Instant Noodles Sales Slowing Down
The growth stage at which China's noodle industry is is a question being asked by stakeholders. According to Nomura (FT), China consumes about 3 kilograms of instant noodles on a per capita basis annually, which incidentally compares with about 5 kilograms in Hong Kong. Is there room for the mainland to catch up with the more affluent Hong Kong, or will rising health consciousness cap, to a degree, how much more mainlanders can consume per annum. A more upbeat argument in favour of more volume growth would argue that as people work longer hours, an argument can be made that the country's favourite convenience food will continue to grow as the population grows more time-poor.
The idea that the sector is slowing down was b aked -up by the recent first half 2013 results announcement by Tingyi - the leading noodle company in China with more than half of the market for instant noodles , according to the Financial Times . Noodles sales, which accounted for 43% of Tingy i 's business in 2012, grew by 6.4% in the first half period, well below the 10% or so they averaged over the past few years. Tingyi's overall sales have grown at a five-year average rate of 23% , led largely by its faster growing beverages arm, which accounts for more than half of its business. Noodles have lost quite a bit of their lustre as a driver of growth and , as result , have become progressively less important to overall sales despite having contributed 53% of total revenues back in 2005.
|Beverages More Important These Days|
|Tingyi Annual Sales Contribution By Business Unit (%) - FY12|
Tingyi , along with Japan's Nissin , are arguably the two most prominent noodle companies in the Asia-Pacific region with about 28% of the market share according to Euromonitor . As a category, the market for instant noodles in Asia-Pacific was worth US$40bn in 2012 (Euromonitor) and it has grown at a four-year compound annual growth rate (CAGR) of 10.3% . U nder this backdrop you could make the argument that China is faring relatively poorly against the wider region using Tingyi's first-half sales as a proxy. While instant noodles have not been growing as quickly as high- growth sectors such as infant formula (18.2% four-year CAGR according to Euromonitor), it is still faster than other segments such as ready meals and frozen process ed foods (8.8% four-year CAGR).
Palm oil is a key input for noodle companies , and , after falling for some time , prices have been ticking up of late, which is not going to be good for the gross margins of the industry. On a more fundamental level, it seems that the likes of Tingyi may well have to adapt to the fact that incomes have risen sharply in China over the past few years, which has altered the population's tastes in so many ways , and also the rising demand for (and marketing of) healthier foods has created much competition for noodles as a staple food .