The Hong Kong-listed company best known for its noodles has been making beverages for several years but its sales have gained so much momentum in the last year that they have overtaken those of its core noodle business.
Turnover from beverages reached US$918 million for the first nine months of 2006, up by 55.8 per cent on the prior year, and well past the $754 million from noodles.
"Noodles are still our core business but the beverage market is three times the size and is growing fastest," chief financial officer Frank Lin told AP-Foodtechnology.com.
Tingyi, which claims to have pioneered the ready-to-drink tea category in China, leads this market with a 50 per cent share, thanks to use of the Master Kong brand, already well-known by consumers of its noodles.
It plans to add a further 16 production lines for juices and tea next year. But its efficient production technology has also allowed it to create a profitable bottled water business.
In water, it is still behind beverage leader Wahaha but has increased its volume share from 6 per cent this time last year to 12.4 per cent to become the number two, according to AC Nielsen data.
"Recent reports show how water pollution is getting worse in China. We think this [bottled water] will be a good business in the future," said Lin.
The company had previously entered the bottled water business in 1997 but high machinery costs meant it soon exited the business that came to be dominated by Wahaha. However experience with European machinery has now given it an edge in this low-margin product, which it started producing again last year.
"We were already using the same equipment for tea and juices and accumulated experience in how to run it smoothly with high operating efficiency," said Lin.
Lin says the firm's manufacturing model is unique in the Chinese beverage industry.
"A lot of our competitors are outsourcing, not only their bottle production but also filling," said Lin.
Chinese beverage makers have been hit by the rising cost for PET, the plastic increasingly preferred to bottle drinks. Tingyi says it was 10 per cent higher in this year's third quarter compared with the previous year's same period.
"PET packaging accounts for about 80 per cent of the costs of bottled water," said Lin. "So when we entered this segment we imported high-tech machinery to make lighter bottles [using less of the plastic]."
"Even though raw material prices are high, we haven't increased our prices because customers are very price-sensitive and our production is competitive enough to absorb cost increases," he said.
It is now planning to add a further 27 bottled water production lines in 2007.
Strong cashflow has allowed the firm to invest in further capital for its ongoing expansion. As a result, European suppliers are receiving some of their biggest orders ever from this rapidly expanding Chinese producer. French firm Sidel says that an order for 20 complete PET bottling lines at Tingyi's Tianjin plant is its largest ever order. The firm has also placed an order with Swiss firm Netstal for 12 injection moulding machines to produce bottle closures. Netstal estimates that it will be the largest production system of its type in China.
Tingyi's profits have still been affected by sugar prices, which were up by 55 per cent in the third quarter this year, but it has launched several sugar-free variations of its teas to make higher costs a marketing opportunity.
And it has still managed to report a 21 per cent increase in operating profit for the first nine months of the year to US$203.6 million, despite higher volumes of the relatively low margin bottled waters.
Lin declined to comment on whether it would take over Wahaha's lead in bottled waters, suggesting that its competitor may be looking at higher margin products. Wahaha's share of bottled water volumes has dropped to 14.5 per cent from 18.7 per cent this time last year.
