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The Competitive Dynamics and Challenges in the Korean Instant Noodle Industry: A Focus on Samyang Foods and Nongshim

GOOVER DAILY REPORT August 18, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Market Dynamics and Competitive Landscape
  3. International Expansion and Export Strategies
  4. Marketing and Brand Positioning
  5. Operational Challenges and Innovations
  6. External Market Influences
  7. Conclusion

1. Summary

  • This report analyzes the competitive landscape and challenges within the Korean instant noodle industry, with particular focus on the rivalry between Samyang Foods and Nongshim. It examines the market strategies, key products, international successes, and operational difficulties faced by each company. Highlighting the international success of Samyang Foods’ 'Buldak Bokkeummyeon,' the report explores how its viral marketing strategies have boosted global sales. In contrast, it reviews Nongshim's efforts to regain market leadership through structural expansions and targeted marketing endeavors. The report also provides an overview of industry trends and external factors, such as climate change and consumer preferences, influencing the sector.

2. Market Dynamics and Competitive Landscape

  • 2-1. Competition between Samyang Foods and Nongshim

  • Since 1995, Nongshim had maintained its position as the market leader in the Korean instant noodle industry. However, this changed in May 2023 when Samyang Foods surpassed Nongshim in market capitalization due to the immense international success of Samyang's 'Buldak Bokkeummyeon'. By July 2023, Samyang's market capitalization reached KRW 4.8061 trillion compared to Nongshim's KRW 2.8467 trillion. Samyang's success was primarily driven by 'Buldak Bokkeummyeon', which gained enormous popularity on social media, resulting in significant export sales. In contrast, Nongshim's export growth was modest, increasing from KRW 2.311 trillion in 2022 to KRW 2.713 trillion in 2023, representing a 17.3% increase.

  • 2-2. Market Share Developments

  • Samyang Foods achieved a notable increase in market share due to its strong export performance. In the second quarter of 2023, Samyang Foods recorded sales of KRW 4.244 trillion and operating profit of KRW 894 billion, marking a year-over-year increase of 48.7% in sales and 103.2% in operating profit. This was primarily driven by a 74.9% increase in overseas sales, which amounted to KRW 3.321 trillion. In comparison, Nongshim's sales in the second quarter of 2023 were KRW 8.607 trillion with an operating profit of KRW 437 billion, reflecting a modest 2.8% increase in sales but an 18.6% decrease in operating profit.

  • 2-3. Key Product Performances

  • Samyang Foods' 'Buldak Bokkeummyeon' has been the standout product, driving the company's remarkable export growth. In 2023, 'Buldak Bokkeummyeon' alone contributed 80% of Samyang's overseas revenue, which totaled KRW 6.856 trillion in export sales in 2022. This product's success, particularly in the United States and Europe, has been a significant factor in Samyang's overall growth. Meanwhile, Nongshim continues to rely on its flagship product 'Shin Ramyun,' but faces challenges in matching Samyang's pace of growth. Despite Nongshim's brand strength and exports like 'Shin Ramyun,' 'Yukgaejang Saebalmyun,' and 'Jjapagetti' showing solid performance, they haven't achieved the breakout success of 'Buldak Bokkeummyeon.'

3. International Expansion and Export Strategies

  • 3-1. Samyang Foods' Global Market Performance

  • Samyang Foods has demonstrated significant global market performance, particularly driven by its successful 'Buldak Bokkeummyeon' (Hot Chicken Flavor Ramen). The company recorded its highest-ever sales and operating profits in the first half of the year, with sales reaching 810.1 billion KRW and operating profit at 169.5 billion KRW, representing a year-on-year increase of 52.6% and 149.6%, respectively. Notably, Samyang Foods' international sales accounted for 80% of total sales, with a substantial increase in the U.S. market, where sales grew by 125% year-on-year to 71.4 million USD. The European market also saw considerable growth, with export ratios rising from 6% in 2019 to 19% in the first half of this year.

  • 3-2. Nongshim's International Efforts

  • Nongshim has been proactive in expanding its international presence. In the first half of the year, their operating profit was 105.1 billion KRW, although this marked a decline of 10.6% compared to the previous year, with sales increasing by 2.1% to 1.7332 trillion KRW. A critical component of Nongshim's strategy includes its aggressive campaign to introduce its flagship products like 'Shin Ramyun' and 'Jjapaghetti' into European markets. They launched pop-up stores in France with their noodles drawing significant attention, evidenced by a rise in 'Jjapaghetti' sales by 13.8% year-on-year in a three-month period. They also announced collaborations with major European retailers like Carrefour in France, Lidl in Germany, and Dansk Supermarked in Denmark.

  • 3-3. Key International Markets and Their Performances

  • Both Samyang Foods and Nongshim have successfully targeted multiple key international markets. In the United States, Samyang Foods saw impressive growth with notable sales of their 'Carbo Buldak Bokkeummyeon' products. In Europe, Nongshim's collaborations with Carrefour and their market efforts in countries like Germany and Denmark have enhanced their visibility and sales. Furthermore, at the 2024 Paris Olympics, Korean food products garnered significant popularity. Nongshim's pop-up store in France attracted over 15,000 visitors, demonstrating the high demand for K-food. Additionally, companies like CJ CheilJedang also showcased K-food products like 'Bibigo' combos, which sold out daily, proving the global appeal of Korean cuisine.

4. Marketing and Brand Positioning

  • 4-1. Marketing strategies of Samyang Foods and Nongshim

  • Samyang Foods has achieved significant global success with its 'Buldak Bokkeummyeon' product, primarily through aggressive viral marketing campaigns such as the 'Fire Noodle Challenge.' This challenge, which became popular on YouTube, significantly boosted the brand's international profile and sales (reference: go-public-report-ko-2d73ea82-497b-41a2-8b3a-0a2a1c8e1ded-0-0). In response, Nongshim has also adapted its marketing strategies to regain its market leadership. Recently, Nongshim has focused on establishing a stronger presence in international markets. For example, they have constructed new production facilities in the United States and expanded their distribution channels across major European retailers such as 'Leclerc' and 'Carrefour' (reference: go-public-web-kor-N1460982041191105227-0-0).

  • 4-2. Impact of Social Media and Viral Marketing

  • The impact of social media and viral marketing has been instrumental, particularly for Samyang Foods. The 'Fire Noodle Challenge' played a crucial role in catapulting the 'Buldak Bokkeummyeon' to worldwide recognition. This campaign started on YouTube, where influencers and general users participated in the spicy noodle challenge, driving global curiosity and market penetration (reference: go-public-report-ko-2d73ea82-497b-41a2-8b3a-0a2a1c8e1ded-0-0). Nongshim has also leveraged social media for its marketing, conducting guerrilla marketing events in locations such as Melrose in Los Angeles to promote products like 'Shin Ramyun' and 'Chapaghetti.' These events surprised and engaged local consumers, generating positive reactions and increasing brand awareness (reference: go-public-web-kor-2279416568016978001-0-0).

  • 4-3. Promotional Events and Campaigns

  • Both companies have actively engaged in promotional events and campaigns. Samyang Foods continues to innovate with its marketing strategies. For example, it develops market-specific products and has established overseas subsidiaries in regions like Tokyo, Los Angeles, and Shanghai to enhance international market penetration (reference: go-public-report-ko-2d73ea82-497b-41a2-8b3a-0a2a1c8e1ded-0-0). On the other hand, Nongshim has not only set up pop-up stores in high-traffic areas during the Paris Olympics but has also started promotional offers such as instant cooking sessions and discount sales to capture market attention. In addition, they have implemented unique marketing campaigns such as mobile pop-up stores in various urban locations, offering free samples to encourage product trials (references: go-public-web-kor-2279416568016978001-0-0, go-public-web-kor-N272669630479459207-0-0).

5. Operational Challenges and Innovations

  • 5-1. Production expansions and technological advancements

  • Nongshim is focused on expanding its production capacities to reclaim market leadership. For instance, they are planning to enhance their U.S. plant operations by adding a new high-speed cup noodle line. This expansion is expected to increase their production capacity from 800 million to 1 billion units annually. Furthermore, they are setting up a dedicated export factory in South Korea to bolster their international market reach. Meanwhile, companies like CJ Freshway are enhancing their production through smart farming contracts, which integrate advanced technology to improve crop yield. Specifically, CJ Freshway collaborates with Daedong to provide smart farming solutions to garlic farms in Boeun County.

  • 5-2. Operational difficulties and external pressures

  • Both Samyang Foods and Nongshim face significant operational challenges. Extreme weather conditions have substantially affected agricultural outputs, driving up the prices of essential ingredients. For instance, extended heatwaves and excessive rainfall have caused a sharp increase in the prices of vegetables like cabbage and radish. Such 'heatflation' phenomenon has led companies to heavily invest in smart farming solutions to ensure a stable supply chain. Nongshim's research and development into climate-resilient agriculture highlights their efforts to mitigate these operational disruptions.

  • 5-3. Case studies on smart farming initiatives

  • Nongshim has been proactive in adopting smart farming technologies as a strategic response to climate-related challenges. Since 2018, Nongshim has been investing in smart farms designed to control environmental conditions for optimized crop production. This includes exporting container-type smart farms to Oman and entering agreements with Saudi Arabia and Qatar. Furthermore, companies like Ourhome are working on similar initiatives; they have entered an MOU with Agrate for expanding the distribution of smart farm produce. These smart farms employ ICT to monitor and control humidity, temperature, and soil conditions, thereby minimizing the impact of adverse weather conditions on crop yield.

6. External Market Influences

  • 6-1. Impact of global events like the Olympics

  • Global events like the 2024 Paris Olympics have had a significant impact on the Korean food industry, particularly in promoting K-food. CJ Group, during the Paris Olympics, operated the 'Bibigo Market' at the Korea House, where they introduced set menus featuring Bibigo products like tteokbokki, dumplings, and hot dogs. Despite the hot weather, the high demand resulted in 500 portions being sold out daily within four hours. Additionally, Nongshim collaborated with Carrefour to run pop-up stores in Paris, enhancing the visibility and popularity of their products, including Shin Ramyun and Chapaghetti, attracting over 15,000 visitors in two weeks.

  • 6-2. Trends in consumer preferences

  • Consumer preferences are increasingly leaning towards convenient and readily available food options. The launch of SSG.com's 'Sseuk Delivery Club' and their related promotions underscore this trend. They offered discounts on processed foods and popular brands such as Samyang and Nongshim's products, like Shin Ramyun and CJ CheilJedang's Hetbahn. Special deals included 1+1 promotions and significant discounts on bulk purchases, catering to the growing demand for convenience and value among consumers.

  • 6-3. Impact of climate change on supply chains

  • Climate change has had a direct impact on supply chains, particularly affecting agricultural production. In Jeju’s eastern regions, prolonged drought conditions have severely affected carrot farming, with water shortages hampering seed germination. The drought index reached a critical level of 615 kPa, indicating severe drought, which has led to a significant decrease in germination rates despite over 2000 tons of water being distributed to affected farms. The situation has forced local authorities to set up a drought response office and provide emergency irrigation support while farmers await crucial rainfall.

7. Conclusion

  • The analysis provides significant insights into the competitive dynamics within the Korean instant noodle industry, led by Samyang Foods and Nongshim. Samyang Foods' success is largely attributed to its efficient use of viral marketing campaigns and a robust international market presence, particularly with its 'Buldak Bokkeummyeon.' Nongshim, although facing stiff competition, is concentrating on structural expansions and strengthening its international market presence to reclaim leadership. Both companies are challenged by external factors such as climate change, which affects agricultural outputs and supply chains, and shifting consumer preferences towards convenience foods. These findings underscore the importance of strategic adaptability and innovation for stakeholders aiming to navigate future market challenges. Addressing operational limitations and leveraging technological advancements in smart farming will be crucial for sustaining growth and competitiveness in the industry. Looking ahead, the ongoing evolution of consumer preferences and external market influences will shape the future landscape of the Korean instant noodle market, and practical applications of these insights can guide both companies and investors in strategic decision-making.

8. Glossary

  • 8-1. Samyang Foods [Company]

  • Samyang Foods has achieved significant success in the international market with its 'Buldak Bokkeummyeon' product line. The company's innovative marketing strategies and global expansion efforts are key factors driving its market performance.

  • 8-2. Nongshim [Company]

  • Nongshim, a leading player in the Korean instant noodle market, has seen increased competition from Samyang Foods. The company is focusing on expanding its production capacities and enhancing its international presence to regain market leadership.

  • 8-3. Buldak Bokkeummyeon [Product]

  • 'Buldak Bokkeummyeon' is a highly popular product from Samyang Foods, known for its spicy flavor. It has gained significant global popularity, contributing to Samyang Foods' international sales growth.

  • 8-4. Shin Ramyun [Product]

  • 'Shin Ramyun' is one of Nongshim's flagship products, renowned for its rich and spicy taste. It is a key product in Nongshim's strategy to enhance its international market share.

9. Source Documents