Introduction: The instant noodle industry continues to shrink, and the category is declining. What should leading brands do? The experience and lessons of Master Kong instant noodles over the past three years are worth pondering.
From 2014 to 2016, China's instant noodle industry continued to shrink. According to data from the World Instant Noodles Association, in 2016, China's demand for instant noodles was 38.52 billion servings, a decrease of 7.7 billion servings compared to 2013, a drop of 16.6%. Leading brand Master Kong saw significant revenue declines for three consecutive years, with drops exceeding 10% in 2015 and 2016.
In 2017, the instant noodle industry showed signs of recovery. According to Nielsen data, in 2017, the overall domestic instant noodle market volume grew by 0.3%, and sales value grew by 3.6%. Master Kong finally stopped declining and rebounded. According to Master Kong's latest performance report, in 2017, Master Kong's instant noodle business achieved revenue of 22.62 billion yuan, a year-on-year increase of 4%; net profit reached 1.49 billion yuan, a year-on-year increase of 27%.
China is undergoing economic structural transformation, and during consumption upgrades, many categories are declining. Leading brands are most affected by industry trends. Want Want's revenue and profits began to peak and decline in 2014; Wahaha achieved revenue of 52.9 billion yuan in 2016, a decline of more than 20 billion yuan compared to 2013.
What should leading brands do when the category declines? The experience and lessons of Master Kong instant noodles over the past three years are worth pondering.
- Maintain Category Value Brand value is determined by two factors: first, the strength of the brand's dominant position in its category, and second, the value of the category itself.
For leading brands, category value directly determines brand value. Master Kong holds an absolute dominant position in the instant noodle category, with a market share of 43% by volume in 2016, while the second brand, Uni-President, only holds 20%. The core reason for its significant decline is the reduced value of the instant noodle category.
Category is the driving force behind consumer purchasing. Consumers are increasingly concerned about health and nutrition. The high oil and salt content of instant noodle seasoning packets and the fried noodle cake process have led consumers to perceive instant noodles as unhealthy, directly reducing category demand.
Affected by health trends, the value of many categories is declining due to consumer perception. Carbonated beverages are struggling to resist the decline due to high sugar content. Cup milk tea growth has hit a bottleneck, also due to consumer concerns that its ingredients are only creamer and food additives.
Leading brands dominate and represent their categories, and they have a greater responsibility to maintain the value of their categories.
Previously, Master Kong did not pay attention to the impact of negative consumer perceptions on the category. Instead, it only focused on price wars against Uni-President, leading to a lack of innovative products in the industry and collective vicious competition, which had a negative effect on category growth.
Since 2014, Master Kong realized there was a problem with the category and gradually increased resources to maintain it. It sponsored sports events such as CUBA and national marathons, and in the "Peace of Mind Companion Plan" with national volleyball team captain Zhu Ting, provided Master Kong professional nutritionists to offer her healthy meals and balanced nutrition, increasing the association between instant noodles and sports, and continuously promoting the health and nutrition of instant noodles.
Once a category disappears, the brand loses its value. When leaders face category shrinkage, they should shift their focus to maintaining category value and take on the responsibility of educating and promoting the category. When donkey-hide gelatin was questioned as having no nutritional value beyond donkey skin, Dong-E E-Jiao quickly refuted the claim with the China Association of Traditional Chinese Medicine and promoted the nutritional value of donkey-hide gelatin in the Chinese Pharmacopoeia, effectively maintaining category value.
- Promote Differentiation Through Innovation, and Expand the Category Through Differentiation Differentiation is the driving force of business development and category development. Differentiation inevitably brings competition between new and old products, but more importantly, it brings growth opportunities. Large enterprises have advantages in capital, channels, and marketing. Once they promote differentiation through innovation and create new customers, they can effectively drive their own and industry growth.
Master Kong's instant noodle revenue rebounded, with the launch of its high-end noodle series showing initial results. According to Master Kong's annual report, in 2017, high-priced bagged noodles achieved revenue of 8.6 billion yuan, up 21% year-on-year. In the past three years, Master Kong has begun to emphasize product development and launched a series of innovative products. In response to the unhealthiness of fried noodles, Master Kong launched "Ai Xian Da Can," featuring non-fried "steamed noodles"; Tang Da Shi, which does not add MSG; and high-end series such as Jin Tang and Jiang Tang, which emphasize slow-cooked broth. These innovative attempts align with domestic consumption upgrades and consumer demand for health and nutrition.
Differentiation is inevitable, so for leading companies, it is wiser to proactively promote differentiation and compete with themselves. Coca-Cola introduced low-sugar and sugar-free colas to address health trends.
After ChaCha's fragrant sunflower seeds had been selling well for 16 years, in 2016 it launched new flavors—caramel sunflower seeds and pecan sunflower seeds—which grew rapidly after launch, attracting many consumers who previously did not eat sunflower seeds, creating a new growth point for the sunflower seed category through new flavors.
- Continuously Strengthen Dominance in the Original Category Competition always exists in the market. Follower brands aim to replace the leader and will continuously attack the leading brand's core categories. Therefore, leading brands also need to continuously consolidate their dominance in the original category.
In the past three years, Master Kong made a major strategic mistake: it neglected to strengthen its dominance in the original core category and hastily removed its pillar product, the 2.5 yuan classic braised beef noodles, directly leading to a decline in mainstream market share.
In 2015, Master Kong upgraded its braised beef noodle series, labeling the upgraded version as "rich ingredients" and raising the terminal price to 3 yuan. Master Kong vacated the mainstream price segment, allowing competitors to swarm in, especially in third- and fourth-tier markets, where brands like Jinmailang and Baixiang rapidly increased sales in the 2.5 yuan market. Meanwhile, circulation channels were cautious about the price increase, and sales of the upgraded product fell far short of expectations.
In addition, distributors raised the price of Master Kong's low-price brand, the 1.5 yuan "Jin Shuang" braised beef noodles, to 2.5 yuan for sale. However, due to the product's lack of competitiveness, consumers directly perceived a decline in Master Kong's quality, directly affecting the product's reputation. In 2015, Master Kong's instant noodle revenue fell by 12.7%, the highest in history, and both sales volume and sales value market share declined.
Unable to resist competitor attacks, in 2016 Master Kong's annual report stated: "Based on careful evaluation and careful decision, the classic series products were re-launched in June." Subsequently, Master Kong continued to increase resource investment in the distribution and promotion of the classic series, gradually restoring its dominant share in the mainstream market.
Master Kong's neglect of the original category and failure to continuously strengthen its dominance is a typical problem faced by all leading brands when the category declines.
When a category declines, leading brands should proactively maintain category value, then continue to promote differentiation through innovation to expand category capacity. In the process of differentiation, they also need to further consolidate and strengthen their dominance in the original category to achieve sustainable development.
Source: Ries Category Strategy (ID: strategyofcategoring) -END-