The concentrated price increases in the food industry erupted collectively as the 2018 Spring Festival approached. In the past week alone, food giants Master Kong and Uni-President were reported to have raised prices for beverages and instant noodles simultaneously, adding to the beer, liquor, and dairy companies that had already announced price hikes in early January. Suddenly, the entire FMCG industry was discussing this aggressive wave of price increases. External pressures are the 'booster' for the price hikes. Looking at the reasons, from the external environment, the gradual recovery of the global economy since last year has driven up prices of global bulk raw materials. In addition, the environmental protection tax officially implemented on January 1, 2018, has added to the burden on food companies across the supply chain. Since 2017, food companies have been suffering from rising raw material costs and could barely bear the burden themselves, absorbing the scissors gap between PPI and CPI for society. However, this process is difficult to sustain. Rising labor costs, land rents, taxes, logistics costs, financing costs, and market shrinkage... These sharp tools have left food companies wounded, and finally, after the implementation of the environmental protection tax, the collective outbreak occurred in 2018. In fact, the macroeconomic environment and national policy orientation are only the surface 'boosters' for this price increase. In addition, consumption upgrade is also a key reason for this price hike. Take instant noodles as an example: topics such as 'Instant noodles have become abandoned children,' 'How long has it been since you last ate instant noodles?' and 'Instant noodles are defeated by food delivery' have been constantly interpreted as objective facts. Companies are actually more aware than we are, and more deeply, of what changes in consumers mean. Catching up under consumption upgrade Against the backdrop of consumption upgrade, price increases are an inevitable trend. 1. Changing consumers and those potential 'non-industry competitors' According to the '2017 China FMCG Market Report' jointly released by Bain and Kantar Worldpanel, Chinese consumers are increasingly showing a preference for healthy products or a better quality of life, with a significant trend toward premiumization. At the same time, fast-moving consumer goods like instant noodles have already seen external substitutes competing for market share. The emergence of food delivery allows consumers to enjoy fresh, hot meals without leaving home. The rise and expansion of convenience stores bring hot fresh foods like steamed buns, bento boxes, and oden to consumers anytime and anywhere. They are competing for both the existing and incremental markets of instant noodles with higher prices. 'After two to three decades of development, China's instant noodle industry has reached a bottleneck, largely due to cost constraints. In Japan, South Korea, Europe, and the United States, instant noodles are on the rise. Why is China declining? The deep-seated reason is that the industry cannot meet or match the demands and needs of consumers. To break the industry bottleneck, more efforts should be focused on product innovation and upgrade,' said Zhu Danpeng, a Chinese food industry analyst, in an interview with reporters. 2. Price system and product structure adjustment Consumer demand has shifted from 'eating enough' to 'eating well.' Products must also undergo a process from 'quantitative change' to 'qualitative change.' In the past, low-priced products had extremely low gross margins and high costs, making it difficult to change the raw materials themselves. Through this price increase, manufacturers can redefine the price system, leaving more profit space to upgrade or replace old products. At the same time, companies can take this opportunity to readjust their product structure, focus on product R&D and innovation, and carry out a new round of 'blood transfusion' or upgrading of the entire product structure. This not only allows for a redistribution of interests at the channel level but also extends to products that are 'personalized, quality-oriented, and high-end.' Although price increases may have a short-term impact on terminal sales, in the long run, they educate and cultivate the market through price increases, enhancing consumer confidence in the brand and products. The industry needs a 'win-win situation' Any innovation and upgrade cannot be separated from resources, capital, and the overall pricing strategy. In the future, China's instant noodle industry should upgrade in line with the overall consumption upgrade: First, brand upgrade A company being eliminated by the market is sometimes not because it did something wrong, but often because it did nothing. But it is not enough to 'seek change in a stagnant situation'; we must 'plan in change' to break through the industry dilemma. As leading food companies, Master Kong and Uni-President have already taken the lead on the brand upgrade track. For example, Master Kong's 'Black and White Pepper' series and 'Soup Master' high-end cup noodles. Uni-President's three new brands, 'Duhui Xiaoguan,' 'Xiangban Yicheng,' and 'Manhan Yan,' attempt to target different consumer groups through different brands and price points. Second, quality upgrade Healthiness is unquestionable. The quality upgrade of instant noodles can be carried out in many aspects, such as raw materials, usage scenarios, taste, and flavor. For example, Japanese instant noodle company Nissin has taken various measures to optimize its products, including: launching non-fried instant noodles; adding more vegetables to instant noodle products; using vegetable soup bases instead of artificial flavors; launching low-calorie instant noodles; reducing sodium content; and reducing or eliminating monosodium glutamate and/or artificial flavors in instant noodle products. Third, price upgrade Price upgrade is a direct reflection of brand and quality upgrades. Of course, price upgrade is not simply an increase in production costs, but rather a redefinition of the price system for downstream distribution channels through price increases, enabling efficient distribution and reaching consumers in the first place. Only such upgrades can change and disrupt the original pattern and industry ceiling of the entire instant noodle market. Zhu Danpeng, a Chinese food industry analyst, told reporters: 'The price increase across the entire Chinese food industry should be a manifestation of changes in China's industrial structure. From the industry side, there is cost pressure; from the consumer side, there is demand for high-quality, high-priced products. Combining the entire industry and consumer sides, the price increase is a win-win situation for the national supply-side strategy, industry development, corporate development, and consumers' pursuit of high-quality products.' -END-