In December, Nissin Foods Holdings listed its Chinese unit, which also oversees the group's Hong Kong operations, on the Hong Kong stock exchange. The move comes at a time of slow growth for the Chinese instant noodle market after it peaked in 2013.
“Chinese demand is the largest and is about seven times that of Japan,” said Group President Koki Ando. “I am under the impression that the market for young people is growing faster in China than in Japan. The time is ripe for higher-priced instant noodles to gain ground strongly."
Koki’s second son, Kiyotaka Ando, Chairman and CEO of the company's Chinese unit, agrees. “The market is shrinking if you see instant noodles as a commodity. If we offer healthier, safer products, demand will surely grow.”
Nissin entered the Hong Kong market in 1984. It expanded its distribution network, going from one store to another until it became the top brand with 60% share. Ten years later, the company entered mainland China. However, the move was premature as China economy was just starting to take off. Most people could not afford high-quality Japanese products like those made by Nissin. Low-income seasonal workers and students, for example, favored cheap instant noodles priced around Rmb 1 (US$0.15) for a quick snack. As a result, Nissin struggled to sell its products.
However, things started to improve as incomes in China rose and consumers became willing to pay more for better quality. Instant noodles in foam cups, priced from Rmb 5 to 20 (US$0.78-US$3.10) that have better taste and quality started to sell well especially to young white-collar workers.
Overall Nissin has 2.8% share in China instant noodle market, making it the 5th largest player. However, it has 19.8% share in the higher-priced instant noodle segment just behind market leader Tingyi Holdings (37.9%), and Nissin hopes to close this gap soon.
Koki highlighted the need to localise and make decisions and implement them quickly in China as the market for mid to high end instant noodles are growing.
To support Nissin expansion, a December IPO brought in US$121.5 million for the company, of which 45% will be set aside for plant expansion, while 30% will be for investment in local companies. “We are thinking of partnering with local manufacturers that have sales and distribution networks in northern and western China, where we hope to boost our sales,” said Kiyotaka. Nissin already has an established network in eastern and southern China, where it has over 1,000 salespeople. The company is looking for a partner that will allow it to expand across the country.
Euromonitor claimed that China instant noodle segment peaked in 2013 with sales at Rmb 93.3 billion, and in 2022, sales will only be 80% from the peak. China market is starting to resemble like Japan where instant noodle consumption continue to decline, as such Nissin need to employ the same strategy of localising, and developing long-selling brands like ‘Cup Noodle’ and ‘Donbei’ in Japan for the China market.
There is a need for hybrid management in China, combining Japanese technology with local sales know-how.
High-end Instant Noodles War
As Nissin is beefing up its war chests, Chinese noodle makers are also preparing for the major battle. Market leader Tingyi has found hits with premium products such as spicy black-and-white pepper noodles. Number 2 player, Uni-President Enterprises has also stepped up its high-end noodle offerings.
On the other hand, Nissin, after its Hong Kong IPO, is preparing to introduce noodles with even more added value, such as a low-calorie cup noodles.
Meanwhile, a growing number of Chinese travelers who visited Japan felt connected with the taste of Japanese ramen. In 2016, more than 6.3 million Chinese visited Japan. As such, although having Nissin Hong Kong go local will help the company keep track of China's changing tastes, the flavors of Japan could also be the key to success.