February 26, 2008 / 12:16 AM / in 10 years

China's noodle makers vie for share of $13 billion market

<p>A customer selects instant noodles at a supermarket in Beijing January 16, 2008. With many of China's 1.3 billion people eating them every day, it's not surprising that instant noodles are big business in China where an economic boom has created a generation of instant noodle eaters. Estimated at $6.6 billion, China's instant noodle business is set to double to around $13 billion by 2012 and players are scrambling for market share and brand recognition. REUTERS/Claro Cortes IV</p>

TAIPEI (Reuters) - With many of China’s 1.3 billion people eating them every day, it’s not surprising that instant noodles are big business in China where an economic boom has created a generation of instant noodle eaters.

From office workers in Shanghai to laborers on Shenzhen construction sites, instant noodles are eaten with relish due to the low cost and convenience.

“My husband and son love instant noodles. They eat them as breakfast and as a midnight snack, more than twice each week,” says Yun, a 41-year-old housewife as she wandered down the instant noodle aisle in a downtown supermarket in Shanghai.

Estimated at $6.6 billion, China’s instant noodle business is set to double to around $13 billion by 2012 and players are scrambling for market share and brand recognition.

As Yun pushes her trolley through a supermarket aisle, she is confronted by literally dozens of brands all competing for the yuan of China’s instant noodle eaters.

Colorful packaging, tie-ins with the Beijing Olympic Games in August and new flavors and recipes, such as low fat noodles, are some of the strategies adopted by manufacturers fighting out the “noodle wars” in Chinese supermarkets.

China is the world’s biggest instant noodles market. Its consumers spend around $5 per capita per year on instant noodles, according to Euromonitor International.

Instant noodle packet prices range from one yuan to five yuan for the high end brands, which are becoming particularly popular among noodle eaters and where margins are high.

So how can noodle manufacturers get a piece of the action? Product development, advertising and distribution appear to be key, according to players and experts.

“The core to our business is brand management,” said Alex Lo, president of Uni-President Enterprises Corp, Taiwan’s largest food conglomerate and the No. 3 noodle maker in China.

Increasing brand recognition is crucial and total advertising spending promoting instant noodles in China in 2006 amounted to $237.4 million, a 19 percent jump from the previous year, according to Nielsen.

But turning advertising and promotions into additional sales won’t be an easy task. Despite the size of the market, China’s noodle industry is dominated by one company: Taiwan-founded Tingyi.

Its Master Kong brand commands a lofty 43.3 percent share, according to CIMB-GK Securities (HK) Ltd. Its closest rival, Japanese joint venture Nissin Hualong, has 14.2 percent, followed by Uni-President with 10.5 percent, according to

CIMB-GK.

HEALTHY NOODLES

Driven by demand from more affluent and health conscious eaters, one of the biggest growth areas is low-fat versions of traditional instant noodles, which are deep fried as part of the production process.

“Healthy positioning of instant noodle brands are the key factor driving consumer buying patterns in Greater China,” said Michelle Huang, an analyst at Euromonitor International.

“In mainland China, instant noodles manufacturers launched new variants with added nutritional value in an effort to break the traditional perception of the instant noodles as being unhealthy,” added Huan.

Japan’s Nissin, the largest noodle maker in Japan, has been promoting non-fried variants in China and at home.

Through a 2004 tie-up with Hebei Hualong F&N Industry Group Co Ltd, it has formed Nissin Hualong Food Co., the second largest instant noodle maker in China.

It’s main competitor Taiwan’s Tingyi owes its success to entering the market early and building up strong brand loyalty with wide distribution.

“Tingyi has been able to garner significant market share due to its distribution network,” said Renee Tai, an analyst at CIMB-GK in Hong Kong. “It’s not just ads and pushing products through with promotional activities, but it’s really getting the products through to customers. They got that part right.”

Tingyi has located its manufacturing facilities close to distribution centers, which ensure it gets its products to market quickly and smoothly, added Tai.

To maintain market share and lower the impact of soaring raw material prices, Tingyi is focusing on the high-end noodles where margins are bigger, said Tai in a recent research report.

OODLES OF HISTORY

Noodles in China have a long history. Opinions differ over whether the Chinese, Italians or Arabs invented the food, but a 2005 discovery of a sealed bowl believed to be 4,000 years old in northwestern China could swing the debate in China’s favor.

Less controversial is the instant noodle, whose origins date to 1958 when Momofuku Ando, founder of Japan’s No.1 noodle maker Nissin Food Products Co, created his now famous “Chicken Ramen” noodles to feed the masses in post-war Japan.

Offering instant noodles in a styrofoam container, in which they could be cooked by adding hot water, made the product a hit with people looking to eat on the run around the world.

Nissin is now poised along with other market players such Uni-President to gain from a blitz of retail and marketing promotions leading up to the 2008 Beijing Olympic Games.

Uni-President, a relative latecomer to the market, is one of the event’s most likely beneficiaries, after being named as an official sponsor by the Beijing organizing committee in 2006.

Uni-President, whose noodle business has been making a loss, is banking on the games and the recent listing of its China arm, Uni-President China Holdings in Hong Kong to build its China presence.

Uni-President has tapped into the Olympic spirit for its promotions, volunteering to donate 1 yuan from each sale of instant noodles to build schools throughout China.

However analysts say the costs involved with being an official sponsor and the additional marketing expenses could further steepen losses and not necessarily translate into to increased sales.

“It will be able to create brand awareness, but will it be able to catapult them into winning market share? That’s the biggest question,” said Jack Chang, an analyst at Yuanta Research Center in Taipei.

Uni-President is also looking at local area marketing. It established a research team in Kunshan, near Shanghai, to develop flavours to meet local tastes: no small task considering the sheer size of the country and the diverse range of culinary styles.

Additional reporting by Alfred Cang in Shanghai; editing by Megan Goldin

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