The Nissin brand takes pride in its invention of instant noodles in 1958 and its signature Cup Noodles in 1971. But the Nissin name seems to have reached a low point with its foray into Southeast Asia, where its Vietnamese unit’s instant noodles barely register a drop in the local top 10 brands – sharply contrasting with its big success in China and Hong Kong.
On June 29, Nissin’s China unit, the Hong Kong-listed Nissin Foods Co. Ltd. (OTCPK:NFPDF) (1475.HK), announced it would buy a majority 67% stake in its parent’s fully-owned Vietnam affiliate and inject $2 million in new capital, valuing the deal at a relatively modest $11.5 million.
Nissin disclosed the Vietnamese unit recorded a net loss of 33.2 billion Vietnamese dong ($1.4 million) in its latest fiscal year through March 2023. The losses have been persistent. In an August 2019 earnings call, asked about the Vietnam unit’s declining revenue, the company’s spokesperson said “We are not very concerned about our business in Vietnam, because it has a minimal impact on our overall results.”
Nissin’s Vietnam operation consists mainly of an instant noodle factory in the Vietnam-Singapore industrial park north of Ho Chi Minh City, launched in 2012. The latest disclosure said the factory would draw on its cost advantages to provide instant noodles for the higher-cost Hong Kong, Macau, and Taiwan markets.
What happens next could be as much about the rising Vietnamese appetite for granola as the instant noodle market. That’s because the popular Western snack that’s less well-known in Asia has been one of Nissin’s main imports to Vietnam, along with its signature Cup Noodles made in Thailand. Those more premium products complement the Vietnam unit’s locally made instant noodles that are sold in bags and require buyers to supply their own bowl.
Nissin may see more value in its Vietnam factory as part of a strategy of making its operations in that country part of a bigger organization coordinated from China and integrated with its regional operations. In a nod to that kind of strategy, the latest transaction includes agreements that will see the Vietnam unit both supply products to and receive products from Nissin’s other units throughout the region.
Investors paid a slight nod to the regional adjustment, with Nissin’s Hong Kong share price moving up slightly from HK$6.67 on the morning of the announcement to $6.71 two trading days later. The company’s shares have risen by about a third from their depths at the height of the pandemic in mid-2022, giving it a trailing price-to-earnings (P/E) ratio of 22. While relatively high for such a mature industry, its ratio is lower than 26 for snack maker Mondelez International (MDLZ) and 33 for Japan’s Ajinomoto (OTCPK:AJINY) (2802.T).
Past glory
Nissin’s glory days may be behind it, but there is always room for optimism for an innovator that has positioned itself as a premium brand in the huge global market for instant noodles. The company was a technological laggard on its home turf in Japan, but the construction of its first plant there in two decades in 2016 in the Shiga prefecture could mark a turning point.
The highly automated factory was planned to boost Nissin’s instant noodle production by 10% and serve as a model for its global business. Perhaps more important than its higher efficiency, the plant is introducing a series of Japanese seafood flavors, playing on regional and worldwide enthusiasm for Japanese food, rather than the more established trend of adapting to local tastes.
Such cultivation of a more exotic image has become a common theme among top instant noodle brands in Southeast Asia and other markets as they cater to millennials who have more adventuresome tastes compared with their more traditional parents. Nissin has always been known for its flamboyant marketing but has been on a back foot in Vietnam compared with Japanese rival and market leader Ace Cook Co. Ltd. and homegrown Vietnamese names like Masan Consumer.
The shift to a more integrated marketing and manufacturing approach seems to roll back Nissin’s more local approach to its different global markets pre-pandemic. In 2015, the company formed a strategic alliance with Japanese trading company Mitsubishi Corp. (OTCPK:MSBHF) to explore fast-growing markets like Vietnam, as well as Singapore, India, and Thailand.
Mitsubishi owns 34% voting rights of that venture, which apparently will remain a minority stakeholder in the Vietnam operation. But the decision to place the Vietnam unit under the control of Nissin’s China division appears to show that the Japanese company will group those two areas together on a regional basis going forward.
Outside Singapore, which was Nissin’s original Southeast Asia beachhead when it entered the region in 1980, Nissin seems to be far less visible in the other markets involved in the Mitsubishi alliance. That seems especially disappointing in Vietnam, which last year emerged as the world’s leading consumer of instant noodles on a per capita basis, overtaking South Korea.
China still leads the pack in terms of market size, with 45 billion servings of instant noodles sold there in 2022, followed by Indonesia with 14.2 billion servings and Vietnam with 8.48 million. The average Vietnamese slurps up plenty of the convenient dish, eating about 87 servings of noodles annually. That compares with 73 servings per person in South Korea and 55 for third-ranking Nepal.
Every entrant to the crowded instant noodle market has followed in Nissin’s footsteps, learning from the master how to capture middle-class aspirations through humble bowls of soup noodles.
Key milestones in the globalization of the dish have included Nissin’s introduction of Cup Noodles to regional markets, starting with Singapore. Nissin made strong use of social media in bringing its Cup Noodles to Hong Kong and China and even spread the word through gimmicks like its Cup Noodles Museum in Hong Kong.
The company has yet to reach such heights in Vietnam, where its main locally-made product has yet to graduate from bags to classier cups. But that may become less important if Nissin becomes a more integrated organization in Asia and globally, including a more regional re-branding of its offerings to focus on its Japanese roots. In that light, the takeover of its Vietnam unit looks less like an admission of failure and more like a step in a new direction.
Disclosure: None
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