Author: Ma Lin Source: Caijing Eleven (ID: caijingEleven) After years of downturn, instant noodles, once labeled as a symbol of 'consumption downgrade,' have not been eliminated by the times but have regained growth momentum. How did this national staple food turn the tide? After years of sluggish sales, instant noodles are winning back the enthusiasm of Chinese consumers. According to Nielsen data, after three years of declining sales from 2014 to 2016, the Chinese instant noodle market saw a slight increase of 0.3% in volume and 3.6% in value in 2017. In 2018, volume grew by 3.2% and value by 8%, with growth accelerating significantly. This contrasts with people's expectations. With the rise of formidable competitors such as supermarkets, convenience stores, and food delivery services, Chinese consumers have more dining options than ever. Instant noodle sales once slowed sharply and even declined for consecutive years, leading many to label them as 'consumption downgrade,' 'unhealthy,' and 'low-end.' However, just as people were writing off instant noodles, the Chinese instant noodle market quietly emerged from its trough and regained upward momentum. Is this recovery temporary or a stable trend? How have companies kept instant noodles on consumers' dining tables? The 'Dark Middle Ages' Instant noodles were invented in 1958 by Momofuku Ando, a Japanese of Chinese descent. At that time, Japan was relatively short of supplies, and Ando hoped to provide a food that could be eaten anytime, anywhere, and stored for a long time. After their introduction, instant noodles were not only welcomed by Japanese consumers but also quickly became popular in other Asian countries with noodle soup cultures, becoming a 'national staple' on Chinese dining tables. The 1980s, 1990s, and early 2000s were the golden years for instant noodles in China. During that period, supermarkets, food retail, and the catering industry were still in their infancy, and dietary choices were far less diverse than today. For many, boiling an egg and adding some greens turned instant noodles into a delicious main meal. The prosperity of the instant noodle market also fueled the rapid growth of large consumer companies: Momofuku Ando's invention of instant noodles also expanded Nissin, a Japanese food and beverage company, and in the following 30 years, Taiwanese companies Master Kong and Uni-President rode the wave of China's consumer boom to quickly open up the market there. In the 1980s, instant noodles were just starting in China. Main products included Zhuhai Huafeng's Sanxian Yimian, Lucky Brand Crab Roe Noodles, and Henan Nanjing Village's Beijing Instant Noodles. Most of these noodles had only a seasoning powder packet with salt and MSG, no sauce or vegetable packets, and limited flavor choices. In the 1990s, Master Kong and Uni-President entered mainland China and quickly captured the market with unique new products. The most memorable for consumers was 'Master Kong Braised Beef Noodles,' which had richer seasoning and a more intense flavor. In the early 2000s, instant noodles experienced explosive growth in China. From 2000 to 2004, the annual growth rate in terms of packs consumed exceeded 20%-30%. But the Chinese instant noodle market hit a turning point in 2005. After 20 years of high growth, sales declined for the first time. Although they recovered in 2006, growth slowed significantly. From 2014 to 2016, the Chinese instant noodle market experienced a third downturn, with Chinese consumers reducing their consumption by nearly 8 billion packs over these three years. The era of rapid growth for instant noodles in China ended, entering a 'dark Middle Ages.' The main reason for this change was the increase in alternatives. Supermarkets, convenience stores, fresh food markets, restaurants, and eateries... the channels offering meals and snacks became increasingly diverse, changing the role of instant noodles on Chinese dining tables. They became emergency food for people busy at work or too lazy to cook. Companies were the first to feel the shift in the industry. During the contraction of the instant noodle market, Master Kong, which held half of the Chinese market, saw its performance decline consecutively. The instant noodle business was Master Kong's foundation in mainland China, but from 2013 to 2016, its instant noodle revenue fell by 7 billion yuan, with its contribution to total revenue dropping from 44% in 2010 to 40%, while beverages grew from 53% to 57%. In 2014, Master Kong's instant noodle gross margin was 28.3%, not only declining but also lower than the group's 30.5% gross margin that year. Comparison of Master Kong's performance indicators during the years when the instant noodle business transitioned from growth to decline: Although Master Kong and Uni-President, which are based in the mainland, faced growth difficulties, there were still products in the instant noodle market that grew rapidly. A stock clerk at a Walmart supermarket on Zhichun Road in Beijing told Caijing that, as a frontline worker in instant noodle sales, he noticed that some foreign brands were selling better and better. Pointing to a shelf, he showed the reporter a brand that had quickly become popular in China: Nongshim's Kimchi Noodles from South Korea. The kimchi flavor suited Chinese consumers' eating habits, and the marketing slogan 'Tastes better boiled than soaked' hinted that these noodles could rival a proper meal. Caijing reporters found that some specialty flavors indeed attract consumers to make special trips to buy them. 'Previously, I only knew about Master Kong Braised Beef Noodles, but now there are options like Fire Chicken Noodles and Miso Noodles,' said one consumer. Fire Chicken Noodles are another spicy instant noodle from South Korea, and some Chinese brands have imitated the flavor. The first to introduce Miso Noodles in China was Japan's Nissin. Data corroborates frontline observations. During the same period that Master Kong's performance declined, foreign brands were aggressively entering the Chinese market. A report by market research firm Mintel showed that from 2015 to 2016, the total volume of instant noodles imported from South Korea increased by 134%, and products from Japan and Malaysia were also very popular in the Chinese market. Meanwhile, while the Chinese instant noodle market was declining, in South Korea and Japan, which are also traditional instant noodle markets but have more developed consumer retail and higher national income, instant noodle sales continued to rise. Japan's instant noodle demand grew by 160 million servings during the same period that the Chinese market declined, and South Korea grew by 240 million servings. South Koreans consume an average of 74 servings per person per year, Japanese 45, and Chinese 30. 'This proves that the rise and fall of instant noodle sales is related to the industry's own performance, not directly to consumption upgrades or downgrades,' Li Meng, Research Director of Food and Drink at Mintel, told Caijing. The boom in food delivery also impacted instant noodle sales in China. Mobile internet made food delivery ordering mainstream, becoming a major substitute for instant noodles. The years 2014-2016, when Chinese instant noodle sales declined, were exactly when delivery companies were using financing subsidies to drive prices and stimulate the market, with annual growth rates exceeding 100%. As high-speed rail and bullet trains replaced some long-distance train journeys for Chinese people, the time spent on the road shortened, and consumption scenarios shrank, further weakening instant noodle sales. These impacts were not as severe in Japan, South Korea, and Southeast Asian countries, making this a unique phenomenon in the Chinese market. The industry's downturn and low-price competition among companies were mutually reinforcing. Deng Min, Global Partner at Bain & Company and Senior Leader of Consumer Products and Retail in Greater China, told Caijing that during 2014-2016, while domestic instant noodle sales declined, the average unit price also fell. 'At that time, the competition among leading companies was mainly promotional, which was quite damaging to the industry.' How Instant Noodles Revived Yoshitaka Nogami, Secretary of the World Instant Noodles Association, told Caijing that the global instant noodle market has grown steadily in recent years, and the Chinese market will continue to grow in the future. But Chinese instant noodle companies, now in a low-growth channel, need to give consumers a reason to fall in love with instant noodles again. The decline in the Chinese instant noodle market has external factors related to changes in the consumption environment. Huang Wei, General Manager of Uni-President China's Daily Food Business Division, believes the industry should look at its own reasons. 'Previously, low- and mid-priced noodles (1.5-3 yuan) accounted for a high proportion, but this segment is declining, causing industry leaders to get stuck in a quagmire of portion and price competition. The instant noodle industry failed to keep up with changes in the times and national income growth,' he told Caijing. Tang Hua, General Manager of Jinmailang Brand Management Center, also said: 'The core issue is insufficient innovation. No matter how the industry environment changes, innovation is the magic weapon for companies to cope with fierce competition.' The low- and mid-priced instant noodle market declined, and with no attractive new products on the market, the impression that instant noodles are 'unhealthy' and 'nutritious' deepened among consumers, making it difficult to boost sales. As incomes rose, Chinese consumers were willing to pay a premium for richer and healthier consumer goods. In interviews, some instant noodle consumers said they care more about the improved texture of the noodles and the quality and taste of the seasoning packets, and they don't mind paying a few more yuan for a pack. In fact, innovations in technology, taste, and products have already shown some results. Huang Wei said that in the past two years, Uni-President's mid-to-high-priced market (above 5 yuan) has grown rapidly, and mid-to-high-priced noodles are the growth engine for the entire industry. He said that Uni-President's Tang Daren was one of the earliest instant noodles priced above 5 yuan in the Chinese market, with technological breakthroughs, such as seasoning packets made from slow-cooked broth rather than traditional powder and paste, and larger meat chunks. This product raised the average price of instant noodles in China from 3 yuan to 5 yuan, driving Uni-President's growth in this segment. In 2016, Uni-President launched Man Han Da Can, priced above 20 yuan, where the ingredients in the seasoning packet were no longer dehydrated vegetables and beef but large chunks of beef similar to fresh beef. These mid-to-high-end noodles account for 20-30% of Uni-President China's instant noodle revenue, with a growth rate about 10 times that of low-end noodles. Investing early in mid-to-high-end noodles helped Uni-President climb out of the recession relatively quickly. In 2014, when the entire industry entered a downturn, Uni-President's instant noodle business still grew by 1.7%. After a brief 4.9% decline in 2015, it returned to growth in 2016. In 2018, its instant noodle revenue was 8.4 billion yuan, up 5.7%, with market share increasing to nearly 20%, about half of Master Kong's share, which ranked first. Domestic company Jinmailang also started by improving the noodle cake and vegetable preparation technology, launching products like Lao Fan Jia Noodle House Noodles, Yi Cai Yi Mian, and Daoxiaomian Wide Noodles, making the texture of noodles and vegetables closer to fresh ingredients. Jinmailang is not a listed company and has no public data, but Tang Hua told Caijing that the company's instant noodle sales volume and unit value have grown at double-digit rates over the past three years. In 2018, Jinmailang's market share was nearly 11%, ranking third, behind Master Kong and Uni-President. Stimulated by the competitive environment, after 2017, Master Kong also accelerated its pace of new product launches, introducing many new flavors priced above 5 yuan, such as Shrimp and Fish Board Noodles, Black Pepper Steak Noodles, and Golden Soup Shrimp Ball Noodles, in an attempt to attract consumers beyond those who bought Master Kong Braised Beef Noodles. In addition to emphasizing novel flavors in marketing, Master Kong also improved the freshness of its soup base through technology. Liu Guowei, Director of Master Kong's Instant Noodle Business Division, told Caijing that the current powder and oil packets are different from the past; the broth is made from real ingredients without MSG. The company's marketing and channel investments are also shifting toward high-end products. Mid-to-high-end products also helped Master Kong's instant noodle business emerge from recession. In 2018, Master Kong's instant noodle business generated annual revenue of 23.9 billion yuan, accounting for nearly 40% of total revenue, with a growth rate of 5.7%, exceeding the company's overall growth rate of 2.9%. Will the Recovery Last? The upgrade to mid-to-high-end products drove the Chinese instant noodle industry out of recession. According to Nielsen data, after three years of declining sales, the overall Chinese instant noodle market saw a slight increase of 0.3% in volume and 3.6% in value in 2017. In 2018, volume grew by 3.2% and value by 8%. Companies are also escaping the low-price quagmire. Deng Min said that in January 2018, instant noodle companies even raised prices, increasing by 1 yuan per box for bagged noodles and 2 yuan per box for cup noodles, 'which stabilized the price system.' After the market stabilized in 2017, retail sales grew by 5.5% compared to 2015, of which 5.2% was driven by an increase in average selling price due to product mix adjustments. Will the recovery of the instant noodle market continue? From a consumption trend perspective, busy white-collar workers still need convenient access to food. The basic demand for instant noodles exists; the key is how much favor instant noodles can gain in the battle for consumer attention. Food delivery remains a strong competitor for instant food. Although China's food delivery market growth has slowed, with the growth rate dropping 10 percentage points year-on-year in 2017, it still maintained double-digit growth above 20%. At the same time, today's instant noodles are also competing with other instant foods: vermicelli, rice noodles, snail noodles, cold noodles, Chongqing small noodles, hot pot, and other Chinese specialty snacks have been made into instant foods and are widely sold, targeting the same consumer group as instant noodles. 'Chinese people have a habit of eating noodles, and cultural affinity will drive the continued popularity of instant noodles in China. The challenge mainly comes from how to respond more quickly to consumers' demand for healthy, high-quality products, and how to provide convenient purchase in different consumption scenarios,' Liu Guowei said. Convenient purchase channels include online, which is a new battlefield for consumer interaction and sales resources. Although more than 90% of instant noodle sales still occur offline, multiple instant noodle companies told Caijing that online has become an important way for them to obtain consumer demand and improve products. Kantar Worldpanel research also shows that although more than 85% of urban households in China have purchased instant noodles offline, less than 9% have purchased online, but the average purchase volume per transaction for Chinese consumers is 5.4 packs across both channels, while online is 9 packs per transaction, higher than offline. Deng Min said this data indicates that offline is for immediate consumption, while online is more for stockpiling. Instant noodle companies need to provide consumers with a more effective online experience to increase online sales, for example, by bundling the best-selling flavors into a collection pack, rather than relying solely on promotions of classic products. If a tip is adopted, a reward of 400-2000 yuan will be paid. China FMCG + Internet Professional New Media Dedicated to FMCG manufacturer transformation, upgrading, and channel digital solutions