Text | The Frontier of Entrepreneurship, Author | Wu Xiaowei, Editor | Mr. Dan 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 rep

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, this business accounted for 65.7% of its revenue.

Tea beverages are the biggest "contributor", with a "one-for-three" trend, increasing the revenue of the beverage business by 1.7%. Among them, there are contributions from Master Kong’s main product, which has a relatively large base, iced black tea, and sugar-free tea, which 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 the high-end product "The Descendants of Tea" was launched in the first half of the year, there are currently many sugar-free tea players, and they have already started to "price".

And the company's instant noodles business is still declining. Master Kong, which saw a price increase for in the first half of the year, lost more than 100 million yuan in revenue this period. "Coincidentally", the friendly businessman Uni-President Enterprise earned more than 90 million yuan during the same period.

More importantly, Master Kong, which has insisted on high-end instant noodles for many years, is facing obstacles. The industry is facing shrinking consumer demand, where is the new way out?

The beverage business takes the lead again

(Picture / Screenshot of Master Kong’s 2024 interim report)

The beverage business still supports the company’s revenue. In the first half of the year, revenue reached 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 noodle business, Master Kong’s beverage business started later. In 1992, Master Kong began to produce instant noodles. In 1996, the company expanded its business to instant foods and beverages. However, since 2009, Master Kong has maintained a higher revenue status in the beverage business. That year, Master Kong’s beverage business accounted for 50.03% of its revenue.

In terms of gross profit margin, Master Kong said that through product portfolio optimization and management efficiency improvement during the period, 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 prices of its 1L bottles of iced black tea, green tea, jasmine honey tea and other beverages, with the retail price rising from 4 yuan to 5 yuan.

(Picture/Master Kong 2024 Interim Performance Presentation Material)

Master Kong’s beverage product lines include tea series based on Master Kong iced black tea, carbonated beverage series based on Pepsi, packaged water series based on Master Kong drinking water, and rock sugar snow pear. Juice series mainly based on juice series and coffee series mainly including Starbucks room temperature ready-to-drink coffee.

Specifically, in the first half of this year, tea beverages became the driving force for the sales growth of the beverage business. Sales of this type of products reached 11.392 billion yuan, a year-on-year increase of 13.0%. This is also the only category with positive growth in the beverage business.

The counter-trend growth of Master Kong’s tea drinks is partly due to the development of sugar-free tea.

Nielsen IQ report shows that in 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 was relatively impressive. For example, Nongfu Spring tea beverage revenue was 8.43 billion yuan, a year-on-year increase of 59.5%; Uni-President Enterprise tea beverage revenue was 4.6465 billion yuan, a year-on-year increase of 11.8%.

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

So how much money did the sugar-free tea make for Master Kong? "Interface News·Entrepreneurship Frontier" consulted the relevant person in charge of Master Kong for specific data, but there was no response 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 "The Successor of Tea".

Since 2020, the company has launched sugar-free cold brew green tea, sugar-free jasmine tea, sugar-free iced black tea and other products; in 2022, it will launch a new series of "Pure Zero Sugar" products; in 2023, its traditional jasmine green tea/scented tea will enter the market Sugar-free track, and launched sugar-free oolong tea.

This also means that Master Kong has entered the sugar-free tea track for a short time.Uni-President Enterprise and Nongfu Spring launched the sugar-free tea beverage Chaliwang in 2004 and Oriental Leaf in 2011 respectively.

(Figure / Sugar-free ready-to-drink tea market share trend from April 2023 to May 2024; Source: Win Now)

The missing time puts Master Kong’s market share at a disadvantage. According to Mawin data, from April to May 2024, the total market share of Nongfu Spring and Suntory's sugar-free ready-to-drink tea category exceeded 75%, while Nongfu Spring's share exceeded 50%.

With the popularity of sugar-free tea, more and more players are entering the game. These include comprehensive beverage groups such as , Coca-Cola, , Wahaha, and Yuanqi Forest, which have rich beverage category channels, as well as cutting-edge beverage companies such as Guozuo Ripei, Cha Xiaokai, and Rangcha.

According to Zhu Danpeng, vice president of the Guangdong Provincial Food Safety Promotion Association, the entire Chinese sugar-free tea market has entered a point of disorderly competition, and major brands are actively competing for market share.

"Big brands dominate by virtue of their brand influence and scale effect, while small and medium-sized brands need to face more severe market challenges." Zhu Danpeng said.

And this summer, the crowded sugar-free tea track began to start a price war.

"Interface News·Entrepreneurship Frontier" visited some supermarkets and convenience stores and found that many brands of sugar-free tea products are carrying out promotions with half price for the second bottle and 1 yuan for the second bottle. However, the price of Master Kong's newly launched "The Successor of Tea" does not have an advantage.

In addition, the current product homogeneity of the sugar-free tea category is serious, and companies may need to make a lot of efforts to differentiate themselves to attract consumers.

At a time when carbonated drinks, juices, coffee and other categories are all slowing down, it remains to be seen how Tingyi Master Kong can flex its muscles in the increasingly hot sugar-free tea track.

The price increase of instant noodles has backfired

On the other hand, Master Kong’s instant noodles business, which is well known to the public, is declining again.

In the first half of this year, the company’s instant noodles revenue was 13.814 billion yuan, a year-on-year decrease of 1%. It is worth mentioning that in late May, Master Kong adjusted the prices of its instant noodle products. The recommended retail price of bagged noodles was increased from 2.8 yuan to 3 yuan, and the classic bucket was increased from 4.5 yuan to 5 yuan.

This is Master Kong’s third price increase.

In 2021, Master Kong will increase the prices of 20% of its instant noodle products.

In 2022, Master Kong's bagged instant noodles will rise from 2.5 yuan to 2.8 yuan, 5-bag instant noodles will rise from 12.5 yuan to 14 yuan, the classic bucket will rise from 4 yuan to 4.5 yuan, and the mini cup will rise from 3 yuan to 3.5 yuan.

(Picture/Master Kong 2024 Interim Performance Presentation Material)

What is interesting is that although the price increase of Master Kong instant noodles combined with the optimization of raw materials and product mix have increased the gross profit margin of the business by 1.3 percentage points to 27.1%, it has left the company It was sold 136 million yuan less.

At the same time, the instant noodle business of Uni-President Enterprise, which insisted on not increasing prices, increased by 1.9% year-on-year to 4.858 billion yuan. In other words, Uni-President Enterprise’s instant noodle business sold more than 90 million yuan.

In fact, in the category of instant noodles, Master Kong is much larger than Uni-President. According to data from the Instant 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 catering and the development of emerging fast-food products in the entire industry, traditional consumption scenarios have shifted, and the development space of instant noodle products has been squeezed.

But only focusing on the two instant noodle giants, Master Kong has a large market share advantage, but its sales revenue is "ebbing and flowing" with Uni-President Enterprises, which inevitably reflects the negative consequences of price increases.

"The current instant noodle market is very stable, and there is not much room for expansion. However, there is still room for innovation, upgrading and iteration. Master Kong increased its price in the first half of this year, but Uni-President did not follow the increase, which caused the decline of the former and the decline of the latter. growth situation," Zhu Danpeng said.

From the perspective of specific products, the revenue of barrel noodles is the highest, rising 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 bag noodles, medium-priced bag noodles, dry noodles and other products all declined, down 5.5%, 13.8% and 9.2% respectively. Obviously, the sales growth of barrel noodles alone cannot drive the sales growth of the entire category.

(Picture / Master Kong’s 2024 interim performance presentation materials)

However, the classification of products is somewhat different from the above-mentioned 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/super-high-end noodles include Soup Master, Yupin Feast, and Suda Noodle House; medium-priced noodles include Master Kong 1 and a half times.

Therefore, we cannot know the sales status of Tingyi's high-end/super-high-end noodle products, but the current progress in the high-end development of Tingyi's instant noodles does not seem to be ideal.

The road to high-end instant noodles is difficult

As early as 2013, Master Kong launched steamed noodles that were positioned in the high-end market and aimed at "healthy and low-burden", thus starting the road to high-end.

In the following years, Master Kong intended to return instant noodles from the single concept of "convenience" to "family", so that more consumers can enjoy a bowl of good noodles without the need for exquisite cooking skills.

"In order to innovate and promote health, enterprises must always meet the needs of consumers and truly serve consumers well." Chen Yingrang, CEO of Master Kong Holdings Co., Ltd. once said.

Subsequently, Master Kong successively launched high-end or ultra-high-end noodles such as "Tang Master", "Yupin Feast" and "Dry Noodles". Among them, Suda Noodle House series products adopt low-fat and zero-frying technology, trying to meet consumers' consumption needs of "reducing fat" and "reducing sugar".

On the e-commerce platform, in the official flagship store of Master Kong, 2 bowls of "Yupin Feast" are priced at 29.9 yuan, and 2 bowls of "Dry Noodles" are priced at 13.9 yuan.

An interview by "Interface News·Entrepreneurship Frontier" found that offline stores still mainly sell high-priced bag noodles represented by braised beef noodles. Among the above-mentioned high-end products, "Royal Food Feast" and "Dry Noodles" are not common. .

A supermarket owner told "Interface News·Entrepreneurship Frontier" that the more expensive instant noodles are, the harder they are to sell, and consumers are still more willing to buy cheaper products.

The China Society of Food Science and Technology once pointed out that the current market demand for mid- to low-priced instant noodles has rebounded, and the industry’s goal of upgrading to mid- to high-end instant noodles has been hindered.

Win Now Data shows that after experiencing a significant increase in the battle for high-end convenience and fast food labels in 2022, the average price of instant noodles will gradually fall back in 2023, and even show a downward trend.

This trend is also reflected in the sales proportion data of instant noodles by price segment (yuan/kg). Starting from 2023, the market share of products in the mid-to-low-end price segment will be stronger than that of products in the high-end price segment. The market share of high-end price segment products will be squeezed to about 40%.

Under this situation, will Master Kong scale back its high-end strategy? The company has not responded yet.

In fact, China is the world's largest consumer of instant noodles. According to instant noodles demand data released by the World Instant Noodles Association, demand in mainland China and Hong Kong will reach 42.21 billion servings in 2023, more than three times that of Indonesia, which ranks second. But now, the entire instant noodle industry is shrinking.

According to Nielsen iq data, in the first 11 months of 2023, the sales of instant noodles in all channels in the Chinese market fell by 2.4% year-on-year, with offline channels falling by 0.7% and online channels falling by 17.5%.

In 2023, Master Kong’s instant noodle business achieved revenue of 28.793 billion yuan, a year-on-year decrease of 2.84%. Uni-President Food business revenue was 9.847 billion yuan, a year-on-year decrease of 10.6%, of which instant noodles business revenue fell from 10.620 billion yuan to 9.594 billion yuan.

Nissin Food Co., Ltd., a company controlled by Japan's Nissin, will see its revenue in mainland China decrease by 5.3% in 2023. Nissin Foods bluntly stated in the financial report that this is related to the decline in demand for instant noodles after the epidemic.

Faced with such an industry situation, taste innovation has become a new battlefield for related companies.

For example, Samyang launched turkey noodles, and Baixiang launched coriander noodles, stinky tofu dirty noodles, and snail noodles flavored stinky noodles, which once became Internet celebrity products.

“Snack foods, snacks, and prepared dishes are all competing for the instant noodles market.In the future, the total instant noodles market will maintain a downward trend, and the growth of enterprises will come more from the increase in concentration, the ability to intensively cultivate the market, and the speed of product innovation and upgrading. "Zhu Danpeng said.

In the context of an industry where high-endization is difficult to achieve, cost-effectiveness and personalized taste have become the current development direction of instant noodle products.Master Kang sees this, is he ready to take action?