With fluctuations in raw material costs and market growth nearing its limit, the price adjustment in the instant noodle industry has become a hotly debated topic. Recently, Master Kong announced that it will raise the price of its classic series of cup noodles to 5 yuan, signaling a new pricing era for the product. This move might indicate the onset of a comprehensive wave of price increases within the instant noodle industry.

Specifically, the prices of Master Kong's classic series of cup and packaged noodles have been adjusted. The price of the cup noodles has increased from 4.5 yuan to 5 yuan, a rise of 0.5 yuan; while the price of the packaged noodles has gone up from 2.8 yuan to 3 yuan, an increase of 0.2 yuan.

According to analysis, part of the reason for the price hike is due to product upgrades and improvements. Master Kong's instant noodles, in its latest round of product iterations, have particularly emphasized the improvement of ingredients - for instance, the packaging now clearly states the enhanced quality of the eggs and noodles and smoother texture, and the portion of vegetables has also increased.

Regarding market reactions, Master Kong's price adjustments have varied in different regions and stores. Some regional supermarkets have already implemented the new pricing strategy, while others have maintained the original prices. Distributors in various areas have confirmed that they have indeed received a notice of price increases from the company.

The core business segments of Master Kong's instant noodles and beverages account for a substantial part of the company's total revenue. In the company's past few price adjustments, such as the rise in price of products like Ice Red Tea and Braised Beef Noodles, Master Kong has shown determination and consistency in its pricing strategies.

Given the global slump in luxury goods sales, why has Master Kong chosen to raise prices, and to such an extent? Analysis suggests that counter-market price increases reflect a company's self-adjustment strategy during times of poor sales. According to Master Kong's financial reports, although there has been an overall increase in company turnover, there has been a decline in the instant noodle segment, which may be an important factor driving the decision to raise prices.

A closer look at Master Kong's multiple product lines shows that sales of container noodles, high-priced packaged noodles, and mid-priced packaged noodles vary. Among them, container noodles have the highest sales, despite slow growth, while both the high-priced and mid-priced packaged noodles have experienced a decline in revenue. Facing this challenge, Master Kong might adjust its pricing strategy to maintain market competitiveness.

Prior to this, Master Kong's instant noodles business had already shown signs of growth fatigue. Revenue reports over the past three years have shown fluctuating year-over-year growth rates, with a trend towards decline. This price hike could very well be the brand attempting to find new points of revenue growth and market balance.

Master Kong's marketing strategies have been fraught with difficulties. In 2022, the CCTV 3·15 evening exposure of the "soil pit pickled vegetable" issue in the instant noodle industry led Master Kong to immediately terminate its cooperation with the implicated Sanqi vegetable business. In 2023, Master Kong became the title sponsor of "The Voice of China," but unfortunately faced consumer boycotts due to the posthumous exposure and accusations against the program by cooking diva CoCo Lee.

In the attempt to increase sales, Master Kong's marketing expenses have climbed year by year. From 2020 to 2022, Master Kong's marketing costs rose to 14.151 billion yuan, 15.708 billion yuan, and 16.81 billion yuan respectively. However, from the revenue perspective, the advertisements didn't bring an obvious sales return. In the first half of 2023, Master Kong focused on its main products for the mid-low end market, "Mid-Price Noodles," and "Crispy Noodles" targeted at young consumers. These two product categories achieved revenue growth of 12.19% and 35.84% respectively. Nevertheless, due to their small market share, they didn't significantly boost the overall performance.

Master Kong also faces challenges in its growth, including the rising cost of raw materials. Public data show that the prices of main instant noodle ingredients, like palm oil and flour, are on the rise; the price of palm oil increased from 7,200 yuan per ton at the beginning of 2021 to 12,000 yuan per ton in the first quarter of 2022. Statistics from the Food and Agriculture Organization of the United Nations also indicate that in 2021, the prices of raw materials like flour, sugar, and PET particles have risen. Under the pressure of continuously increasing costs, raising product prices seems to be an inevitable choice for improving gross margins.

During the Spring Festival of 2022, Master Kong adjusted the prices of the "Classic Bag Noodles Series," increasing them to 2.8 yuan per bag, ending the long-standing era of 2.5 yuan. The legitimate reason for the price hike was that the product underwent an upgrade, with the portion size of the seasoning packets increasing three to five times. After the price adjustment, Master Kong instant noodles' revenue in the first half of 2022 reached 13.548 billion yuan, with a 6.49% year-on-year growth; in subsequent operations, by leveraging the advantage of a high gross margin, the company further enhanced its profit potential.

By the first half of 2023, Master Kong instant noodles' revenue stood at 13.95 billion yuan, with a slight increase of 2.97%, but the gross margin improved by 5.2 percentage points year-on-year, reaching 25.83%; net profit surged 48.11% year-on-year, to 0.806 billion yuan. Looking at the whole year, Master Kong instant noodles' gross margin increased by 3.05 percentage points year-on-year, to 27.00%. Attributed to the steady increase in gross margin, for the whole year 2023, shareholders' share of profits grew sharply year-on-year by 46.10%, reaching 2.008 billion yuan.

The impact of price increases on consumers is an unavoidable issue. How to implement a pricing strategy is key in marketing. According to a distributor in Xinshao, Hunan, during the process of announcing the price increase, there was only a notice suggesting an increase in the suggested retail price, but the purchase price was not adjusted. Based on past experience, price hikes often hit small supermarkets and distributors hardest, while large supermarkets can pass the cost pressure onto consumers, not worrying about sales. For small supermarkets and wholesalers, a price increase is often a significant challenge they need to face.

In the retail market for instant noodles, pricing methods are diverse and quite complex. Generally, large supermarkets will follow the suggested retail price but often adjust prices through discounts and other means. In comparison, the pricing in small supermarkets is more arbitrary, with shop owners often marking up the suggested retail price based on sales conditions.

According to industry reports, even with the slim profits of instant noodles, the number of retail outlets has become the focus of competition among major brands. Master Kong has maintained a leading position in the distribution of such retail outlets. Statistics show that by the end of 2020, the number of Master Kong's retail outlets had exceeded 4 million. Other brands such as Wahaha and Dali are at the 3 million level, while Want Want, Nongfu Spring, and Uni-President are below the 2 million level, and brands like Yibao and Dongpeng have less than 2 million outlets.

In terms of sales strategy, retail outlet pricing is not just a part of sales, but also a way for brands to communicate with consumers. For example, under upstream price pressure, Master Kong may first adjust retail prices, allowing distributors time to deal with inventory before considering raising purchase prices. The application of such strategies reflects the refinement of channel management in the convenience food industry.

The increase in distribution costs has further prompted brands to continuously explore methods of channel optimization. From 2020 to 2023, Master Kong's distribution costs have climbed year by year, forcing the company to start reducing the number of directly operated retailers while increasing the number of dealers. This adjustment is not only good for cost control but also impacts the pricing of goods and the distribution of channel profits.

Price increases are a sensitive topic for both channels and consumers, but it is also a mechanism for enterprises to adjust in the face of cost pressure. For Master Kong, its gradual price increase strategy seems to reflect a cautious attitude. It's worth mentioning that Master Kong's Ice Red Tea was once popular with the market due to its favorable price. However, under the pressure of increasing costs, the company had to adjust the prices of its beverage products. The consumer pursuit of "cost-effectiveness" indicates the current market mindset.

It is noteworthy that various consumer insight reports show that consumers generally worry about issues including economic slowdown, rising food prices, and job security. Clearly, these are factors that consumers consider when making decisions, and these will also affect their acceptance of price adjustments.

In today's society, consumers can be categorized into different types, such as those who are particularly concerned about prices, namely, the rebounding type and the strapped-for-cash type. The proportions representing different levels of price sensitivity among them have surged from the original 15% and 5% to 27% and 9%. This mindset of being sensitive to price changes has made instant food under price fluctuations a widely-concerned focus.

For example, on November 1, 2023, a notice from Hangzhou Dingjin Food Co., Ltd. was widely spread online. The content of the letter indicated that the price of the medium packaging of tea/juice series (mainly in 500ml) will increase from 3 yuan to 3.5 yuan, an increase of 16.67%; and the price of the 1 liter tea/juice series will jump from 4 yuan to 5 yuan, an increase as high as 25%. At that time, this price increase also caused a lot of discussion and was considered a historic turning point marking the transition of the traditional beverage market from the "3 yuan era" to the "5 yuan era".

Six months later, the result of the increase in the price of iced tea was that Master Kong's beverage business revenue reached 50.939 billion yuan in 2023, an increase of 6.96% compared to the previous year, which became the main driving force for the company's revenue growth that year. According to data provided by Hua Economic Industry Research Institute, in 2022, the global consumption of instant noodles reached 120.56 billion servings, a year-on-year increase of 2%. China consumed 43.99 billion servings of instant noodles in 2022, accounting for 37.2% of the total global consumption of instant noodles. These data reveal that the limit of the entire instant noodle market has gradually emerged, and the strategy of fighting for market share by cutting prices may no longer appear. In contrast, in the context of a general rise in raw material prices, price increases are almost an inevitable trend.