A Major Shift in the Instant Noodle vs. Food Delivery Battle! In China, if any food can be called a national food, instant noodles would certainly have a place. There was a time when people said instant noodles seemed to be failing and that food delivery would defeat them. However, recently there has been a serious reversal: instant noodles have not only made a comeback but also achieved a stunning transformation. What exactly is happening in the battle between instant noodles and food delivery? Are instant noodles really going to win?

01 A Major Shift in the Instant Noodle vs. Food Delivery Battle This is the specific annual revenue figure released by food giant Master Kong in its 2018 financial report on the evening of March 25. The report shows that in 2018, Master Kong's revenue reached 60.686 billion yuan, a year-on-year increase of 2.94%. Net profit was 2.463 billion yuan, up 35.42% year-on-year.

Looking at Master Kong's two main businesses—instant noodles and beverages—both grew in 2018. Among them, the instant noodle business achieved revenue of 23.917 billion yuan, a year-on-year increase of 5.73%, accounting for 39.41% of the group's total revenue. According to the financial report data, high-priced noodles and cup noodles were the focus of development, and sales of both increased. In contrast, mid-priced noodles and snack noodles saw sales declines of more than double digits. In response to this situation, Master Kong stated in the announcement that it is focusing on the rise of the middle class and continuous consumption upgrades, gradually laying out the high-end and ultra-high-end markets to lead industry upgrades.

Not long ago, Uni-President also released its financial report, which showed revenue of 21.772 billion yuan during the reporting period, a year-on-year increase of 4.6%, and net profit of approximately 1.03 billion yuan, up 17.2% year-on-year. Data released by Nielsen showed that in 2018, the instant noodle market saw sales volume increase by 3.2% year-on-year and sales value increase by 8.0%. The 2018 annual reports of Master Kong and Uni-President, which we cited earlier, also confirmed the judgment of industry recovery, with both companies' instant noodle revenue growing by 5.73% and 5.66% respectively compared with the same period last year.

On one hand, the instant noodle market is booming and full of vitality; on the other hand, the food delivery market seems to be having some problems.

Recently, China News Network published a report titled "Rise! Rise! Rise! 'Food Delivery Freedom' Is Drifting Away from Us," which sparked heated discussion across society. Online food delivery, which started in 2003, experienced explosive growth during the O2O wave of the mobile internet. To seize market share, various delivery platforms adopted low-price promotions with heavy subsidies, attracting a large number of merchants and consumers.

With capital entering and subsidies burning, the delivery industry went through a period of chaotic competition to a duopoly era within just a few years. How to achieve profitability has become an important issue facing all parties in the delivery industry.

Now, price increases in food delivery seem to be the general trend. Against this backdrop, the seesaw between delivery and instant noodles appears to be shifting, and a new era seems to be arriving.

02 Are Instant Noodles Really Going to Win? In fact, if we put the major changes in these two industries together for comparative analysis, the entanglements and competition between them in previous years were products of a special era. We have never believed that instant noodles and food delivery are in a battle for the same market, because although these two industries have some user overlap to a certain extent, in reality, the two industries complement each other is the general trend. So from a long-term industry perspective, the so-called battle between instant noodles and delivery is coming to an end, and the turning point seems to have appeared, with everything moving in a direction favorable to instant noodles.

First, the trend of higher delivery prices is inevitable. In fact, if we look at the delivery industry from the perspective of the industry life cycle, we will find that China's delivery industry has fully entered a process from the infancy stage to the high-growth stage to the maturity stage. In the previous infancy and high-growth stages, to cultivate user habits, participants in the delivery industry chose to use price subsidies to build user stickiness. This led to a situation where a delivery order could cost only a dozen yuan or even a few yuan. In a sense, delivery at that time encroached on the living space of instant noodles, putting instant noodles on the defensive.

However, as the delivery industry further develops, it has gradually entered a mature stage of oligopolistic competition. After entering this stage, user habits have been formed, and the previous model of burning money on subsidies is bound to be unsustainable. At this point, when we look at it from a cost-pricing perspective, we will find that a delivery order, in addition to the basic cost of production at the store, also includes packaging costs, delivery costs, labor costs, and so on. This means that delivery prices will not be cheaper than dining in, so the delivery market will inevitably return to its normal price level.

This is reflected in the market as delivery gradually withdraws from the price ranges of a few yuan, a dozen yuan, and twenty-something yuan. In the future, as labor costs in China further rise, the withdrawal from price ranges will certainly escalate. It is not impossible that delivery will further withdraw from the thirty-something and forty-something yuan price ranges until costs and revenues can balance.

Second, who will fill the gap after delivery withdraws? Facing the gradual withdrawal of the delivery market, the strategic stalemate between instant noodles and delivery is gradually ending, and instant noodles may enter a stage of strategic counterattack. In fact, facing the market gap left by the withdrawal of the delivery market, perhaps more than one industry can enter to fill the market demand, but decades of development in the instant noodle market have proven that for Chinese people, convenient and tasty instant noodles will naturally become the first choice to fill the gap left by delivery.

Moreover, compared with the unclear food safety situation of delivery, instant noodles, which have strict production processes and strict hygiene controls, undoubtedly have an advantage. Add to that the convenience of eating and good consumer awareness and acceptance. We can be clear that when the delivery market gradually withdraws, facing a large market gap, instant noodles are undoubtedly the industry with the most mature first-mover advantage, providing broad market space for the better and faster development of the instant noodle market.

Wu Yuyang, an analyst at Guotai Junan Securities, believes that instant noodles have unique advantages in competition with O2O delivery platforms, including:

1. Recently, the discounts offered by O2O delivery platforms have decreased, giving instant noodles a price advantage;

2. Compared with delivery food that gets cold during delivery, instant noodles have fresh flavors;

3. Consumers are worried about the food safety of unlicensed restaurants.

These irreplaceable characteristics of instant noodles enable them to regain growth. Thanks to the company's leading position in the instant noodle market, product price increases have been relatively smoothly accepted by customers and consumers, contributing more profits to the company.

Third, instant noodles have already been fully laid out. Facing the major changes in the delivery market, China's instant noodle industry has actually been quietly preparing for years.

In November 2018, Master Kong launched high-end new products such as EXPRESS Instant Noodle Restaurant, targeting high-end consumers who pursue quality of life. The "EXPRESS Instant Noodle Restaurant" series includes four flavors: "Braised Beef Noodles," "Scallion-Fried Pork Chop Noodles," "Sichuan Spicy Beef Noodles," and "Spicy Beef Noodles," with an average price of about 25 yuan per bowl. It is understood that Master Kong implements limited sales for the "EXPRESS Instant Noodle Restaurant" series, with the main selling points being rich broth and imported meat chunks.

In addition, diversified instant noodle products such as Uni-President's Tang Daren and Master Kong's Tomato and Vegetable Noodles have formed a diversified product layout at various price points. We can see that from a few yuan, a dozen yuan, twenty-something yuan, and even higher price points, industry giants like Master Kong have long been prepared with products, and there are strong competitive products at every price point.

At the same time, we can also see that major instant noodle countries such as Japan and South Korea have hundreds of instant noodle products covering different price points and user needs. As market space gradually expands, China's instant noodle industry also has more market momentum to continuously enrich its product lines to meet increasingly diversified consumer demands. In the future, the instant noodle industry may radiate even more vigorous market vitality.

Fu Yifu, a senior researcher at Suning Financial Research Institute, said: "The overall growth of the instant noodle business is largely driven by the sales of cup noodles and high-priced bagged noodles. To some extent, this shows that Master Kong's instant noodle business revenue and net profit have bottomed out and rebounded, thanks to the comprehensive upgrade of the instant noodle category over the past few years; and the fact that ordinary people are buying it also proves that this is another manifestation of consumption 'upgrading.'"

It can be said that the war between instant noodles and delivery has actually entered the second half. The instant noodle industry, which previously had to adopt a compressed defense, has finished its own Battle of Stalingrad. A full-scale strategic counterattack may be beginning, and the space left for the instant noodle industry will be even greater. A new era is slowly unfolding. As for who will laugh last, let's wait and see.

Source: Jianghan Vision

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