Master Kong raises prices, a "two-way rush" with Meituan

Industry leader Master Kong Holdings (0322.HK) once again raised the prices of its instant noodle products.

On May 16th, it was reported by the media that Master Kong will raise the prices of all its instant noodle products by approximately 14%.

TradeWind01 inquired with relevant personnel from Master Kong about the price increase, but as of the time of writing, no response has been received.

In the first quarter of 2022, Master Kong had previously raised the prices of its classic bag noodles and bucket noodles by 12% and 12.5% respectively due to cost pressures. These two products accounted for over 60% of its annual revenue.

At that time, it had been ten years since Master Kong last raised the prices of its instant noodle products. During that round of price increases for instant noodles, competitors such as Nissin Foods (1475.HK) and Uni-President China (0220.HK) also implemented price hikes to varying degrees.

Currently, Master Kong's competitors have shown a somewhat nuanced attitude towards price increases.

According to information obtained by TradeWind from sources close to Uni-President, Uni-President has not yet followed Master Kong's price increase plan, but will enhance pricing and gross profit levels by reducing promotions.

The urgency of Master Kong's price increase is reflected in its cost pressures. The gross profit margin of Master Kong's instant noodle products in 2023 increased by 3.05 percentage points year-on-year to 27%, but is still lower than the 29.3% in 2020.

With the increasing popularity of food delivery services, the instant noodle market has significantly shrunk. The prevalence of high-speed rail has reduced the occasions for eating instant noodles during long-distance travel.

Analyst Chen Sichao from Guotai Junan pointed out in a research report that due to weak demand from industrial factory areas and construction workers, sales of bucket noodles are under pressure.

The emergence and popularity of food delivery services once dealt a fatal blow to the instant noodle market. According to data from the World Instant Noodles Association, due to the subsidy war in food delivery services, the domestic demand for instant noodles had a CAGR of -5.9% from 2013 to 2016, with a cumulative decline of 16.7%.

Subsequently, as food delivery subsidies decreased, the capacity of the instant noodle market gradually stabilized.

This is also reflected in the financial reports of Master Kong, which holds a 40% market share.

Since Master Kong's instant noodle revenue exceeded 30 billion in 2013, it has declined year by year to 22.619 billion in 2017. Despite the surge in demand for convenience food during the epidemic, Master Kong has not crossed the 30 billion threshold again.

In 2023, after the fading of epidemic factors, Master Kong's instant noodle business revenue decreased by 2.84% year-on-year to 28.793 billion, accounting for 35.63%.

TradeWind01 learned from sources close to Master Kong that in the first four months of this year, the sales of Master Kong's instant noodles are still not optimistic, with sales still in a year-on-year decline.

Some Master Kong distributors openly expressed their views on the price increase, stating, "The instant noodles from early 2022 have not been fully digested yet." The counter-trend price increase measures may make it more difficult to sell the inventory in warehouses.

It is worth mentioning that on the same day as the news of Master Kong's price increase on May 16th, there was also news that Meituan will expand its low-price food delivery business "Pinhao Fan" According to media reports, the average customer price of Meituan's food delivery service in 2021 was about 50 yuan, while Pindao Fan offers meals priced at an average of less than 15 yuan. Meituan plans to increase Pindao Fan's order ratio to 20%.

In other words, this time in terms of price, Kangshifu and Meituan have achieved a "two-way rush", with the latter's low-priced delivery service potentially further squeezing Kangshifu's instant noodle business.

Chen Sichao predicts that due to the shrinking capacity of the segmented market, coupled with weak overall consumption growth, the sales growth rate of Kangshifu's high-priced bagged noodles will continue to decline from 2024 to 2025.

On May 17th, Kangshifu ended its "five consecutive gains" trend, closing down 0.57% at HKD 10.46 per share