---
title: "From Instant Noodles to Self-Heating Hotpot: What Growth Space Remains in the 100-Billion-Yuan Convenience Food Market?"
description: "The pandemic not only boosted video conferencing software but also caused convenience foods to sell out. Originally, this market was a typical victim of disruption, with food delivery platforms like Meituan and Ele.me nearly killing it through subsidy wars around 2016, except for a few innovative brands. The pandemic revitalized the entire market: during the 2020 Spring Festival, panic buying made convenience foods the hottest category, with offline shelves emptied and e-commerce sales up 700% year-on-year. But after the pandemic..."
author: "经纬创投主页君"
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published: "2020-06-10"
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# From Instant Noodles to Self-Heating Hotpot: What Growth Space Remains in the 100-Billion-Yuan Convenience Food Market?

> The pandemic not only boosted video conferencing software but also caused convenience foods to sell out. Originally, this market was a typical victim of disruption, with food delivery platforms like Meituan and Ele.me nearly killing it through subsidy wars around 2016, except for a few innovative brands. The pandemic revitalized the entire market: during the 2020 Spring Festival, panic buying made convenience foods the hottest category, with offline shelves emptied and e-commerce sales up 700% year-on-year. But after the pandemic...

The pandemic not only boosted video conferencing software but also caused convenience foods to sell out. Originally, convenience food was a typical market hit by disruption; food delivery platforms like Meituan and Ele.me, through their subsidy wars around 2016, had nearly killed it, except for a few innovative brands that broke through. This pandemic has revitalized the entire market. **During the 2020 Spring Festival, consumers' panic stockpiling made convenience foods the hottest category.** Offline shelves were emptied one after another, and e-commerce sales saw a 700% year-on-year increase.
But once the pandemic subsides, panic buying will inevitably cool down. To gain new growth, convenience food companies must innovate in both product and marketing. In this regard, Haidilao has set a successful example. Its affiliate, Yihai International, launched self-heating hotpot products in 2017, a market that was almost empty before. Leveraging its strong brand and good products, self-heating hotpot contributed 1.3 billion yuan in revenue to Yihai International in 2019. **An emerging segment within a mature market is naturally full of entrepreneurial opportunities. Matrix Partners China's portfolio company Zihaiguo, founded in 2018, started with self-heating hotpot but quickly found a new niche in self-heating rice, using it as a breakthrough to create a "big single product" and then expanding horizontally in SKUs.**
These new attempts prove that consumer goods are always in the process of "upgrading"; **to some extent, self-heating foods are an upgraded replacement for traditional instant noodles.** Moreover, the shift to online sales has given emerging brands rapid growth opportunities, without the slow process of building factories and stocking supermarket shelves as before. During the pandemic, both dining out and food delivery temporarily disappeared, making convenience foods a necessity, with overall strong growth. For new categories, this is a unique opportunity to educate consumers; **previously, the online penetration rate of convenience foods was only 13%, and after the pandemic, its development space will be further opened.** After the pandemic, the onlineization of convenience foods will further strengthen.
**Key Takeaways—Our views on the convenience food market:**
> The online penetration rate of convenience foods is only 13%, and the pandemic will accelerate this process;
> Self-heating foods are, to some extent, an upgraded replacement for traditional instant noodles;
> After food delivery lost its cost-effectiveness advantage from subsidies, a market gap emerged between the original low-end instant noodles priced at 3-5 yuan and the food delivery market above 40 yuan, with new opportunities concentrated in self-heating foods and specialty snacks;
> Most successful emerging companies first find a "big single product" as a breakthrough, then expand horizontally, and opportunities for "big single products" often arise from rapidly expanding markets;
> Chinese cuisine is vast and profound, with enough depth to explore. Referring to Japan's prepared dishes market, whether frozen foods, instant noodles, or specialty snacks, it awaits deep exploration.
**-01- A Market in Retreat**
When we think of convenience foods, the first things that come to mind are frozen dumplings or instant noodles. Indeed, **frozen foods and instant noodles account for the majority of the convenience food market, with a market size of up to 250 billion yuan.** **However, this market has also been most affected by the rise of food delivery.** Starting in 2013, convenience foods began to retreat, hitting rock bottom during the fiercest subsidy wars in 2015 and 2016, when Ele.me, Meituan Waimai, and Baidu Waimai fought each other, and the market growth they captured was originally from convenience foods.
On the other hand, instant noodles themselves were still in an early stage, known for being cheap (priced at 2.5-3 yuan per pack), with the main consumers being train travelers or young people. But as health awareness increased, and with the acceleration of high-speed rail and the popularization of train meals, demand for instant noodles further shrank.
It wasn't until after 2017 that the food delivery subsidy war gradually subsided, forming a duopoly of Meituan and Ele.me. Delivery platforms began to pursue profitability, and the average order value rose from 10-20 yuan under heavy subsidies to over 40 yuan, weakening their cost-effectiveness advantage. Convenience foods also began to innovate, starting with the popularization of non-fried instant noodles, and some healthier, better-tasting mid-to-high-end instant noodles opened up sales. Even during the sharp decline in instant noodle sales, high-end instant noodles maintained positive growth. For example, Nissin Foods, which holds a 60% market share in Hong Kong and has products like "Demae Itcho" Japanese-style high-end instant noodles, has maintained positive growth in mainland China, achieving 12% year-on-year growth after recovery in 2019. This indicates a divergence in the entire convenience food market. Nissin Foods, focusing on high-end instant noodles.
**-02- Convenience Foods Are Not Necessarily "Low-End": Emerging Categories Lead Growth**
In addition to the gradual "premiumization" of the instant noodle market itself, new high-growth categories such as self-heating hotpot/rice and specialty snacks have emerged in recent years. **We believe the emergence of these new categories is a replacement and upgrade of traditional instant noodles.** Self-heating hotpot: These emerging single products innovate the old products from different dimensions such as product itself, price, and marketing.
In the fast-paced lifestyle, people always need to "eat a meal quickly and well." Traditional instant noodles have obvious disadvantages compared to food delivery. After delivery lost its cost-effectiveness advantage from subsidies, **a market gap emerged between the original low-end instant noodles priced at 3-5 yuan and the food delivery market above 40 yuan.**
**How big is this market? Taking the main self-heating foods as an example, it is currently about 5-6 billion yuan in annual sales, with the industry ceiling exceeding 20 billion yuan.** Among them, Haidilao is the industry leader with 1.3 billion yuan in revenue in 2019, and the second is Zihaiguo with over 500 million yuan in 2019.
**A major characteristic of convenience foods is high market concentration.** For example, in the instant noodle market, the top player Master Kong holds a 47% market share (by sales), the second, Uni-President, holds 21%, and the third, Jinmailang, holds 11%. The top three companies already account for 80% of the entire market.
**However, there are two points that may make the concentration of these emerging categories not as high as that of instant noodles.**
First, the proportion of online sales. The high concentration in the instant noodle market is because 95% of sales come from offline, and offline shelf space is limited, so the competitive advantage of leading brands is very obvious. Second, instant noodles have low unit prices and low gross margins. When leading brands achieve economies of scale, they can greatly improve cost structures and then aggressively lower gross margins, squeezing out smaller brands.
But we see that many emerging brands, such as Zihaiguo, start with online sales to create "explosive products" and then begin to expand offline. Online sales do not have the "big killer" of shelf competition. Additionally, because the price range is higher, the gross margin space is larger, and the survival space for small and medium brands is correspondingly larger. So the overall industry concentration will be high, but not as high as instant noodles. **Is there a price ceiling for convenience foods? Of course, the ceiling is the average price of food delivery. To consider the relationship between convenience foods and food delivery, one must choose between convenience and the degree of restaurant reproduction, with cost-effectiveness in between.** Therefore, like most consumer goods, the higher the price, the smaller the total market size. Self-heating foods are a manifestation of the premiumization of instant noodles, equivalent to an extension of the basic category of instant noodles into a high-end segment. Compared to the 100 billion yuan market for instant noodles, self-heating foods are much smaller (roughly over 20 billion yuan). **Another market to be developed is the replacement of convenience store ready-to-eat meals by self-heating foods.** Unlike Japan, convenience store ready-to-eat meals in China have basically not developed yet. If self-heating foods can replace convenience store ready-to-eat meals while also replacing instant noodles, the market size will expand considerably.
**-03- What Makes a Good Company?** Since the instant noodle market is already very mature, new opportunities in recent years have mainly come from self-heating foods and specialty snacks.
Various emerging tracks have seen good companies emerge, such as Zihaiguo in self-heating foods; Li Ziqi (Liuzhou Luosifen from Guangxi) and Baijia Chenji (Chongqing/Sichuan hot and sour noodles) in specialty snacks, who bring local delicacies to the whole country through modernization and taste optimization; and high-end R2C Lamian Shuo (Japanese-style ramen), which precisely proportions main ingredients, value-added ingredients, and seasonings so consumers can enjoy highly authentic Japanese ramen at home. According to the analysis above, the market space for these niche tracks is not very large. If a company only does a single product, the imagination space is limited. We observe that **most successful emerging companies first find a "big single product" as a breakthrough, then expand horizontally.**
**Opportunities for "big single products" often arise from rapidly expanding markets.** Since hotpot brands like Haidilao and Xiaolongkan launched self-heating hotpot in 2017, they ignited the entire track. Zihaiguo launched in 2018, initially choosing to go all-in online, binding its brand name with the category to capture consumer mindshare. Zihaiguo also used celebrity endorsements. In early 2018, when Li Jiaqi and Viya were not as influential as they are now, Zihaiguo creatively used celebrity endorsements by inviting celebrities to taste and post on Weibo, creating a resonant topic of "half the entertainment industry is eating Zihaiguo." Zihaiguo also placed advertisements in TV dramas like "An Jia," "Lost in Russia," "Teenagers," and "The Lost Tomb 2," quickly opening up brand awareness. **Once a company has a "big single product," the ability to expand horizontally becomes crucial.** Taking Zihaiguo as an example, initially it followed hotpot brands like Haidilao and Xiaolongkan in making self-heating hotpot, but soon discovered that self-heating rice at a lower price point (9.9-15.9 yuan) was a bluer ocean. After creating an "explosive product" in self-heating rice, it continued to expand boundaries, moving towards full-category development, launching instant noodles, Luosifen, etc. **Giants like Master Kong, with a market cap of 75 billion HKD, follow the same pattern. Master Kong's product line covers all categories and price points.** Besides leading in instant noodles, it also ranks first in ready-to-drink tea and convenience pastries, and second in carbonated beverages.
The rise of self-heating rice also depended on the maturity of market timing. Before 2017, a few brands had launched self-heating rice products, but they failed to gain traction. The real competition in self-heating rice began in 2018. After the success of self-heating hotpot, many brands launched self-heating rice products. In October 2018, Uni-President launched the "Kaixiaozao" series of self-heating rice. Half a year later, Haidilao joined the fray, and Yihai International also launched self-heating rice products, but with less success than Uni-President. Among emerging brands, Zihaiguo also launched self-heating rice, and the market gradually became hot in mid-2019. For new products, seizing the first-mover advantage is crucial. **Similar to most emerging consumer brands, convenience food startups also follow four core success factors: product innovation, supply chain stability, marketing capability, and no shortcomings in channels.**
In product innovation, new brands can capture consumer groups from traditional brands through mid-to-high price points and enjoy the dividends of new categories. Choosing a sufficiently good product form is crucial. The reason self-heating foods can grow rapidly is that this category has good cost-effectiveness and a relatively high price point. In supply chain, unlike traditional companies that take years to build factories, modern mature supply chain systems and OEM manufacturing give new brands the conditions for rapid production. Many new brands that have become popular in recent years, such as Three Squirrels, Genki Forest, and Li Ziqi, rely on OEM to quickly bring products to market; Zihaiguo has its own assembly plant, but the inner ingredient packs are purchased. Although building your own supply chain is not necessary now, supply chain management capability must be good enough to ensure food safety and stable supply. Especially when online brands start to expand offline channels, avoiding stockouts is crucial because supermarkets and convenience stores have high requirements for this.
In marketing capability, new methods such as live-stream e-commerce, KOL/celebrity endorsements are disrupting traditional models. It is rare for a brand like Haidilao self-heating hotpot to directly extend from an old brand. The rise of Zihaiguo provides a model of diversified marketing. In channels, many new brands start from pure online and then gradually expand offline. As analyzed earlier, the top three companies in the traditional instant noodle market hold an 80% market share, meaning it is difficult for new brands to break through offline. At this time, online channels that save rent and labor costs become an appropriate choice. But omni-channel is still the big trend, so we see emerging brands like Zihaiguo that started online but are working to build offline, and also Baijia Chenji, which has been deeply cultivating offline for years and is starting to develop online. To ultimately win, all four capabilities are indispensable, and 1-2 of them need to be strong. Among brands developing well, Li Ziqi is strong in marketing, Zihaiguo in product innovation, and Baijia Chenji in offline channels. **It is hard to say consumer goods have special barriers; every aspect is indispensable. It depends on who has the strongest comprehensive capability based on advantages in a certain dimension.**
When these four capabilities are consolidated, emerging brands need not worry about imitators. From the experience of the self-heating food track, many people see the category becoming popular and imitate, but latecomers also help expand the overall market, and brands with first-mover advantages still capture more traffic.
**-04- From "Doomsday Cans" to "Space Ice Cream": What Else Can Convenience Foods Do?**
For food companies, the biggest pain point is how to discover new explosive products. Yihai International under Haidilao has split its original R&D department into multiple studios, giving small teams autonomy to actively develop new products. In recent years, emerging brands have focused on self-heating foods and specialty snacks that innovate in product or taste:
Let's look at overseas markets. In Europe or the US, you can see many convenience foods that are "dinged" in the microwave in supermarkets, but in my experience, the taste is not commendable. In Walmart Sam's Club or Costco, there are also many frozen foods to choose from, such as frozen pizza, frozen chicken wings, frozen corn kernels, etc. Unlike China, the US convenience food market has two special segments—outdoor and emergency foods, which often overlap. Mountain House is a typical example. It is one of the best-selling brands, and its products belong to the Freeze Dried category, which can maintain nutrition while extending storage time. The key is that no preservatives are needed, and it is easy to carry and eat. Mountain House has 60% of the US freeze-dried food production capacity and 80% of the outdoor and emergency food market, and is a major food provider for major US fast food companies, the military, and NASA. Pouched products have a shelf life of 6 years, and canned products can last up to 30 years, suitable for home and travel. Mountain House is a favorite among outdoor enthusiasts.
All Mountain House products are ready to eat by adding water and heating, with a meal ready in ten minutes. The menu is rich, from turkey casserole to Thai fried noodles, and even a dessert series, though with a slightly shorter shelf life.
Mountain House's dessert series.
To achieve a 30-year shelf life while maintaining taste as much as possible requires very complex technology for freezing, drying, and sealing. Each step requires expensive equipment and extensive experimental data, making this part of production not easy. Augason Farm's "doomsday cans" for a family of four for a year; survivalists in Europe and the US support this market, always preparing for natural disasters.
NASA's "space dessert" for astronauts; ice cream is vacuum-preserved with 98% of water removed, with a 3-year shelf life.
During the COVID-19 pandemic in the US, most of Mountain House's convenience foods were sold out.
On Amazon US, most of Mountain House's emergency foods were sold out.
**If American convenience foods are only for satiety, for happiness and warmth, we must look to Japan.**
Even outdoor and emergency convenience foods are tastier in Japan. For example, Japan's Onisi Foods has a special affinity for rice. They pregelatinize cooked rice, then dry and dehydrate it to make Alpha rice. Just add hot or room-temperature water, and in 15 minutes without cooking, you can have highly restored rice that can be stored at room temperature for 5 years. Onisi has developed 12 varieties, including matsutake mushroom rice, mixed rice, red bean glutinous rice, and sticky plum porridge. It is not only a useful food for Antarctic expeditions but also a participant in Japanese airline meals. Japan's Onisi outdoor and emergency foods.
There are many categories in Japan worth learning from for the Chinese market. We believe that prepared dishes (预制菜) will be a very good development direction. If we compare to Japan's high-growth period from 1978 to 1997, the growth of convenience foods in Japan during this period mainly relied on the drive of prepared dishes, while other categories fluctuated little. Currently, Japan's per capita consumption of prepared dishes is 30 times that of China. Considering that Japan's dietary structure is similar to China's, categories that fit Chinese consumption habits and have high standardization may see significant growth.
For example, in the Japanese market, the best-selling udon noodles are a category that fits local consumption habits and has high standardization. In the Chinese market, the current direction is Western-style prepared dishes, such as Daxidi steak (priced from 10 to 100 yuan), targeting the young family dining market. In the future, as various subcategories of prepared dishes explode, such as Chinese-style prepared dishes like boiled fish with chili, chopped pepper fish head, or enoki mushroom beef, more investment opportunities will emerge. Chinese cuisine is vast and profound, with enough depth to explore. Whether frozen foods, instant noodles, or specialty snacks, it awaits deep exploration. **The pandemic has caused a brief explosion in the entire convenience food market, a unique opportunity to educate the market. Emerging brands that enjoyed a wave of growth should accelerate omni-channel expansion and solidify growth through product innovation and horizontal expansion.**
Source: Matrix Partners China (ID: matrixpartnerschina)


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