Competitive Strategy: A Critical Perspective of Indomie in Nigeria

 

By Omodiaogbe Samuel

Last Updated: December 7, 2023

It would have been unimaginable 28 years ago that Nigerians would abandon their delicacies and staple foods for worm-like foreign food. Noodle was never part of our traditional staples where there were foods such as eba, rice, yam, beans and the likes. How come Indomie took the market by storm? After 27years, Nigeria is not only the largest market of Indomie in Africa, but it has become the eleventh largest noodles consumer in the world (World Instant Noodles Association, 2016). How did Indomie attained such a strong foot in a market that did not exist? That is what we want to explore in detail on the critical perspective of Indomine in Nigeria

The Historical Context

Indomie is a brand of Instant noodle produced by an Indonesian company Indofood Sukses Marmur Tbk, better known as Indofood.  The company was founded in 1982 by Sudono Salim an Indonesian tycoon who also owned Bogasari flour mills. “Indo” stands for “Indonesia” and “mie” is the Indonesian word for “noodles.” Therefore “Indomie” stand for “noodles from Indonesia or Indonesian noodle.” In 1988 Indomie was introduced to the Nigerian market through export, and in 1995 the company opened its first production factory in Nigeria under Dufil Prima Food

Market Penetration Strategy

Indomie did not start by establishing company in Nigeria, rather by importing the product from Indonesia into the country. From there they embarked on aggressive advertising to educate the market. Market education was necessary because it was a new product in the market, and therefore the potential consumers needed to be taught what the product was all about, how to prepare it, and the nutritional value of the product. Within a short period, it gained traction, as most consumers were enthusiastic about the product and its potentials. Words of mount helped Indomie a lot in spreading the good news. A wide acceptance of the product was what made Indomie to establish their first factory in Port Harcourt in 1995. As the product got high acceptance in the market, Indomie decided to expand the production plant to Lagos, Ogun and Kaduna in subsequent years.

Competition

As Indomie continued to enjoy first-mover advantage and market dominance, other player saw opportunities to share from the big pile. As a result, companies and brands such as Honeywell, Golden Penny, Mimee, Star, Chiki, Dangote, UNO, Niccus, Tommy Tommy, Mc Chew, Supreme, Doyin, and Cherie competed for space. All the companies entered the market to challenge Indomie dominance and wanted to take some market shares away from Indomie. Some of the brands are known while others are not. Despite their best effort, all the 13 competitors combined could only manage to take away from Indomie 25% of the market shares, and Indomie retained 75%.

Why have all these companies not been able to dethrone Indomie? Why is it that companies like Honeywell and Golden Penny have not been able to leverage their capabilities in a related business to dominate the noodle market? Despite some of these companies been very rich in their diversified markets, why have they not being able to capitalize on their resource advantage? Dangote is known as a master strategist, yet he sold his noodle producing company in 2017 to Indomie. Why? May and Baker sold its noodle producing firm Mimee to Indomine in May 2018. Why? All the competitors are struggling. Why? Perhaps we will be able to get insights to some of these questions by diving into the competitive strategy of Indomie

 

The Competitive Strategy

Vertical Integration

 The parent company of Indomie  Dufil Prima Food is a well-diversified company, and it has presence in both the upstream and downstream of products that complement indomies. For example, they are into flour production, vegetable oil production, seasoning production, packaging segment, pasta production, and other complementary production. The advantage of all these complementarity means that Indomie’s unit cost of production is reduced. Because of the strong control of its value chain, the unit cost of indomies is much lower that what competition could match. The rivals don’t have such efficiency because they need to source the complements from outside vendors and that add more cost. That is couple with the fact that Indomie has a higher market share and that gives the company an advantage in terms of lower marginal cost for each unit produced. Thus the economics of scale and scope gives indomie superior advantage over competition. As a result, other players in the market may find it difficult to produce with the same cost of production as Indomie and make profit. And the situation is worsen by the fact that their market shares are low compared to Indomie, and therefore they don’t enjoy any economics of scale

Product Proliferation

Let’s start by looking at a company that is very successful at product proliferation, as that would give us the context of deeper understanding of Indomie’s competitive strategy. In the carbonate industry Coca Cola have products such as coke, sprite, fanta, zero, and diet. And they even have different sizes of most of these products such as small, medium, large or super large. The question is why the proliferation? In the same vein, Indomie have different flavors such as onions chicken, fried noodle, special chicken, and beef meatball. Indomie equally have different sizes of most of these products. Internationally Indomie have over 30 flavors, and most of them have not been introduces to the Nigerian market. Why proliferation of product? For sure, not all Coca Cola products are profitable, and yet none of them is removed from the market. Why? The reason behind product proliferation is market protection and deterrence of entry. To that effect, they prefer cross-subsidization and self-cannibalization than allowing a competitor to have much space in-between their products in the market

 Indomie’s deterrent strategy makes it difficult for a competitor to compete with all the product in the market at the same time. Competitor only found themselves wedging between existing products, and therefore cannot have enough space. Proliferation is more of a defensive mechanism, and so a company like Indomie will even prefer a loss in some of those products than allowing a competitor to occupy those spaces. Indomie is able to use its strong brand advantage to gain market acceptance of those product easily. That is a disadvantage for competition, as they don’t know which of the product to target and compete against. Also, they don’t have the brand advantage to launch as many products without spending heavily on ads and promotion. The strategy forces them to be trapped in a narrowed space.

Capabilities

One of the strengths of Indomie is deep knowledge of the business more than any other competitors in Nigeria. Indomies is a multinational brand, and it’s produced or distributed in several countries and continents such as Austrialia, Asia, Africa, New Zealand, United States, Canada, Europe, and Middle East. In most of these markets, it has different flavors that fits different segments and buyer personas. Therefore, its greatest strength is deep knowledge of the business better than any other competitor in Nigeria. That strong capabilities enables Indomie to produce at the highest level of cost efficiency. The rival only entered the market because they saw opportunity, not necessary based on capabilities. Indomie operate in a market of high-volume, low-margin, and therefore the best way to compete effectively is cost efficiency. The other brands find it difficult to produce the high volume desired to be cost efficient, and therefore, because of the low margin nature of the business, it becomes difficult for them to be profitable. It’s the Indomie’s capabilities that enables extendibility to different flavors which results in greater market penetration. The competitor cannot easily imitate Indomie in product proliferation because they don’t have the capabilities to do so, and that becomes competitive disadvantage for them

Brand Value

The name Indomie is synonymous with noodles as you don’t go to shops and ask for noodles, but Indomie, even if what you actually wanted to buy is another brand.  I went to a shop close to me one day and asked for noodles and the seller told me he doesn’t sell that, and I then asked ‘what of Indomie’, and he replied he had that one. But he handed me Dangote brand, and I said ‘it’s Indomie that I want,’ but he replied ‘they are all the same Indomie’. After that experience, wherever I go, I ask for Indomie like everyone else, because to them, they are all Indomie. The scenario I’m trying to portray here is about how Indomie has become a generic name of noodles in Nigeria

The strategic implication is that other brand finds it difficult to gain market entrance and acceptance because the name noodle is synonymous with Indomie. The reason that Indomie have been able to sustain the high brand values is consistency in delivering on its value proposition of tasty, nutrition, and youthfulness. It’s very easy to associate with these value propositions, and Indomie continue to deliver on them despite product proliferation. They have everything for each one, and that attracted the traditional none consumers like the elderly to have a space as well. For the competitors, it’s very difficult to know what they stand for, and the quality of most of those brands is questionable. There is no unique value proposition that is distinctive enough for consumers to buy into easily, and that is a competitive disadvantage

Distribution Channel

Indomie is everywhere in Nigeria, even the remotest village, and you began to wonder how they got there. The fact is that Indomie have strong distribution channels that make their product to get to all nook and cranny in the country. The brand Indomie is so popular because that is the only brand they know and see. It’s very difficult for some people to believe that we have more than 10 brands of noodles in the country. You can only buy what you see, and that is a strong competitive advantage for Indomie. Other brands failed to invest on distribution, and that makes it difficult for consumers to know about them.

Competing with Indomie: Strategic Options

To effectively compete with Indomie, competitor need to do much more, and I think they can compete with Indomie by adopting the following strategies:

Generic Strategies

Here we need to look at cost leadership and differentiation strategy.

Cost Leadership: On the cost leadership strategy, any company that want to challenge Indomie dominance should be ready to sell its product at lower unit prices than Indomie. Nigeria been a developing contrary, most people are very price sensitive, and anything that can make them to save cost will be appreciated. But how do you do that? The short- and medium-term goal should be focused on expansion of market shares and not profitability. This mean such challengers should be ready to run at a loss for some time, and eventually if they are able to capture substantial market shares, then become profitable. This is what the competitors that have the deep pockets can effectively do, if they want to truly competitive. The strategic focus should be long term and therefore they should be ready to bear the pains in the short and medium terms to achieve the ultimate goal

Differentiation: On the differentiation side, the challenger should be ready to offer a much better value proposition that is superior to what Indomie is presently offering. The quality should be better in all aspects, both functionally and emotionally. There are consumers out there that cares more about quality than quantity. There are consumers that are willing to pay more, provided they are offered the best.  After all iPhone is not the cheapest phone in the market, but it’s the most profitable phone manufacturer. Indomie may be a household name, but it could be made to suffer the fate of brand like Maggi in the seasoning segment. Buyers usually ask for Maggi even if what the actually wanted to buy was the competing brand. And you know Maggi is not the highest selling brand in the country, despite everyone seemingly buying Maggi. What resulted to that was Maggi failure to continue to meet or exceed customer expectations. Therefore, value proposition that exceed customer expectations can create such shift in consumer taste and preference. Yes, this requires innovation and deep customer insights.

Note: you can either pursue cost leadership or differentiation strategies, not the two at the same time. That is because the strategic choices you have to make for either are quite different. For example, if you adopt differentiation strategy, all your systems, policies, culture, and operations must align along that direction. That same applies to cost leadership strategy. Any attempt to mix things up would result to what Michael Porter labeled ‘stuck in the middle’ that is a receipt for failure, because that basically mean you don’t have a strategy

 

Business Model Innovation

An innovation may entail a change to individual components, to the overall architecture within which those components operate, or both. Let’s use the business model canvas innovation to look at the situation of Indomine. Business model canvas has 9 building blocks: value proposition, customer relations, customer segment, channels, key activities, key partners, key resources, cost structure and revenue stream. The starting point is to analyze Indomie’s business model is to detect the deficiencies on the value chain. It’s difficult for Indomie to have strengths in all areas along the value chain.  For example, on the key resource or key partners, the challengers can save a lot of cost by adopting lean methodology. Therefore, they might need to focus on their core competence and outsource other activities that they competitive advantage. Vertical intergration strategy of Indomie may seems to be an advantage, but by looking at it critically, you may discover that there are lots of inefficiencies and wastages along the value chain that the company may not have considered. Therefore, business model innovation would make the potential challengers to figure out way to reduce cost and minimize wastages. The result of that is higher marginal revenues, or transferring the gain in cost reduction to the customers, in the form of reduced unit prices. As a result, that would make them to gain higher market shares. Business model innovation is crucial for competitiveness

Merger and Acquisition (M&A)

There is no doubt that size matters in competition, and as it now, Indomie controls 75% market shares, while the rest producers combined only have 25% market shares. It will be very difficult for a single company to make deep inroad with the present structure. It’s like in politics where PDP and APC combined have over 90% of the market shares, while the rest of the other political parties have less than 10% market shares. That makes competition difficult, no matter the credentials of the presidential candidates. The same thing applies in business, there is need for consolidation, either they decide to come together as one company, or they engage in buy-out by acquiring the smaller companies. M&A will certainly reduce the power of Indomie while making the emerged firm to have some economics of scale and scope. This is desirable in the present case because coming together would enable them to harness the advantage of complementarity

Intensive marketing

The competitive challenger of Indomie should be much more aggressive in markting and branding. Each of the 4 Ps of marketing mix should be intensified

Product: The focus here should be product superiority. Competitors need to innovative on the product itself and ensure they are offering better quality than Indomie. Possibly, local flavors could be the key differentiator to achieving distinctiveness. That could require investment in R&D (Research and Development), but if effectively done, the result will be phenomenal

 

Price: The price of a product needs to reflect the real value for it to be acceptable to the customers. Therefore, the emphasis of the competitors should be value-creation that is compelling enough to justify the prices they might charge. Benchmarking is not the ideal form of pricing, but the value you are creating and the ability to communicate such value to justify your price

Place: One of the strongest strengths of Indomie is distribution channel. Competitors need to match or surpass Indomie’s distribution network nationwide. This is not a rocket science, all that is required is the right investment and the right strategy

Promotion: Promotion includes advertising, public relations and promotional strategy. This ties into the other three Ps of the marketing mix as promoting a product shows consumers why they need it and should pay a certain price for it. Competitors much leverage on the conventional media and the social media to create the right impacts on the minds of the consumers

Branding

Branding should be focused on meeting the customer expectation at every touchpoint. In effect, a brand is the sum of the customer’s experience with the relevant product or company. It is transmitted in every interaction with the customer over the lifetime of the relationship. As a result, the challengers of Indomie need to invest more on branding, and get the consumers to key into the brand. Positioning and differentiation should also be emphasized in the branding communication to let the consumers know why they are better than Indomie and should be chosen ahead.

 

Strategic Options Summary

The potential challenger of Indomie can pursue one or combination of the above highlighted strategies. However, the choice of strategy or combination of strategies should be centered on the company’s capabilities and competencies. That is why we did not recommend a particular strategy but strategic choices. Each company has different aspirations, goals, capabilities, competencies, and mission critical values. All these are important factors that need to be considered in designing a successful strategy. Therefore, you need to be honest to yourself in identifying your strengths and weaknesses. If you play against your strengths, the chances of success might be slim. Therefore, my advice is that you must always play to your strength in terms of capabilities and core competencies. The strategy you choose at the end of the day, must align with your systems, structures, values and the super ordinate goal of your organization

 

Conclusion

There is no doubt that Indomie is the biggest noodle brand in the country, and it has all the potentials to remain the preferred choice of the consumers. That feat was attained as a result of Indomie enjoying first-mover advantage, and its consistent delivering on the value proposition over the years. However, to maintain that position going forward, Indomie must not rest on it aura in trying to surpass the customer expectations. On the other hand, the competitors need to dig deep to challenge the dominance of Indomie. They need to revisit their strategy and business model to figure out ways to compete better. Big brands selling their production units to Indomie is a sign of weakness. There must be way out of the competitive quagmire  

 

Omodiaogbe Samuel, MSc. CMC, ChMC, FIMC

Omodiaogbe is a Strategic Management Consultant, and he the Principal Consultant/CEO at Vast Thinking Consults Ltd where he help organizations and business leaders to create superior value. Omodiaogbe holds BSc. and MSc. in Economics. Also, he is a Certified Management Consultant (CMC), a Chartered Management Consultant (ChMC), and a Fellow, Institute of Management Consultants, Nigeria. He is an Instructor on Coursera, where he teaches 25 courses in Strategic Management. Omodiaogbe is one of the world’s leading MOOCs learners on Coursera and Edx with over 500 Certificates from top-ranked Universities and Business Schools. His areas of expertise centers on Strategic Management

Contact him:
Email; somodiaogbe@vastthinking.com.ng
Visit: www.vastthinking.com.ng

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