Recently, news has indicated that Master Kang's instant noodles will implement a comprehensive price adjustment, which quickly became a hotly discussed topic. According to reports, Master Kang has issued a price adjustment notice to its distributors, suggesting the retail price of bucket noodles increase from 4.5 yuan to 5 yuan, adding 0.5 yuan; while the price of bagged noodles will go from 2.8 yuan to 3 yuan, an increase of 0.2 yuan. The basis for the price increase is due to the upgrade of raw materials.

Master Kang's new product packaging has changed in design, featuring slogans such as "egg and noodles are smoother, vegetables are added for more substance", trying to explain the price increase in this way. A series of on-site inspections revealed that in some supermarkets in the Chaoyang District of Beijing, the prices of Master Kang’s bucket noodles are not uniform, with prices of both 4.5 yuan and 5 yuan, and some store staff indicated that prices have been stable. Distributors in various regions confirmed that they did indeed receive a price adjustment notice, consistent with the prices leaked online.

For Master Kang, instant noodles and beverage businesses are both core business units, with their revenues accounting for the vast majority of the group's total income, at over 99% and around 35% respectively. Master Kang's beverage product, Ice Red Tea, had a price increase in November 2023, followed by a price adjustment of its instant noodles classic series, Braised Beef Noodles, in May 2024. Clearly, Master Kang intends to continue with price increases.

In the context of a global downturn in luxury goods sales, Master Kang chose to buck the trend with a significant price increase: the suggested retail price of bucket noodles increased by 11.11%, and bagged noodles by 7.14%. The reasons for the price hike, as revealed by the financial statement released by Tingyi Holding Corporation on March 26th, show that Master Kang's turnover for the year 2023 was 80.418 billion yuan, an annual growth rate of 2.16%. However, the revenue of the instant noodles business was 28.793 billion yuan, a decrease of 2.84% compared to the previous year, with its proportion of the group's revenue also decreasing from 37.65% in 2022 to 35.80%.

From the product structure perspective, Master Kang's instant noodle products can be divided into container noodles, high-priced bagged noodles, middle-priced bagged noodles, crispy noodles, and others. Among them, container noodles have the highest sales, but the growth rate in 2023 was only 0.09%. In contrast, the revenue of high-priced bagged noodles fell by 6.63% to 11.85 billion yuan year on year, and the revenue of middle-priced bagged noodles also decreased, falling by 3.61% to 2.984 billion yuan. The price increase targets the container noodles and mid-to-high-priced bagged noodles, whose sales are lukewarm or declining.

Master Kang's instant noodle business has demonstrated growth bottlenecks in the past few years. From 2021 to 2023, the revenue of its instant noodle business was 28.448 billion yuan, 29.634 billion yuan, and 28.793 billion yuan, with annual growth rates of -3.60%, 4.17%, and -2.84%, respectively. Additionally, in the marketing sector, Master Kang also seems to face many challenges. After the "earth pit pickled vegetables" sanitary safety issue in the instant noodle industry was exposed on the CCTV's March 15th Gala in 2022, Master Kang immediately terminated its cooperation with the exposed enterprise.

In 2023, Master Kang became the title sponsor of the popular TV show "The Voice of China." However, in August of the same year, the release of a recording of Coco Lee's complaints about the content of the show before her death led to a spontaneous boycott of Master Kang by netizens. Despite facing a boycott, Master Kang did not slow down its marketing efforts, investing heavily to promote its brand. From 2020 to 2022, its marketing costs increased year by year, amounting to 14.151 billion yuan, 15.708 billion yuan, and 16.81 billion yuan, respectively. However, according to data comparing marketing costs and sales revenue, this move did not significantly improve its operating income.

For the first half of 2023, Master Kang promoted mid-range products in the lower-tier markets and the crispy noodles line targeted at young consumers, achieving sales growth of 12.19% and 35.84% respectively. Indeed, these numbers seem impressive, but because these two product lines make up a small proportion of the overall product mix, their growth has a limited effect on improving the company's overall performance.

Another major challenge for corporate development comes from rising costs. Public information indicates that the cost of two key raw materials in the production of instant noodles, such as palm oil and flour, has been increasing. At the beginning of 2021, the price of palm oil was 7,200 yuan per ton, but by the first quarter of 2022, the price had risen to 12,000 yuan per ton. Statistics from the United Nations Food and Agriculture Organization also show that prices of raw materials such as flour, sugar, and PET particles increased to varying degrees in 2021. In this situation, it seems a necessary strategy for Master Kang to adjust prices to increase the gross profit margin.

During the 2022 Spring Festival, Master Kang launched the new face of the "Classic Bag Noodles Series" at a price of 2.8 yuan per bag, marking the end of the 2.5 yuan era. The official explanation for the price increase was due to product upgrading, with the new product's seasoning packets being 3 to 5 times the size of the original product. Despite the increase in prices, Master Kang's instant noodle business saw its revenue increase to 13.548 billion yuan in the first half of 2022, a year-on-year increase of 6.49%.

Clearly, Master Kang's strategy of optimizing its financial performance by improving the gross profit margin is beginning to bear fruit. By the first half of 2023, even though the revenue from the instant noodle business only increased slightly by 2.97% to 13.95 billion yuan, the gross profit margin increased by 5.2 percentage points year-on-year to 25.83%, and the net profit surged by 48.11% year-on-year to 806 million yuan. If we look at the full year's data, Master Kang's instant noodle business had a gross profit margin of 27.00% in 2023, up 3.05 percentage points from the previous year, and the company's shareholder profit increased by a substantial 46.10% year-on-year to 2.008 billion yuan.

Although price adjustment is a necessary measure for the financial health of the company, who bears the cost is another question. A distributor from Xinshao, Hunan, mentioned in a conversation with "Leopard Change" that they learned of the suggested retail price increase at a meeting on May 14, with the existing purchase price not yet adjusted. The distributor revealed that the specific timing of the price increase had not been determined. Based on experience, price increases often have the greatest impact on small supermarkets and distributors, as large supermarkets can counteract the rise in costs through customer purchasing power, while small supermarkets and wholesalers must directly face the pressure of price changes.

In the small supermarkets, some products have already reached a retail price of 5 yuan per bucket and 3 yuan per bag. With the increase in purchase prices, small supermarkets are facing growing pressure, which affects their profit margins. Although the profit per bag reduced is only a few cents, the cumulative effect has a significant impact on their financial situation.

According to a research report by Industrial Securities, Master Kong has always maintained a leading position in the number of retail outlets. By the end of 2020, the number of retail outlets of Master Kong has exceeded 4 million. By contrast, Wahaha and Dali are at the level of 3 million, while Want Want, Nongfu Spring, Uni-President, and other brands are at the 2 million level.

A small supermarket owner revealed that the selling price of Master Kong's instant noodles in their store is usually 5 yuan, although there are products selling for 4 yuan or 4.5 yuan. However, if the cost of goods increases, they might consider raising the selling price. Whether the supermarket chooses to increase the price based on the suggested retail price or to maintain sales volume at the expense of some profit is a continuous and dynamically adjusted process.

When Master Kong's Iced Black Tea increased in price, some supermarket owners said that business became unsustainable. If retail outlets think the profit is too low, they might reduce their purchases of Master Kang's products, which could mean a risk of inventory backlog for the distributors. It is probably with this in mind that Master Kong chose to raise retail prices first to give distributors some time to digest the inventory before increasing purchase prices.

The distribution cost of Master Kong has been rising year by year, from 14.151 billion yuan in 2020 to 17.883 billion yuan in 2023. Facing the continuously rising distribution costs, Master Kong began to optimize channel partners and reduce costs. By 2023, Master Kong significantly reduced the number of direct retail merchants by 37,888 compared to the previous year and cut the number of warehouses from 322 to 303:

From the channel strategy perspective, by raising prices, Master Kong can recoup some profits from outlets that price above the suggested retail price. As for the final pricing, it depends on whether consumers accept it and the coordination among channels and manufacturers.

In recent years, Master Kong has cautiously handled its pricing strategy, first by increasing prices of some noodle products in a small scale in the third quarter of 2021, followed by a 12% price increase for bagged instant noodles in the first quarter of 2022. By 2023, although there was no significant price increase for noodle products, Master Kong's Iced Black Tea products underwent a price adjustment. Master Kong's large bottles of Iced Black Tea once known for their affordability were referred to as "value-for-money drinks," and consumer comments like "not because small bottles are too expensive, but because large bottles are more cost-effective" reflect the current consumer mindset.

According to the "2023 China Consumer Insights and 2024 Outlook" report issued by Nielsen, respondents generally believe that economic slowdown, rising food prices, and job stability are still the main concerns for Chinese consumers in the next six months. In the consumer categories, the number of people concerned about the price issue is also rising.

In an era where consumers are increasingly focusing on cost-effectiveness, once-affordable convenient foods that adjust prices immediately become the focus of public attention. Entering November 2023, a notice from Hangzhou Dingjin Food Co., Ltd. spread widely online, attracting broad attention. The document stated that the retail price of medium-sized packaged tea and juice products (mainly 500ml) will be adjusted from 3 yuan to 3.5 yuan, meaning a surge of 16.67%; and the price of 1-liter tea and juice products will increase from 4 yuan to 5 yuan – an even higher increase of 25%. This price adjustment at the time provoked a lot of discussion and was seen as a symbolic moment when the traditional beverage market shifted from the "3 yuan era" to the "5 yuan era," remarkably similar to the changes in instant noodles prices.

Half a year has passed, and the effect of the price increase of iced red tea has become prominent. Master Kong's 2023 beverage business revenue report stated that the revenue reached 50.939 billion yuan, an increase of 6.96% compared to the previous year, becoming the main driver of the company's revenue growth that year. This situation inevitably reminds people of the market trend of instant noodles. According to data provided by the Chinese Economic Industry Research Institute, the global consumption of instant noodles in 2022 was 120.56 billion servings, a 2% increase from the previous year. On this basis, China's consumption of instant noodles was 43.99 billion servings, accounting for 37.2% of the global total. Such huge consumption figures indicate that the growth potential of the instant noodle market is limited, and the strategy of pricing wars may no longer exist. Instead, in the context of a general rise in raw material prices, a price increase seems to have become an irreversible trend.