How attractive is the prepared food track? According to iiMedia Research, the overall market size of prepared food has exceeded 300 billion yuan and will surpass one trillion yuan by 2026. Qichacha data shows that the number of domestic prepared food-related enterprises has exceeded 68,000.
Image: Golden Soup Beef Prepared Food, Source: Weibo @麦子妈
New players are constantly entering the track, with diverse entrepreneurial backgrounds, making prepared food entrepreneurship seem like a low-barrier endeavor. On one hand, there is no shortage of OEM processing resources in the market. Chen Xiaolong, Vice President of Wangju Capital and an empowering industrial investor, told FBIF that due to years of development in the catering industry chain and support from national policies, the current supply of upstream suppliers for prepared food exceeds demand, and production capacity is actually surplus. On the other hand, replicating a dish is not difficult. Most prepared dishes are popular, mass-market dishes from the catering sector, with mature deep-processing experience. If a prepared food product becomes a hit, other companies can quickly follow suit, as the production and processing threshold is not high. As a result, with dishes like crayfish, sour fish soup, and crispy pork becoming major prepared food items, the industry is falling into a homogenization dilemma. With current domestic production techniques, prepared food technology does not constitute a key competitive barrier. Products processed by different factories will not differ much in taste, and consumers' perception of taste differences is limited.
Image: Over 6,000 crayfish prepared food products can be found on the Tmall app, Source: Tmall app
Similarly, for sour fish soup, if someone sells a pack for one cent, can brand loyalty withstand the test? Prepared food is essentially an FMCG product. When products become homogenized, industry competition shifts to cost-effectiveness and user insight capabilities. At this point, the importance of the supply chain becomes prominent. Excellent supply chain capabilities help build deeper competitive barriers. Because excellent supply chain capabilities mean higher cost-effectiveness, better freshness preservation and delivery capabilities, and faster adaptation to changes in consumer dietary needs. This article does not intend to discuss which link—supply chain, R&D, brand, channel, or sales—is more important for the prepared food industry. We hope to draw attention to the "hidden knowledge" in the prepared food industry and focus on the core competitive factors for long-term industry development.
From Ingredients to Cold Chain
Long-term Competitive Barriers in Prepared Food Depend on the Supply Chain
Whether serving the B-end or C-end, to build competitiveness that spans cycles, the supply chain is an important link that prepared food entrepreneurs need to consider and plan sooner or later. An excellent supply chain helps build the following advantages:
1. Stable production capacity and prices, ensuring products are not affected by fluctuations in raw material supply Raw material costs typically account for over 80% of prepared food costs. Fluctuations in upstream ingredient supply can significantly affect production capacity and prices. Ingredients like crayfish and snakehead fish often have peak and off-seasons, with prices fluctuating accordingly. A stable upstream ingredient supply ensures stable production capacity.
2. Reducing costs, increasing profit margins, and achieving economies of scale A sound supply chain system helps companies reduce costs and increase efficiency at every supply link, improving cost-effectiveness and thus gaining greater profit space.
3. Timely logistics and delivery to home, avoiding quality damage Currently, most prepared foods on the market are frozen products, heavily reliant on cold chain logistics. Temperature control during transportation, logistics turnover speed, and even the quality of foam boxes and ice packs greatly affect the freshness of products when delivered to customers. A sound cold chain delivery system not only maintains freshness after production but also effectively increases transportation radius and expands sales scale.
Qudian Prepared Food, which gained public attention with its "one-cent sour fish soup," faced consumer complaints about delivery issues on Douyin after going on sale. The self-media "Prepared Food Insights" posted a review of Qudian's sour fish soup on Douyin, saying "it took seven days from order to receipt," while the product's packaging indicated a shelf life of only three days.
Image: Qudian Prepared Food Review, Source: Douyin @预制菜洞察
Later, media discovered that Qudian's prepared food contained different ingredient packs with different shelf lives; the three-day shelf life was only for the minced garlic pack. This shows that Qudian simply purchased ingredient packs from various OEM factories and packaged them for sale. After listing on Douyin, it did not prepare cold chain logistics capable of handling large orders, resulting in a poor purchasing experience.
The development logic of prepared food, in the long run, is to replace freshly cooked dishes on consumers' dining tables. Pu Wenming, founder of Zhenwei Xiaomeiyuan, described the vision of the prepared food industry to FBIF. Suppose a family of three eats at home six days a week, two meals a day, with four dishes per meal, nearly 50 dishes would be placed on the table in a week. Prepared food aims to capture the consumption space of 50 dishes a week.
Image: Zhenwei Xiaomeiyuan, Source: Weibo @珍味小梅园
Prepared food has developed to the point where a few dishes have become best-selling single products. According to data from the monitoring platform Chanmama, in the first half of 2022, sour fish soup, pickled vegetables, and pork belly chicken were the top three prepared foods by sales on Douyin, while dishes like boiled pork slices, sweet and sour fish, and spicy bullfrog had lower shares. C-end prepared food dishes have not yet formed a "hundred flowers bloom" situation, and more daily dishes are yet to be pre-made and industrialized.
Image: Sales of Chinese semi-finished prepared food in 2022, Source: Douyin Food and Beverage Industry Analysis Report (June 2022)
On the catering side, prepared food provides a wider range of semi-finished and finished products because the catering industry has a huge number of subcategories, and providing a rich variety of SKUs is a requirement for ToB prepared food companies' service capabilities. Additionally, to adapt to changes in consumer tastes, the catering industry has a stronger demand for flexible and small-batch production, thus requiring prepared food supply chains to be highly flexible and extensible, able to respond to customer demand changes at any time. In the long run, prepared food companies will inevitably need to provide a large number of products and have fast, flexible new product development capabilities to meet the diverse and changing dietary needs of domestic consumers. After all, "food is the first necessity of the people." People not only pursue deliciousness and convenience in their three meals a day but also seek novelty, hoping to change flavors frequently. Behind achieving rich SKUs and rapid development capabilities, strong supply chain support is needed.
Pitfalls in Supply Chain Management
Even Experienced People Can Stumble
As mentioned above, there is no shortage of prepared food processing factory resources in the industry, and finding an OEM factory is not difficult. However, those who have been involved in production and processing know that supplier cooperation and raw material management hide countless tricky "pitfalls."
Jia Ming is an entrepreneur who crossed over from e-cigarettes to the prepared food track, starting his prepared food venture in 2019. He told FBIF that many entrepreneurs launch multiple dishes at the beginning, attempting to quickly cover consumer needs. However, the more products developed, the greater the communication costs with factories and product supervision management costs. Each new product launch involves countless communications and adjustments with the factory, testing communication skills and factory cooperation. Jia Ming said that current OEM factories often accept development needs from many brand owners simultaneously. Having someone familiar with the supply chain on the team can increase factory cooperation and efficiency.
During his entrepreneurial journey, a senior industry figure warned Jia Ming that even for an ordinary dumpling, whether the pork used is fresh meat or minced meat, whether only one type of meat is used or mixed, needs to be clearly communicated with the factory. From large items like filling and dumpling wrappers to small items like scallions, ginger, and garlic, experienced quality control personnel are needed to monitor at all times. Once supervision is lax and the factory uses substandard ingredients, it not only harms product quality but may also lead to legal disputes with suppliers.
Image: Source: pixabay
To strengthen quality management, mature companies send quality inspectors to factories for on-site product testing and also conduct temporary product spot checks. Startups with limited manpower can only conduct quality checks after products leave the warehouse and are accepted. If products are unqualified, the entire batch may be destroyed. However, even with strict human prevention, oversights can still occur.
Pu Wenming told FBIF that Zhenwei Xiaomeiyuan once commissioned a new factory to produce crayfish tail prepared food. During Shanghai's lockdown this year, due to factory lockdown, quality control personnel could not go to the factory for testing. Based on trust, they accepted the factory's sample and arranged warehousing. As a result, after mass production entered the warehouse, it was discovered that the defect rate was too high and quality did not meet company requirements, leading to destruction.
"This supplier was a first-time cooperation, and both sides lacked understanding and trust. The factory did not clearly understand our production process and quality requirements. As a result, the factory may have produced according to past clients' requirements, leading to quality issues," recalled founder Pu Wenming.
Image: Zhenwei Xiaomeiyuan, Source: Weibo @珍味小梅园
Quality and safety are the lifeline of the entire food industry. The "pitfalls" in quality control can only be filled through increasingly refined management and supervision.
To Build a Company Worth Billions
Core Supply Chain Must Be in Your Own Hands
Weng Bocheng, founder of Maizima, once said in an interview that if the goal is to reach 2 billion yuan or even 10 billion yuan in prepared food business, only heavy assets and deep cultivation of the supply chain can make it possible. Maizima, founded in 2016, began building its factory in its second year. In 2021, Maizima invested 250 million yuan to build a new factory, covering 50 acres in two phases. After completion and operation, Maizima's annual total output value can reach 1.2 billion yuan, supporting the "B+C dual-wheel drive" business strategy.
Image: Maizima Prepared Food, Source: Weibo @麦子妈
In a previous interview, Pu Wenming revealed that he was conducting research on building a self-owned factory. It is understood that Zhenwei Xiaomeiyuan's current manufacturer is an OEM factory with an annual output value of 500 million yuan. A self-built factory will help provide better supply chain guarantees for future B-end business. [1]
As sales scale continues to expand, both new and old players have started building factories. "The first prepared food stock" Weizhixiang revealed in its 2021 annual report that it is building a new plant with an annual output of 5,000 tons of food fermentation liquid and 50,000 tons of fermented conditioning food. After completion, production capacity will increase from the current 15,000 tons/year to 65,000 tons/year.
Shandong Delisi, which started with pork processing, has production bases in Shandong, Beijing, Jilin, and Shaanxi. As of this year, Delisi has added prepared food production capacity in Shandong and Shaanxi, and it is expected that by the end of the year, total prepared food production capacity will reach 200,000 tons.
Image: Delisi Meat Products, Source: Weibo @得利斯公司电商部
Anjoy Food, which has been continuously making efforts in prepared food in recent years, has laid out 9 production bases in Xiamen (Fujian), Wuxi (Jiangsu), Qianjiang (Hubei), Foshan (Guangdong), etc., forming a production base layout with East China as the core, radiating across the country. In addition, Anjoy has expanded production capacity through investment and mergers. In July 2021, Anjoy invested 717 million yuan to acquire Hubei New Hongye Food; in April this year, Anjoy announced it would acquire Hubei New Liuwu in stages for no more than 644 million yuan. It is reported that New Hongye and New Liuwu are both enterprises mainly engaged in frozen fish surimi and crayfish products. Through the acquisition of these two companies, Anjoy will consolidate the production capacity foundation for the sustained growth of aquatic prepared food.
Image: Aerial view of Henan Anjoy Food Co., Ltd. factory area, Source: Anjoy Food official website
But building a self-owned factory is not the only path. The abundant domestic OEM resources can also be "used for my own purposes" if carefully planned and operated. Mo Xiaoxian, which mainly deals in self-heating convenience food, also needs stable ingredient supply and processing capacity. As a startup, Mo Xiaoxian utilizes existing OEM factories to form a low-cost "30-kilometer supply chain." "30 kilometers" means that Mo Xiaoxian's partner factories are all within 30 kilometers, saving transportation costs. In addition, Mo Xiaoxian also drives partner factories to improve and upgrade equipment, further increasing production efficiency. On the basis of the gradually mature "30-kilometer supply chain," Mo Xiaoxian then starts its own factory plan, gradually enhancing R&D capabilities and building a solid supply chain barrier.
However, if a company pursues larger-scale development, building a self-owned factory is unavoidable. A self-built factory allows the company to firmly control production capacity, quality, and production efficiency, saving a lot of communication and management costs with external factories. When the industry enters more intense competition, a self-owned factory can also effectively reduce the risk of "supply disruption." "When the brand grows big, you don't know where a 'black swan' event will occur, so you need to keep factory resources in the hands of the brand," said Pu Wenming.
Freshness: Can It Be Faster?
To ensure the fresh taste of prepared food, in addition to careful ingredient procurement and continuous progress in processing technology, the storage of dishes is also crucial. After leaving the factory, prepared food needs to be transported and stored under strict temperature control to inhibit microbial growth and ensure product freshness. Overall, most prepared foods on the market are frozen, which places high demands on cold chain logistics.
In terms of cold chain infrastructure scale, domestic cold chain logistics conditions are advancing rapidly. According to statistics from the China Federation of Logistics & Purchasing Cold Chain Committee, the scale of China's cold chain market grew from 180 billion yuan in 2015 to nearly 570 billion yuan in 2021, with a compound annual growth rate of 22%. The total capacity of cold storage increased from 30.35 million tons in 2016 to 52.24 million tons in 2021. The number of refrigerated trucks nationwide was 120,000 in 2016 and is expected to approach 400,000 in 2022.
Compared with international levels, the domestic cold chain still has a significant gap. Data from the International Association of Refrigerated Warehouses (IARW) shows that in 2018, the per capita cold storage area in the United States reached 0.49 cubic meters per person, while China had only 0.13 cubic meters per person, only one-quarter of the US level. [2] In addition, China's refrigerated truck ownership has only reached the level of developed countries like the US and Japan in 2013.
For companies, as the sales scale of prepared food continues to expand, the distance of cold chain delivery must also expand. If the cold chain level cannot keep up with sales growth, the "freshness" experience of prepared food will inevitably face consumer skepticism.
In February 2022, the Jiangsu Provincial Consumer Protection Committee released the "Prepared Food Consumption Survey Report," indicating that incomplete cold chain and untimely delivery leading to dish quality issues have become the main "complaint points" for prepared food. According to the report, nearly 30% of consumers are most concerned about food safety issues in prepared food, and some consumers reported encountering problems such as deterioration and spoilage of purchased dishes, non-fresh ingredients, and foreign objects in dishes. When asked about problems encountered during pickup or logistics, over 80% of respondents said they had encountered problems, including "slow logistics delivery," "not transported under cold chain," and "informed of shortage after ordering." [3]
For consumers, they want both fresh products and fast delivery. Although they can choose mainstream logistics providers like SF Express and JD, logistics costs are high, imposing a significant cost burden on companies, and high costs are reflected in product prices. There is no standard answer for cold chain selection; companies need to seek a balance between high cost-effectiveness and consumer experience. As Weng Bocheng said, the construction of a cold chain system is more important for ToC brands. It must consider delivery time, product temperature, product safety, and cost-effectiveness. This definitely requires nationwide warehousing to meet, and behind it tests the team's efficiency and product turnover efficiency.
Some companies, after reaching a certain scale, choose to build their own cold chain warehousing centers and refrigerated fleets to further reduce logistics costs. For example, Japan's well-known Nichirei Foods. In 2005, Nichirei Group's businesses were reorganized into separate holding subsidiaries. Nichirei Logistics was separately spun off to specialize in cold chain logistics. Currently, Nichirei Logistics has about 80 storage-type distribution centers in Japan, totaling 1.49 million tons, ranking first in Japan and sixth in the world for cold chain layout. The number of vehicles operating daily in Japan is about 7,000, capable of handling frequent small-batch deliveries across the country.
Image: Nichirei Logistics' transportation and logistics network in Japan, Source: Nichirei Logistics official website
Such a massive and finely operated cold chain logistics system not only supports the delivery of Nichirei's products to nearly 5,000 offline stores but also brings high revenue to Nichirei. In fiscal year 2022, Nichirei Logistics generated revenue of 216.4 billion yen for the group, accounting for 35.9% of Nichirei Group's total revenue, second only to the processed food business, and net profit accounted for 45.3%, making it the group's largest cash cow business. [4]
Image: Nichirei Logistics' cold storage layout in Japan, Source: Nichirei Logistics official website
Of course, building self-owned cold chain warehousing and refrigerated fleets may not be realistic for small and medium-sized enterprises. This requires not only sustained capital and human investment but also a long-term mindset in polishing and coordinating all aspects of the supply chain. For small and medium-sized enterprises, flexibly utilizing third-party cold chain resources may be a more realistic option.
Xinliangji, which mainly deals in crayfish prepared food, started by integrating existing domestic cold chain logistics resources. In ToB business, it outsources various cold chain logistics links to third parties through leasing and other cooperative forms, using local logistics warehousing and distribution resources with comparative advantages to build its own commodity circulation network. In C-end retail business, Xinliangji entrusts logistics fulfillment to SF Cold Chain to ensure consumer experience.
Image: Xinliangji Spicy Crayfish, Source: Weibo @信良记
By integrating logistics resources, Xinliangji has established an integrated supply and distribution platform for warehousing, trunk transport, and distribution. Product warehousing, acceptance, temperature control, and information docking are all digitally managed through the platform. By 2021, Xinliangji had cooperated with 12 of the top 100 cold chain logistics companies in the country, forming 947 logistics trunk lines covering more than 600 cities. [5]
In this multi-party logistics network, what Xinliangji mainly controls, in the words of founder Li Jian, is "commercial flow," that is, Xinliangji's sales data and circulation information flow. This information helps Xinliangji scientifically plan production and circulation, achieving a balance between production and sales. [6] With limited capital scale, Xinliangji focuses clearly: on the logistics side, it seeks flexible and open methods to reduce costs, while "commercial flow" data is regarded as the company's core asset to guide the entire production-supply-marketing chain. Although like most companies in the industry, Xinliangji chooses third-party logistics companies for cold chain logistics, the construction of this logistics collaboration network was not achieved overnight. Founder Li Jian established the fish hotpot chain brand "Xinladao" as early as 2004, and through nearly 20 years of operation, gradually mastered all aspects of the catering supply chain, enabling the ability to integrate logistics warehousing and distribution resources across regions.
Conclusion
Currently, the layout of the domestic prepared food supply chain is still in its infancy. The path of intensive supply chain cultivation is full of small pitfalls. It requires sustained human, financial, and technical support, and more importantly, time, patience, and gradual coordination to improve operational efficiency.
When asked at what stage of development a company should consider building its own supply chain, Weng Bocheng said: "The supply chain is something you will need sooner or later. The gross margin in the frozen food industry is not high. I have never seen a company worth billions whose core supply chain is not its own. So in the end, it depends on how far your goals are. If you have the ability, you should build it as early as possible and accumulate your own experience early. Pay tuition early, step on pitfalls early, and things will get smoother later."
The road to supply chain construction is long, but this "homework" must be turned in sooner or later.
*At the request of the interviewee, Jia Ming is a pseudonym in this article.
References: [1] "The Relationship Between Prepared Food and Dine-in: Growing Together or Dividing the Cake?", May 14, 2022, Prepared Food Industry [2] "The Current Situation, Difficulties, and Policy Suggestions for the Development of Cold Chain Logistics in China", June 11, 2021, National Information Center of the National Development and Reform Commission [3] "Jiangsu Provincial Consumer Protection Committee Prepared Food Consumption Survey Report: Prepared Food Must Be Both Good-Selling and Delicious", February 23, 2022 [4] "Nichirei Integrated Report 2022", November 1, 2022, Nichirei Group official website [5] "Analysis: How Does Xinliangji's Supply Chain Operate Behind Its Hit Product Strategy?", October 30, 2019, Logistics Insights [6] "Starting with Crayfish, 'Xinliangji' Hopes to Become the First Brand for Chinese Food Standardization", May 1, 2020, New Business Intelligence NBT