It’s not easy deciding where to take Kiyotaka Ando for lunch. Ando is the chief representative of Nissin Foods for Greater China and the grandson of Momofuku Ando, the inventor of instant noodles. With a lineage like that I’m sure Ando’s taste buds are finely honed. Luckily, Ando helps matters by saying he likes Western food and somewhere on the Sheung Wan side of Hollywood Road is convenient for him, so we settle on the Press Room.
I’m not too familiar with instant noodles so at the outset I’m keen to establish a sense of size of the market for instant noodles before we start focusing specifically on Nissin’s strategy. The numbers are at Ando’s fingertips.
“Between 2007 and 2009, total demand [for noodles] in China and Hong Kong has dropped from 46 billion pieces to 41 billion pieces, an 11% decline,” highlights Ando. The decline has come mostly in mainland China, and is far in excess of the 3% decline in world demand during the same period from 94.7 billion to 91.5 billion units. “This is mostly attributable to the lack of recognition of instant noodle safety in China and insufficient investment by local players in technology and research and development,” he added.
Tapering of demand hurts all players, especially when the market in which demand is falling accounts for almost 50% of global consumption of instant noodles. Not surprisingly, Ando’s focus on mainland China is high; he visits Shanghai once a month. Ando also mentions that he is an active participant in the World Instant Noodles Summit, and attended the seventh summit, held in Kuala Lumpur earlier this year. The summit is organised by the World Instant Noodles Association (Wina), which Momofuku Ando promoted in 1997, to improve the quality of instant noodles and increase their consumption. At this year’s summit the guiding principles of instant noodles were reaffirmed by 47 instant noodle manufacturers and participants also discussed action plans to elevate noodles to “earth food”, which is to say to move it away from an image of highly-processed food.
New products and flavours
A large focus area for Nissin is research and development. The Nissin Hong Kong office in Tai Po includes an R&D facility that develops products for the Greater China market. Another R&D centre in Singapore develops products for the Asean market.
“In Japan, because the market is more mature, we launch up to five new products weekly, across new technologies, packaging and flavours,” explained Ando. “In Hong Kong, corresponding numbers are lower -- we launch up to 20 innovations annually.” But China also benefits from Japanese innovations so products that have been tried and tested in Japan are subsequently launched in China. A recent example is straight noodles; instant noodle products have generally been wavy, but recently straight noodles were developed.
Momofuku Ando established Nissin Food products in Japan in 1948 in the aftermath of World War II. His runaway success product, instant chicken ramen noodles, were launched a decade later in 1958. Nissin established a US subsidiary in 1970 and soon thereafter launched cup noodles, another hugely successful innovation.
Momofuku was also involved in developing a product that gained Nissin a great deal of publicity -- instant noodles edible in space, Space Ram, which were later carried aboard the space shuttle Discovery.
Nissin set up its Hong Kong subsidiary in 1984. Before that it used to export from Kobe in Japan to Hong Kong, so the Nissin brand already had some recognition. The company has gone on to establish a dominant market position in Hong Kong. Including its group company Winner Foods, Nissin has an 85% market share in the 80 million unit cup-and-bowl noodle market in Hong Kong and a 50% market share in the 250 million unit pack-noodle market.
Conquering China
Ten years later the lure of China was too strong for Nissin to ignore. It set up Guangdong Nissin in 1994 and Shanghai Nissin in 1995. The two companies produce and sell Nissin products in China’s coastal cities. But the potential to increase sales in China goes far beyond its cities and into rural China. So in 2004 Nissin took a 15% stake in Jinmailang, a Hebei province-based joint-stock enterprise, currently the second-largest seller of instant noodles in China. It also has two directors on the board of Jinmailang.
As many companies before Nissin have realised, dominating the Chinese market is no easy task. Nissin competes with Taiwanese company Tingyi, which dominates the market, its own partner Jinmailang is second, another Chinese company Baixiang takes third place and Taiwanese company Uni-President round out the top four sellers of noodles. And then there are a host of smaller players.
Nissin’s noodles sell for a higher unit price in Japan than they can achieve in China. However, part of this is offset by lower manufacturing costs in China.
“Brand preference is well-established in Japan,” said Ando. “Also, Japanese customers want to buy food products made in Japan so moving all of our manufacturing to China is not a viable option.”
Sales channels also differ across countries. The dominance of supermarket chains in Hong Kong is high, so only 10% of Nissin’s sales are through convenience stores. In Japan, convenience stores handle a much larger portion of sales, though supermarkets are still the biggest retail channel. And in China, while supermarket sales are growing, traditional trade channels still dominate.
On a typical day in Hong Kong Ando will divide his time between marketing, including communications and advertising, and R&D. “My grandfather went to the office daily until he died at 96,” said Ando. “He ate instant noodles daily, too, which he believed was the reason for his longevity!”
A version of this story was first published in the September 2010 issue of FinanceAsia magazine
