The pandemic is still ongoing, and for investment institutions, it is also a significant "pop quiz." How to discover, invest in, and work alongside excellent companies that have rapid growth potential and remain "unflappable" during emergencies is an important topic that every institution must address.

  1. Convenience foods have become an important companion in home life and even at work, satisfying consumers' demands for convenience, nutrition, and taste; 2. The rise of new-generation consumer groups is driving the transformation of convenience foods toward premiumization, health, innovation, and flavor; 3. Traditional food companies' own iterations and new power brands each have their strengths, and both may have opportunities to share in the convenience food market. I believe that during this longest "Spring Festival holiday" in history, friends who stayed home seriously have deeply realized the importance of convenience foods. By definition, convenience foods are products that are pre-made as finished or semi-finished products, requiring simple processing at the time of use, and can be eaten anytime, anywhere. These products are generally well-packaged, hygienic, safe, and easy to carry. In terms of categories, from the well-known instant noodles and instant vermicelli to the self-heating hot pot and self-heating rice that have emerged in recent years, to the frozen foods that fill refrigerators during special times for a sense of security, or even flavored oatmeal that can be eaten for breakfast or as a snack, more and more convenience foods have become an important part of consumers' home life and even work, meeting our demands for quick, convenient, nutritious, and delicious food. Figure 1: Increasingly diverse convenience foods Convenience foods originated in post-World War II Japan, when most of Japan's food was flour provided by the United States, with very little rice. Therefore, the Japanese government encouraged citizens to eat more flour-based products such as noodles and bread, and ramen quickly became popular among the public, with ramen stalls often attracting long queues. To allow people to enjoy hot noodles anytime, Momofuku Ando invented the world's first instant noodle in 1958 and founded Nissin. Later, instant noodles began to spread rapidly worldwide. Figure 2: Nissin's original instant noodle—the world's first pack of instant noodles -01- Domestic convenience food industry has maintained a growth rate of about 6% in recent years In 2019, the market size exceeded 450 billion yuan The development of convenience foods in China began in the 1970s, when the first bag of instant noodles was produced at Shanghai Yimin Food Factory No. 4, marking the start of the vigorous development of China's convenience food industry. According to data from China Industry Information Network, the scale of China's convenience food industry is expected to exceed 450 billion yuan in 2019, forming a huge national food industry cluster. Among them, instant noodles and frozen foods are the two largest categories. The frozen food market size is about 150 billion yuan, and the instant noodle market size is about 100 billion yuan. We expect that the growth rate of the convenience food industry will remain at around 6% in the coming years, exceeding 630 billion yuan by 2025. Table 1: 2011-2025 China convenience food industry market size. Source: China Industry Information Network, Binfu Research Instant noodles can be said to be a good microcosm of the convenience food market. Before 2011, national instant noodle sales maintained double-digit stable growth for 18 consecutive years, reaching 46.22 billion packs by 2013. But after the peak, it began to decline year after year, falling to 38.52 billion packs in 2016, a drop of nearly 8 billion packs compared to 2013. The early high-speed development of the instant noodle industry mainly relied on the urbanization dividend, with a large number of migrant workers and tourists choosing instant noodles when dining out was inconvenient. However, from 2013 to 2016, with the gradual rise of the food delivery industry, faster transportation, and improved infrastructure along routes, the winter for instant noodle companies gradually arrived. During those years, the saying "Chinese food delivery defeated instant noodles" even appeared in the market. The impact of food delivery on the instant noodle industry is mainly due to two reasons: ** First, in the early days of food delivery platforms, various promotional activities allowed consumers to order food with a few taps on their phones, at prices similar to instant noodles but with richer flavors, better taste, freshness, and "healthiness"; ** Second, food delivery upgraded domestic consumers' demands for convenience foods, no longer just pursuing speed and convenience. Unfortunately, most instant noodle manufacturers failed to keep up with new product development, and their main products remained at around 5 yuan for filling hunger, resulting in a significant expectation gap in supply and demand. The continuous decline in sales forced the instant noodle industry to recognize and explore consumers' true demands. For convenience foods, consumers no longer only seek convenience but also hope to eat food similar to regular meals at affordable prices. After 2016, the four leading instant noodle companies—Kangshifu, Uni-President, Baixiang, and Jinmailang—have successively laid out the mid-to-high-end instant noodle market. Of course, with the dust settling of the "food delivery war," subsidies and discounts gradually decreased or were canceled, and average order values rose, all of which helped the instant noodle market gradually recover after 2016. Why do new-generation consumers prefer mid-to-high-end products? Let's analyze the characteristics of the current main consumer group, the post-80s and post-90s consumers. -02- The people behind the structural changes— Comparing the US and Japan in the 1970s-1990s with today's China Currently, China's GDP growth has entered a stable period, with per capita GDP exceeding the $10,000 mark. In terms of economic, demographic, and consumption characteristics, it is basically comparable to the US in the 1970s-1980s and Japan in the 1990s. Reviewing the consumption trends of the US and Japan at that time may bring us some insights. 1. The US in the 1970s-1980s: Stay-at-home moms drove the popularity of convenience foods, and cereal brands rose From 1970 to 1980, the US economy's compound growth rate was about 2.9%, entering a stable growth phase. At that time, US companies faced competition from German and Japanese companies externally, while internally, social class differentiation widened, and the wealthy invested heavily in gold, real estate, and financial assets, leading to rising land prices in cities like New York. ** Due to social development and economic pressures, about 51% of American women at that time needed to work outside the home, and among women aged 25-44, the working ratio was as high as 66%, and most of these women were mothers. To quickly, conveniently, and healthily solve children's breakfast and dinner, cereal, microwave meals, and canned luncheon meat became the top choices for American women. Among them, cereal, which has both convenience and health attributes, was particularly favored by the American public, and this category gave birth to Kellogg's, Post, and General Mills, among other listed companies. By the 1980s, Kellogg's, Post, and General Mills had captured 85% of the US breakfast market share. 2. Japan in the 1990s: Single-person households helped upgrade convenience foods, and Nissin followed trends to establish its dominance From 1985 to 1990, Japan's economy had a compound growth rate of 4.7%, and economic growth also began to slow. Externally, the US and Japan had trade frictions in semiconductors, electronics, and automobiles. Internally, land prices in Japan's six major cities tripled between 1985 and 1990. In the 1990s, Japan's main consumer group was the "new human" generation, who grew up during the period of rapid economic growth. These young people's growth and life trajectories are very similar to those of today's urban white-collar workers in China's first- and second-tier cities. They had not experienced war and received some support from their parents in life and housing, giving them strong consumption power. This also made the "new human" generation more receptive to new things and quicker to change tastes. Young urban white-collar workers in Tokyo (especially women) often matched their clothing and accessories according to recommendations from fashion magazines like "Vary" and "Story," purchased brands recommended by the magazines, and consumed coffee shops and restaurants reported by the magazines. In addition, at that time, single-person households accounted for as much as 23.1% of all households in Japan, with a large number of single people living in cities like Tokyo and Osaka, busy with work and no time to cook, seeking convenient dining. Therefore, convenience foods, eating out, and convenience stores developed rapidly during this period. It is worth mentioning that the "new human" generation demanded "simple but not simplistic" quality of life, pursuing "fast but not rough." Therefore, a wave of "refined convenience foods" and "premium convenience foods" emerged in Japan. For example, instant coffee, which is clearly a cheap substitute for coffee beans, appeared in Japan as "royal-style" premium instant coffee with exquisite packaging and high prices, especially popular among young people. The "noble" cup noodles in the instant noodle category were also loved by young people, and cup noodles priced at 20-30 yuan, which could be eaten immediately after opening, gradually surpassed regular bagged noodles in sales share during the 1980s-1990s. In this wave of "premium convenience foods," Nissin can be said to have dominated. It quickly captured the Japanese market by focusing on cup noodles and launching "seasonal limited editions" with rapid product turnover. Currently, Nissin holds a 52% share of the instant noodle market in Japan, making it the absolute leader. We have also observed that Nissin's strategy in recent years has become more detailed, with the brand launching targeted products for consumer groups of different age structures and genders. For example, for active middle-aged and elderly customers, Nissin focuses on economical, quality products; for female consumers, it focuses on healthy flavors with ethnic characteristics (such as miso flavor); for young consumers, it launches "internet-famous" products suitable for sharing (such as milk seafood cup noodles, which were once sold out nationwide in Japan). This diversified strategy not only widens the price range but also allows its products to fully reach different groups and expand its core customer base. 3. Today's China: Post-80s and post-90s consumers bring opportunities for new brands and categories in convenience foods From 2015 to 2019, China's GDP growth rate was about 6.3%-7%, a slowdown compared to the previous three decades. Externally, there were intense trade frictions between China and the US; internally, housing prices in first-tier cities doubled again from 2012 to 2017. The overall environment is similar to the US in the 1970s-1980s and Japan in the 1990s. The current main consumer group in China is the post-80s and post-90s, with a population of about 400 million, accounting for 28.5% of the total population. This group is mostly children of the "reform and opening-up generation," and a relatively high proportion are only children. Post-80s and post-90s receive support from their parents and even grandparents in housing and living, making their consumption power stronger than that of the post-60s and post-70s, and their consumption willingness and habits are more active or even aggressive than the previous generation. ** Similar to Japan in the 1990s, young people in domestic cities, especially women, are easily influenced by KOLs on popular platforms such as Weibo, Xiaohongshu, and Douyin when consuming. Compared with Japan in the 1990s, the proportion of single-person households in China reached 14.9% in 2014, and we believe that in recent years, this proportion has even climbed higher. Young people working hard in big cities often work 996 or 007 schedules. Therefore, in recent years, domestic convenience stores, food delivery, and single-person dining have also maintained rapid growth. With the improvement of consumption power among post-80s and post-90s in China, they have also put forward higher requirements for the quality of consumption, requiring products to balance simplicity, speed, health, and deliciousness. Therefore, we have recently observed that many popular convenience foods are designed from this perspective, such as the instant oatmeal brand Wangbaobao positioning itself as "beauty + health," and Lashuo positioning itself as "restaurant-level instant ramen." -03- Against this backdrop, what changes have occurred in the convenience food industry in terms of products, marketing, channels, and supply chain? 1. Product side: Premiumization, health, innovation, and flavor Staying up late while maintaining health has become a habit for young people, and their demands for convenience foods have become both simple and fast, while also being healthy and delicious. Let's look at the specific measures taken by traditional food giants in recent years. First, Kangshifu Group positions its products from three angles: "good ingredients, good craftsmanship, and good taste," upgrading from "filling hunger" to meeting consumers' diversified demands for "nutrition, deliciousness, and health." It has successively launched series such as "Black and White Pepper," "Golden Soup," "Craftsman Soup," "Fresh Feast Deluxe Edition," and "Soup Master," and in 2018, it launched the high-priced "Express Noodle Restaurant" (unit price about 20 yuan). Another giant, Uni-President Group, has successively launched high-priced instant noodle new products such as "Duhui Xiaoguan," "Xiangban Yicheng," and "Manhan Dacan," with the highest unit price approaching 20 yuan. Looking at the two domestic giants, Baixiang and Jinmailang, which started with mid-to-low-end products and used the strategy of "surrounding cities from rural areas," have also followed up with high-end series such as "Bone Soup Noodles" (Baixiang) and "One Dish One Noodle" (Jinmailang), with unit prices jumping to around 10 yuan. Figure 3: Upgraded series products of the four major instant noodle brands Nissin's approach in the Chinese market is also worth studying and paying attention to. We know that when Nissin entered China, it initially chose the mid-to-high-end market. In its early years, it used cup noodles "Cup Noodles" with a retail price of 5-8 yuan and bagged "Demae Itcho" with a retail price of 3-5 yuan (the same positioning as Kangshifu and Uni-President products priced at only 2-3 yuan), and gained a foothold in the economically developed East China and South China regions (friends in South China should be familiar with the classic line from TVB: "Are you hungry? I'll cook you a bowl of noodles," where the noodles are usually Nissin's "Demae Itcho"~). Nissin also once invested in Jinmailang Group to supplement its low-end market layout, but unfortunately, the two sides parted ways peacefully in 2018 after ten years of cooperation. In its 2019 financial report, Nissin also announced further strategic plans for high-end products: on the one hand, launching more high-end products such as "La Wang" to seize the market; on the other hand, increasing sales personnel and distributors (annual growth of 5-10%), expanding coverage areas (adding 3-5 cities per year, entering the southwest), indicating that Nissin firmly believes in China's consumption upgrade of instant convenience foods. According to the financial report, Nissin's revenue in China (excluding Hong Kong) was HK$881 million, a year-on-year increase of 12.2% in RMB terms. In addition to traditional instant noodle giants successively launching new brands and new products, we have also noticed that in recent years, many new forces in convenience food categories and brands have emerged. To highlight their differences, new power brands often innovate in naming and product forms. For example, "Single Grain" implies products developed specifically for single lazy people, and the portable self-heating equipment that began to rise in 2018 has brought fire to a series of "self-heating X" brands, with products widely covering self-heating hot pot, self-heating rice and dishes, and self-heating barbecue. Among them, players in self-heating hot pot include traditional catering brands (such as Haidilao, Dezhuang, Xiaolongkan), traditional food companies (such as Baijia Chenji), and new power brands (such as Zihaiguo, Mo Xiaoxian, Shizuren, Li Ziqi), each launching new convenience foods based on self-heating equipment. Many of the above brands have achieved sales of over 100 million yuan in a very short time, fully demonstrating the perfect fit between products and market demand. This requires not only keen innovation ability from brand companies but also the cooperation of food industry production technology. Figure 4: Best-selling single products of some new power brands The restoration of regional flavors is also an innovation trend in convenience foods in recent years. Changes in dining habits and trends are leading indicators of changes in industrialized food. Regions such as Sichuan, Chongqing, Hunan, Hubei, Jiangxi, and Guangxi prefer "spicy" flavors, and these regions have shown a net population outflow trend over the past 10 years, with population mobility pushing regional tastes to other areas; at the same time, spiciness is addictive, and the endorphins produced by eating spicy food can make people feel happy and euphoric. From a communication perspective, the more singular, distinct, and intense a feature is, the higher its recognition, and the easier it is to gain more attention among similar items. Spiciness may be the most recognizable and stimulating taste we can perceive, and cuisines characterized by spiciness are easily prioritized for attention. We have also noticed that in the 4 trillion yuan catering market in 2018, Sichuan cuisine accounted for about 10% of the scale, and even KFC, a representative of Western fast food, launched a Bò Bò Jī flavor product in July 2019 to conform to the popularization of spicy food. Taobao data shows that in December 2019, sales in the instant vermicelli subcategory across the entire network were approximately 1.4 billion yuan, with the top ten brands in sales almost equally divided between Luosifen and hot and sour vermicelli, both known for their spicy flavors. Liuzhou Luosifen, a street snack that was once only popular in the southwest region and had no leading brand, has been successfully transformed into a bagged convenience food in recent years, quickly going nationwide through e-commerce channels and becoming an internet-famous super single product. A friend from the Guangxi Commerce Commission introduced that in 2018, the output value of Guangxi Luosifen reached over 3 billion yuan and is still growing rapidly. Another regional-flavored local snack we focus on—Sichuan-Chongqing style hot and sour vermicelli—is increasingly showing signs of becoming another super internet-famous single product in recent years. Baijia Chenji, a well-known brand that started in Sichuan and spread nationwide, was an early pioneer in instant vermicelli. For over 20 years since its establishment, it has focused on non-fried and authentic Sichuan flavor concepts. In recent years, the company has become known to consumers for its Akuan brand red oil noodle skin product, which is also an internet-famous single product. The company continues to innovate, and since the launch of the upgraded hot and sour vermicelli (which we have personally tested and found to have a very high flavor restoration and richer seasoning packets), sales have been rising. In addition, Baijia Company, following the main line of restoring regional restaurant flavors, has successively launched many specialty flavors such as internet-famous fire chicken noodles, Chengdu-style sweet water noodles, Chongqing spicy small noodles, Sichuan Mianyang rice noodles, and Guizhou Huaxi beef noodles, well balancing the contradiction between taste and industrialized products. We believe many of these categories have the potential to become internet-famous hits. Figure 5: A series of internet-famous products developed by Baijia Chenji around the main line of restoring regional flavor foods This approach has actually been successfully verified in the development of convenience foods in Japan. Nissin, 7-Eleven, and other brand and channel companies have successively launched convenience foods featuring regional flavors from various parts of Japan, with exquisite packaging and sometimes limited editions, generally with higher unit prices, and most have achieved very good sales performance. At its root, we believe that China's food culture is broad and profound, the development of food industry preservation technology and the improvement of e-commerce logistics infrastructure have brought consumer expansion, and the penetration of online marketing has increased product awareness. ** Regional flavors, with their unique addictive tastes such as sour, spicy, smelly, and sweet, bring strong memory, stimulate consumers' repurchase desire, and thus form high consumption frequency and brand loyalty. Binfu's friends recently, due to the pandemic, dare not order takeout and are addicted to trying various high-end Japanese instant noodles. Everyone is welcome to recommend more. 2. High coordination of the supply chain is a solid backing for stable product innovation Safety is the lifeline of food companies, and the supply chain's coordination and production capacity in the development of innovative products are key factors for steady development. Taking instant noodles/vermicelli as an example, the investment for a production line is about 3-5 million yuan. In addition, the seasoning packet factory must adjust flavors according to product design and industrialize them in a timely manner. Generally, a new product takes 3-6 months from R&D to market launch. At the same time, the supply chain must pay in advance to lock in raw materials to cope with fluctuations, and these investments are a considerable expense for early-stage startups. Most innovative brands often choose to invest funds in brand promotion and marketing in the early stage. However, we have observed that if the upstream supply chain is not deeply involved, there are always many hidden dangers. Even for listed companies like Three Squirrels, although the supply chain is mostly partner-based rather than self-owned factories, we have observed that the company has built a very strong supply chain management system in terms of both processes and technology over the years. In terms of processes, the company has strictly formulated the "Squirrel Partner Quality and Food Safety Management Standards," which put forward detailed requirements for supplier quality and food safety through 15 chapters and nearly 100 clauses; in terms of technology, the company connects more than 500 squirrel partners through a cloud platform, and through a set of scientific supplier management systems—the Cloud Manufacturing Supply Chain Management System (composed of product center, quality center, partner center, order center, inventory center, etc.) and performance management systems—together support Three Squirrels' ever-expanding product line. Based on exchanges with many teams in the industry, we believe that although some entrepreneurial teams are better at product development and new channel marketing, supply chain management is still a necessary capability, requiring solid experience accumulation and organizational coordination ability. Therefore, when selecting investment targets in this field, we relatively prefer teams with supply chain management capabilities or companies with close and good supplier systems. 3. The emergence of new marketing opportunities and the demand for networked marketing brought by fragmented traffic With the near saturation of smart mobile terminal penetration and the increasingly fragmented time users spend on different online platforms, marketing and transaction scenarios are also becoming more fragmented. To this end, companies must launch highly compatible marketing content based on the characteristics of users on different platforms and study the traffic algorithms of different platforms. We see that new power brands are more flexible and willing to try new things in marketing, often choosing social media, video platforms, etc. for content placement, and also implanting in popular film and television programs, well using the methods that target audiences like, and adopting multi-level, three-dimensional tactics for "seeding." For example, the Zihaiguo brand, from celebrity endorsements to variety show sponsorships, TV drama placements, and strong exposure in New Year movies, has better opened up the awareness of "brand = category," and combined with matrix KOL promotion on social media and content platforms, it has both wave-like volume and daily traffic. The e-commerce marketing department of the Luosifen brand Haohuanluo has used exquisite documentaries and live-streaming e-commerce to elevate its awareness among a host of Luosifen brands. Figure 6: Zihaiguo product placement in the 2020 New Year movie "Lost in Russia" 4. Online and offline channels are equally important and indispensable Online consumers are mostly from high-tier cities, with a relatively high proportion of young people; consumers are easily driven by content marketing. The e-commerce data loop is complete, and through data, new products can be tested quickly, products adjusted, and marketing methods adjusted. Coupled with the traffic support of e-commerce platforms for emerging brands, from "seeding" to "harvesting" is done in one go, making it easy to create "explosive products," so it is a good place for emerging brands to rise. In addition to Taobao and JD platforms, many community group buying, short-video e-commerce live streaming, and WeChat business groups are also important channels for brand volume. There are many channel play methods within e-commerce platforms, and changes are fast. Whether following trends to push products for volume or adhering to product positioning to build a long-term brand, it places very high demands on brand strategic positioning and the detailed operation of the e-commerce team. The construction of offline channels is also a time-consuming and labor-intensive hurdle for brands. The immediacy of offline channels is a natural scenario for convenience food sales. The Chinese market is vast, offline channels are widely distributed, and the channel system is complex. FMCG brands generally use regional distributors to lay out the brand to the capillaries and terminals. To become a national brand, brand companies need to support and empower key regional distributors, assist them in developing and maintaining channel networks (including national and regional supermarkets, convenience stores, special channels, traditional channels, etc.), improve distribution efficiency (delivery route design, response speed), enhance and supervise marketing capabilities (including whether marketing plans can be implemented layer by layer, whether channel activity execution is in place, whether effect verification methods are accurate, and terminal customer relationship maintenance), and channel sales data management capabilities (such as providing data feedback tools and establishing data feedback systems); Or form strong alliances with powerful channels to strive for rapid sales within the channel; or deeply cooperate with B2B platforms under e-commerce giants such as Xintonglu and Ling Shoutong to lay out products to networks that traditional distributors cannot reach, thereby coordinating operations across channels and regions as a whole. Traditional brand Jinmailang implements the "four-in-one" approach in offline channels, that is, cooperating with distributors who have vehicles, personnel, regional contracting capabilities, and terminal machines, firmly grasping the market in lower-tier cities and advancing toward its goal of 100 billion yuan in revenue. For new power brands that have not operated offline channels, channel development management, marketing, costs, payment terms, and logistics are all capabilities that need to be advanced and hurdles to overcome. Figure 7: Competition for offline channels of convenience foods In summary, we believe that with the expansion of young people's consumption power, the convenience food industry will show trends of premiumization, health, innovation, and youthfulness in the coming years. Both the iteration of traditional brands and the penetration of new power brands have great potential. In the future, consumers can also enjoy "feasts" through more ready-to-eat convenience foods, and investment institutions naturally have the opportunity to find investment targets from them. Source: Binfu Capital (ID: beforcapital)