Click to read the original article for details For food industry professionals, 2022 will be a year full of uncertainties. The COVID-19 pandemic has entered its third year, and its impact on the industry has not gradually dissipated over time. Instead, due to local outbreaks across the country since the beginning of this year, the food industry is experiencing even more severe tests. Survival has become the goal and expectation that many companies are striving for this year. Hubang Meat Chili Sauce Image source: Weibo @Hubang Meat Chili Sauce In a rapidly changing environment, the condiment industry is also facing challenges. On the one hand, the foodservice industry is undoubtedly one of the industries most affected by the pandemic, and the foodservice channel has always been the largest sales channel for the condiment industry, accounting for nearly 50%. On the other hand, consumers always need to eat, and the demand for seasoning persists, but the dining scene has shifted more to the home. Opportunities still exist in the industry. Among the many condiment brands, Hubang Meat Chili Sauce is extremely unique. As a brand focusing on the ToC market, Hubang initially neither started from online channels nor entered the market through offline retail terminals, but instead entered through the delivery channel. By cooperating with foodservice merchants and adding Hubang's small-pack chili sauce to delivery menus, it became known to consumers and completed the process from 0 to 1. Hubang 30g yogurt cup style Image source: Weibo @Hubang Meat Chili Sauce The iconic tin can shape with the tiger head logo has also become a highly recognizable product element of Hubang. Hubang Meat Chili Sauce tin can Image source: Weibo @Hubang Meat Chili Sauce Hubang seized the dividend of the delivery foodservice development, but it is also facing the downturn in the foodservice industry since the 2020 pandemic. When the delivery business is impacted, how will Hubang Meat Chili Sauce be affected? Will the pandemic force Hubang to readjust its strategic layout? The pandemic has changed the market and consumer environment; for condiment companies, what risks and opportunities will arise? In this issue of New Seasoning, we interviewed Hu Qiaosong, Vice President of Hubang Meat Chili Sauce, to learn about Hubang's actions and thoughts during the pandemic through his narration. 1
Crisis Holds Opportunity
Exploring New Opportunities Born from the 'Black Swan'
Since the beginning of this year, the pandemic has shown a pattern of multiple scattered outbreaks across the country. Factories in various places have been frequently locked down, logistics have been intermittent, upstream costs have soared, offline businesses have closed, and urban transportation capacity has been hindered. The entire food and beverage industry is facing severe challenges together. When asked about the impact of the pandemic on Hubang's performance in the first half of the year, Hu Qiaosong summarized it as 'mixed blessings.' The 'worry' is that because the foodservice industry has been generally impacted, Hubang Meat Chili Sauce, which started from the delivery channel, has inevitably been affected in the foodservice channel. The 'joy' is that Hubang discovered new sales channels and opportunities during the pandemic, not only making up for revenue through newly developed sales channels but also laying a foundation for future sales and business growth. Hu Qiaosong introduced that during the lockdown management in Shanghai, many institutions such as hospitals, military units, and nursing homes had group meal needs. Hubang cooperated with local group meal companies in Shanghai to provide chili sauce for group meals and guaranteed supply meals, thereby developing many group meal enterprise customers. Hubang's chili sauce products were able to enter the group meal channel thanks to its years of insistence on exploring value around the delivery and simple meal scenario, building products, and developing the market. Hubang Meat Chili Sauce's small packaging is naturally suitable for group meals, one meal one can, without waste. At the same time, with Hubang's long-term operation in the foodservice industry, it has accumulated a good reputation and customer trust. Foodservice companies with group meal supply capabilities will proactively find Hubang to cooperate, incorporating Hubang Meat Chili Sauce into group meal menus. Hubang Meat Chili Sauce 15g packaging Image source: Hubang Food Tmall flagship store In addition to group meals for enterprises and institutions, Hubang has also explored new channels on the retail side. In Shanghai, Hubang recruited more than 1,500 group leaders to use community group buying to ensure consumers' side dish needs are met. Top: Screenshot of Hubang chili sauce group buying Bottom: Hubang chili sauce as anti-epidemic supplies to aid Shanghai Image source: Hubang Meat Chili Sauce In addition to the community group buying commonly seen by Shanghai residents, Hubang used its online specialty stores opened on the Ele.me app as an important window for providing product group buying during the lockdown, gaining huge traffic and sales. Hu Qiaosong said that during the Shanghai pandemic, these online stores obtained 400,000 exposure traffic and 80,000 store visit traffic in one day, equivalent to the cumulative traffic of a 10,000-order delivery store in a month. When the foodservice business stagnated, Hubang Meat Chili Sauce's online specialty stores became an important sales source for the retail business to 'survive.' Hubang Meat Chili Sauce store on the Ele.me app Image source: Ele.me app According to Hu Qiaosong, in fact, Hubang Meat Chili Sauce's online stores were established in June and July last year, but initial store visits and sales were not high, and operating costs were high. During the period when retail supermarkets could not operate normally and urban transportation capacity was limited, consumers who wanted to buy side dish sauce could not grab products online at all. Hubang Meat Chili Sauce's online stores were able to provide sufficient products for group buying, thus achieving significant sales growth and playing a positive role in Hubang's brand building. Hu Qiaosong said in the interview that on the one hand, local distributors had sufficient inventory; on the other hand, foodservice merchants could also serve as inventory points during the lockdown, selling the chili sauce hoarded on the delivery side through the retail side. Therefore, Hubang's online stores always had sufficient supply. It is understood that currently, Hubang Meat Chili Sauce's online stores are still operating in Shanghai on a pilot basis. Whether to expand to other cities in the future still requires further observation of operational effects after the lockdown period. 'As an enterprise, we always need to face it with a positive attitude. The external environment cannot be easily changed, but we need to find opportunities in the crisis,' Hu Qiaosong concluded. When delivery and traditional retail channels are blocked, as long as the demand for side dishes exists, other forms of channels may still emerge. The reason Hubang can seize new channel opportunities is inseparable from its years of cooperation and accumulation with delivery platforms and merchants. When opportunities arise, only companies that are prepared through daily accumulation can seize them. 2
'Chili Sauce Is Always Available'
Designing a Resilient Supply Chain Mechanism
The greatest pressure that the pandemic brings to food companies generally lies in the supply chain. Companies that can resist the uncertainty risks on the supply chain, maintain stable prices, sufficient supply, and timely distribution to consumers will greatly increase brand favorability in consumers' minds. How to build supply chain resilience has become a lesson that many food companies must learn. Hubang Meat Chili Sauce Image source: Weibo @Hubang Meat Chili Sauce According to Hu Qiaosong's introduction, Hubang realized the importance of the supply chain early on and has been upgrading its supply chain service providers, operating systems, and operating processes since last year. During the Shanghai lockdown, Hubang's products were still able to enter Shanghai relatively smoothly, thanks to the large brand suppliers Hubang chose to cooperate with. In addition, to ensure that products are not out of stock in cities during sudden outbreaks, Hubang designed an emergency response mechanism to provide a basis for distributors to stock up. Hu Qiaosong introduced that Hubang's emergency response mechanism is divided into three levels. The first level corresponds to the situation where positive cases appear in the city; the second level corresponds to the situation where the city stops work and production, but most residents' lives are not restricted. When the whole city enters a static lockdown stage, the third-level response mechanism is triggered. Each level of response mechanism provides corresponding standards for distributors and end customers' stocking and inventory, making preparations in advance for the uncertainty risks that the pandemic may cause. The supply chain and sales departments check epidemic reports in various places at any time, judge the trend of epidemic control by paying attention to signals such as whether schools are closed and whether restaurants are closed, and implement the corresponding response mechanism. In terms of raw material supply and processing, Hubang has not been greatly affected. For example, for fresh peppers, the main raw material of Hubang Meat Chili Sauce, the company purchases a year's supply at once. At the same time, all meat chili sauce is processed in Hubang's own factories, which have stronger management efficiency in processing and quality control, and are also more conducive to implementing standardized epidemic prevention measures. 3
Brand Focus
Creating the Next 'Hard Currency' in Chili Sauce
**During the home quarantine in Shanghai, snacks and beverages such as cola, potato chips, fried chicken, and river snail rice noodles became the 'hard currency' for residents' group buying. As the quarantine time extended, everyone hoped to put aside the tired vegetables and fresh produce like carrots and cabbage, craving snacks and beverages with strong taste stimulation to comfort themselves. These foods, usually labeled 'unhealthy,' provided deliciousness and emotional value under lockdown conditions, winning back consumers' favor. Hubang Meat Chili Sauce Image source: Weibo @Hubang Meat Chili Sauce Chili sauce also has the potential to become hard currency. When home time becomes longer, will the pandemic further boost the demand for chili sauce? Hu Qiaosong believes that the pandemic will cause short-term changes in consumer demand, such as a sudden surge in enthusiasm for cola and potato chips. But in the long run, the overall trend of consumer demand will not change. For the chili sauce category, home quarantine does indeed promote demand growth in the short term, but the long-term growth opportunity for chili sauce lies in the general trend of consumption upgrade. As consumers pursue product and life quality, the segmentation and specialization of chili sauce is the main theme of category development. Hu Qiaosong told us about an experience he had while shopping in a supermarket. In a chain supermarket in Hangzhou, he found that chili sauce was no longer uniformly placed in one shelf area as in the past, but had more segmented shelf labels. Chili sauces for side dishes, dipping, and kitchen cooking, as well as regional specialty chili sauces like oil-splashed chili and Korean chili sauce, were placed in different areas. In the future, chili sauce will follow the trend of soy sauce category segmentation, deriving sub-categories that meet different dining needs, and even adapt to different dishes. Hubang Meat Chili Sauce in a supermarket Image source: Weibo @Hubang Meat Chili Sauce In addition to meeting needs, to become hard currency in consumers' eyes, products must also enter consumers' minds. During the pandemic, consumers trust mature brands and market leaders more, and will prioritize large brands for stockpiling needs. In the chili sauce market, the only large brand is Laoganma, whose market share reaches one-fifth of the entire chili sauce market, about the sum of the second and third place shares, firmly occupying consumers' minds. China chili sauce market share data Data source: China Commercial Industry Research Institute Hu Qiaosong said, to enter consumers' minds, it is necessary to implement a focused brand strategy and insist on not diluting the brand. 'Prepared dishes are very popular now; why don't we do prepared dishes? The larger the category, the faster the volume can be achieved in a short time. As long as there is inventory, you can sell a little, but it will bring confusion to consumers' brand recognition.' Based on brand strategy considerations and the judgment of the segmentation and specialization trend of the chili sauce category, Hubang neither buys traffic with high-profile tactics nor rushes to expand more SKUs, but focuses on building the 'meat chili sauce' category. This is also the strategy that Hubang has adhered to and implemented since its brand upgrade to 'Hubang Meat Chili Sauce' in October last year. Looking at Hubang's existing product series, they all revolve around the core content of 'beef + chili sauce' for flavor extension and innovation. Meat chili sauce is not only an upgrade of existing similar products but also an important means to form differentiation and occupy users' minds. When you focus on doing a category well for a long time and continuously improve product power, you will get positive feedback from consumers and gradually accumulate word-of-mouth effects. Hubang Meat Chili Sauce saw a surge in demand during the Shanghai lockdown, and even received 'appearance' recognition from the well-known actor Li Liqun, who became 'popular' during the pandemic. When demand grows, brand becomes the core factor in consumption decisions. The brand power accumulated at ordinary times can release a strong effect at this time, just like Coca-Cola's 'breaking out of the circle' during the pandemic. Actor Li Liqun shows Hubang Meat Chili Sauce on Douyin Image source: Douyin @Li Liqun In addition, user density is also an important factor for products to become hard currency and form brand power. Hu Qiaosong said that the underlying logic of consumer goods is user density. When the user density of a product is large enough, it can naturally become a brand. 'There is a saying that if your market share reaches more than 15%, you can become a brand.' Hubang's brand approach focuses more on promoting big single products, combined with targeted channel strategies for key regional markets, which is also a more efficient way to accumulate user density. 4
Conclusion
There is actually no standard answer for how companies fight the pandemic. Each company's product characteristics, accumulated resources, and development stage determine the opportunities available and the strategies adopted. Just like Hubang, with years of deep cultivation in the delivery foodservice field and accumulated rich resources and experience, it is possible to open new doors in group meal business and delivery platforms. The pandemic will change the current market environment and consumer demand, but it will not change the more underlying business logic. Supply chain and brand are the unchanging basic elements for building business competitiveness. As Hu Qiaosong said, 'The pandemic is a review of the brand.' When new consumption is immersed in the competition to find traffic passwords, the pandemic highlights the value of supply chain and brand power. The tempering of these values comes from long-term daily accumulation and from the practice of 'effort outside the poem.' References: [1] The Truth Fragrance Law - Why Hubang Wants to Make Meat Chili Sauce, Sales and Market, December 22, 2021 [2] Under the Pandemic, Which Chinese Brands Have Been Delayed? Consumption Circle, May 25, 2022