An Investigation Report on Instant Noodle

MIDA

AN INVESTIGATION REPORT ONINSTANT

J

oocoroi

Prepared by:—

Malaysian Industrial Development Authority

July, 1982.

#( 12FEBW83

AN INVESTIGATION REPORT

ON

INSTANT NOODLE

Malaysian Industrial Development AuthorityJuly, 1982

Access. NO i 0 /

(Glass No.

T/^BLE OF CONTENTS

Suinmary

1. Product Description 1

2. Domestic Production 1

3. Imports and Exports of Instant Noodles 2

3*1 Imports . 23.2 Exports

4. Consumpti on 4

50 Marketing Aspects 6

6» Processing of Instant Noodles 7

7. A Proposed Project 8

7.1 Production Capacity 87>2 Proposed Investment 87.3 Raw Material Requirements 107.4 Employment 117.5 Production Cost 12

8. Profitability Indicators 13

9. Conclusions 13

T/ LES Page«HM ^

!• Production of Instant Noodles 1In Peninsular Malaysia, 1976 - 1980

2. Imports of Instant Noodles from Singapore 2and Japan, 1975 - 1980

3. Exports of Instant Noodles from Peninsular 3Malaysia, 1975 - 1980

•I. Consumption of Instant Noodles, Peninsular 4Malaysia

5» Projected Consumption of Instant Noodles, 51980 - 1985

6« Fixed Capital Investment 9

7. Estimated Costs of Raw Materials 10

80 Employment for Proposed treject 11

9. Estimated Labour Costs 11

10. Production Cost of Instant Noodles 12

APPENDICES

I0 Approved Manufacturer of Instant Noodles

II. Machinery Equipment for Manufacture ofInstant Noodles

Summary

There are three types of instant noodles namely plainnoodles, cupped and seasoned noodles,, Only plain noodles are

available in the local market,, Domestic production of instantnoodles increased from 12,600 tonnes in 1976 to 23,700 tonnes in198C. The demand for instant noodles is met largely by localproduction, supplemented by imports. Imports of instant noodlesarc mainly from Singapore and Japan* Prices of instant noodlesrange from 30 - 50 cents per packet* Consumption of instant ncodl-in 1980 has been estimated at 16,005 tonnes., Given competitive

prices a project with a production capacity of 15 million packetsof instant noodles per annum can be proposed* Such a proposal is

estimated to involve investment of about $2.9 million with a rateof return on employed capital (after tax) expected to be 16x5% andpayback period of 5 years*

1. Product1Description

As the name implies, instant noodles are edible by

pouring boiled water over them or boiling them in water

for a few minutes. They are made from wheat flour withvarious other ingredients added,, Generally they are attachedwith small bags of soup made up of dried ingredients* Variousflavours are available e.cjo chicken, prawn curry and laksa.This type of noodles with bags attached are called plain

noodles. In the local market, only plain noodles are available,,Otfer types of noodle available are cupped and seasoned noodles.

Cupped noodles are packed in cup form while seasoned noodleshave the flavour added directly into the flour. These two tyjx.E

of noodles however, are'not'popular"in our'local market. Instrntnoodles are packed in round or rectangular shape-. In Malaysia,only the latter is available*, The colour of noodles ranges fromlight yellow to dark brown. Only light yellow noodles arepopular in the local .market. The colour of instant noodlesis .dependent on rate of drying.

Domestic Production

Domestic production of instant noodles from 1970 tc1980 is shown in Table 1.

Table 1

Production of Instant Noodles in PeninsularMalaysia, 1976"-"1980

Year

1976

197719781979

- - 1960 - - - -*

Quantity (tonnes)

12,556.12,15415,29619,058

23,746' '

Source: MIDA

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The production of instant nobdles increased rapidlyfrom 12,600 tonnes in 1976 to 23,700 tonnes in I960 growing zta rate of 18% during the period* From information sources, th .r:were 9 factories being approved by MID/, for the production ofinstant noodles as shown in Appendix !„

Based on an estimated weight of 85 gms0 per packet,the production of a proposed project (as discussed in Fara 7)amounts to about 1,275 tonnes per year (equivalent to 15,000,0 "packets), This represents 5-4% of the total production in 198;,

3. Imports and Exports of Instant Noodles

3.1 Imports

'Instant Noodles' is classified under a breadtrade classification SITC 048300 entitled 'macaroni,spaghetti and similar products'. However, based on indus-trial sources, instant noodles are imported mainly from

Singapore and Japan. As such imports from these countriesin the SITC Code 048300 can be regarded as estimates forinstant noodles into i eninsular' Malaysia as shown in

. Table 2.

Table 2

Imports of Instant Noodles fromSingapore and Japan, 1975 - 1980

Year

197519761977197819791980

Quantity (tonnes)

9286 "68

54.7

460

773

Value ($'000)

231' " ' 104

94

1099

9332250

Source: Department of Statistics

-,. 3 *,.

The above table shows that imports of instantnoodles increased substantially from 1978 to 1980, Thisindicates an increased acceptance of the product by localconsumers in view of the nature of the product - being

easy and fast to prepare,

In addition, with population growth it can be

envisaged that consumer demand for instant noodles willincrease further in future as indicated by the trend inthe last few years«

3o2 Export

It is not possible to estimate the export

quantities of instnatnoodles, as the broad SITC Code048300 does not give a breakdown of instant noodles, Never-

•the-Jess-, most-exports of Macaroniy "Spaghati and similarproducts are mainly to Singapore, Sabah_and Sarawak, Such

exports amounted to 9460 tonnes valued at 322*9 millionin 1980 as shown in Table 3.

Exports of Macaroni, Spaghatti and SimilarLroducts-from, L'eninsul r Malaysia 1975 -. 1980

Year

197519761977

1978

1979

1980

Quantity (tonnes)

4,524

7,5114,200

4,770

7,638

9,460. . - •- •

Value (j'OOO)

9,831

15,654

9,535

11, 116

16,924

22,896

Source: Department of Statistics

Based on the above the quantity of exports increased at an

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average rate of 23„7% per annum during the period 1975to 1980.

Consumption

The apparent consumption of instant noodles is•- • • ' - ' • - i '

difficult to estimate particularly the SITC Code 048300 does notgive a detailed breakdown of items. For the purpose of this

report, assuming 90% exports under SITC Code 048300 to beinstant noodles, then the apparent consumption of instant noodle;

is shown in Table 4.

Table 4

Consumption of Instant Noodles, Peninsular______Malaysia_____

(tonnes)

Local ProductionImportExport I/

Apparent Consump-tion 2/

1975

8,29792

2,729

5,660

1976

12,55686

4,177

8,465

1977

12,15468

3,493

B,729

. 1978

15*296547

4,293

11,550

1979

19,058468

6,874

12,652

1980

23,7-6

773

.•:,5l-'

I/ Assuming 90% exports under SITC Code 048300 to be instantnoodles - ' - . . . . . . . . .

2J Apparent Consumption = Local Production'+ Imports - Exports

. On the basis of the above, the consumption of instantnoodles increased from 5,660 tonnes to 16,005 tonnes over theperiod 1975 - 1980. Given the population in 1980 to be 11,138,727the: average per capita consumption is 1044 kg. per year« Usinglinear regression analysis the apparent consumption would be nsfollows:—

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Table 5

Projected Consumption of Instant Noodles1981 - 1985 I/

Year

1981

'1982

"19831984

1985

Quantity (tonnes)

17,22119,13821J05622*97324,890

_!/ Based on a)

b)

Y *= 5,716.81 + 1,917.34 xwhere Y « Quanti ty

X = Year eaga 1975correlation r, = 0.98

Table 5 shows that the consumption of instant noocilis expected to increase from 17,221 tonnes in 1981 to 24,890tonnes by 1985« The maximum production capacity of approvedcompanies per shift amounts to 18,108 tonnes per annum. Thus,a shortfall in supply is envisaged from 1982 onwards.

The increase in consumption of instant noodles canattributed to its popularity among consumers in view of theconvenience of instant noodles in meal preparation and thegrowing population.

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Marketing Aspects

The local demand for instant noodles is met largelyby local production supplemented by imports* Imports ofinstant noodles arc mainly from Singapore .and Japan.. Some ofthe local brands found in the market are 'Esin', 'Chin Tan',

'Mamee', -Vito1, 'White 1'igeon1, 'Koka', 'Chef and 'Maggi1.(

Among these'brands 'Maggi* dominates the market* 1 rices range)

between 30 and 50 cents per packet. Hence there is a keencompetition among the producers in terms of prices and brandconsciousness* On the basis of this various techniques of saL.shave been adopted-such-as giving-quantlty discounts, price re .ucrtl nand premiums or other goods being away as a part of salespromotion.

Moreover, the product is advertised through variousmedia such"as the newspaper, magazines, television and radio.The product is marketed through the channel of distribution asshown below:-

Diaqram I

Simplified Channel of Distribution

RODUCERS

Wholesalers

Retailers

Consumers

_ 7 —

60 1-rocessinc of Instant Noodles

The processing of instant noodles is simplifiedas follows :-

(i) lXaxing_o_f nRaw Materials

Wheat powder/flour is mixed with additives inspecific proportions such that the mixture will determinethe taste and the quality of the dough* The additives inthe wheat flour are dissolved in common salt solution withsolid additives such as starch powder,, A mixing time of10 to 15 minutes is recommended.

(ii) Dough Sheet Making

Dough is made into thin sheets through pressrollers. Two dough sheets proceed through 2 pairs of pressrollers and are charged into 3 pairs of rollers where 2dough sheets are pressed together into one sheet. The doughsheets are then made thinner finally to some 1»5 mm»

Cuttincf (strip cutting)

The thinnest dough sheets are then cut into striby means of a cutting roller,

(iv) ;Measuring

Measure cutting is generally done at the frontor the rear side of the cutter*

(v) Steaming

In the steaming .tunnel, the protein in the dou.;;his changed into alpha-protein by steam heating. Throughthis process, the strips become more sticky and smoother.,

(vi) Casing

After measured cutting, cut noodle strips arecurled and put into cases for easy frying and also to prevent

deformation during frying.. The "Cases' are of several typos

namely circular, sqfuare and elliptic. They ore fitted int.-a net conveyor,

(vii) Frying

: •; 'Frying is done in order to eliminate moisture inthe noodles, secure a permanent form and promote the

alphanization process0 The drying oil temperature isgenerally between 140 C and 150 C. It is necessary tocontrol the frying temperature as to prevent undesirablespots. Frying time is about 1 minute,,

(viii) Cooling

Fried noodles are then cooled by cooling air.

(ix) Inspection and Racking

They are then inspected for weight, form andcolour before packing*

7a A proposed I reject

7•'I j-'roduction Capacity

Given all the previous discussions, a project witha production capacity of 50,000 packets a day based on oneshift operation can be proposed* Assuming 300 working days,

the annual production capacity is 15,000,000 packets. Thurequired machinery is shown in Appendix II«

702 iroposed Investment

The proposed project v/ill involve the followinginvestment:-

Table- 6

Fixed Capital Investment Costs2- 2Land (0,093 m ) @ $43,00 per m $ 340,440

Factory (1579-m2)--@-S376»00-per m- • $ 593,704

Office (557 m2) @ 3376.00 per m2 $ 209,509Store Room (92 m2) @ $376.00 per m2 £ 34,931

Machinery & Equipment V

Fuji total system to produce 50,000 bags 3 450,000per clay

ing machine:a) for noodle, speed 100 - 150 bars per min., 3 60,000b) for soup bcnse, spe^d 40 - 250 packs per £ 20,000

min. ' ' '

Vehicle i 00,000Office Equipment ; $ 20,000

•ijre-oyje rational Expenses £ 101,666Working Capital S 600,897

Total $2,879,227

Please refer to Appendix II for details.

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7«3 Raw Matari^l Retirements

Several types of raw materials are required andtheir costs are estimated as shown in Table 7,

Table 7

Estimated Costs of

a) Haw Material

Raw Materials

Requirementper meal/packet

Flour

Salt

Alkali 1 owderPhosphoricHydrochloric AcidAdditive

Natural ColouringSoup Base

(kg.)

C.C7330.0008

0.00012

0.0001

00 00 03 3

0.00003

0.0055

Price

S

1.00

0.30

3.50

50.00

8.50

20.002.00

Requirementat 50,000packets

(kg.)

366540

6

5

16.5

1.5275

t>) lacking Materials

Soup pack (80 x 50 mm) @ SO.02 cents(aluminium laminate)

Noodle"pack (100 x 125 mm) @ 0.05 cents(Nylon poly)

Total Cost

V-

2,5,

It should be noted that the above proportionsof raw materials are indicative and provided solely forpurpose of cost estimation.

- 11 - PERPUSTAKAANLKPM

7*4 Employment

The estimated manpower required for the propeso-r'project is as shown below:-

Table Q

Employment for Proposed L'roiect

Employment

Direct Labour:

Noodle makingFillingFrying

Packing & Casing

Indirect Labour:ManagerSupervisorOffice StaffSales Representative

Total

No. Required

22

1

8

1

1

32

20

The above tr-ble shows that the factory employs

20 people and their salaries are as estimated below:-

Table 9

Estimated Labour Costs

Employment

Direct LabourIndirect Labour:ManagerSupervisor

Office Staff

Sales RepresentativesEPF, Socso and MedicalBenefits at 20%

Total Cost

No0 Required

13

113

2

20

Salary

ler Month

$ 300

2,000

1,000

450

450

S 4,200

ler Year

$ 46,800

24,OCQ

12,OC-

16,20';

10,600

21,960

$131,760

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7*5 1'roduction Cost

The unit production cost of producing 15,000, 0,,-packet's of instant noodles a year is estimated below:-

• -. 'Table -10 -• •

Production Cost of Instant Noodles'

Cost ]>gr_ annur

Raw Materials 3 2,450,40-:-Labour 131, 7 .

Utilities:Electricity 34,000 Kwh @ ,50.17 per Kwh 14, 2-'::.-

Heavy Oil 24,000 gallons @ S2.10 per 50rk;gallonWater 1,065,000 gallons @ £1.20 per 1,27C1,000 gallons ' '

Depreciation:Building @ 5% 36, CO;Machinery and equipment-® 10% . 53,0'XOf f ice- Equipment © 10% 2,CX:

Vehicle @ 20% 16, Ov/.

Sales & Administrative Expenditure:.Sales, commission and advertising 99, GO,1

Office 33, A „

Total'Cost" ' $ 2,837,11.

Number of Units ». roducecl : 15,000,000 packets

Cost per packet : £2,887,113 .15,000,000 * *u'

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Profitability Indicators

Assuming an ex-factory sales price per packet to bo £0«,25,the expected rate of return of the proposed project is 1605%

and the payback period is 5 years as shown below:-

Sales

I'roductio'n 'CostGross i rofit

Less: Tax 45%

Net L rofit Jtfter Tax

Cost

3,750,000

2,307,110062,882

380,296

474,586

Expected Rate of Return on Net irofit After Tax x 1Capital Employment " Total Investment

ayback leriod

$474.586* ;,2,079,227

= 16.5%

x 100%

Total InvestmentNet L'rofit After Tax +

2,879,227________474,506 + 107,000

2,079,227581,506

5 years

9, Conclusions

Based on the previous discussions, the conclusions

are as follows:-

1. Instant Noodles can be very price competitive,, Moreover,

consumers can be brand-conscious„ On the basis of this,

wide publicity and good quality of the product are of greatimportance,,

14 -

2U Projections on consumption of instant "ttbWdles indicatea likely shortfall Ittf supply from 1982 onwards. Suchshortfall could be attributed to demand by the growingpopulation and to the convenience in the preparation ofthe producto

30 Financial indicators show encouraging returns.,

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Ai-PENDIX I

Approved Manufacturers of Instant Noodles

Name-'of Company

10 aestcan Food Technologicalfyln. Bhd.

20 International Food Sdn0 Bhd.

3D Far East Food IndustriesSJn. Bhd.

..-o i. ncif ic Pood Productso'M. Bhd.

So Vits Mafconan (K0L. ) Sdn.Bhl.

6. TsenwQ (H) Sdn. Bhd>

70 Instant Food IndustriesSdn. Bhda

- 0 Gu-in Hock Seng FoodIn lustry Sdn. Bhd.

. * Sanwn (M) Food Industries;j.'.n0 Bhd.

Factory Location

Ipoh, t'erako

Shah Alam,Selangor.

Johore Bahru,Johore „

Air Kroh, -Malacca.

Kuala Uimpur

Chembong ,N. Sembilan

Shah Alam,Selangor.,

I'rai , ProvinceWellesley

Bangi , Selangor

Incentive &Approval Date

i'ioneer10.7.70

1-vTI7.9.70

Pioneer11.7.70

. Pioneer9.7.70

ITC13.5-76

ITC18.5.76

WTI21.3.75

VJTI31.7.81

WTI30.4.79

Status of .Implement: ticn

In rroduction

In Production

In Production

In Production

In Producti' n

In Product! -in

TemporarilyShelved

In Production

In Product! n

Source: MIDA.

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Machinery Equipment for Manufacture of

Description Unit

Noodl e L JVfaking JEqui nent

Kneacler - 2 "Table- Feeder 1 •Compound processing roll machine 1Extending roll machine 1-. ressing & cutting roll machine 1

Steaming & measuring cutter equipmentSteam tunnel 1Conveyor 1

Keasuriny, cutting & Folding machine 2

Frying EquipmentPrying machine 1

Exhaust blower 1H--avy Oil tump 1

>I>?cial Chain with Case 1Case Cover Conveyor 1Chain Driving Unit 1Heavy Oil burner with preheater, frame-eye 1automatic float-switch- for heavy oil tank 1Automatic elevating equipment . "1

Coclinq Equipment

Blower 1Cooling conveyor with driving unit 1