- Nissin’s Cup Noodle brand is second to none. Since its inception 50 years ago, over 50 billion of the quick-fix pot noodle have been sold.
- The concept of boiling pre-fried dried packaged noodles was created by one man alone: Nissin founder Momofuku Ando. His ingenuity didn’t stop there either. Ando’s idea to serve instant noodles in a cup irreversibly changed the landscape of the instant noodle market.
- Nissin benefited from stay-at-home measures enforced during the pandemic but has since struggled to replicate its 2020 success.
- Believing their company is undervalued in the market, Nissin has been repeatedly buying its own stock.
Despite their notoriety as a budget meal, instant noodles are a guilty pleasure even among the finest food connoisseurs. As a college student staple or a cheeky lunch time snack, instant noodles serve as both a first and last resort.
Although not this author’s personal favourite, Nissin’s Cup Noodles are the undisputed king of instant noodles. Since its inception in 1971, the quick-fix Asian pot noodle has sold 50 billion cups as of August 2021.
Nissin, the veteran and market leader, offers investors a taste of the instant noodle game.
It’s Remarkable What Ando Can-do
Due to their ubiquitous availability and their never-ending number of brands, it’s hard to imagine that instant noodles were the brainchild of one man alone. Rewinding over 60 years ago, Japan was facing widespread famine following the devastation of World War II. Relying heavily on the US’s export of wheat to manufacture bread, Japan’s resources were limited.
When entrepreneur Momofuku Ando realised the Japanese government wasn’t using the imported wheat to make noodles, he experienced a lightbulb moment. “If you change your diet, you are in effect throwing away your traditions and cultural heritage,” he said. Ando believed that using the wheat to manufacture ramen could help alleviate hunger in Japan.
While watching his wife making tempura, Ando realised that after frying and drying them out, noodles could be quickly re-cooked by boiling . And thus, instant noodles was invented.
Ando established Nissin in 1948 and the rest is history. Fast forward to today, there are over 70 brands capitalising on Ando’s invention.
Ando’s entrepreneurial spirit is felt throughout the company’s culture and his ingenuity retained Nissin’s position as Japan’s instant noodle market leader through his second lightbulb moment: the Cup Noodle.
Extending the convenience of instant noodles to serving them pre-packaged in a cup paid off. As the chart shows, noodles in a cup have been vastly outselling packaged noodles since their introduction 40 years ago.
Ando sadly passed away in 2007 and Nissin was passed down to his son Koki. Since Koki took over, Nissin’s stock price has grown by over 190%.
Currently, with 44% market share, Nissin dominates Japan’s instant noodle market. Toyo Suisan is its closest competitor with 25% of the market, followed by Sanyop Foods, Acecook and Myojo Foods with 15%, 8% and 8% each respectively.
It goes without saying that the past couple of years have been turbulent for every industry. However, whilst most companies were decimated by the pandemic, the instant noodle market benefited from the stay-at-home restrictions. With job losses from other industries compounding the struggle, economical instant noodles shone as the star of frugality.
“Consumer demand increased dramatically after the coronavirus outbreak because people need to stay at home,” Ando said at the time. “Lifestyles will change as people will eat more processed food at home and less outside.”
Nissin capitalized on the opportunity and rolled out 12 new instant noodle products over the first five months of 2020.
The Japanese brand’s stock price reflected in its success over the period too. From March lows of JPY 7,370, Nissin’s stock price soared 46% to JPY 10,810 by August 2020.
Not A Sustainable Diet
Sadly, Nissin has been unable to retain its success achieved during lockdowns. A year on from its pandemic highs, Nissin’s stock price has drastically fallen and has even flirted with the JPY 7K ballpark.
In its statements for the three months ending 30 June 2021, Nissin reported that its revenue grew 9.9% to JPY 132.5 billion from the previous year but profit before tax declined 22.1% to JPY 140 billion.
Also listed on HKSE, Nissin’s 2021 interim report for Hong Kong highlighted how its Hong Kong operations were the worst hit by the reversal of the stay-at-home narrative. Revenue from Hong Kong declined from HKD 708.6 million in 2020 to HK 682.2 million in 2021.
“The Hong Kong operations were hard-hit by the high-base effect benefiting from the ‘stay-at-home’ economy last year,” the report stated, adding its revenue decline in the region owed to the “absence of sudden surge in demand as in last year’s, especially in the bag-type instant noodles and frozen foods.”
Whilst Nissin benefited greatly from people staying at home, its success during the period was artificial and certainly not sustainable looking ahead.
Sachets of Success
Just because Nissin is unable to replicate the demand volume it experienced whilst the world was forced to stay at home (let’s hope we won’t need to again), it doesn’t mean Nissin’s future is jeopardized.
2020 came as a blessing in disguise for the company but was certainly not part of its business plan.
Looking ahead, Nissin has a few spicy sachets of strategic success that should whet investors’ palettes.
Instant noodles might come from Japan but the Land of the Rising Sun is interestingly not the biggest consumer of the Asian snack. China is the world’s biggest consumer of instant noodles with over 46 billion servings in 2020. Per capita, South Korea is the biggest consumer at 75.6 servings per person. Due to China’s massive population, it only recorded 29.6 instant noodle servings per capita.
Of course, from a revenue standpoint, the China market is far more lucrative due to volume. Nissin has long recognised this and is intending on expanding in the country.
In its most recent Q&A session, Nissin highlighted how China showed “an increase in demand due to the C-19 last year, but the demand for bag-type instant noodles was higher than that for cup-type instant noodles. In the current fiscal year, there seems to be a slight decrease in bag-type instant noodles compared to the previous fiscal year, but we are stronger in cup-type instant noodles, so the key point is how to expand this business.”
Based on demand patterns in China, Nissin is adjusting its approach to satisfy consumer needs. When asked about rising costs in China, Nissin acknowledged it could not raise prices but would need to focus on efficiency.
“Even though it is difficult to revise prices, we are considering ways to improve production efficiency and other measures to absorb the increase.”
The Americas remain Nissin’s biggest international market, accounting for over 50% of its overseas revenue, while China accounts for over 30%. Nissin’s plan is to increase sales of Cup Noodles and strengthen its brand in China, as well as its earning base to meet China’s expanding market for high value-added products.
One example of Nissin’s attempt to solidify the Cup Noodles brand in China is by opening the group’s first Cup Noodles Museum in Hong Kong. Launched in 2021, the interactive museum teaches visitors about founder Ando and reaffirms the brand’s status as the original instant noodle maker.
Of course, Nissin hasn’t forgotten about its domestic market, which accounts for 70% of its revenue. Whilst there’s no need to teach domestic consumers about the significance of its brand, Nissin still makes an effort to remind the Japanese of its presence.
Most recently, Nissin partnered with Japanese NBA star Rui Hachimura to create his very own Curry Cup Noodles.
“When I was in high school, I ate dinner after I went home from club meetings, but when I went back to my room, I’d get hungry again right away. I ate Cup Noodles a lot then,” said Hachimura.
Resonating with younger crowds, Nissin ensures its brand remains the strongest in Japan through all generations.
Cheap Noodles, Pricey Stock
Nissin’s instant noodles might be cheap but its stock price isn’t necessarily as budget-friendly. Its current P/E ratio of 26 is higher than its nearest competitor Toyo Suisan, which has a P/E ratio of 19.55.
However, Nissin’s brand is far stronger domestically and internationally compared to Toyo Suisan. Perhaps the premium is worth it just for the brand.
At least, Nissin thinks so.
As the company proudly announced it had sold its 50 billionth Cup Noodle, it craftily was buying up its own stock. On 1 July 2021, Nissin announced it had paid JPY 2.4 billion for 314,100 of its own shares throughout the month of June.
One month later, Nissin announced again that it had been buying its own shares throughout July. This time Nissin paid JPY 2.8 billion for 350,000 of its shares.
In early September, Nissin once again reported it spent JPY 820 million on 100,600 shares in August.
Share buybacks restore confidence for shareholders and is regarded as a signal to new investors that the company feels its stock is undervalued.
Although Nissin’s stock price is back on the mend, it’s still far below its 52-week high.
Deal Or Noodle?
Nissin has the strongest brand name in the instant noodle territory and its legacy is unmatched. Investors can regard Nissin’s brand strength as its brothy moat.
Whilst Nissin thrived during lockdowns, investors should look past this triumph and not hold the company to the same expectations going forward. If investors can look past the fact that Nissin won’t be able to replicate its success as Covid restrictions ease, they might realise Nissin is reasonably valued.
Recently, Nissin itself has repeatedly expressed confidence in its path ahead and investors would be unwise to ignore it.