Food and Beverages China Instant Noodles Sector: Premiumisation sustainable; potential in tier 4-5 cities

We believe increased instant noodle sales volume was not entirely driven by COVID-19-related "stay-at-home" guidelines.  We believe premiumisation is sustainable – post  COVID-19 we think consumer behaviour may spur continued volume growth.

20 Jul 2020

Average spending per bowl of noodles (regular buyers, Rmb)

Source: UBS Evidence Lab (>Access Dataset)

The chart shows the average spending per bowl of noodles in China.

We remain positive on China’s instant noodles industry

Following the 2017, 2018 and 2019 UBS Evidence Lab China Instant Noodles consumer surveys, the 2020 iteration covering 2,685 consumers suggested premiumisation has accelerated and is likely to continue. The 2020 results highlighted increased average spending per bowl of noodles and a substantial rise in purchase frequency. We believe the increased sales volume in the 2020 survey results was not entirely driven by the COVID-19-related "stay-at-home" guidelines, given the survey was conducted in May and June, after most of the cities in China had lifted mobility restrictions. At the same time, there was a material improvement in consumers' positive perception of instant noodles, which we think could spur further premiumisation.

Increased average spending indicates further room for premiumisation

The 2020 UBS Evidence Lab survey results showed average spending per bowl of noodles grew at a 7.7% CAGR in 2017-20, to Rmb7 in 2020, with 70% of regular buyers spending more than Rmb5 on average on a bowl of noodles, up from 60% in2019. We think the market widely believes instant noodles premiumisation is not driven by income growth. However, the survey appears to suggest otherwise. We believe tier 4-5 cities consumers are underlying drivers behind this premiumisation, as their average spending increased from Rmb6 in H219 to Rmb7 in 2020. In addition, we think the improved positive perception of instant noodles among tier 4-5 cities consumers also support this, leading us to believe the premiumisation trend is likely sustainable in lower tiers cities.

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