spinach noodles. By geography, there are soybean paste noodles in Beijing, spicy dandanmian in Chengdu (see WiC16), ‘crossing-the-bridge’ noodles in Yunnan and wonton noodles in Guangdong.

The ready-to-eat variation, however, did not really take off in the country until the early 1990s. Last year, over 40.2 billion packages of instant noodles were sold in China, representing 39% of the world’s consumption, according to US consultancy Ries & Ries. The gross revenues of the 22 major producers in China also ticked up 3.4% on the year to Rmb51.5 billion ($7.2 billion).

In fact, China’s instant noodle market had shown signs of shrinking between 2013 and 2016, following a decade of explosive growth. The improvement in 2018, which built on a slight expansion in 2017, marked the beginning of a further revival in the noodle market. Analysts tend to link the swing in China’s instant noodle sales with the changing dynamics in the on-demand food delivery sector. “At the beginning those platforms tended to give out generous subsidies, so [for consumers] ordering ready meals that will be delivered to the door is simply better value for money,” reckoned Securities Daily, noting that the situation has reversed as those platforms have cut back on giveaways.

In March Meituan-Dianping’s CEO Wang Xing vowed that his company would be “more disciplined and selective as to where and when to allocate capital” as the leading food delivery firm raked up billions of yuan of losses (see WiC445).

What’s also helped the recovery is the major noodlemakers’ new offerings and a more nuanced approach to market segmentation.

“Since 2016 brands such as Master Kong and Uni-President have accelerated their product innovations and upgrades, and have launched many higher-end products,” comments Zhu Danpeng, a food analyst. Best known for its braised beef noodle, Master Kong, the flagship label of Taiwan-based Tinyi Holdings, has also released a wide array of regional-flavoured noodles since last year including Jiangnan and Mongolian styles.

“The whole industry has started gearing towards the value proposition that emphasises healthiness,” a representative of Uni-President, another Taiwan firm, told Beijing Business Today. Some new labels are marketing their products as not being deep-fried or having less MSG, trying to bolster the image of instant noodles for more health-conscious millennials.

Such efforts have boosted the financials of both Master Kong and Uni-President, which together control over 80% of China’s instant noodle market. Master Kong recorded a 3.7% year-on-year increase in revenue to Rmb11.5 billion in the first half, and a 31.2% jump in net profit to Rmb875 million. Uni-President likewise logged top-line growth of 2.8% to Rmb4.3 billion, with its net profit growing 54% to Rmb343.8 million.

The stronger profitability is linked with their strategies of selling more premium products. At present Master Kong has 40% of its portfolio in higher-end products, commanding 70% of the market for noodles costing at least Rmb10 per pack, according to Nielsen, a US marketing research firm. Nissin, which entered the China market in 1994 but struggled to keep up with Master Kong, saw a revival of its fortunes too. The net profit of its Greater China business jumped 41% to Rmb133 million despite a nearly 5% decline in its Hong Kong business. In fact, the need to raise funds to tap into the mainland’s premium instant noodle market was a key driving force behind Nissin’s spin-off of its Greater China operation in an initial public offering in Hong Kong two years ago.

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