---
title: "Even if you are Master Kong! Without product innovation, you are doomed!"
description: "Uni-President and Master Kong have been engaged in a prolonged price war. Ultimately, consumption upgrading helped Uni-President turn the tables with its rapid innovation capability."
author: "New Distribution"
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published: "2016-04-19"
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---

# Even if you are Master Kong! Without product innovation, you are doomed!

> Uni-President and Master Kong have been engaged in a prolonged price war. Ultimately, consumption upgrading helped Uni-President turn the tables with its rapid innovation capability.

Uni-President and Master Kong have been engaged in a prolonged price war. Ultimately, consumption upgrading helped Uni-President turn the tables with its rapid innovation capability.

**Master Kong** / Uni-President
In Taiwan, Uni-President is the undisputed leader in the food industry. But in mainland China, whether in instant noodles or beverages, Uni-President is only one-third the size of Master Kong. Uni-President has to constantly watch out for competition from its old rival.
Instant noodles and beverages are the main products shared by both companies, with each category further subdivided into multiple sub-categories such as braised beef flavor, pickled cabbage flavor, or tea drinks, juices, bottled water, and ready-to-drink coffee.
Together, the two companies have over a hundred products. Their product structures are so similar that when you see Uni-President's Laotan Sauerkraut Beef Noodles in a supermarket, you are sure to find Master Kong's Laotan Sauerkraut nearby, even the packaging colors are similar.
In 2008, Uni-President was the first to launch this flavor nationwide. Master Kong followed later, but according to Nielsen data, by early 2014, Master Kong's Laotan Sauerkraut had captured 44% of that flavor's market share, approaching Uni-President's 53%.
This is the typical pattern of competition between Uni-President and Master Kong in the mainland market: Uni-President first develops a new product, Master Kong selectively follows, and then leverages its powerful sales network to distribute the new product as widely as possible. One claim is that Master Kong can complete nationwide distribution of a new product from big cities to mom-and-pop stores in townships in just two weeks.
Compared to Uni-President, which only does business in prefecture-level cities and above, Master Kong, with a more down-market channel, can capture a larger market share. Conversely, because of its scale, it can also price its products lower.
Master Kong has never revealed how it times its follow-ups, but what can be seen is its astonishing efficiency. Besides Laotan Sauerkraut, there are also green tea, iced black tea, Fresh Orange, and Tang Daren, all first launched by Uni-President, and you can find corresponding products at Master Kong.

**Frequent Quality Scandals: Old Rival Uni-President Strikes Back**
Master Kong's frequent food safety quality issues since 2014 have also had a significant impact on its performance.
"Master Kong has repeatedly fallen into quality scandals, causing the entire brand to plummet like a cliff, creating a brand crisis and leading to widespread consumer resistance across both instant noodles and beverages. Among them, sensitivity and resistance are higher in first- and second-tier cities, so Master Kong's main battlefield has shifted to third- and fourth-tier cities. But the third-, fourth-, and fifth-tier markets are also the main battlefield for domestic companies like Baixiang. Master Kong's competition with domestic brands in third- and fourth-tier cities consumes a lot of energy, and it can only rely on promotions to drive sales. This is reflected in its 11.09% decline in operating revenue but a 36% drop in profits," explained Zhu Danpeng.
In October 2015, Master Kong raised instant noodle prices by 10% to 20%, with bagged noodles retailing from 2.5 yuan to 3 yuan and cup noodles from 4 yuan to 4.5 yuan, but competitor Uni-President did not follow.
"Master Kong's price increase undoubtedly had a significant impact on its performance. The third- and fourth-tier markets are Master Kong's main battlefield. On one hand, these markets are already besieged by various low-end instant noodle companies. After the price increase, instant noodle sales in third- and fourth-tier cities will shrink. At the same time, in first- and second-tier markets, Master Kong's brand recognition is slightly inferior to Uni-President, so its high-end advantages cannot be leveraged. Thus, it is inevitable that Master Kong loses to Uni-President," Zhu Danpeng said.

**#Uni-President Upgrades CPU, Master Kong Loses on Innovation!**
In 2014, Uni-President added product innovation groups within its business divisions, in addition to its existing R&D system. For example, in the division where Li Qiang works, besides mature brand groups like the Iced Black Tea brand group and the Fresh Orange brand group, there is also a group dedicated to new product development. This is equivalent to setting up a "dual-core" structure in the R&D system to increase CPU speed.
Yu Hongbo, responsible for Uni-President's food safety, is the manager and referee of this "dual R&D system." He does not directly participate in product development but helps each innovation group coordinate supply chain resources. If any party comes up with a good concept, it can be submitted to the Innovation Committee, and after approval, a project is established. The support needed for new product launch processes can be coordinated through this committee. They evaluate new products from multiple dimensions, such as how many consumers are willing to pay, and whether consumers like the packaging and concept. If the results do not meet standards, the new product cannot be launched.
This dual R&D system is used by Uni-President to accelerate product innovation.
Uni-President has been suppressed by Master Kong for many years and has never had a chance to shine in the mainland market. However, in the past two years, it has been keeping pace with the times and innovating new products. In the instant noodle business, there is the Laotan Sauerkraut Beef Noodles developed a few years ago and Uni-President Gemian; in beverages, "Xiaoming Classmate" was a hit product in 2015. Initially, due to the "high" price of 5 yuan, Uni-President expected it to sell 500 million yuan within a year, but Xiaoming Classmate achieved this goal in only half a year.
In Li Qiang's view, Xiaoming Classmate, launched in 2015, "is already an old product." But it is regarded as an innovation example by Uni-President, not only because of its revenue contribution but also because it successfully shook off Master Kong.

> In the past 2015, due to the increase in meal replacement foods, the instant noodle market further declined. According to Nielsen data, the overall sales volume of this category decreased by 6.3%, and sales value decreased by 2.6%. The beverage market also showed saturation due to continuous development of new products.
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>
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> Master Kong's sales declined by 11% that year, with beverages down 9.6%, showing an overall decline in its beverage business, and instant noodles down 12.68%. Uni-President's total revenue also declined, but only by 1.7% compared to 2014. Beverage sales increased instead of decreasing, and the instant noodle business got rid of six consecutive years of losses that year, with the company's overall net profit reaching a historical high.
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>
>
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> It can be said that the new products developed by Uni-President in the past two years have been effective and achieved good results.
"We can see that Uni-President is moving towards the waist and tip of the pyramid in terms of product positioning, channels, and consumer groups, and this strategy is undoubtedly correct," Zhu Danpeng commented.
Compared to Uni-President's active launch of new products to cater to the market in 2015, Master Kong showed a completely different side, somewhat sticking to old ways and not striving for progress. In fact, Master Kong has rarely launched new products in the past two years, more often clinging to past products. Until now, Master Kong has not launched new products in the cold-brewed tea segment. The company's attitude towards whether to follow Uni-President's new products has become less clear than before.

#Master Kong's Defeat, Uni-President's Harvest
Since establishing its first instant noodle factory in Tianjin in 1992, Master Kong's goal has always been clear: to sell products to everyone, like Coca-Cola. It quickly built production lines; when Uni-President had only one or two dozen factories, Master Kong had seventy or eighty. In 2011, through the acquisition of Pepsi's 24 bottling plants, its production capacity and local distribution capability were further enhanced. It was this production and distribution system that penetrated down to townships that allowed Master Kong to seize the 10 years of rapid growth in the instant noodle and beverage markets in the mainland.
Uni-President entered the mainland market later and was more conservative in building factories. Even now, it has only about 30 production bases, one-third of Master Kong's.
"Beverages and instant noodles are products that need to be transported nearby," said a former Uni-President employee, explaining that conservative investment in factories has limited Uni-President's business scope to some extent. For the same product, Uni-President's market share is much smaller than Master Kong's due to production and distribution issues.
To compete with local brands in lower-tier cities, Master Kong goes to great lengths to control costs internally and achieve low prices. When new products are launched, it intensively advertises to quickly boost awareness and seasonal sales. To increase market share, buying out retail store display shelves is also a common practice... Master Kong thus won over many consumers who originally only ate instant noodles priced at 0.5 to 1 yuan. But before another consumption upgrade, Master Kong is not sure what proportion of its price-sensitive consumers in its sales channels can accept high-priced goods again. Uni-President adopted the opposite strategy.

**The traditional new product decision process is as follows:** Based on the annual new flavor trends provided by raw material suppliers, for example, if sports drinks are popular this year and light-flavored water next year, the marketing department sends people to survey the market demand. After that, they consider whether the new product fits their channels and brand, and how much market share they can capture, before deciding whether to make the product.
This top-down new product development model often leads large companies to choose to protect existing businesses. For Master Kong, once sales of high-priced products decline, its more than 100 factories and machinery assets become a burden.
Uni-President's boldness is partly based on an experiment in high-end instant noodles.
In 2008, Nielsen data showed that while instant noodle market sales continued to grow, sales volume began to decline. Uni-President predicted that consumers were starting to buy higher-priced instant noodles. Therefore, that year, in addition to launching Laotan Sauerkraut Noodles, which were priced similarly to the classic braised beef noodles, it also launched a high-end instant noodle brand, Tang Daren, positioned around good soup, priced at 7.5 yuan, almost double the price of Laotan Sauerkraut Noodles.
For the next five years, Tang Daren sold poorly, but Uni-President insisted on keeping it on supermarket shelves. During that period, even with poor sales, it did not adjust Tang Daren's price. This sustained exposure brought actual sales to Uni-President after 2013 and generated its first 500 million yuan in revenue in 2015—in the FMCG industry, reaching that annual sales figure is roughly considered a potential big single product, and every company usually relies on several big single products as its main sales drivers. Tang Daren showed Uni-President a feasible way to reverse its competitive position by seizing consumption upgrades.
Due to lower entrepreneurial barriers and the convenience of cross-border shopping, the number of competitors flooding into the consumer sector is unprecedented. Consumers no longer only choose low prices and products available at their doorstep. Hou Ronglong calls this change a "shift from quantity to quality." The era of channel dominance is over, and consumers care more about the product itself.
Last year, Hou Ronglong planned a three-year transformation period. During this period, he pursued a strategy of "even if it means losing revenue, improve profits and brand value." Brand is probably the only way to extend product life cycles.
But the long-term focus on "penetration rate" as a goal resulted in "before 2014, Uni-President only operated in food categories like beverages and instant noodles in the mainland, without brand management." Products named after categories, such as Uni-President Iced Black Tea, Uni-President Fresh Orange, and Uni-President Braised Beef Noodles, did not form true brands.
Start with naming. New products were required to no longer be simply named after the category, and the corporate brand "Uni-President" was weakened to highlight each product's own brand. Products like Gemian, Hai Zhi Yan, and Xiaoming Classmate, which can represent product positioning and personality, meet the standard.
In addition to naming, a whole set of elements including packaging design and marketing are also considered. Old packaging saved costs but looked similar and was unattractive to consumers. When launching new products, the new innovation groups hire design companies to design packaging separately based on brand positioning. In the production stage, unconventional designs sometimes require modifying factory production lines. For example, Xiaoming Classmate's double-layer lid, with the outer large lid being a type the company had never used before, required new mold development. Uni-President tries its best to facilitate these innovations.
Iced Black Tea, Laotan Sauerkraut, etc. are called 1.0 products within Uni-President. Hai Zhi Yan, Xiaoming Classmate, and new products that will appear later will appear as 2.0: with design-conscious, high-appearance packaging, and of course, high profit margins.
High-margin products now account for 17% of Uni-President's total revenue, driving its slight revenue decline but significant net profit increase in 2015. Hou Ronglong's goal is to increase the proportion of high-margin products to 40% within three years. Among them, instant noodles should pursue a gross margin of over 35% and a retail price above 5 yuan; beverages should have a gross margin exceeding 40% and a retail price above 4 yuan. Members of both R&D lines must follow this guideline when proposing new product plans.

#What Will the Future of Competition Between Master Kong and Uni-President Be?
Master Kong is still looking for the next mass market, while Uni-President no longer insists on that. It is trying a direction where one obvious single product replaces another to support the company's sustained growth.

**So, how can Master Kong turn the tables in 2016?**
"First, food and beverage companies must comply with the way of heaven; products must be safe and healthy, and we must make our products healthier. Instant noodles are already labeled unhealthy, and Master Kong frequently falls into food safety issues. Master Kong needs to change this. Second, Master Kong must keep pace with the times and innovate. Although there is still a gap in business scale between the two, Master Kong is now behind Uni-President. Master Kong must connect with trends and the new generation of consumers," said Xu Xiongjun.
Zhu Danpeng also believes that a key to Master Kong's self-rescue is to **upgrade its product positioning.**
"Currently, Uni-President's instant noodle business has shifted to the high-end market, but Master Kong is lagging behind. Therefore, Master Kong must undergo generational upgrades, including upgrading brand positioning, product positioning, and consumer group positioning," Zhu Danpeng said.
"Consumption upgrading is a major trend in China's economic development. Nutrition and deliciousness are the vitality of the food and beverage industry that Master Kong is in. Therefore, Master Kong's performance self-rescue is to increase investment in high-end product R&D, not only high-end instant noodles but also high-end beverages, high-end biscuits, etc. The high-end development of all product lines should be coordinated to jointly achieve Master Kong's brand upgrade," Liang Mingxuan, a food industry researcher at CIC Consulting, expressed the same view in an earlier interview.
"In 2016, Uni-President and Master Kong may return from the previous market competition to product competition. Master Kong's upgrade, such as the coffee business in cooperation with Starbucks, shows that Master Kong has also seen fundamental changes and is following Uni-President, paying more attention to the high-end market in channels," Zhu Danpeng predicted.
Source: Food Economy

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