Sausage ceasefire may not end war between China's noodle kings
By Alice Woodhouse
HONG KONG (Reuters) - It started with a sausage. A three-inch, complimentary ham sausage, to be precise.
The price war for China's $8.8 billion instant noodle market sparked last year by Uni-President China Holdings Ltd's (0220.HK: Quote) porcine giveaways soon escalated into free drinks, extra seasonings and other gifts as incumbent heavyweight Tingyi (Cayman Islands) Holdings Corp (0322.HK: Quote), owner of the Master Kong brand, sought to defend its patch.
While Chinese consumers who slurp their way through 44 billion packets of noodles each year were delighted, shareholders were left underwhelmed.
Taiwan-based Uni-President, well-known in China for its pickled cabbage flavoured noodles, has now called a truce in the bruising battle that had depressed its margins, bringing the free sausage promotion to an end.
"It seems to be quite an emotionally charged, rather than a rational competition," said Torsten Stocker, a Hong Kong-based partner at consulting firm AT Kearney.
Tingyi, which has a market value of $14.8 billion, accounts for 44.1 percent of sales volume in China's noodle market, while noodle revenues comprised 36.75 percent of its total revenue in the first half, compared with 30.9 percent for Uni-President.
The giveaway campaign did help the smaller Uni-President increase its share of the instant noodle market in China, which climbed 1.8 percentage points to 16.9 percent in the first half of this year compared with the same period in 2012.
But operating margins for Uni-President's instant noodle segment fell to negative 1.6 percent in the first half of 2013, from 5 percent in the same period last year, according to company data and Reuters' calculations, as the extra marketing costs of the "noodle war" weighed. Continued...