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Indofood pushes Indomie as global halal noodle brand

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Indomie halal instant noodles come in over 100 flavors, including regional variations.   © Reuters

JAKARTA / ISTANBUL -- For a man known to shy away from publicity, Anthoni Salim, the president and chief executive of Indofood Sukses Makmur, was in a good mood when he recently met with local journalists for the question-and-answer session he holds each year atop the company headquarters in Jakarta.

The normally press-shy Anthoni Salim, president and chief executive of Indofood Sukses Makmur, recently opened up at a press event in Jakarta.

"If Korea has K-Pop, we have Indomie," declared Anthoni, offering an odd point of comparison for Indofood's flagship instant noodle brand, which is known to almost every one of Indonesia's 250 million residents.

Indomie is less known outside the country, but that is changing. The company is gaining a steady presence in emerging markets across the Middle East and Africa at a time when global rivals have been set back by weak demand and regulatory hassles. Shares of Indofood CBP Sukses Makmur, Indofood's core consumer products unit, reached an all-time high of 17,000 rupiah ($1.27) on June 17.

One of Indofood's hottest markets is Turkey, where an affiliate opened a factory in 2014. Indofood does not disclose sales figures, but provides branding, formulations, and technology, and collects licensing fees. Indonesian noodles are taking Istanbul by storm.

"Indomie is outperforming other brands," said Metin, a sales clerk in a Turkish supermarket. The eyecatching, brightly colored Indomie packs with their Turkish lettering entice with chicken, vegetable, and curry flavors. They also sell for slightly less than the competition at 1.25 Turkish lira ($0.3) each.

"I personally prefer Indomie's chicken flavor," said Metin. According to him, Indomie outsells Makarneks, the most popular local brand made by a joint venture between another local company and Japan's Nissin Foods.

Indofood has been targeting emerging markets like Turkey, which has a population of 78 million, which has grown by 34% in the last 20 years. "Turkey is actually a bridge to enter the EU," said Anthoni, noting its annual population growth of 2-3%.

Indonesia has the world's largest Muslim population, which gives Indofood an advantage in markets like Turkey, where 99% of the population is also Muslim and receptive to halal products.

Indofood set up a joint venture factory in Saudi Arabia in the mid-1990s, and has three there now, one of which makes sauces. Indomie is made locally overseas in at least eight other countries, including Egypt, Nigeria, and Syria, and the product is sold in over 60 countries.

The invention of instant noodles in the 1950s is widely credited to Japan's Momofuku Ando, the founder of Nissin Foods. Indomie was launched in the early 1980s, after Anthoni's father, Sudono Salim, was granted a monopoly for flour milling in Indonesia enabling the mass production of instant noodles as the country searched for an alternative to rice. The deal was made possible by Sudono's close ties at the time to President Suharto.

Indomie quickly caught on, catapulting Indonesia to the rank of second largest noodle consumer after China. The successful business was a cornerstone of Sudono's empire, which diversified into cement, banking, and automotives. But all this came crashing down after the Asian financial crisis and Suharto's subsequent departure in 1998.

Cash-strapped, Salim Group was forced to sell most of its assets. Anthoni managed to hang on to Indofood, the group's crown jewel, without having to sell a stake to Nissin, which was eager to enter Indonesia. The two companies later formed a joint venture that did not work out. In 2014, Nissin bought out Indofood's stake in the joint venture and took over.

Salim Group's operations cover raw materials, distribution, and retail, enabling it to tap the archipelago of thousands of inhabited islands. Indofood has continued to dominate the market, and caters precisely to local tastes -- there may be more than 100 different Indomie flavors. The company sold 12.6 billion packs of instant noodles in 2014, which is roughly 50 for every Indonesian. It accounted for about 70% of the domestic instant noodle market, according to research company Euromonitor International, and 15% of instant noodles consumed globally. In the same period, the noodle division generated 65% of the revenue and 97% of the operating profit for Indofood CBP Sukses Makmur.

Indofood's market capitalization has doubled over the past five years, surpassing Nissin in dollar terms and outstripping many international peers. The market cap of Hong Kong listed Tingyi Holding, the world's top player in instant noodles by sales, has shrunk by more than two-thirds over the same period because of slower growth in China. Meanwhile Nestle India's was put out of business for months last year by allegations -- which failed to stand up in court -- that its market-leading Maggi noodles contained high lead content and undisclosed monosodium glutamate.

Indofood's growth overseas comes as foreign competition vies increasingly for a slice of the Indonesian market. After breaking up with Indofoods, Nissin teamed up with Japanese trading house Mitsubishi Corporation and started producing its flagship Cup Noodle products locally. Meanwhile Wings Group, Indonesia's second largest player with around 15% of the market, is aggressively undercutting Indomie on price.

Indofood's Indomie noodles are staples of street stalls in Jakarta and just about everywhere else in Indonesia. (Photo by Keiichiro Asahara)

For Indofood, business overseas not only generates growth but earns U.S. dollars to mitigate foreign exchange fluctuations that have been damaging to a company reliant on imports. "We import wheat, plastics, spare parts -- if we can get dollars from our exports, we will have a dollar balance," said Anthoni. "We can use dollars we earn from exporting to pay for imported items."

Having put the problems of the Asian financial crisis to rest, Indofood remains a relatively new player in the global landscape. Nissin already generates about a fifth of its revenue abroad, and Taiwan food conglomerate Uni-President Enterprises has a strong foothold in the Philippines. Indofood CBP's overseas revenue has hovered around just 9% of its total for several years.

"We're trying to gradually increase [overseas business] to 15%, 20%, and if we can reach 30%, that will be the ideal condition," Anthoni said. He is increasingly keen to tap global halal food market by leveraging the brand power of Indomie. The company is planning to set up a factory in Morocco, north Africa, by the end of the year, according to local reports, but the moves overseas are not welcomed by all.

"Investors prefer that it focus on domestic business instead of overseas, where profit margins are lower," said Harry Su, head of research at Bahana Securities, a local brokerage. Indofood has been diversifying at home in expectation that rising income will lift consumption of more costly foodstuffs.

"In the next couple of years, the most important thing will be to minimize losses in new divisions," said Harry, pointing to a beverage joint venture with Japan's Asahi Group Holdings dating from 2012. Anthoni has also revealed plans for Indofood to enter the poultry sector.

In a rare interview with the Nikkei last September, Anthoni said an advantage for Indofood's lies in Indonesia's favorable demographics. "Being on the equator, being an ASEAN country, we have the advantage of having big land, big sea, sun, lots of rain, and good water," he said. Indofood's battle for a foothold in overseas markets will reveal its true competitiveness.

-- Company in focus

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