Filling a natural nicheGood ImprovementsFrom The Wall Street Journal Online
Instant ramen noodles, long hawked as a cheap, quick food for college kids and others with lean budgets, are going gourmet.
Last fall, Union Foods Newcorp. of Irvine, Calif., launched several ramen-noodle products, including Gourmet Snack Noodles Soup and Mamma Mia microwaveable noodles, that are low in sodium, have no monosodium glutamate and no trans fats. The company also is pushing new noodle lines infused with vegetables, as well as ones with spices and sauces that appeal to different ethnic tastes.
Union Foods, one of the smallest players in the ramen-noodle market with an estimated 5% market share according to the company, is betting that its souped-up noodles will differentiate its offerings and help it better compete with larger rivals, Nissin Foods (USA) Co. and Maruchan Inc., at a time when growth has stagnated in the dried-soup foods category.
The company is hoping to lure, among others, people who once feasted on ramen noodles in their youth but are now looking for a healthier alternative. To that end, Union Foods hopes to eventually use its healthier -- and more expensive -- products to shift away from lower-cost retailers and into higher-end stores like those of Whole Foods Markets Inc., which specialize in more healthful fare.
"There's been such a view that ramen is really low-end stuff, and we don't believe that our products should be in that low-end market," says Victor Sim, chief executive of Solafide Inc., a private-equity firm that acquired Union Foods in June 2005.
As Union Foods' experience shows, small companies can find it difficult to compete in a niche market when their products become commoditized and the industry is dominated by one or two large, low-cost producers. And while launching a new product line is a way for companies to differentiate themselves, the move is fraught with uncertainty. In tweaking its products and marketing message to make an impact on the industry -- and make a profit -- Union Foods will have to walk the fine line of capitalizing on its traditions while promoting what's new.
"I think the challenge...is finding a balance in retaining taste and retaining affinity to your consumers and offering them a better product and making them feel better about their choices," says Debra Joester, president and chief executive of Joester Loria Group, a New York-based licensing and branding firm. She says the name change to snack noodles with no reference to ramen could alienate some consumers.
Quick and Cheap
Instant ramen noodles -- which typically come in a cup or a square package that costs 10 cents to 50 cents a pop -- is well entrenched as a cheap, quick meal: just add hot water, some packaged ingredients and let it sit for three minutes. But it's also known for being chock-full of savory but unhealthful ingredients, such as trans fats, sodium and monosodium glutamate, or MSG.
The U.S. is the world's fourth-largest consumer of ramen noodles, with 3.9 billion packages sold in 2005, according to the Japan-based International Ramen Manufacturers Association. China is No. 1. But U.S. ramen sales have been sliding due to the explosive growth of ready-to-serve soups that are more convenient for consumers.
In comparison to those ready-to-serve and condensed soups, sales also have been hurt by ramen noodles' "limited palette" of popular flavors -- beef, chicken and shrimp -- according to a report by Mintel International Group, a consumer research firm. Until recently, instant ramen noodles hadn't changed significantly since they were created in Japan in 1958 by Momofuku Ando, the recently deceased founder and chairman of Nissin Food Products Ltd., a market leader in the ramen category.
At Union Foods, though, big change is under way -- which the company hopes will boost sales. The company says it broke even last year, with revenue of $20 million to $25 million. Mr. Sim expects 2007 revenue to climb to $25 million to $30 million, with $5 million to $10 million in profit.
In addition to taking the unhealthy ingredients out of its noodles, Union Foods is putting good stuff into a more diversified line of products. For instance, it's injecting noodles with vegetables like spinach and beets. It offers a line of "picante," or spicy, noodles called Enchilosa, and came out in October with a higher-end product called Fiesta that comes in a biodegradable container, not the traditional Styrofoam. Both target Hispanic consumers.
Union Foods also launched in December an Asian-market product called Dae Jang Gum, which uses a spice based on kimchi, a traditional Korean dish of spicy pickled vegetables such as napa cabbage. And its new Mamma Mia Spinach Noodles with Alfredo Sauce is packaged in a biodegradable cornstarch and paper container.
All this new goodness is going to cost consumers, though: $2.50 to $2.99 each, compared with 10 to 50 cents for its original ramen noodles, which the company still sells.
Small Steps
Mr. Sim says his ultimate goal is to attract interest from high-end food retailers like Whole Foods of Austin, Texas, and Trader Joe's Co., Monrovia, Calif. He says the company is in the early stages of sending them samples.
But a healthier approach alone may not be enough to garner the attention of these stores. The fact that Union Foods had never had a product to appeal to them will make it much harder to persuade those stores to carry the new ramen line.
So far, Union Foods has made some inroads in the healthy market. Mark Trotter, chief executive of YoNaturals Inc., a San Diego-based maker of vending machines that serve healthy items, plans to soon put the new ramen noodles in his hot-meals vending machines where people have access to microwaves and hot water, including corporate campuses.
For now, though, Union Foods is banking on traditional outlets to drive business. In November, the 7-Eleven Inc. chain of convenience stores began selling the Gourmet Snack Noodles and Enchilosa lines. The Fiesta line and Mamma Mia Mac Cheese should be available by June.
Union Foods isn't alone in its healthful push, however. Late last year, Nissin Foods (USA) of Gardena, Calif., introduced its Noodle Soup premium product featuring air-dried pasta with large chunks of vegetables such as broccoli, carrots and celery. It also added a Souper Meal, a larger version of Nissin's popular Cup of Noodles, with thicker noodles and richer broth, and Chow Mein, a Chinese-style stir-fried noodles microwaveable package. Prices range from 99 cents to $1.49.
"Everybody's been hungry for something new," says Matt Talle, national sales manager at Nissin Foods (USA).
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