Cover Feature

Instant Noodles Business

Entangled in Traditional Products

Expected to grow around 20% this year, the Rs. 1250 million plus market of instant noodles in Nepal has attracted other big business houses of the country to enter this field. Within three or four months, the market is to see Khetan Group competing it out with Chaudhary Group that has been reigning this market for the last several years. Sharada Group also is said to be preparing to enter the industry.

Khetans expect to capture 15% of the market share within the first year of operation and to expand it to 40% within 4 or 5 years of operation.

Looking at the present condition of the market, Khetans are not going to find it easy. As Manoj Loya, General Manager (Sales & Marketing) of Chaudhary Group, the reigning leader in this industry, says, the basis of competition in the market now has been the brand image unlike in the recent past when it was the trade scheme that the companies would offer to the distributors and wholesalers. Consumer schemes and the expenditure in advertisements are the factors now that determine the sales volume of a particular brand.

One may agree with Loya when one looks at the fact that Wai Wai brand of Chaudhary Group’s instant noodles has been maintaining the market leadership despite charging a premium price - Rs. 11 per packet - while all of the rest are selling at prices below that. Another brand - Femee had tried with Rs. 12 but has now gone back to Rs. 10.

With eight companies already in the field, and the one from Khetan Group coming in the near future, this nearly two - decade old industry has come of age. Started by Gandaki Noodles in the early 1980’s with Rara brand of instant noodles, this industry has seen several new product launches in the period between then and now. While Rara has managed to remain one of the few brands in white noodles segment, the consumer preference seems to have shifted to brown variety, in which about a half dozen of brands are now available at various prices. According to one estimates, 82% of the market belongs to brown variety and the rest to white. The latter is more in demand in the hills and mountains, and the former in urban centers. Latest entrant is the snack variety, priced low and targeted to the school-going children. This product was pioneered in Nepal by General Food Industries with its Yum Yum brand, and now, almost every company has brought out its products in this segment.

Maturity of the industry should have been reflected in development of other types of products but that is found lacking. All the Nepali companies have quite advanced technology with completely automatic machines. But everyone is still playing around with same type of product - seasoned noodles that Nissin Food Products Company Ltd. of Japan introduced way back in 1958. Another product - Cup Noodles - introduced in 1970 in Japan has now gained widespread acceptance also in Nepal. This product is available at most of the department stores for Rs. 40 or Rs. 50 per packet. But Nepali noodles manufacturers have not ventured to produce it.

Perhaps the reason is explained by the experience of Anupam Foods - the company that produces Femee and Jony brands of noodles. With Femee it tried to introduce a relatively new product initially - the taste was different, and vegetable cubes were added in a separate sachet inside the packets in addition to the seasoning power. But the taste was not favoured by the consumers and the idea of vegetable cubes was not understood, says Umesh Shrestha, Managing Director of the company. So, the product had to be stopped for some time. Now it is relaunched with standard taste and without the vegetable cubes. The price also has been reduced to Rs. 10. And now the product is doing better, says Shrestha.

Rabindra Karmacharya

Intensity of competition in the industry can be seen from the fact that the price of the product has remained constant for a considerable period of time despite heavy increase in the cost of inputs. The result has been reduced margins for the companies. So they are now focusing more on expanding their volume. "When we began it was Rs. 45 for a dollar, now it has gone up to Rs. 69," reminds Anil Hada, the Managing Director of Multi Food Industries (P) Ltd., the company that is in the market with Min Min brand of brown noodles for the last three years or so. The foreign exchange plays a major role in the costing of instant noodles as the wrapper, the seasoning powder and oil used in it are imported from overseas. The domestic material component is mostly the wheat flour. While the stability in the price has been in favour of the consumers, the margin for the producer has declined. The competition has left five major brands competing in the Rs. 10 per packet segment - Aha, Yum Yum and Min Min. Though another brand ‘Hits’ also is present in this segment, its market is said to be limited in certain localities - particularly the western regions of Pokhara, Butwal and around. According to Loya, the noodles business now has changed a lot with the basis of competition shifting to ‘pull’ strategy from the ‘push’ strategy of the past. Previously, the companies were pushing the sales through trade schemes, but now their attention is more towards building brand image, hence increased spending in advertisements. But Hada says that the practice of trade schemes has not abated yet. "Taste and quality of the product have now taken secondary place. As wholesalers play a very important role in increasing sales, the margin provided to them plays the decisive role", according to Hada. Rabindra Karmacharya, Marketing Consultant of General Food Industries, calls it ‘price war’. The strategy Hada’s company adopted in such a situation was to introduce snack variety, as almost all the other companies have done. The product is of 50 gm packaging but under the same brand Min Min. Priced at Rs. 5 or 6, the new product, called Min Min Khaza, helped the company to sustain, informs Hada. Min Min Khaza, as other snack noodles, is targeted to school - going children who are found to be not using the seasoning powder while consuming it as tiffin during breaks in schools. Therefore, the new product has no seasoning powder inside the packet. As the major part of the cost of the product is in the powder, taking it out has made it possible to reduce the price almost by half. The situation now is such that Min Min Khaza sells around 15,000 cases, and as a result, the sales of Min Min have been affected. However, Hada is satisfied that while Min Min is to be sold mostly on credit, Khaza is sold on cash. Now the company is planning to introduce ‘Min Min 3 Minute’ in the white segment, Hada reveals. After the Indo-Nepal trade treaty signed in 1997, the noodles companies have started exporting to India. Chaudhary Group has from this year been pursuing a quite ambitious plan to expand its sales throughout India targeting 33% share of India’s 13,000 tons annual market. But the experiences of other companies have not been so successful. Hada says, his company has been exporting to Guhati, Calcutta, Sikkim and Siliguri. These and other North-eastern Indian states seem to be the first destination in India for every Nepali noodles company, perhaps

because of the concentration of Nepali speaking population there or some similarities in the lifestyle of the people in those regions with that of Nepal’s. "What we have seen is that dispatching the first consignment is not a problem, but getting re-order is difficult because of the lack in promotional and advertisement campaigns", says Hada recounting the difficulty of meeting the promotional expenses required to deal in the huge Indian market. Similarly, the new rule introduced by India for checking quality of each consignment has posed another difficulty in exports to India. Chaudhary Group has however stated that it is prepared to fight it out in all fronts of marketing difficulties in India. The company has already captured over 80% market share in Bhutan and some North-eastern states of India, and recently started making its products available in almost every state of India. To remain one step ahead, Chaudhary Group has also recently started exporting to Bangladesh. Khetan’s upcoming venture also targets Indian market. General Food and Anupam Food too are exporting to India, inform Karmacharya and Shrestha.

Umesh Pd. Shrestha

The competition that Nepali noodles companies face in India is with giants like Maggi and Top Ramen. The latter is a joint venture with Nissin Food of Japan and is doing excellent business in India with curry flavour, it is learnt.

At home, the companies are now expanding their market in areas outside Kathmandu. Chaudhary Group is at present concentrating in Gandaki and Dhaulagiri zones according to Loya, whereas Min Min is largely focusing on the far-western region, more precisely in Dadeldhura and Doti. The domestic market now is experiencing competition in the lower-priced segments. Chaudhary's Mi Mi and Wah Wah, Multi Food’s Min Min Khaza and Yes Papa, Anupam Food's, Joney and General Food's Rodi are the examples.

Wai Wai’s success is generally attributed to its technical collaboration with Thailand. But collaboration with a foreign company alone does not guarantee success, at least that has been experienced in noodles business in Nepal. Yum Yum, said to be the number one brand in Thailand is trailing far behind Wai Wai in Nepali market, while Wai Wai is said to hold the third position in Thailand. Rara had been able to drive out an international giant like Maggi from Nepal in the past. and Femee is being produced under a joint venture with Ohtake Noodle Machine, manufacturing company of Japan which has 25% sharre in Anupam Foods. Still the Femee brand had to struggle for its survival. One of the three plants of Chaudhary Group producing Wai Wai uses Ohtake machinery. The distinguishing feature is therefore its brand image developed in Nepal, not the technology.

Instant Noodles

Major Players and Brands

Note : Nepal Thai Food and Fast Food Nepal both belong to Chaudhary Group.

Source: Companies contacted and Business Age estimation

Growth in Instant Noodles Industry

Source: Noodles companies and Business Age estimation

Market Share of Various Brands (1998/99)

Source: Estimated on the basis of claims from noodles companies. (The total may not tally with individual company figures, as they are mostly based on claims of individual companies contacted.)

"Snack noodles help us sustain"

Anil Hada

How is your noodles business?

Initially, the volume of sales we achieved was totally unexpected. We almost sold around 35 thousand cartons. At that time, we had only the 75 gm. Min Min. We attributed the sale mainly to the taste of Min Min which was similar to the taste of the market leaders then. Min Min was also a new product and people wanted to try it. But now taste has taken a secondary place. Because the wholesalers play a major role now, your sales depend on the margin you can provide them. Therefore at present, our sales have gone down, there has been a decline by almost 20 percent. We have introduced another brand of 50 gm which has helped us to sustain.

What were the reasons for the sales decline?

Basically, it is price undercutting.

What is the total market volume?

The market volume inclusive of all noodles of every category would total to around 300,000 cartons per annum. Out of which, our share would be around 35,000 cartons. Percentagewise, that would come to around 12 percent.

What is the growth trend?

Consumers of noodles have more or less remained constant. Therefore as far as growth is concerned, it is minimum. In my view, you could even say that there is no growth at all. For a new company, they will witness growth as they will take a certain percentage of the market. But for companies like ours that are established more or less, there is no growth as such in Nepal. If you go exporting into India, then obviously you will experience growth.

How have your sales declined?

It has been almost three years since we set up. Our sales this year as compared to that of the last year’s has remained constant. There has been no decline.

What is the present trend in the noodles market?

The trend is basically going from bad to worse. People think that there is a big market in noodles and are coming in without conducting proper study and research. If they are eyeing the Indian market, then there is scope obviously. But if their only target is the Nepali market, then there is no scope at all.

What is the trend in consumer tastes?

What I have noticed is that noodles has made a big problem for biscuits. Earlier where people used to go for biscuits and the like for snacks, they now go for noodles. The 50 gm noodles that we have, has made a difference. Noodles have also taken the place of the traditional items that used to serve as tiffin for school-going kids. As far as other tastes are concerned, 'masala' is not so successful in Nepal. Chicken flavour is more successful. Also, white noodle is more preferred in hilly area. I think it is because of the taste and also because they prefer soup. In Kathmandu, I feel people like instant noodles better.

How important is price in determining sales volume?

When we began, it was Rs. 45 for a dollar. Now that has gone up to around Rs. 69. However, our product price has remained constant at Rs. 10. That is one of the major problems. There has been price undercutting and we took the initiative by forming an association to look into this. What we decided to do was first to curtail the scheme rather than increasing the price of the products. But there was no result.

But who is to blame for this, because they all have the same story to relate?

The thing is that if your product does not sell, there is no way you can hold your stocks back. If you are confident that your products will sell even if you do not offer scheme, then you can hold. Otherwise you will face a situation where your product is over-stocked.

Can’t the companies go direct to the retailer?

We did try that in Kathmandu. But the major problem is credit. You have a shop here today but it is gone tomorrow. And no manufacturer wants to take that risk. Also retailers prefer wholesalers even if they can get the goods at a cheaper price from the companies because they can have those goods as well as other items on credit.

What new products are you introducing?

We are planning to introduce a new product in white noodles segment by the name of Min Min 3 Minutes. The present situation is such that it is not possible to operate if you have only one brand. So we have Min Min. Then we have the 50 gm Min Min Khaja. We also have Min Min vegetarian, but that is not doing well. Vegetarian noodles are primarily consumed in the terai belt, the sales here is not high.

How is Min Min Khaja doing?

It is doing quite well. Khaja is in fact our cash item. This segment was actually started by General Foods and the thinking was that we should also introduce such product. But we were not very keen initially, the reason being the possibility of the sales of Min Min being affected. And in fact, the main reason for the downslide in Min Min sales is Min Min Khaja.

"Noodles marketing is shifting to pull strategy"

Manoj Loya

What is the recent trend in noodles market?

Basically I think people have been now shifting their emphasis on pull instead of push. That means instead of pushing it into the market through trade schemes, people have recently started building up on brand, they have started spending money on consumer schemes, media advertisements etc. Push strategy does not work for a long time. If you really want to survive and grow and get to a level where you are in a position to see that your product sells on its own, you have to consider more on the pull strategy. That is what has been happening.

What are the other trends?

People were getting into the business thinking it was a lucrative line. Now, consumer prices have not gone up for the last four or five years. A brand selling for Rs. 10 five years ago is selling for the same price today. So as far as the company’s income and revenue in concerned, it is the same. At the same time, cost of raw materials, ingredients, etc, have gone up. So obvionsly the income margin has definitely reduced. Still people find it all very lucrative and are getting into it.

What are the problems in the business?

One is the logistic part. Nepal is such a country where you have to make sure that your product reaches the extreme corner of the country, even the hilly areas where there are no proper roads. Unless you have volume, it is very difficult to serve these markets, because the costs are very high. The second is a general trend in Nepal of a very strong dominance of traders. I would say that it is very different from the Indian market in terms of your control over the business. I think it is more of a seller’s market than a buyer’s market. Here, they have their own rules and regulations and you are to follow them. Now these retailers and wholesalers have also started forming a union kind of thing where they come up with such rules stating that the company cannot do retailing, which is very stupid. Retailing is a very important part of FMCG business and you have to ensure that your product reaches every corner of the country. It is very rare that the wholesaler tells you that only they are going to sell the product. That is a very major problem. Here, outstanding is also a major problem. I think 90 percent of the wholesalers and retailers are playing with the money thrown from the company’s side. And I think the whole business has been running from the company's money.

What unhealthy practices do you notice in this market?

As far as unhealthy practices are concerned, we have had a very bad experience. When long back we came up with our product Mi Mi snack noodles, there was a scheme going on which provided two or three packets of the noodles free on every case for the traders. And those companies that were there present in the business, maybe they got scared or something, they all formed a kind of union and they even came up with a commmon decision on scheme. So we all decided on a one packet scheme instead of two or three packets going out in the market which was very unusual at that time for any company giving this kind of scheme. We all agreed and we very sincerely followed the scheme for about two months. And we realised that we were the only ones stuck with the one packet scheme while the others were hidingly giving two and three packets. Because of this we were adversely affected during the initial period of our launching. So that is very unethical. When there are only five or seven players in the market in total, and if we cannot go together well, it will ultimately harm us. Now all the snack noodles are giving about 7 packets free on every case just because we could not stand on our point and tried to fool each other. Besides that, I think there is no other unethical practice.

Corporate | Cover Features | Opinion Poll | Economy & Policy | Special Report
World Briefs | Sectoral | 91 days Treasury Bills | Tourism | Marketing | Inner-view
Entertainment | Stock Market| Management | Business News | Editor's Note | Main