Nissin Foods Holdings - Company History

From Chuko Sosha to Chicken Ramen: the first ten years

In September 1948 Ando Momofuku (安藤百福) established Chuko Sosha Co., Ltd. at Shiomi-cho, Izumiotsu, Osaka Prefecture, with stated objects covering the processing and sale of marine products, spinning and other textile manufacture, the sale of western clothing and sundries, and the publishing and sale of books[1]. Capital was ¥5 million[2], and in September 1949 the firm was renamed Sunsea Shokusan Co., Ltd. and moved its head office to Kita-ku, Osaka[3]. Ando had been born on 5 March 1910 in southern Taiwan; at twenty-two he started a business importing knitted goods into mainland Japan[4], and went on to run several ventures, among them the manufacture of magic-lantern projectors and of prefabricated barrack housing. During the war, while subcontracting aircraft parts, he was taken away by the military police and was not released until the forty-fifth day, after which he spent sixty days at the Central Hospital in Kita-ku, Osaka[5]. After the war he began salt making and dried-sardine production in Izumiotsu, only to be arrested by the occupation authorities on a complaint from the Osaka prefectural police; by the time he was released most of his property had been confiscated[6].

In the Sunsea Shokusan years Ando had taken on the chairmanship of a credit union, Osaka Kagin (大阪華銀)[7]. The union failed and he lost his entire fortune. All that remained was his house in Ikeda, Osaka Prefecture, and in a shed built in its back garden he set about developing instant noodles. Postwar Japan was short of food, and the government was promoting flour-based eating and putting bread into school lunches[8]; Ando thought that what suited the Japanese was not bread but noodles, and built his product around five conditions for a food of the people — good taste and nutrition, simple preparation, keeping quality, hygiene and a low price[9]. Nearly a year of trial and error produced the flash oil-heat drying method (油熱乾燥法)[10], and in August 1958[11] he began manufacturing and selling the first application of it, the instant bag noodle Chicken Ramen[12]. That December the head office moved to Chuo-ku, Osaka and the company was renamed Nissin Food Products Co., Ltd.[13]

Volume underwritten by the trading houses, and a national distribution

Chicken Ramen cost ¥35 at a time when a portion of dried noodles cost ¥20[14], and shops would not take it at first. Ando printed the words sole distributor, Mitsubishi Corporation on the bag to borrow the wholesalers' trust, and pressed for settlement in cash[15]. Sanan Masashi (佐南正司), general manager of the grain and fertiliser department at Mitsubishi Corporation's Osaka branch, asked him to take the name off — but Ando had just placed a large print order for bags carrying it[16], and even when Mitsubishi's president Takagaki Katsujiro (高垣勝次郎) shouted that he would end the relationship[17], the bags did not change. Because raw materials and equipment were paid for with promissory notes, cash piled up in hand[18]. In the spring of 1959 Ando poured that cash into 15,000 square metres of land at Takatsuki, near Osaka, bought in a single stroke, and built a plant of 6,600 square metres of floor space[19] to begin volume production.

The plant was completed in December 1959, and Nissin moved its head office to Takatsuki at the same time[20]. The workforce passed 1,000 in 1961[21]. In sales the company placed three trading houses — Mitsubishi Corporation, Itochu and Tohshoku — as general distributors from the start[22], pushing product through the distribution machinery under each of them and so avoiding the risk of selling on its own account. There was almost no direct selling, and most raw-material purchasing went through the same three houses[23]. Capital rose from $55,556 (¥20m) in March 1960 to $138,889 (¥50m) that August, $277,778 (¥100m) that November and $416,667 (¥150m) in June 1961[24] — thirtyfold in a little over a year. Television commercials began in 1960[25], and Sanwa Bank and Mitsui Bank stood side by side as the company's banks[26]. In June 1962 Nissin took over the business rights of Wave Foods and placed its Tokyo plant on that site as the production base for the Kanto region[27].

Enforcing the patent, opening it, and the second-section listing

Instant noodles needed only simple equipment and lent themselves to mass production, so entrants came one after another[28]. There were 130 firms by 1961[29], supply and demand broke down, and dumping and shoddy goods spread[30]. In June 1962, on obtaining a patent on the instant-noodle manufacturing process, Nissin announced that it would take resolute measures against anyone continuing to manufacture without permission, a warning aimed at about 110 companies[31]. Against Ace Foods, which ignored the warning, it applied to the Osaka District Court for the preservation of evidence[32]. Counting semi-instant products, there were then more than 140 makers nationwide[33], and the patent affair left them unsure whether to stay or go. Over the question of who had filed first, Chen Rongtai (陳栄泰) of Yamato Tsusho, who maintained that he had developed and applied for the process before Nissin, sought a provisional injunction, calling Nissin's conduct high-handed[34].

Nissin then opened the patent at the request of other makers[35], concluding licence agreements with 61 companies[36]. Ando had founded the Japan Instant Ramen Association in 1959, and in 1964 recast it as the incorporated Japan Instant Ramen Industry Association (日本即席ラーメン工業協会)[37], an organisation for raising quality and for coexistence and shared prosperity in the trade, serving as its chairman himself. In sorting out the more than 300 firms in the business, the method was to pair up those who got on with one another, narrow the head makers to about ten, and place the rest under their wings[38]. The number of makers fell to about 50 by the end of 1962, and the dispute with Yamato Tsusho was settled[39]. Ando looked back on it in later years: it was precisely because I made the patent open that this industry came into being[40].

On 21 October 1963[41] Nissin listed its shares on the second sections of the Tokyo and Osaka stock exchanges[42]. At listing, capital was $416,667 (¥150m), 3 million shares were listed and there were 930 employees[43]; the largest holders were Ando Momofuku with 1,580,600 shares, followed by Ando Koju (安藤宏寿) with 420,000 and Mitsubishi Corporation with 124,000[44]. In the year to March 1963, Chicken Ramen and Chicken Ramen Plus Curry together accounted for 89 per cent of sales by product, the remaining 11 per cent being Chicken Ramen New Touch[45]. Sales had grown tenfold in three years[46], on the strength of the two patents and of having Mitsubishi Corporation, Itochu and Tohshoku as selling agents[47]. The officers at listing were Ando Momofuku as president, Ando Koju as executive vice-president and Togami Mineji (砥上峰次) and Arimoto Kazuma (有元一馬) among the managing directors[48], with a single annual settlement on 31 March[49]. In June 1963, the year of the listing, the company began making and selling Nissin Yakisoba[50], and the year after the listing capital was raised to $625,000 (¥225m)[51].

A crowded market, and the first detour into rice

In October 1964 the Yokohama plant was completed in Totsuka-ku, Yokohama as an instant-noodle production works[52]; it was to make spaghetti-type new products as well and so widen the range[53]. In March 1966 the joint venture Kyushu Nissin Co., Ltd. was established at Tosu, Saga Prefecture, and that September the company launched Wafu Chicken (和風チキン), followed in August 1967 by Nissin Lunch[54]. A doubling of capital in December 1967 took it to $1.3M (¥450m)[55]. By 1968 the instant-ramen trade had 200 makers, annual output of 3 billion servings and sales of $152.8M (¥55bn)[56], with the four big specialists holding close to 70 per cent between them and none of them able to establish a clear advantage[57]. Going back to the 1962 figures, national output had been about $27.8M (¥10bn), with most of the demand concentrated in the Osaka-Kobe-Kyoto and Tokyo-Yokohama conurbations[58].

Faced with the crowd, Ando turned to rice as a new market[59]. Nissin Lunch, launched in 1967, was his answer, but because he tried to force the opening with ramen technology it remained a half-finished product[60]. Made as the label directed it tasted good, yet an instruction to add one cup of water meant nothing definite when cups vary in size, so quantities differed and the maker's intent never reached the consumer[61]. The decision to withdraw did not come easily, and only after repeated internal argument over whether to press on did the company pull back, taking a loss of $1.4M (¥500m)[62]. Instant noodles, meanwhile, had become a fast-turning loss leader in the supermarkets and a fixture of the discount wars[63], which sharpened price competition further.

Designing Cup Noodles as a food the whole world could eat

In 1966 Ando went to a supermarket in Los Angeles to sell Chicken Ramen. There was no bowl for the tasting, so the American he was dealing with broke the noodles up, put them into a paper cup, poured hot water over them and ate them with a fork. Watching noodles eaten without chopsticks or a bowl, Ando conceived of noodles that could be eaten with one hand. Instant ramen had the advantages of convenience, taste, nutrition, hygiene and low cost, but it required chopsticks and a pot to cook in, and in countries where chopsticks are not used it was not accepted[64]. The search for something that could be eaten in the same form anywhere in the world ended at Cup Noodles[65]. For the container he took expanded polystyrene, then used only for tuna boxes, and thinned it from two centimetres to two millimetres.

To make Cup Noodles an international product, Nissin spent close to two years on market research[66]. The results from a panel of 20,000 were pessimistic on the whole[67], and in Japan in particular there was a strong view that putting noodles in a cup and eating them while walking offended against good manners and morals[68]. Younger respondents, however, said they would be glad to eat it, and monitors abroad said in numbers that it was tasty and easy[69]. Ando staked the future on that response and put Cup Noodles on sale in September 1971[70] at ¥100 apiece[71]. With the standard price of a bag of noodles at ¥30, wholesalers fought shy of ¥100 as far too dear[72], and the product did not ride the existing wholesale channels. Nissin used television commercials to explain the method of preparation directly to consumers, and demonstrated and sold it in the Ginza pedestrian precinct, which had only just begun[73].

For production the company turned over land at Toride, Ibaraki Prefecture that had been secured for building a rice plant[74]. From March 1971 it invested $2.8M (¥1bn) in a dedicated works, which began operating on 16 October that year[75] as the Kanto plant[76]. Cup Noodles was a product assembled from four patents[77], and its production equipment required heavy capital, so the company reckoned that followers would not appear easily. In the event the moulding of cups from a special heat-insulating paper could not keep pace, and the first-phase plan of 200,000 servings a day could not be carried out[78]. Output stood at only about 40,000 servings a day in January 1972[79], and Nissin assumed no contribution to sales or profit for the period, putting almost all of it into product sampling and marketing[80]. For the ingredients it built a freeze-dried food plant at Osafune, Okayama Prefecture, costing $1.3M (¥400m) and producing 5 tonnes a month[81], and in March 1972 established Nissin F.D. Foods Co., Ltd. in Setouchi in the same prefecture[82].

Recovering abroad, failing at rice, and the battleship products

Overseas operations began with Nissin Foods (U.S.A.) Co., Inc., set up at Gardena, California in July 1970[83]. The Los Angeles plant was built to start up in February 1972[84], but first-year sales came to only 50,000 servings[85]. The noodles were too long and the smell of the soy-sauce flavour did not suit Americans, so the company shortened the noodles and reworked the recipe to move soy sauce into the background[86]. Accounts balanced in the fifth year, profit came in the sixth, and from the seventh growth doubled year on year[87]. In 1977 it sold 180 million servings in the United States, and set a target of 350 million for 1978[88]. In the same period Nissin licensed its technology to United Biscuits of Britain[89], reversing the direction of a processed-food technology flow that had until then run on imports.

The second attempt at rice was Cup Rice[90]. In the autumn of 1974, with commercialisation in sight, Nissin spent $10.2M (¥3bn) a full year before the formal announcement on a volume plant of 50 tonnes a day inside the Shiga works[91]. It set a sales target of 20,000 tonnes and $66.9M (¥20bn) a year[92], and in 1975 launched seven varieties — prawn pilaf, salmon chazuke, gomoku-zushi, dry curry, Chinese stew, sekihan red rice and chicken rice[93]. Yet in the year to March 1980, five years after the full launch, Cup Rice sales were $882,262 (¥200m), about one hundredth of the original plan[94]. A selling price of ¥200 a portion was too high measured against the received idea that rice is a cheap thing[95]. Cup Noodles had sold as a quasi-staple; Cup Rice ran head-on into rice, the staple itself[96].

In August 1972 Nissin was designated to the first sections of the Tokyo and Osaka stock exchanges[97]. The instant-ramen trade at this time had 100 firms nationwide and annual output of 3.5 billion servings, of which some 60 belonged to the keiretsu of the five largest makers, and the top five together took about 82 per cent of total demand[98]. Nissin's share was 22 to 23 per cent on annual supply of 700 million servings with 500 employees[99], and it laid out regional production and regional selling with 18 exclusive plants nationwide on top of its three works at the head office, Yokohama and Kanto[100]. In February 1973 it established Nissin Dart Co., Ltd. at Ritto, Shiga Prefecture as a joint venture with Dart Industries of the United States[101]. The Shiga plant and the Food Research Institute were completed in September 1973 and the Shimonoseki plant in August 1975[102], and in April 1977, on completion of the head-office building, the head office moved to its present site in Yodogawa-ku, Osaka[103]. As of 1978 the mainstays were Cup Noodles, Donbei, Men Hatchin (めん八珍) and U.F.O.[104], each on a scale of $49.8M (¥10bn) or more, and the policy was not to bother with small items[105]. In March 1980 annual sales reached $441.1M (¥100bn)[106].