Click image for details Internet cafes with smelly feet, messy dormitories, and crowded green trains—these are scenes that come to mind for many when thinking of instant noodles. It is precisely because of the "cheap" image of instant noodles in the minds of Chinese people that, against the backdrop of rising living standards, instant noodles have not been selling well in recent years. However, this has also led many companies focusing on quality instant noodles to see opportunities in the Chinese market, such as Nissin. This food company, founded by Momofuku Ando, the father of instant noodles, produces noodles that make many foodies drool, and it has a good reputation, often topping various rankings. ▲ Instant noodle ranking (Image source: Guide Rank) However, a recent announcement by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) may bring negative impacts to Nissin's campaign in the mainland Chinese market. 3.4 Tons of Instant Noodles Failed Inspection On July 3, the AQSIQ released information on food and cosmetics that were not allowed to enter in May, among which 3.4 tons of Nissin instant noodles were destroyed due to reasons including unquarantined chicken ingredients and excessive coliform bacteria. Among them, 1,656 kg of instant noodles (Black Garlic Oil Pork Bone Soup Flavor) and 1,503 kg of instant noodles (Tokyo Soy Sauce Pork Bone Soup Flavor) imported by Guangdong Shunde Nissin Food Co., Ltd. had excessive coliform bacteria. ▲ Image source: AQSIQ On July 4, a reporter sent an interview letter to Nissin Foods Hong Kong regarding this matter. On July 5, Nissin Hong Kong responded, saying, "After learning of the situation through the Shunde Quality Inspection Bureau, we have followed instructions to destroy the relevant products." They also conducted internal quality checks on the same batch of products, confirming that there were no quality issues. Nissin Foods Hong Kong was established in Hong Kong in 1984 by Nissin Japan, one of the world's largest instant noodle manufacturers and sellers. Its main products include Demae Itcho, Cup Noodles, and Doll Noodles. On May 12 this year, Nissin decided to split its business, and the separated Nissin Foods Hong Kong applied to the Hong Kong Stock Exchange as an independent company for a main board listing. The prospectus shows that Nissin Foods Hong Kong's revenue from 2014 to 2016 was HK$2.536 billion, HK$2.629 billion, and HK$2.630 billion, respectively, with a compound annual growth rate of about 1.8%; net profit was approximately HK$173 million, HK$116 million, and HK$107 million, respectively. ▲ Nissin advertisement It is reported that the instant noodle business is the mainstay of Nissin Foods Hong Kong, accounting for nearly 90% of its total revenue. The prospectus shows that the increase in Nissin Foods Hong Kong's revenue was mainly due to increased instant noodle sales, which accounted for approximately 89.7%, 89.1%, and 89.2% of its total annual revenue in 2014, 2015, and 2016, respectively. In addition, Nissin Foods Hong Kong also has frozen food and other food products. In 2016, the revenue from frozen food was HK$284 million, accounting for 10.8% of the group's total sales. Market analysis suggests that Nissin's development in the Hong Kong market is relatively mature and increasingly saturated, making it difficult to achieve breakthroughs. In the mainland instant noodle market, in 2016, in terms of sales value and sales volume, Nissin was the fifth and sixth largest instant noodle company in mainland China, with market shares of 2.8% and 1.4%, respectively. Compared with Kangshifu and Uni-President, which together account for more than 50% of the market share, there is still significant room for development. Focusing on the High-End Instant Noodle Market According to the "Market Analysis Report on the Convenience Food Industry," China's instant noodle sales declined by 6.75% in 2016, marking the fourth consecutive year of decline. Coupled with the impact of consumption upgrades in recent years, instant noodles have been defined as "junk food" in many people's minds, and they are no longer willing to pay for them. Therefore, views such as "the instant noodle market has reached its peak or even begun to decline" are frequent. However, according to Japanese media reports, China's instant noodle market size in 2016 was approximately 38.5 billion servings, seven times that of Japan. Although China's instant noodle market is currently shrinking, total sales still account for more than half of the global market, and in the past two years, the high-end instant noodle market has continued to perform well. In May this year, Nissin Foods President Koki Ando stated at the commissioning ceremony of the Pinghu factory in Zhejiang, "China is a potential market, and we will expand our business focusing on high-end instant noodles." He also revealed plans to produce and sell cup noodles and fried noodles priced above 5 yuan. ▲ Image source: Nissin Hong Kong official website Why above 5 yuan? Because high-quality instant noodles are typically priced above HK$6 or RMB 5 per cup/bowl/bag. It is worth noting that in 2015, Nissin acquired and subsequently sold all shares of Jinmailang, which attracted market attention. Japanese media reported on this, saying, "There is a clear strategic difference between Jinmailang, which has advantages in rural areas with low prices, and Nissin, which has advantages in urban areas with a high-end route." Nissin has publicly stated that "clearing out" Jinmailang is consistent with its plan to develop its own brands in China and is in the company's best interests. On July 4, Zhu Danpeng, a commentator on China's food industry, said in an interview with a reporter from National Business Daily (WeChat ID: nbdnews) that if Nissin Foods Hong Kong, as a food company focusing on the quality instant noodle market, succeeds in its IPO, it will promote the high-end instant noodle market in China. Because Nissin has its own influence in the high-end instant noodle segment, if it continues to make efforts in the mid-to-high-end, it will have a very good promoting effect on the upgrading of China's instant noodle industry structure. Currently, Kangshifu and Uni-President dominate the mid-to-high-end instant noodle market in mainland China. After Nissin joins, it will form a complementary relationship with them. Source: National Business Daily -END-