Noodles being drawn out too thinly for Master Kong
- By Chen Xia
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E-mail China.org.cn, September 22, 2016
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Instant noodle products are seen on the shelf in a supermarket. [File photo] |
Master Kong, the top instant noodles brand in China, has been suffering indigestion lately.
According to the interim report of owner Tingyi (Cayman Islands) Holding Corp., the net profit of its instant noodles products dived 60.30 percent year-on-year. On Sept. 5, the company was removed from the Hang Seng set of indexes.
Tingyi was included at the end of 2011, and the year became the watershed in its history. In the decade before 2011, the company share price rose more than 20-fold. However, from 2012, profits began to drop continuously, with the total market value shrinking nearly HK$100 billion from a peak HK$140 billion to the current HK$40 billion.
Master Kong is the largest instant noodles brand in China, and its current woes are typical of the dramatic change in the fast food industry.
According to the Chinese Institute of Food Science and Technology (CIFST), this is the fourth consecutive year that China’s instant noodles industry has seen sales decline, and this trend is expected to continue. Last year, 36.25 billion packages of instant noodles were produced on the Chinese mainland, down by 8.54 percent from the year before. Total sales stood at 49.09 billion yuan, down by 6.75 percent.
Meng Suhe, CIFST president, said: “The industry has made no progress since 2006.”
Faced with a shrinking market, major producers have tried all means possible to attract customers.
Master Kong spent a huge sum of money on advertising. However, this only added to costs and caused an even bigger revenue loss.
Uni-President, the arch rival of Master Kong, launched a series of high-end products and reaped some benefits. In the first half of 2015, gross profits of its instant noodles priced above five yuan grew 5.3 percent. However, when it tried to maintain the momentum by launching a premium cup noodles priced at 30 yuan, the result was a major setback.
The high price deterred both retailers and consumers back, so the product is rarely seen in supermarkets these days. Many consumers thought the idea crazy, because with that kind of money, they could order a decent meal online.
The emerging online food ordering and delivery industry indeed has inflicted a heavy blow to the instant noodles sector, because there is a considerable overlap in target consumers -- young people less rich who spend a lot of time at home rather than eating out.
This group used to be the main consumers of instant noodles. However, they have gradually been abandoning instant noodles, as, with a few clicks on their cell phone, tempting dishes can be sent to their door. This is even easier than adding hot water to a cup of instant noodles, and obviously, the foods are more delicious and healthy.
JML, another major mainland instant noodles brand is trying to cope with the growing public pursuit of a healthier lifestyle. At the China Convenience Food Conference held last week, it launched two new products, using freeze drying technology to preserve daily dishes, so as to add more flavor and healthiness to instant noodles. It also vowed to launch one or two novel products every year.
However, Chinese financial author Wu Xiaobo believes that, no matter what approach producers adopt, the decline of the instant noodles industry is inevitable, and is a natural symptom of China’s reform process.
On one hand, the emerging of middle class has brought about a major change in consumption patterns, with growing demand for natural, healthy foods. On the other hand, China’s labor structure is undergoing a significant transformation. Since 2011, the growth of the number of migrant workers, chief customers of instant noodles, has slowed down and this is reflecting in slumping sales.
“Industrial transformation marked the ‘second half’ of China’s reform, which featured consumption upgrading and labor transformation. The fate of instant noodles shows the pain of change and the dawn of success,” Wu said.
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