Role for noodles in flour demand
June 24, 2014
While it may be a given that bread and noodles are now and have been for years the two major consumer foods made with wheat flour as the primary ingredient, great changes have occurred globally during recent years in demand for these two foods. Most notable is the dramatic rise in consumption of noodles as the result of the invention in post-World War II Japan of instant cup noodles. From the time when this product first gained acceptance because of its low cost and convenience to today when it competes with rice as the leading calorie source in places like Indonesia and even in China is not just to underscore the way noodles have strived to win this race in most of populous Asia but also to account for the globe-circling expansion of flour milling. Sure, bread-type products, especially in Muslin-dominated countries, enjoy market leadership and strong gains but it is cup noodles that have emerged from the pasta panoply to provide the most powerful driving force among flour-using foods.
Even with focus on what the cup noodle product has created, it would be wrong to overlook the way in which more conventional pasta products are doing well in even the most competitive of developed countries. Hardly anything underscores the strength of this category better than the showing of Noodles & Co., a relatively new U.S. fast-food restaurant chain whose name and whose menu reflect concentration on this food. Use of “red-hot noodles” in a headline about the initial public offering of this company underscores the way the offering managed to rank as one of the most successful public stock sales of the past year’s share market boom.
Noodles & Co. stock more than doubled its first day, which places it prominently in this special category, and reached a per-share price peak of more than 100 times its earnings. It outstripped the price showing of several other food chains centered on specialty sandwiches, which also had performed with extraordinary vigor. The showing of Noodles & Co. and its peers has prompted comparisons with the dot-com stock price boom, which was followed by an equally devastating price collapse. Making the point that food chains have more substance than most of the dot-com companies provides a healthy measure of confidence about price moves by fast-food chains that leave the profitability of both food retailers and food manufacturers far behind.
The reality of warnings about shifting consumer attitudes toward a product like cup noodles has emerged in a totally unexpected place – China. Tingyi (Cayman Islands) Holding Corporation, a Taiwan-based company that accounts for an amazing half of the cup noodle market in China, surprised holders of its shares when it revealed that what seemed like unlimited demand has slowed, while rising costs were cutting into profit margins. Year-over-year sales growth has slowed to mid-single digits, compared with a 20% annual growth rate in the previous five years. Half-year profits dropped by 42% from 2012. Tingyi, experiencing an unusual share price decline this year in the wake of the slowdown in Chinese cup noodle sales, sought to reassure investors. It pointed to the shortfall in Chinese per capita demand as compared with Hong Kong, where the average per capita demand is nearly twice that of China. To reverse these trends, it has promised to introduce new seasonings and flavors and to go slow on price competition.
Along with the pressure on profits, Tingyi’s experience in China emphasized the unpredictability of mainland consumer demand, which at one time seemed less susceptible to unexpected change than was the case in other Asian nations. Having watched the way fast-growing cup noodle demand accounts for much of the vitality of global grain-based foods in recent decades, it is advisable to maintain a close watch on how this market evolves in China once steps are taken to stimulate demand. Comparisons are even appearing with American market changes.