Introduction Looking at China's consumer industry, one can often see trends very similar to Japan's market. In the consumer sector, prepared food is one such example. From 1970 to 1990, Japan's prepared food market had a compound annual growth rate of 11%. It wasn't until after the 1997 economic crisis that the food service industry stagnated, and the market size of prepared food, which had long been B-end oriented, declined. Under these circumstances, C-end prepared food gradually came to the fore. Currently, China's prepared food market resembles Japan's at that time, with a penetration rate of 10%-15%. Due to dietary culture, price, channel structure, and infrastructure, the concentration and penetration of the domestic prepared food market are lower than Japan's, but there is still an opportunity for a company with a market value of 100 billion yuan. The author read Guolian Securities' report "Who Will Win Among the Many Competitors in Prepared Food?" and uses this research to analyze the Japanese and Chinese prepared food markets, extracting where the future growth space for China's prepared food market lies. Also Rising in the B-End Japan's prepared food industry development is divided into four stages. From 1958 to 1968 was the budding period. Before that, home cooking was the mainstream family consumption habit in Japan. Since 1964, when the Tokyo Olympics cafeteria used processed and cooked convenience foods, hotels and catering companies began to notice the convenience of frozen foods. The following year, Japan's refrigerator usage rate reached 50%, and the cold chain was also laid out during this stage. From 1958 to 1968, Japan's consumption of prepared food increased from 1,300 tons to 25,400 tons, with a compound annual growth rate of 45%. Looking back, the rapid development of prepared food at that time was due to its convenience and efficiency, which indeed attracted the catering industry, and on the other hand, the emergence of the cold chain was certainly related to the progress of the entire prepared food industry. The growth period occurred from 1968 to 1991. Japan's economy expanded rapidly, and after urbanization, women began to work outside the home, increasing the rate of eating out, allowing prepared food to penetrate quickly. 1970 was the first year of Japan's food service industry. That year, the first KFC appeared in Japan, and more and more chain restaurants expanded. By 1990, there were over 900 KFC stores in Japan, and frozen food production reached over 1 million tons. At this time, the annual compound growth rate of Japan's prepared food industry was about 10%. Prepared food grew alongside the food service and cold chain industries; its growth was more like a result of the development of Japan's food service industry. From 1991 to 2010, Japan's prepared food industry entered a mature period. In 1991, after the Plaza Accord, Japan was forced to increase imports and reduce exports. After the economic bubble burst, Japan's economy entered a decade of stagnation. From 1993 to 2002, Japan's GDP growth rate was only 0.8%. During this stage, consumers focused on cost performance, and low-priced products became the mainstream for mass consumption. In 1997, Japan's food service industry reached 29.1 trillion yen. From 2001 to 2011, due to deflation and mad cow disease, the proportion of consumers eating out passively declined. Sales of frozen food for B-end consumption fell by 20% in three years. Affected by the entire consumer society, as users' purchasing power declined, prepared food gradually entered a downturn. The recovery period began in 2010. Japan's overall economic environment stabilized, and while urbanization stabilized, it officially entered an aging society, with an increase in single-person households. In this social situation, the B-end was no longer the main sales channel for frozen food; instead, in a single society, young people tended to cook quickly at home and directly purchase prepared food. In 2021, C-end prepared food production was 798,900 tons, while B-end production was 797,500 tons. Household prepared food production had already exceeded that of the food service end, and frozen prepared food production accounted for 90% of Japan's total frozen food production value. From this table, we can see that "business-use" prepared food had strong development momentum in the early period, peaking at nearly 1.1 million tons in 1993, but in the following decade or so, consumption declined year by year. In contrast, "household-use" prepared food, although starting slowly, has strong momentum and has been steadily growing over the years. Japan's prepared food is recovering from the C-end channel. In fact, the development of prepared food in the B-end in Japan is similar to the logic of the food service industry. In 1970, with the emergence of convenience stores like 7-Eleven, the standardization of the food service market accelerated. In food service scenarios mainly serving hotels, cafeterias, and schools, food ingredients became more standardized, and prepared food was often used in these settings. From the 1970s to the 1990s, after high-speed growth, although the B-end channel still showed high growth, the overall growth was already slowing. In 1997, the economic crisis led to a downturn in the food service industry, and the B-end market growth hit a turning point, and the market share of prepared food began to narrow at this time. This situation continued until 2010. After the Abe era, the B-end prepared food market stabilized, but it also began to decline at this time. Compared to the explosive B-end market, C-end growth was more like a steady stream. After 1991, B-end growth slowed, and after 1997, B-end production declined significantly. From 1976 to 2016, C-end production continued to grow. In Japan's aging society, the single rate is increasing, female employment is rising, and people emphasize convenience first. Under these circumstances, as C-end demand for prepared food grows, the ratio of B-end to C-end in Japan's prepared food has reached 5:5. The reduction in B-end market demand directly impacted prepared food companies. According to the Japan Frozen Food Association, the number of companies decreased from 959 in 1996 to 476 in 2016, a drop of 50%. The industry's total production value also fell from 728.3 billion yen to a low of 628.3 billion yen in 2010, only changing after 2011. In this elimination round, small companies quickly exited, and in the competition among large companies, the overall market concentration rapidly increased. This also boosted productivity. In 2016, the total production value reached 687 billion yen, with the top five companies holding an 80% share. After the elimination round, the market officially entered a battle for existing market share, which for latecomers means higher entry barriers. In the changing times, individual companies are the most direct reflection of this market. There is a long-established Japanese prepared food company - Nichirei Corporation. Over 80 years, among its 2,500+ SKUs, many products have been long-term bestsellers, such as frozen hamburgers, fried chicken nuggets, and frozen fried rice. Nichirei is a company of the era. It started in 1942, initially selling ice and frozen fish. In 1945, with the abolition of the fishery control regulations, the company became independent and changed its name to Reizo. From the 1950s, the group was laying out frozen prepared food. By 1952-1954, the company launched frozen tempura sets and frozen chawanmushi, which established Nichirei's position in the prepared food field. From 1950 to 1970, the Japanese government showed great support for prepared food. In addition to laying cold chains, it also encouraged schools, government agencies, and other units to use prepared food. Nichirei seized this opportunity precisely. In 1963, the group launched frozen delivery vehicles and built its own logistics system. In 1968, Nichirei won the food supply qualification for the Winter Olympics and was responsible for the prepared food for the Olympics. In 1970, Nichirei introduced frozen food at the Expo. By the 1970s, when Japan's fast food industry rose, the company again seized the opportunity of McDonald's expansion, taking on McDonald's business and developing the B-end market significantly. Nichirei's ability to seize the era's opportunities in prepared food was key to its rise. In later strategic directions, Nichirei continued to keep pace with the times. From 1970 to 1990, refrigerators and microwave ovens entered households, and fast food restaurants and convenience stores quickly became chain operations. At that time, Nichirei also launched "Restaurant Set" and "White Set," positioning them in the high-end market and focusing on differentiated competition. It also cooperated with large supermarkets to open the C-end market through supermarket channels. Today, Nichirei Group includes Nichirei Foods, Nichirei Logistics, and Nichirei Fresh, and its "Authentic Fried Rice" has been a bestseller for 20 years. Another prepared food company - Kobe Bussan - is also a company that originated in the B-end and ultimately settled in the C-end. From 1980 to 1990, Kobe Bussan was a food supermarket. It is said that founder Shoji Numata established this food supermarket in Hyogo Prefecture and named it "FESH Ishido." Ten years later, this food supermarket was converted into a joint-stock company. From 1990 to 2005, Kobe Bussan began to lay out overseas business. In 1992, they established a subsidiary and processing plant in Dalian, Liaoning, and opened their first self-operated store selling own-brand products. In 2000, after the production capacity in Dalian was released, self-operated stores could not absorb the capacity, so Kobe Bussan opened supermarket franchises. At the same stage, Kobe Logistics opened new businesses in Hong Kong, Shandong, and Southeast Asia. From 2005 to the present, after Kobe Logistics was listed, it continued to expand its territory through mergers and acquisitions. In 2013, the Kobe Special Zone business department was established. At the same time, among the 23 subsidiaries the company established, including grilled meat rice, bread, coffee, sake, and other food businesses, it opened 30-40 new stores each year. As of October 2022, Kobe Bussan had opened 1,007 "Business Supermarkets" in Japan, 23 food processing plants in Japan, and more than 350 partner factories overseas. Kobe Logistics' ability to simultaneously expand from B-end to both B and C ends is key to its high cost performance, essentially due to precise pricing, cost control, and market positioning. They sell large-format prepared food products in restaurants and retail stores at prices only 80% of other supermarkets, and also launched a series of "mother's taste foods" to attract housewives. The supermarket offers German sausages, frozen udon, salmon slices, water yokan, and more, with over 360 private-label brands, and grows at a rate of 50 new products per year, covering as many groups as possible. China's Prepared Food: Like Japan in the 1990s The development trajectories of prepared food in China and Japan show similar logic. First, both China and Japan are countries with rice and noodles as staple foods, with seafood, vegetables, and meat as side dishes. Therefore, the two countries are highly comparable. Another background worth noting is that from 1980 to 1990, the growth trends of China and Japan were very similar. For example, Japan experienced its first negative growth in 1974 during the oil crisis, and from then on, it stopped its high-growth period. China's economic growth peaked in 2007 and then began to decline, with growth slowing to 5.95% before the pandemic. Both China and Japan are in the middle to late stages of urbanization. In 1960, large numbers of Japanese youth went to work in urban enterprises, and it wasn't until the 1970s that this gradually slowed. Japan's urbanization rate reached 77.4% in 1990. In 1996, China entered a period of rapid development, with an urbanization rate of 30% at that time. By the end of 2022, the urbanization rate of the resident population was 65.22%, an increase of 15.27 percentage points compared to 2010. The aging rates of China and Japan are also very similar. In 2000, the proportion of China's population aged 65 and above increased from 6.81% to 12.41% in 2021; Japan's aging population showed a similar growth pace, increasing from 6.88% in 1970 to 12.31% in 1991. Both countries are moving towards smaller family sizes. For example, Japan's average household size decreased from 3.4 people per household in 1970 to 2.99 in 1990. China's family size also decreased from 3.44 people per household in 2000 to 2.62 in 2000. Under these circumstances, the proportion of female workers in both countries is very similar, basically maintaining between 40% and 55%. Prepared food started in the B-end, and the domestic food service industry has already been on track. In 1970, in Japan's food service industry, the development of fast food brands such as KFC, Yoshinoya, and McDonald's drove the entire food service market towards a larger future. From 1975 to 1980, the average growth rate of Japan's food service industry was 8.51%. After the reform and opening up, restaurants in various provinces and cities began to operate independently, including hot pot, Western food, casual dining, etc. Until 2019 before the pandemic, the average growth rate of the food service industry was 9.68%. What Factors Limit the Endgame? Although the development of China's prepared food industry shows similar logic to Japan, the Chinese market will not reach Japan's current structure. This is limited by ideological factors, namely differences in dietary culture, relative prices, infrastructure, and channels. First is the food culture. China's food service is much more complex than other countries, which is an important factor making it difficult for China's food service industry to scale. It relies heavily on chefs, resulting in narrow capital imagination space for the domestic food service industry. But Japan emphasizes "new, strange, fresh," with boiling, grilling, and steaming as the main methods, belonging to a "boiling culture." In addition, Japan's territory is long and narrow, divided into Kansai and Kanto regions, while China's land is vast, divided into various regions. The difficulty and standardization of Chinese prepared food will be higher than Japanese cuisine. This is an important reason why China's prepared food is difficult to scale. China's prepared food also tends to be high-end, while Japanese single products are low-end and convenient, suitable for simple cooking by housewives and office workers, with lower industrialization difficulty. The second factor is that cooking at home in China is actually more cost-effective. In Japan, the cost of eating at home is generally 25-35 yuan, eating out costs 40-75 yuan, urban white-collar standard meals are 50-75 yuan, and a convenience store meal only costs 20-30 yuan, which is very cost-effective. In China, prices are relatively low. Cooking at home only costs 5-15 yuan, and eating out costs 20-40 yuan, making home cooking more cost-effective. In terms of disposable income, Japan only crossed the 100,000 yuan mark in 1980, while China's disposable income is lower than Japan's. By the end of 2022, China's per capita disposable income was 36,800 yuan, nearly double that of 2010. The third factor is cold chain logistics infrastructure. Japan has a small area and concentrated cities, so cold chain laying can easily achieve scale. But China is different; the overall market demand is dispersed, and fulfillment costs are high, limiting the penetration of prepared food and the market expansion capacity of enterprises. The fourth reason is penetration rate. In 1990, Japan's B-end prepared food market accounted for 70%, and C-end 30%. With the development of the food service industry, the B-end and C-end markets in Japan are now relatively balanced. In China, the market is still mainly B-end, with group meals, rural banquet channels, etc. accounting for 80%, while C-end channels account for only 20%. C-end consumers still need a long cultivation period. China's prepared food market started relatively late, and combined with differences caused by dietary culture, price, infrastructure, and other factors, the domestic prepared food penetration rate still has a long way to go. Conclusion Japan's consumer market shows a temperament similar to China's, and this similarity comes from the macroeconomic environment, as well as social and demographic factors. But China and Japan are ultimately different. The deeply rooted food cultures of each country shape their local characteristics, and these local characteristics in turn feed back into the country. China's prepared food started with "hardcore" dishes, where complex dishes from restaurant cooking are vacuum-packed and can be heated at home for immediate consumption. This is already a form of progress. Even if it is less popular than Japan's convenient prepared food, the advancement of China's prepared food in the C-end is a progress for the food service industry and another upgrade of the national cold chain infrastructure. In the future, infrastructure will create greater possibilities, and prepared food will serve as a reference for the results.