The secret of Sam's Club's mini-program lies in frozen baking. Like prepared dishes, frozen baking, as a large-scale, industrialized food solution, is quietly entering our lives. While restaurants of all sizes are advertising 'we don't use prepared dishes' to attract customers, brands like Sam's Club and Hema are not shy about their baked goods coming from factories. This year, Hema even opened a self-operated baking factory 'Tanghe Food' in Kunshan. Besides Sam's Club, retail supermarkets such as Hema and Aldi, as well as coffee and milk tea chains like Starbucks, Heytea, and Naixue, also sell frozen baked products. From an industry perspective, frozen baking is the fastest-growing segment in the baking industry. According to LeadLeo Research Institute, the compound annual growth rate from 2013 to 2022 reached 23.87%. Why do consumers who 'disdain' prepared dishes find frozen baking 'really delicious'? And why has frozen baking become the dark horse of the baking industry?

Prepared Dishes in the Baking World?

Currently, the baked products we consume can be divided into two categories: pre-packaged baking and freshly made baking. The former refers to products from brands like Toly Bread, Bimbo, and Panpan, where the entire process is completed and packaged in factories. Toly Yeast Bread Image source: Toly Bread official website Freshly made baking products are further divided into freshly made/freshly baked products and frozen pre-made products (hereafter referred to as 'frozen baking'). Freshly made and freshly baked products are commonly found in independent bakeries or small chains, often in a front-store-back-factory format. Making a baked product typically involves steps such as dough mixing, primary fermentation, cutting, rounding, intermediate proofing, shaping, and baking. In a regular bakery, these steps are often completed continuously in the same place. Frozen baking products, on the other hand, are obtained by completing some or all of the processes in a factory and then freezing them. Frozen baking product production process Image source: Essence Securities 'Frozen Baking Industry is Developing Rapidly' Currently, frozen baking includes both semi-finished and finished products. Semi-finished products include items like mochi and croissants, which mostly need to be proofed and baked in the store. Common finished frozen baking products include durian mille crepe cakes, Swiss rolls, etc., which stores typically only need to thaw before selling. Frozen baking and prepared dishes share many similarities. From the production end, both involve completing part or all of the production process in a factory or central kitchen, and both undergo large-scale production. From the consumer's perspective, frozen baking products are moderately priced, usually between fresh baking and pre-packaged baking. Frozen baking is to fresh baking what semi-finished dishes are to freshly cooked dishes. Generally, the taste of prepared dishes is often 'inferior' to freshly cooked dishes, while the freshness and taste of frozen baking are closer to fresh baking. Why can frozen baking highly restore the taste of fresh baking? Janice, the market manager of CIB Baking Technology Research Institute, told FBIF: '(For frozen baking) semi-finished products, the proofing and baking steps are mostly completed at the terminal, and these two steps have a significant impact on the taste and flavor of the bread. So as long as the product itself has good technology and the terminal storage and processing are done properly, it can be restored to a large extent. As for (frozen baking) finished products, they are basically completed and then rapidly frozen. Terminal reheating or heating can allow the starch to return to the state after baking, and the restoration degree can also be very high.' In fact, most well-known chain baking brands that consumers are familiar with, such as Holiland and Paris Baguette, mostly use their own central factories to produce frozen dough, which is then transported to stores for post-processing. In recent years, third-party frozen baking factories have emerged and become known to the industry and beyond. On one hand, this is because baking products have fast innovation cycles, and third-party frozen baking manufacturers can supplement baking brands' own factories, improving their efficiency. [2] Paris Baguette bread Image source: Paris Baguette official website On the other hand, perhaps more importantly, domestic food supermarkets and tea and coffee chains are increasingly emphasizing their own branded baking products. Baking has become one of the key drivers for brands like Hema, Sam's Club, Tims, and Aldi to attract new customers and drive repeat purchases. Both inside and outside the industry are optimistic about frozen baking factories Which Swiss roll is the best? What's the difference between Hema and Sam's Club mochi? Such comparisons or reviews often appear on social media. Whether you choose Hema or Sam's Club baking, the ultimate 'winner' may be a few frozen baking manufacturers. For example, their mochi is produced by Ligao Food. Several major frozen baking manufacturers and their main products Ligao Food is the company with the largest market share in the frozen baking industry. It was listed on the Shenzhen Stock Exchange in 2021, and its annual revenue last year reached 2.911 billion yuan. [3] The company started as a manufacturer of vegetable oils and fats. Around 2014, it acquired shares in Guangzhou Aokun, a company producing frozen dough, thereby moving from the upstream to the midstream of the baking industry. According to Ligao Food's Q1 2022 financial report, its largest customer is Walmart Group. Moreover, Walmart's contribution to Ligao's main business revenue has been increasing year by year, rising from 4.7% in 2019 to over 20% after 2021. [4] Enxichun, which supplies mille crepe cakes and Swiss rolls to Sam's Club, received two rounds of financing in 2021 and 2022. It is also the first company in China that Mondelez International, the parent company of Oreo, invested in. Shortly after, it received a total of 105 million yuan in investment from funds under Juewei, Maixing Investment, and Jiayu Fund. [5] Sam's Club Chocolate Mille Crepe Image source: Xiaohongshu @Sam's Club Whether it's Ligao's listing or Enxichun's financing, it's clear that the food industry and primary and secondary financial markets have high hopes for frozen baking. This is supported by historical data. According to LeadLeo Research Institute, the market size of frozen baking in China was only 2 billion yuan in 2013, growing to 11.1 billion yuan in 2021, with a compound annual growth rate of 23.86%. [1] There is still room for development in the future. From different data perspectives, the penetration rate of frozen baking in China is only about 5-10%. In contrast, Japan's frozen baking penetration rate reached 30% in 2019, and the US penetration rate is around 50%. [6] Referring to the Japanese and European/American markets, China's frozen baking should have significant growth space in the future. Frozen baking specifically addresses the 'can't afford bread' problem A 98-yuan shokupan, a 50-yuan sandwich bagel, a 30-yuan European bread... Bread prices in first-tier cities are rising, and some consumers exclaim they 'can't afford bread.' A voting survey on Weibo involving 340,000 people showed that 69% of netizens expect bread prices to be within 10 yuan; only 23% can accept 10-20 yuan. [7] However, according to NetEase Shudu's analysis of merchant data on Dianping, cheap bread is becoming increasingly rare. Bread price distribution Image source: NetEase Shudu The advantage of frozen baking is that it can solve the problem of 'can't afford (good) bread even with a monthly salary of 20,000 yuan.' Because the bread and cakes produced by frozen baking are often 30%-80% of the price of fresh baking, but the taste is almost equally good. Sam's Club, a 'model student' of frozen baking, is a good example: its Swiss rolls cost less than 5 yuan per slice, and its large croissants cost less than 4 yuan each. A dessert chef with millions of followers on Douyin, 'Yang Caomeixiong,' commented on Sam's Club: 'At the same price, nothing beats it; things similar to it are more expensive.' No wonder consumers almost always buy its baked products when they go to Sam's Club. Sam's Club Mochi Image source: Sam's Club mini-program With stable quality and extreme cost-effectiveness, last year, Sam's Club's baking product sales were estimated to exceed 2.75 billion yuan. In the bread and cake category, Sam's Club's revenue is close to that of leading baking chains like Yuansu Food and Holiland. But this may only be the tip of the iceberg for Sam's Club baking, because the 2.75 billion yuan only calculates Sam's Club's procurement from its two major suppliers, Ligao and Enxichun. According to a report by LatePost, in 2022, Sam's Club purchased 700 million yuan and 1.5 billion yuan of frozen baking products from Ligao and Enxichun, respectively. [8] If Sam's Club's baking gross margin is calculated at 20-25% [8], then the products processed in-store after procurement from these two companies would generate approximately 2.75-2.93 billion yuan in sales for Sam's Club. The success of baking products at Sam's Club is a mutual achievement between Sam's Club and its manufacturers. Initially, Enxichun recommended Swiss rolls to Sam's Club, and Sam's Club adjusted the recipe, such as using cleaner pre-mix powder. Frozen baking manufacturers adjust recipes for direct-sales major clients like Sam's Club and Hema, which is why products from the same manufacturer, when branded under different retail brands, have slight differences in taste and flavor. Brands like Hema, Aldi, Tim Hortons, and Starbucks occasionally have hit products that spark consumer discussions. For example, on social media, you often see comments like 'All cinnamon rolls end at Aldi' or 'Hema's fresh meat mooncakes are unbeatable in value.' Netizens' positive reviews of Aldi's cinnamon rolls Image source: Xiaohongshu screenshot This shows that the quality and taste of frozen baking products can withstand scrutiny. In summary, the advantages of frozen baking include: cost reduction and efficiency, delicious and fresh, and stable quality.

1. Cost Reduction and Efficiency

Brands using frozen baking have lower requirements for baker experience compared to fresh baking. For example, Sam's Club bakers only need 'one year of relevant experience,' while Manner (which sells freshly baked bread in some stores) requires 'the ability to independently complete all processes from mixing dough.' The former's monthly salary is around 5,000-6,000 yuan, while the latter is around 8,000-9,000 yuan. Additionally, because core processes are completed by machines in factories, frozen baking requires fewer workers. Due to labor cost savings, the former's costs are usually more controllable, and because it can achieve large-scale production, frozen baking products are typically more affordable at the terminal. For example, Sam's Club Swiss rolls cost about 5 yuan per slice, while Swiss rolls in bakeries and dessert shops usually range from 15 to 30 yuan. Aldi's cinnamon rolls are priced at 8 yuan, while similar items in boutique bakeries that require manual preparation often cost 10-30 yuan. Furthermore, frozen baking products allow baking stores to accurately and flexibly coordinate production, inventory, and sales, avoiding waste from overproduction. Janice from CIB Baking Technology Research Institute told FBIF that some mature frozen baking categories, such as egg tarts and puff pastry products (like croissants), can have a shelf life of over 6 months. Sam's Club Croissant Image source: Xiaohongshu @Sam's Club

2. Delicious and Fresh

Compared to long-shelf-life baking, such as pre-packaged baked goods from Daliyuan and Toly Bread, frozen baking products generally have improved taste and freshness. Moreover, unlike pre-packaged foods, frozen baking products require low-temperature storage to maintain quality and do not need preservatives. Compared to fresh baking, frozen baking products baked on the day usually have little difference in taste. Overseas retail giants are well aware of the advantages of frozen baking and often use such products to attract customers and differentiate themselves. Aldi's baking products have doubled their range since entering Shanghai, currently with about 40 SKUs, accounting for 3% of the store. Baking products are the signature of Aldi's fresh food section. On social media like Xiaohongshu, netizens comment on Aldi: 'Shanghai baking bodhisattva, affordable and delicious, easy to buy' and 'value warrior.' Xiaohongshu netizens' reviews of Aldi baking products Image source: Xiaohongshu screenshot

3. Stable Quality

Because there is less manual intervention, the final output of frozen baking products is usually more stable. Since core processes are completed in the factory, only simple steps like proofing, reheating, or thawing are needed at the end, so the problem of inconsistent manual output is not a major issue, which many brands claiming 'handmade' cannot achieve. ****Both businesses and consumers find it hard to resist In the future, more and more frozen baking will enter our lives (and stomachs). This trend is irreversible. From the perspective of businesses (supply side), the possible reasons are as follows: First, the chain expansion of baking stores. More and more baking brands are receiving financing and expanding their store scale. For example, DRUNK BABKER, a brand originating from Shanghai, received investment from Maixing in 2022 and opened 6 new stores in Shanghai in just the three months before November 2023. This may be a microcosm. According to Meituan's '2022 Baking Category Development Report,' the level of chain expansion in the industry has been gradually increasing in recent years. Among them, stores with 10-100 locations account for about 12% [9], with significant growth in the past two years. To ensure stable quality, some baking brands may purchase frozen baking products, such as regional chains like Yuanmai Shanqiu and Lilien. Second, tea and coffee brands are almost all promoting 'drink + baking' options to increase average order value. Having a bagel with Tims has almost become a standard; brands like Naixue and Lelecha are strongly associated with European bread. Starbucks, Luckin, Heytea, and other brands try to get you to eat some bread, cake, or other snacks by showing pairing recommendations or set meals at checkout. For cost and output stability reasons, they mostly choose frozen baking. [10] Tims Coffee and Bagel Image source: Xiaohongshu Tims Tianhao Coffee The expansion of retailers like Sam's Club, Hema, and Aldi is also a major driving force behind the frozen baking category. Sam's Club is in a phase of rapid expansion: it opened nearly 20 stores in the two years from 2022 to 2023, while it only opened 16 stores in its first 20 years in China. It is also moving down-market, expanding from first- and second-tier cities to affluent third-tier cities in the southeast coast (such as Dongguan and Shaoxing). [11] Changes on the supply side come from changes in consumer preferences on the demand side. More and more consumers are 'bread heads.' According to Euromonitor data, the compound annual growth rate of China's baking market from 2015 to 2019 was 11.3%, making it one of the fastest-growing sub-sectors in the food and beverage industry. [12] Last year, the scale of China's baking industry reached 251.921 billion yuan. And future growth is expected, with a compound annual growth rate of 7.22% from 2022 to 2027. Global and China baking market size and growth rate Image source: Euromonitor As shown in the figure below, compared to other East Asian regions with similar eating habits, China still has growth potential in both consumption volume and amount of baking products, but there is still a gap to catch up with the global average per capita consumption amount of baking products. Comparison of baking product consumption volume and amount Because the overall demand for baking is high, the demand for frozen baking naturally rises. Another favorable factor for frozen baking is that consumers are increasingly paying attention to taste and health attributes. This makes consumers prefer baking products without preservatives—either frozen baking or fresh baking. But those who prefer pre-packaged baking may be decreasing. According to Mintel's survey, after the COVID-19 pandemic, 29% of respondents ate more fresh unpackaged baking products, and 27% ate fewer medium- and long-shelf-life products. [12] Impact of the pandemic on packaged baking food consumption Image source: Mintel This trend may be irreversible, as consumers shift from medium- and long-shelf-life baking products to short-shelf-life products, and then from short-shelf-life products to fresh baking. Frozen baking products will replace some of the market share of pre-packaged baking (short-shelf-life and long-shelf-life baking products). ****Conclusion Bread is better when fresh and hot. However, it is foreseeable that pre-packaged baking, frozen baking, and fresh baking will likely coexist in the future to meet the needs of different consumers in different scenarios. Just like packaged food and beverages, prepared dishes, and freshly cooked dishes, they become different consumption choices. Can you tell the difference between frozen baking and freshly made baking? Feel free to leave a comment and interact.

References:

[1] Liang Fei, '2022 Frozen Baking Enterprise Comparison Analysis Report: Ligao Food, Nanqiao Food, Hairong Technology (Abstract Edition)', November 2022, LeadLeo Research Institute [2] Mogu, 'Is China's Frozen Dough Factory at the Forefront?', September 8, 2022, CIB Baking Technology Research Institute [3] Ligao Food Co., Ltd., '2022 Annual Report Full Text', April 2023 [4] Value Research Institute, 'Ligao Food, the Absolute Leader in the Exploding Frozen Baking Industry', September 28, 2022 [5] Axixixi, 'Frozen Baking Brand Enxichun Receives Over 100 Million Yuan in Series B Financing, Juewei Bets Again on Baking', April 22, 2022, FoodBud [6] Jiuding Investment, 'Comparing Prepared Dishes and Chinese Quick-Frozen? The 'Hot' Frozen Baking Is Not That Simple', September 2, 2022 [7] Lulu, 'Monthly Salary 20,000, Can't Afford Bread', November 12, 2023, NetEase Shudu [8] Shen Fangwei, 'Sam's Club, Which Everyone Is Learning From, Has No Secrets', September 8, 2023, LatePost [9] Meituan Catering Data, 'Meituan Releases '2022 Baking Category Development Report'', May 25, 2022 [10] Mogu, 'How Many Baking Factories Do Starbucks and Luckin Actually Support?', September 1, 2022, CIB Baking Technology Research Institute [11] Retail Circle, 'Sam's Club 'Eyes' China's Down-Market', March 27, 2023 [12] SY, 'Baking Track Becomes Increasingly Crowded, What Is the Prospect for Toly Bread?', October 21, 2021, Langtou Catering