China Food

A packet of instant noodles is difficult for new consumers

“ 
why can’t the new brand make instant noodles well?
 ”

Wen: Wu Jiaoying; Editor: Jin yuyu

Source: kaiboluocaijing (ID: kaiboluocaijing)

 
Instant noodles, which was rejected last month because of “pickled vegetables in the earth pit”, has recently become the “hard currency” in the inventory of household isolation materials.
 
Many young people find that no matter how fast the takeout is and how fresh the prefabricated dishes are on weekdays, it is convenient, simple and easy to store. It also has to be instant noodles brewed.
 
Of course, many people would not have noticed that after three decades of Jianghu hegemony, the “top stream” in China’s instant noodle industry is still Master Kang, uni president and jinmailang. In addition to making it more high-end and selling it at higher prices, there is no new story to tell.
 
What’s more exaggerated is that even the new consumption tide sweeping the food and beverage industry in the past two years failed to “roll” a new player into a climate in instant noodles.
 
Where is the invisible moat in the instant noodle industry that seems to have a low threshold? This may be a problem worth exploring.
 
The answer given by many analysts is that the giant’s strong control over the nearly blockade of sales channels leads to new brands entering the market only through online, but the online traffic cost is high, the return on investment is low, and it is difficult to sustain. Coupled with the high popularity of traditional brands, cost control under economies of scale, keen sense of defense and the narrow innovation space of the category itself, instant noodles has become an industry with constant strength and weak afterwave.
 
This has also led to the detour of cutting-edge brands to some extent. By cutting into more subdivided fast food categories and more focused consumption scenes, they make young people fall in love with snail powder, self heating hot-pot/" 22375 rel="nofollow" target="_self">hot pot and instant rice noodles, so as to get a piece of the convenient fast food market.
 
With the rapid explosion of new convenience foods and the gradual shrinkage of the traditional instant noodle market, the teachers and apprentices who built the city and built the river and the new apprentices who raided alone are bound to fight in the future.
 
Instant noodles have no new story
 
The struggle between Master Kang, unification and jinmailang for instant noodles has to start from the early 1990s.
 
In the late 1980s, Wei Yingzhou, the boss of Taiwan businessmen, came to the mainland to invest. He accidentally found that he had brought instant noodles to satisfy his hunger on the train, which attracted the attention of many passengers. Seeing the business opportunities, he soon took his team to Tianjin to build a factory and establish the instant noodle brand “Master Kang”. In the early 90s, when the first time, the master cooked red noodles and sold the Chinese mainland market, and sold 200 million bags in two years.
 
The opponent was also unwilling to show weakness. At that time, it was the unification of Taiwan’s instant noodle giants, and soon built factories in the mainland to seize the market. However, the unified fresh shrimp instant noodles, which sold well in Taiwan, suffered Waterloo in the mainland market, and there have been few explosive products since then. Until 2008, laotan pickled vegetable beef noodles was born, and uni president finally had the confidence to compete with Master Kang.
 
Master Kang braised beef noodles vs unified laotan pickled vegetable beef noodles
 
Compared with Master Kang and uni president with Taiwan funded background, jinmailang is a native enterprise.
 
The predecessor of jinmailang is Hebei food enterprise “Hualong” established in 1994. When Master Kang and United compete for urban shelves, Hualong aims at towns and villages at a lower price and takes the route of high cost performance. In 2002, Hualong cut into the medium and high-end market with “jinmailang elastic surface”, and then continued to win more market share with a larger “one barrel and a half” series, ranking among the top three in the industry. At the beginning of 2021, the information related to the listing guidance and filing of jinmailang was disclosed, and the listing plan was transmitted after the failure of two sprint IPOs.
 
White elephants who also take the route of “encircling cities from rural areas” are not so lucky.
 
Baixiang was born in Henan in the late 1980s. It officially became a flour product enterprise in 1997. It once became jinmailang’s biggest competitor in the “1 yuan instant noodles” market. It also gained a firm foothold on the city shelf with the help of “Baixiang big bone noodles”. However, when the rivals ushered in the entry of foreign capital one after another and the IPO plan failed, the white elephant had to retreat quietly to Henan. Until this year, because “one third of the employees are disabled” and “there is no cooperation with the flag planting vegetable industry”, the traditional domestic brand white elephant finally returned to the public’s vision and ushered in a wave of “wild consumption”.
 
Jinmailang “1.5 barrel” vs white elephant “more than half barrel”
 
After decades of competition, the market pattern of China’s instant noodles has gradually stabilized. According to Analysys analysis report, in 2020, Master Kang, uni president and jinmailang respectively accounted for 47%, 21% and 11% of China’s instant noodle market share, which has lasted for many years.
 
The situation that traditional giants firmly occupy the head position is not uncommon in all walks of life. Carbonated beverages include Coca Cola and Pepsi Cola, dairy products include Mengniu and Yili, and water drinks include Nongfu mountain spring and Wahaha… However, in the recent two years of new consumption waves, a new generation of brands that “newborn calves are not afraid of tigers” have disrupted the pace of giants.
 
Surprisingly, there is no Unicorn like vitality forest in the long-standing industry of instant noodles.
 
Even the capital that throws money madly for new consumption rarely looks here. In the past three years, there are only three instant noodle enterprises that can be queried publicly and get 100 million yuan of financing: in February and June 2020, Baijia akuan food successively completed 110 million yuan and 200 million yuan of financing; In June 2020, Baixiang food completed 174 million yuan of strategic investment; In February 2022, jinmailang obtained the exclusive investment of 600 million yuan of Jiahua capital.
 
Among them, Baixiang and jinmailang are traditional brands, and Baijia akuan food, which is popular with “red oil pastry” and has rushed to IPO in January this year, is one of the few “online celebrities” in the instant noodle industry in recent years. However, compared with Master Kang, unified and jinmailang, Baijia a Kuan not only has a much smaller volume, but also has worrying profitability.
 
According to its prospectus, in 2020, Baijia akuan food had a revenue of 1.1 billion yuan. With 120 million bags of red oil flour skins sold in one year, its instant noodle revenue was 570 million yuan, a year-on-year increase of 103.6%. However, its net profit of that year was still only 76.08 million yuan, with a net interest rate of only 6.9%. By the first half of 2021, its revenue reached 590 million yuan, but its net profit was only 19.81 million yuan, and the net interest rate was as low as 3.4%.
 
In the face of Master Kang and unification, this can be said to be minimal. According to the financial report of Master Kang, in 2019, 2020 and 2021, its instant noodle revenue was 25.3 billion yuan, 29.5 billion yuan and 28.4 billion yuan respectively; The contribution profits were 2.2 billion yuan, 2.733 billion yuan and 2.004 billion yuan respectively. Unified financial report shows that in the past three years, its instant noodle revenue has remained at 8.5 billion yuan, 9.055 billion yuan and 9 billion yuan.
 
Ramen vs wide face
 
In the instant noodle industry, another popular new online consumer brand belongs to the “Ramen theory” founded in 2016. With the typical flow playing method of “big anchor with goods + KOL planting grass”, ramen said that it made a strong exit in 2019 and sold 250 million yuan of sales.
 
However, the story of ramen saying “high-end health” does not seem to last long. According to the market intelligence data of magic mirror, during the first round of pre-sale of double 11 in 2021, the sales of ramen was nearly halved compared with the previous year, and the sales ranking of categories decreased significantly.
 
Nowadays, with the tide of new consumption ebbing, the online road of online popular brands is more difficult to sustain, and there is still no new story to tell after 30 years of competition for hegemony in the Jianghu.
 
Channel blockade and innovation are too difficult,
How long will new consumption last?
In the new consumption era of “all brands are worth redoing”, why are there no new players in instant noodles?
 
Many analysts believe that a major factor that keeps new players out of the head of the track is the giant’s strong control over the nearly monopoly of sales channels.
 
“Food and beverage products rely heavily on offline channels such as supermarkets and convenience stores, but unlike online channels, shelves are limited. If you want to go on the shelves, you have to pay an ‘entry fee’.” Li Yingtao, research director of Analysys brand retail industry center, Xiangkai pineapple financial analysis.
 
The so-called “entrance fee” is not qualified for everyone.
 
Li Yingtao said that based on the scale effect and brand awareness, the bargaining power and voice of traditional big brands in front of channel providers are very strong, and even channel blockade can be formed through long-term agreement cooperation. “You can imagine that a supermarket or convenience store has no products from Master Kang, unified or nongnongshanquan and Coca Cola at all, which is basically impossible.”
 
Source of instant noodles on supermarket shelves / visual China
 
Moreover, as a mature traditional category, the offline dealer system of instant noodle industry has also been quite stable. “High quality dealers have established long-term cooperation with giant brands, and it is difficult to break new brands in the short term.”
 
In 2021, the number of distributors of Master Kong will reach 80000, and the number of direct retailers will exceed 250000; As of June 2021, there were only 1041 offline distributors of akuan food, and most of them were small.
 
Wang Yang, a supplier in the pasta industry, believes that the best solution for new brands to shop offline channels may be chain convenience stores. “They are more willing to give opportunities for new brands to show, but they may require brands to sign exclusive agreements, that is, they may not be allowed to enter convenience stores of other chain brands, which will make it easier for you to be positioned as a niche brand and make it more difficult to expand other channels.”
 
In the shelf competition for new brands, the vigorous forest of offline distribution and online marketing is regarded as a model of success. But in Wang Yang’s view, in the instant noodle industry, it is difficult for brands to pay high channel costs like the original vitality forest. “The return on investment is not high in the short term, and there are certain risks.”
 
Therefore, most new consumer brands can only start from online channels and embark on the road of “online popularity”. “Online channels are easy to break out in a short time, but the brand has no bargaining power and voice in front of the platform and head anchor in the early stage. Even if it makes a popular SKU, it has to pay a very high traffic cost.” Li Yingtao said.
 
This can be seen from the prospectus of Baijia akuan food.
 
Its annual revenue is 1.1 billion yuan, the gross profit margin of its main business is 35%, and the net profit is only 76.08 million yuan, which is dragged down by the rising marketing costs. According to the prospectus, in 2020, Baijia akuan food’s e-commerce self operated income was 230 million yuan, and the e-commerce channel service fee was 56.46 million yuan, accounting for 24.73% of the e-commerce self operated income. In other words, for every piece of red oil pastry sold by a Kuan food at a price of 44 yuan (the average price of a Kuan instant noodles in 2020), it has to spend 11 yuan on the anchor and e-commerce platform. After excluding the cost, the profit margin is naturally low.
 
Ratio of a Kuan food e-commerce channel service fee to e-commerce self operated income
Source / prospectus
 
Those who “discourage” entrepreneurs also have the defensive awareness and imitation ability that giants have practiced in years of fierce competition.
 
In those years, the giants wanted to grab the low-end market, unified with “good momentum”, and Master Kang had “fumanduo”; Later, a higher quality “Tang Da Ren” was launched, and Master Kang launched the benchmarking “Tang master”; Later, the unified use of “Manchu Han meal” to seize the high-end noodle market, and Master Kang also quickly cut in with “Suda noodle restaurant”.
 
“Once you see a certain kind of emerging demand outbreak and a small brand begins to grow rapidly, the giant will quickly follow up after market judgment and tilt the resources of the whole team to support the new business.” In Li Yingtao’s view, therefore, the growth time of new brands is very short if they want to complete scale accumulation and brand cognition before giants react, learn to imitate and even surpass.
 
Moreover, unlike the beverage industry, there is not much room for innovation in instant noodles. Over the past few decades, whether traditional brands or new brands, the dimension of innovation has only stayed in two aspects: Health upgrading and quality upgrading. Such upgrades also mean higher prices and a smaller consumer base.
 
After decades of accumulation, traditional giants have firmly established a moat with channel control, brand awareness, cost control under scale effect and standardized production, making the instant noodle industry a “strong and strong” market, which is difficult for latecomers to break through.
 
Use snail powder, zihi pot,
Can you grab the job of instant noodles giant?
Under the interception of giants, the new brand had to make a detour.
 
Since 2017, the new instant food represented by snail powder, self heated hot-pot/" 22375 rel="nofollow" target="_self">hot pot and self heated rice has achieved explosive growth. According to the report of the head leopard Research Institute, in 2017, the scale of China’s convenient fast food market increased by 23.7% year-on-year to 279.5 billion, continued to grow to 294 billion in 2018, fell back in 2019 and increased to 294.5 billion in 2020.
 
According to the 2021 insight report on instant food industry released by cbndata, instant noodles, as an old brand category, still accounts for more than 30% of the sales share, but the growth rate of new instant food products such as rice noodles, snail powder and instant rice is much higher. Zihi pot, haohuan snail, Li Ziqi, ramen said and a Kuan have become the most popular new brands in 2020.
 
Once consumer demand is verified, these new types of fast food will soon become the darling of capital. In 2021, the snail powder brand liziqi, the self heating hot-pot/" 22375 rel="nofollow" target="_self">hot pot brand zihi pot and Mo Xiaoxian all won the financing of 100 million yuan, although they may not have built their own supply chain, but only adopt the OEM mode of production.
 
Various convenient fast food products on e-commerce platform
 
Through more subdivided categories, more focused scenes and more fresh playing methods, the emerging online red brand tried to cut off a piece of cake convenient for fast food. Master Kang and Tongyi had to prevent it.
 
For example, in 2019, uni president developed the brand “kaixiaozao” from hot rice, and successively launched self heated hot-pot/" 22375 rel="nofollow" target="_self">hot pot, brewing wonton and other fast food products. It quickly opened its popularity by signing a star spokesperson and head anchor to bring goods, so as to resist the impact of cutting-edge brands.
 
At the same time, the category anxiety of traditional giants is also related to the gradual shrinkage of the market scale of instant noodles in recent years.
 
Although since 2020, the instant noodle market has experienced a small rebound due to the isolation at home caused by the epidemic, on the whole, in recent years, with the cultivation of takeout mentality, the instant noodle industry has been impacted and the market scale has continued to shrink.
 
According to Nielsen data, in 2021, the overall sales volume of the instant noodle industry declined by 4% year-on-year, and the sales volume declined by 2.7% year-on-year. Specifically for brands, the revenue of instant noodles of uni president in 2021 also decreased by 0.6 percentage points year-on-year; Master Kang’s instant noodle revenue in 2021 decreased by 3.6% year-on-year. Coupled with the impact of rising raw material prices, the profit fell by nearly 27%.
 
In Li Yingtao’s view, it is almost an inevitable trend for all kinds of new instant foods to squeeze the market space of traditional instant noodles, which has been quite obvious in the Japanese and Korean markets. “With the increase of human service cost, the cost of dining out and cooking at home will rise. Compared with traditional instant noodles, new foods such as boiled noodles with higher price, better quality and better flavor will be reflected as a supplement to dinner.”
 
He also pointed out that at present, the four consumption scenarios of instant noodles in China, including construction sites, offices, families and trains, are still widespread, and the market scale is quite large compared with other fast food categories. Therefore, the growth rate of the instant noodle industry may slow down, but it will not be completely swallowed.
 
Back to the instant noodle track, the new brand does not have the opportunity to impact the giants.
 
Li Yingtao believes that the opportunity for new brands to break through may exist in the domestic substitution trend in all walks of life. “Master Kang and Tongyi are both enterprises with Taiwan funded and foreign-funded backgrounds, and ‘domestic products’ are becoming a major factor affecting the consumption of young groups, and there will be a great possibility of domestic substitution in the future.”
 
Wang Yang told kaipineapple finance and economics that the “moat” of Master Kang and Tongyi’s industry is not without loopholes. Over time, it is still imaginable for new brands with brand power and product power to break through the blockade through innovative SKU.
 
Today, although new consumption has not yet created a new top stream in the instant noodle industry, it has made the whole industry more rapidly changing than at any time in the past three decades. This also reminds players of new and old brands that there are more things to do in addition to raising prices and marketing in order not to be squeezed out of the track.
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