Source: FBIF Food & Beverage Innovation China's frozen food industry may be on the verge of a "decade of explosive growth." In fact, since the onset of the pandemic, frozen foods have frequently topped industry trending lists. Initially, during the pandemic, various frozen food categories saw year-on-year growth of over 300%, and even exceeding 6000%[1]; subsequently, Zhong Xue Gao's sub-brand 「Li Xiang Guo」 redefined perceptions of "premium" with its 6 yuan-per-piece chicken and matsutake frozen dumplings; this year, a new generation of frozen food brands, including Peng Peng Dai, Shao Fan Er, and Ding Ding Dai, have gradually entered the public eye... Image: New generation frozen foods. Source: Peng Peng Dai, Li Xiang Guo In my memory, various frozen dumplings, buns, and tangyuan have been staples on the dining table since childhood, giving rise to "national-level brands" like Sanquan, Synear, Wan Chai Ferry, and Anjoy Foods, with the industry landscape remaining largely unchanged for years. Upon further investigation, we discovered more intriguing data about this industry:

  • China's per capita annual frozen food consumption is only 9 kg, compared to 20 kg in Japan, 35 kg in Europe, and 60 kg in the US[2]
  • In the Japanese and US markets, nearly every segment of the frozen food industry has produced brands with revenues exceeding 10 billion yuan. For example, Nestlé, Conagra, and Ajinomoto offer end products; US Foods focuses on distribution services; their frozen food businesses all generate revenues in the tens of billions of RMB[3].
  • China's frozen food market has yet to produce a brand with revenues exceeding 10 billion yuan. According to the "2021 China Food & Beverage Top 100 List," the leading frozen food brands Sanquan, Anjoy, and Synear each have food-related revenues around 7 billion yuan; SF Express, ranked first in the cold chain logistics industry, had cold chain transportation revenue of 6.497 billion yuan in 2020.[4] Image: Comparison of per capita frozen food consumption in major countries/regions. Source: iiMedia Research What accounts for these differences? Driven by curiosity, we investigated the frozen food industry and interviewed Sarah, a partner at the startup frozen food brand 「Peng Peng Dai」. With over 10 years of experience in the retail sector, she operates the Peng Peng Dai brand, which entered the market with bagged ready-to-eat products that can be "microwaved and eaten directly from the bag." Currently, Peng Peng Dai has launched 26 SKUs, with an average order value of around 100 yuan, and has achieved a month-over-month sales growth of 100%. Image: Peng Peng Dai food can be eaten directly from the bag after microwave heating. Source: Peng Peng Dai This round of discussions and research has led us to a very optimistic outlook for the future of China's frozen food industry. In the next decade, it is highly likely that China's frozen food industry will significantly narrow the gap with the Japanese and US markets, capitalize on a new round of channel dividends, and give rise to a batch of brands with revenues exceeding 10 billion yuan. ******"Late Starter" China's Frozen Food: What "Industry Pain Points" Does It Bear?** To understand China's frozen food market, we must first address the question raised earlier: Why does China's frozen food industry lag behind the Japanese and US markets in terms of per capita consumption and brand scale? "Late start" appears to be a major reason. Taking the US as an example, the US frozen food market began in the 1930s. As early as World War II, due to shortages of military supplies, the US government encouraged people to "buy frozen food in large quantities, leaving precious canned goods for frontline soldiers," which triggered the first wave of rapid growth for frozen food[5]. (Note: "Frozen food" and "quick-frozen food" are different concepts; we will not differentiate here.) Image: US frozen food advertisement from the 1930s. Source: Pinterest Data shows that the US frozen food industry today is projected to reach a market size of $309.08 billion (approximately RMB 1.9686 trillion) in 2022. It has long been a super-large market exceeding one trillion yuan[6]. In contrast, China's frozen food industry, which started in the 1970s-1980s, is nearly half a century behind. However, is the gap solely due to the starting time? Not at all. The past Chinese frozen food industry has faced at least three major pain points.

1. Imperfect Cold Chain Infrastructure, Low Industry Concentration

The most fundamental reason is, naturally, the infrastructure for frozen food and even the entire low-temperature food industry: the cold chain. The production, transportation, transfer, and storage of frozen foods are extremely dependent on the cold chain. Any problem in any link can cause a "chain break," rendering all previous efforts futile. You might recall that as a child, you sometimes bought oddly shaped ice cream in the summer, which likely resulted from a "chain break" during transportation, where the ice cream melted and was refrozen. Even today, "chain breaks" often occur when buying ice cream online. Image: Consumers often complain that the ice cream they bought has melted. Some readers may also remember scenes from childhood where vendors pushed bicycles with insulated boxes made of thick quilts tied to the back, selling ice pops or milk door-to-door. These are historical memories from the era of underdeveloped cold chain logistics. Image: Ice pop selling method in the era of underdeveloped cold chain. Looking back at history, China's cold chain industry remained in its infancy until the end of the 20th century. It wasn't until the establishment of the China Federation of Logistics & Purchasing in 2001 and China's accession to the WTO the same year that the cold chain logistics industry entered a period of rapid development[7]. Imperfect infrastructure directly led to low industry concentration, as before the cold chain logistics was perfected, cross-regional transportation of frozen foods meant high costs and high loss rates. According to Sarah, almost every food category requiring low-temperature transportation sees a large number of local brands dominating small markets, such as low-temperature dairy products and ice cream. Frozen foods are similar. In traditional supermarket channels, various bulk frozen hot pot ingredients and dumplings still hold a significant market share, and these products are mostly produced and supplied by local brands from various regions. Image: Bulk hot pot ingredients in a supermarket. Source: FBIF Imperfect cold chain infrastructure is the first major pain point facing China's frozen food industry in the past.

2. Low Penetration of Necessary Equipment in Early Stages, Inconvenient Consumption

Refrigerators, microwaves, ovens, air fryers, stoves... These are all "challenges" consumers face when eating frozen foods. After all, even if the cold chain limitations on the transportation side are solved and frozen food reaches the consumer, consumers cannot "eat it raw." Firstly, home storage of frozen food requires a refrigerator. But refrigerators have only truly entered thousands of households in the last 10 years. In 1985, when Haier founder Zhang Ruimin smashed 76 refrigerators in a fit of rage and became famous overnight, a refrigerator cost 800 yuan, equivalent to two years' salary for a worker. In contrast, 26 years later, Luo Yonghao smashing three Siemens refrigerators seems like small potatoes. After solving the storage problem, processing and consuming frozen food also requires a microwave or a stove. The penetration rate of microwaves is even lower than that of refrigerators. A 2003 study showed that even in economically developed urban areas, the microwave ownership rate was only 30.7 units per 100 households[8]. Using a stove increases the consumer's usage cost, weakening the "convenience" competitiveness of frozen foods.

3. Purchasing Frozen Food is Often a "Last Resort"

When it comes to frozen food, what's your impression? Do your parents support you eating frozen food? At least, I have been repeatedly lectured by my parents to "eat fewer frozen dumplings; they have too many additives and are unhealthy." Sarah introduced that during their consumer research, they found that domestic consumers' impressions of "frozen food" generally remain stuck on categories like frozen dumplings, wontons, and hot pot ingredients. Consumption of frozen food is mostly a "last resort" when there's no time to cook. These traditional products naturally give them a "cheap feel," with low authenticity, poor taste, and various additives leading consumers to generally believe that frozen foods have safety risks. New-generation ready-to-eat products urgently need to address consumer awareness and change their perception of this category. Gradual Progress: Will China's Frozen Food Industry Usher in an "Explosion"? Where there are problems to be solved, there are opportunities. Despite these historical issues in the frozen food industry, they are now on the fast track to being resolved, and this process naturally contains opportunities. The next decade might just be the "decade of explosive growth" for China's frozen food industry. From a data perspective, we indeed have reasons to be optimistic about the frozen food industry. Research suggests that in the next 5 years, the average annual growth rate of China's frozen food industry is expected to exceed 20%. By 2030, market revenue will exceed 500 billion yuan, and a series of enterprises with revenues exceeding 10 billion yuan will emerge[11]. However, macro data is one thing; specific logic and reasoning are more solid evidence. There are four major reasons to be optimistic about China's frozen food.

1. Gradually Improving Infrastructure

Has the cold chain logistics problem in China been preliminarily solved at this stage? I think the rapid rise of Zhong Xue Gao and Jane's in recent years is the best proof. Image: Zhong Xue Gao transported via cold chain. Source: Weibo @SITONE-L Zhong Xue Gao, Jane's, and others experienced their concentrated explosion during the era of rapid cold chain growth in China. Data shows that from 2013 to 2018, China's cold storage capacity increased from 19 million tons to 43.06 million tons, with an average annual growth rate of 17.78%; refrigerated trucks increased from 32,000 to 92,953, with an average annual growth rate of 23.77%[9]. After 2018, China's cold chain industry has continued to maintain a high growth rate. According to data from the China Federation of Logistics & Purchasing cited in SF Express's annual report, in 2020, despite the pandemic's significant impact on fresh food retail and catering consumption, China's cold chain logistics market growth rate is still expected to reach 10.3%, with a market size of 383.2 billion yuan, and total cold chain demand expected to exceed 265 million tons. As trade order gradually recovers after the pandemic, China's cold chain industry is also expected to continue its high growth. In addition to cold chain logistics, the penetration rate of household appliances such as refrigerators, microwaves, and air fryers has also seen significant growth. Although there is no precise coverage data, Sarah found in consumer research that in first-tier cities, refrigerators and microwaves have basically achieved "full coverage." Even in shared rental housing, often the "first stop" for young people moving to big cities, refrigerators and microwaves have become standard equipment. The continuous improvement of infrastructure will remain an irreversible industry trend in the Chinese market for some time to come. It is also the most solid foundation for the development of the frozen food industry.

2. Authenticity and Convenience Issues Resolved

The second reason for optimism is that in recent years, the food industry has achieved technological breakthroughs, greatly improving the authenticity and taste of frozen foods. In Sarah's view, the domestic ready-to-eat food industry can be divided into three stages. Ready-to-eat 1.0 is represented by dried convenience foods like instant noodles, which can only fill the stomach when busy, with unsatisfactory quality and taste. Ready-to-eat 2.0 is represented by semi-finished products like frozen dumplings, which have shortcomings in convenience, taste, and health. Sarah calls the Ready-to-eat 3.0 stage "RTH (Ready to Heat)." That is, a form of frozen food that can be eaten directly after heating in a microwave without cooking. It also features high authenticity, complete nutritional retention, and minimal flavor loss. So, how will this generation of frozen food solve the series of problems in the industry? Take Peng Peng Dai's signature product, the Chef's Fried Rice series, as an example. Peng Peng Dai uses -35°C quick-freezing crystal lock-fresh technology. The prepared fried rice is quickly frozen in a -35°C environment. Uniform small ice crystals form within the frozen food tissue, preserving cell activity and moisture to a large extent. Image: Peng Peng Dai Chef's Fried Rice quick-frozen at -35°C. Source: Peng Peng Dai In terms of packaging, Sarah believes that new-generation frozen food must help consumers solve the "starting the stove" process before cooking and the "washing the dishes" process after cooking. In other words, the packaging of frozen food should be directly "heatable," and the packaging itself should serve as a container that can be discarded after eating. Only then can frozen food become a solution that saves consumers the most time. Therefore, Peng Peng Dai uses a thermal convection circulation heating bag technology. The packaging can withstand temperatures ranging from -18°C freezing to 150°C heating, and also features a built-in exhaust vent design. After receiving the product, consumers can directly place it in the microwave for 3 minutes without tearing the bag, and it's ready to eat. After eating, they can discard the packaging bag directly, skipping the dishwashing step. Image: Peng Peng Dai · Sichuan-style Spicy Chicken Fried Rice. Source: Peng Peng Dai In fact, this packaging concept has become a common research and development direction for this generation of frozen food brands. For example, another frozen food brand, Fudibao's dumpling products, use microwave micro-pressure technology, allowing consumers to place the packaging in the microwave without tearing the film. During heating, steam automatically circulates inside the box, preserving food moisture while accelerating heating. Image: Fudibao frozen dumplings. Source: Fudibao In terms of authenticity, Sarah said that Peng Peng Dai's most "proud" innovation is recreating the "wok hei" (breath of the wok) of freshly made fried rice. In traditional frozen rice products, the microwave only serves to "heat," but the exclusive technology of the Peng Peng Dai Chef's Fried Rice series allows frozen food to recreate the steaming "wok hei" of high-heat stir-frying after heating. Internal evaluations by Peng Peng Dai show that compared to freshly made fried rice and noodles, the authenticity of Peng Peng Dai's products can reach over 95%. I also personally tasted Peng Peng Dai's Spicy Chicken Fried Rice, and indeed, the authenticity is almost indistinguishable from freshly made fried rice. At the same time, the pursuit of higher authenticity seems to have no end. For example, in Li Xiang Guo's new product, Chicken Soup and Shrimp Wontons, in addition to the frozen wontons, consumers are also provided with a half-jin (250g) chicken soup seasoning pack as a base for cooking the wontons. Image: Chicken soup seasoning pack in Li Xiang Guo's Chicken Soup and Shrimp Wontons. Source: Li Xiang Guo

3. Inevitable Rise in Delivery Costs

"Delivery is so convenient and cheap, why should I eat frozen food?" Have you ever had this question? But this is precisely another major reason Sarah is optimistic about the future of China's frozen food. She predicts that as China's economy develops, delivery costs will inevitably rise significantly, eventually reaching a level comparable to the US market. Since China is still in the early stages of industry development, the compensation systems and welfare protections for delivery riders are not yet fully developed. Compared to the US market, the labor cost for delivery in the US is almost 5 times that of China. GrubHub, a US delivery giant, can earn an average commission of 38.6 yuan per order, while China's Meituan only earns 5.22 yuan[10]. In the future, with economic development and improved regulations, delivery costs will inevitably rise. Imagine when the delivery fee for an order approaches or even exceeds the cost of the food itself. Will convenient, fast, and quality frozen food be reconsidered by consumers?

4. Aiming for the Next Round of Frozen Food Channel Dividends: Offline

In the past decade, "channel dividends" have been the new frontier that every brand constantly pursues. Weibo 7-8 years ago, WeChat Official Accounts 5-6 years ago, Douyin, Kuaishou, and Xiaohongshu 3-4 years ago, and Bilibili last year. Brands that hit the channel dividend can leverage the tide of the times to multiply their growth momentum. Sarah's judgment is different. For frozen food, the next round of channel dividends will come not from online, but from offline. For frozen food, and indeed all low-temperature categories, the "fulfillment cost" of e-commerce channels is staggering. High cold chain express fees can eat up almost all of a brand's profits. Data shows that only 1% of China's cold chain e-commerce is profitable, 4% break even, and overall 95% are losing money[5]. Through offline channels, using large-scale cold chain logistics, costs can be reduced, allowing consumers to buy products at the most affordable prices. "Offline is the battlefield for frozen food," is Sarah's clearest conclusion. At the same time, offline channels are also increasingly falling into "anxiety." Young people are less and less fond of "shopping," while middle-aged and elderly groups will definitely "compare prices across N stores," making it extremely difficult to generate profit. How to attract young people back to offline channels is a question the entire industry is pondering. Young people need ready-to-eat food, offline channels offer the best value for ready-to-eat food, and offline channels need young people. Combining these three, Sarah's conclusion naturally emerges: frozen food is the best way to bring young people back to offline channels, and this will be the "new battlefield" for the industry in the future. ****Before the Explosion: What Other Challenges Need to Be Solved? Goals can be ambitious, but the path must be taken step by step. Before realizing the industry blueprint, the frozen food industry still has a long way to go. After communicating with Sarah, we believe the following three points are key.

1. Partner with Offline Channels to Build a Full-Category Frozen Food Matrix

As mentioned earlier, frozen food is likely to be an important entry point for bringing young people back to offline channels. Clearly, this cannot be accomplished by one or two frozen food brands alone. Readers familiar with the US market may understand that the US frozen food category is extremely comprehensive. In addition to staples like noodles and pizza, it includes various frozen vegetables, fruits, and meats, covering almost all daily food needs of consumers. Image: A dazzling array of frozen foods in the US market. Source: newfoodmagazine In Sarah's vision, Chinese cuisine has far more categories than the US market, and the future of China's frozen food categories should also be more comprehensive. For example, classic dishes from the eight major cuisines, and local staples like roujiamo, could all be displayed in offline channels in frozen food form for consumers to choose from. In fact, domestic brands have already begun such attempts. Peng Peng Dai is currently improving its staple food product line, mainly consisting of mixed rice and noodles, while also covering sweet potatoes and other most common staple food categories for Chinese people, hitting more consumer needs. Another startup brand, Maizima, has set its sights on the frozen prepared dishes category. Products include Shuizhu Beef, Sweet and Sour Pork, and Suancaiyu (pickled fish), dishes most familiar to Chinese people. Using -196°C super quick-freezing technology, they can be prepared in just a few minutes of heating. Image: Maizima frozen food. Source: Maizima Bibigo, a frozen food brand from South Korea, has also launched a frozen version of the Korean drama star product - Korean fried chicken - in the Chinese market. No need to thaw; just heat in the microwave for three minutes and it's ready to eat. Image: Bibigo frozen Korean fried chicken. Source: Bibigo The full category and high authenticity of the new generation of frozen food; the high cost-effectiveness of offline channels. The combination of these two could become the entry point to bring young people back to offline channels. This requires brands and offline channels to work together.

2. Collaborate with Hardware Manufacturers to Optimize One-Button User Experience

"Microwave on high for 5 minutes" This is one of the most common cooking methods on frozen food packaging. However, this method has a hidden danger: heating equipment is not standardized, and differences between devices can lead to "disastrous" results. In Sarah's consumer research, there was such an experience: the same product, heated for 5 minutes in one microwave, was still a bit undercooked, but heated for 5 minutes in another microwave, it was almost burnt. And just one such experience could make that consumer avoid frozen food from then on. The best solution is for frozen food manufacturers to collaborate with hardware manufacturers to turn the cooking method of frozen food into a built-in program in microwaves, and the packaging model of frozen food can also be standardized and modularized. Consumers only need one click to complete the entire cooking process.

3. Brands Joining Forces to Improve Industry Standards

Sarah revealed that the frozen food industry currently lacks unified standards. For example, for Peng Peng Dai's fried rice and fried noodles products, what exactly is "fried rice" and what is "fried noodles"? There is currently no unified national or industry standard. Growing the market is definitely not a job that one brand can accomplish. Having unified standards is the only way to promote the healthy development of the entire industry. It is understood that Peng Peng Dai is currently collaborating with similar brands to discuss and formulate industry standards and expand the market base. ****Summary Today, combining an exclusive interview with Sarah, co-founder of Peng Peng Dai, we have reviewed the history and future of China's frozen food industry. Can Peng Peng Dai and the Ready-to-eat 3.0 category win consumer recognition? Will the frozen food landscape Sarah predicts come to pass? FBIF will continue to follow up. When do you usually eat frozen food? Are you optimistic about the future development of the frozen food industry? Feel free to discuss in the comments section. References: [1] "Frozen Food with a 431% Surge Begins to Appear on Young People's Tables," FBIF Food & Beverage Innovation, December 18, 2020 [2] "iiMedia Research | 2021 China Frozen Food Industry Chain and Consumption Trend Research Report," iiMedia Research, October 8, 2021 [3] Various company annual reports [4] "SF Express 2020 Annual Report" [5] The Strange History of Frozen Food, August 21, 2014, Eater [6] Size of the frozen foods market worldwide from 2018 to 2026 [7] "Review of the Development History of Cold Chain Logistics at Home and Abroad," Han Chunyang, Wu Jingqiong, He Rui [8] "2002-2003 China Microwave Oven Market Analysis," CCID Consulting Consumer Electronics Consulting Division [9] "Research and Development of China's Strategic Emerging Industries: Cold Chain Logistics," China Machine Press [10] "Starbucks Wants to Replicate Its Delivery Experience in the US, But Delivery Costs There Are 5 Times Higher Than in China | Curiosity Small Data," November 6, 2018, Curiosity Institute [11] "CICC: The Quick-Frozen Prepared Food Industry Is Expected to Give Birth to a Batch of Leading Enterprises with Revenue Exceeding 10 Billion Yuan," July 1, 2021, Securities Times Are you "watching" me?