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recently, master kong holdings (hereinafter referred to as "master kong") disclosed its interim report. since 2009, the beverage business has always been the main source of its revenue. during this reporting period, the revenue of this business accounted for 65.7%.

tea beverages were the biggest contributor, increasing the revenue of the beverage business by 1.7%. this was due to the contribution of master kong iced black tea, a main product with a large market share, and the sugar-free tea that has become popular in recent years.

however, master kong, which only entered the sugar-free tea category in 2020, currently has a relatively weak market share. although it launched the high-end product "heir of tea" in the first half of the year, there are currently many players in the sugar-free tea market, and they have already started to "roll" in terms of price.

and the company's instant noodle business is still declining.master kong, which raised its prices in the first half of the year, sold more than 100 million yuan less in this period. coincidentally, its competitor uni-president enterprises earned more than 90 million yuan in the same period.

more importantly, master kong, which has been committed to high-end instant noodles for many years, is facing obstacles. the industry is facing shrinking consumer demand, so where is the new way out?

1

beverage business takes the lead again

on september 2, master kong released its 2024 interim performance report. the company's overall revenue increased by 0.7% year-on-year to 41.201 billion yuan, and its net profit increased by 15.1% year-on-year to 1.885 billion yuan.

figure/ screenshot of master kong’s 2024 interim report

the beverage business still supports the company's revenue. in the first half of the year, the company achieved revenue of 27.065 billion yuan, a year-on-year increase of 1.7%, accounting for 65.7% of the group's total revenue.

compared with the instant noodles business, master kong's beverage business started later. in 1992, master kong began to produce instant noodles, and in 1996, the company expanded its business to convenient foods and beverages. however, since 2009, master kong has maintained a higher revenue status in the beverage business. in that year, master kong's beverage business revenue accounted for 50.03%.

in terms of gross profit margin, master kong stated that during the period, through product portfolio optimization and improved management efficiency, the gross profit margin of beverages increased by 2.5 percentage points year-on-year to 35.2%.

in fact, the gross profit margin of the company's beverage business is also related to price increases. in the first quarter of this year, master kong also raised the price of its 1l iced black tea, green tea, jasmine honey tea and other beverages, with the retail price rising from 4 yuan to 5 yuan.

figure/ master kong 2024 interim performance presentation materials

master kong's beverage product line includes a tea series based on master kong iced black tea, a carbonated beverage series based on pepsi, a packaged water series based on master kong drinking water, a juice series based on rock sugar and snow pear, and a coffee series based on starbucks room temperature ready-to-drink coffee.

specifically, tea beverages became the driving force for sales growth in the beverage business in the first half of this year, with sales of this type of product reaching 11.392 billion yuan, a year-on-year increase of 13.0%. this is also the only category in the beverage business that has seen positive growth.

the counter-cyclical growth of master kong tea drinks is to a certain extent due to the development of sugar-free tea.

the nielsen iq report shows that by 2023, the volume of sugar-free tea will double, with a growth rate of 110%.

in fact, whether it is master kong, uni-president enterprises, or nongfu spring, the growth rate of tea beverages in the first half of the year is quite impressive. for example, nongfu spring's tea beverage revenue was 8.43 billion yuan, a year-on-year increase of 59.5%; uni-president enterprises' tea beverage revenue was 4.6465 billion yuan, a year-on-year increase of 11.8%.

master kong also mentioned in its financial report that following the trend of healthy and sugar-free tea, the company has launched several sugar-free teas to drive the growth of the ready-to-drink tea category.

so how much money did sugar-free tea make for master kong? jiemian news · entrepreneurship frontline asked the relevant person in charge of master kong for the specific data, but no response was given as of press time.

from the perspective of product layout, in the first half of the year, master kong launched a new high-end brand of sugar-free tea "heirs of tea".

since 2020, the company has launched products such as sugar-free cold brewed green tea, sugar-free jasmine tea, and sugar-free iced black tea; in 2022, it launched the "pure zero sugar" series of new products; in 2023, its traditional jasmine green tea/flower tea entered the sugar-free track and launched sugar-free oolong tea.

this also means that master kong has entered the sugar-free tea market relatively recently. uni-president enterprises and nongfu spring launched the sugar-free tea beverage cha li wang in 2004 and oriental leaves in 2011 respectively.

figure/ market share trend of sugar-free ready-to-drink tea from april 2023 to may 2024; source: ma shang ying

the missing time puts master kong's market share at a disadvantage. according to mashangying data, from april to may 2024, the combined market share of nongfu spring and suntory in the sugar-free ready-to-drink tea category exceeded 75%, and nongfu spring's share exceeded 50%.

as sugar-free tea becomes more popular, more and more players are entering the market, including comprehensive beverage groups with rich beverage channels such as coca-cola, wahaha, and yuanqi forest, as well as emerging beverage companies such as guozishuile, chaxiaokai, and rangcha.

in the view of zhu danpeng, vice president of the guangdong food safety promotion association, the entire chinese sugar-free tea market has entered a node of disorderly competition, and major brands are actively competing for market share.

"big brands dominate the market with their brand influence and economies of scale, while small and medium-sized brands face more severe market challenges," said zhu danpeng.

and this summer, a price war began in the crowded sugar-free tea market.

jiemian news · entrepreneurship frontline visited some supermarkets and convenience stores and found that many brands of sugar-free tea products are offering a promotion of half price for the second bottle or 1 yuan for the second bottle. however, the price of master kong's new "heir of tea" is not competitive.

picture/ weibo

in addition, the current products in the sugar-free tea category are highly homogenized, and companies may need to work hard to differentiate themselves and attract consumers.

at a time when categories such as carbonated beverages, juices, and coffee are all slowing down, it remains to be seen how master kong will excel in the increasingly hot sugar-free tea market.

2

instant noodles price hike backfires

on the other hand, master kong's instant noodle business, which is well-known to the public, is declining again.

in the first half of this year, the company's instant noodle revenue was 13.814 billion yuan, down 1% year-on-year. it is worth mentioning that in late may, master kong adjusted the price of its instant noodles, raising the suggested retail price of bagged noodles from 2.8 yuan to 3 yuan, and the suggested retail price of classic bucket noodles from 4.5 yuan to 5 yuan.

this is the third time that master kong has raised its prices.

in 2021, master kong raised prices for 20% of its instant noodle products.

in 2022, the price of master kong bagged instant noodles increased from 2.5 yuan to 2.8 yuan, a pack of 5 bags increased from 12.5 yuan to 14 yuan, the classic bucket increased from 4 yuan to 4.5 yuan, and the mini cup increased from 3 yuan to 3.5 yuan.

figure/ master kong 2024 interim performance presentation materials

what is interesting is that although the price increase of master kong instant noodles and the optimization of raw materials and product portfolio increased the gross profit margin of this business by 1.3 percentage points to 27.1%, the company sold 136 million yuan less.

at the same time, uni-president enterprises, which insisted on not raising prices, saw its instant noodle business grow by 1.9% year-on-year to 4.858 billion yuan. in other words, uni-president enterprises' instant noodle business sold more than 90 million yuan more.

in fact, in the instant noodles category, master kong is much larger than uni-president. according to the data from the convenient food conference, master kong currently ranks first in china's instant noodles market share, accounting for 46% of the market share, while uni-president ranks second with 15%.

it is true that with the recovery of the catering industry and the development of emerging fast food products, the traditional consumption scenarios of the entire industry have shifted, and the development space of instant noodle products has been squeezed.

but if we focus only on the two instant noodle giants, master kong has a larger market share advantage, but its sales revenue is "rising while that of uni-president enterprises" and this inevitably reflects the negative consequences of the price increase.

"the current instant noodle market is already very stable and there is not much room for expansion, but there is still room for innovation, upgrading and iteration. master kong raised its prices in the first half of this year, but uni-president did not follow suit, which resulted in a decline in the former and growth in the latter," said zhu danpeng.

in terms of specific products, bucket noodles had the highest revenue, increasing from 46% in the same period last year to 50%, reaching 6.857 billion yuan, a year-on-year increase of 6.3%.

in addition, sales of high-priced packaged noodles, mid-priced packaged noodles, instant noodles and other products all declined, by 5.5%, 13.8% and 9.2% respectively.obviously, the sales growth of bucket noodles alone cannot drive sales growth in the entire category.

figure/ master kong 2024 interim performance presentation materials

however, the classification of products is somewhat different from the above financial data.

in the financial report, master kong mentioned that high-priced noodles include classic braised beef noodles, good soup series, tomato and egg beef noodles, etc.; high-end noodles/super high-end noodles include soup master, royal feast, and speedy noodle house; mid-priced noodles include master kong 1 and a half.

therefore, we have no way of knowing the sales of high-end/super-high-end noodles products under master kong, but the current progress of master kong's instant noodles towards high-end products does not seem to be ideal.

3

the road to high-end instant noodles is difficult

as early as 2013, master kong launched steamed noodles targeting the high-end market and aiming to be "healthy and low-burden", thus starting its journey towards high-end development.

in the following years, master kong intended to bring instant noodles back from the single concept of "convenience" to "family", so that more consumers could enjoy a bowl of good noodles without the need for sophisticated cooking skills.

"when companies innovate and pursue health, they always need to meet the needs of consumers and truly serve consumers well," said chen yingrang, ceo of tingyi holdings limited.

subsequently, master kong launched high-end or ultra-high-end noodles such as "master soup", "imperial feast" and "dry noodles". among them, the suda noodle house series products use low-fat and zero-frying technology to try to meet consumers' demand for "reducing fat" and "reducing sugar".

on the e-commerce platform, in the official flagship store of master kong, two bowls of "imperial feast" are priced at 29.9 yuan, and two bowls of "dry noodles" are priced at 13.9 yuan.

photo: master kong flagship store on jd.com

however, "jiemian news·entrepreneurship frontline" found that offline stores are still mainly stocked with high-priced packaged noodles, represented by braised beef noodles, and the above-mentioned high-end products such as "royal feast" and "dry noodles" are not common.

a supermarket owner told "jiemian news·entrepreneurship frontline" that the more expensive the instant noodles, the harder they are to sell, and consumers are still more willing to buy cheaper products.

the chinese society of food science and technology once pointed out that the current market demand for mid- and low-priced instant noodles has rebounded, and the industry's goal of upgrading to mid- and high-end instant noodles has been hindered.

data from mashangying shows that after experiencing a significant increase in the battle for the high-end label of instant food in 2022, the average price of instant noodles gradually fell back in 2023, and even showed a downward trend.

this trend is also reflected in the sales share of instant noodles by price segment (yuan/kg). starting from 2023, the market performance of mid- and low-end price segment products will be stronger than that of high-end price segment products, squeezing the market share of high-end price segment products to about 40%.

in this case, will master kong scale back its high-end strategy? the company has not yet responded.

in fact, china is the world's largest consumer of instant noodles. according to the instant noodles demand data released by the world instant noodles association, in 2023, the demand in mainland china and hong kong will reach 42.21 billion servings, more than three times that of indonesia, which ranks second. but now, the entire instant noodles industry is shrinking.

according to nielsen iq data, in the first 11 months of 2023, omni-channel sales of instant noodles in the chinese market fell 2.4% year-on-year, with offline channels falling 0.7% and online channels falling 17.5%.

in 2023, the revenue of master kong's instant noodle business was 28.793 billion yuan, a year-on-year decrease of 2.84%, and the revenue of uni-president foods' business was 9.847 billion yuan, a year-on-year decrease of 10.6%, among which the revenue of the instant noodle business decreased from 10.620 billion yuan to 9.594 billion yuan.

nissin foods co., ltd., a subsidiary of japan's nissin holdings, saw its revenue in mainland china decrease by 5.3% in 2023. nissin foods bluntly stated in its financial report that this was related to the decline in demand for instant noodles after the epidemic.

image/photography network, based on vrf protocol

faced with such industry conditions, flavor innovation has become a new battlefield for related companies.

for example, samyang launched turkey noodles, white elephant launched coriander noodles, stinky tofu noodles, and snail noodle flavored stinky noodles, which once became popular online products.

"snacks, snacks, and pre-prepared meals are all competing for the instant noodle market. in the future, the total instant noodle market will maintain a downward trend, and the growth of companies will come more from increased concentration, the ability to cultivate the market, and the speed of product innovation and upgrading," said zhu danpeng.

in the context of the industry's difficulty in moving towards high-end products, cost-effectiveness and personalized taste have become the current development direction of instant noodle products. master kong has seen this, is it ready to take action?