Click to read the original text for details New Distribution Commentary The problems that pre-made dishes currently face in the C-end market largely stem from the conceptual issues of pre-made dishes themselves. The evaluation of "market dividend stage with categories but no brands," if applied to pre-made dishes, is clearly too irresponsible, as food and civilization go hand in hand, rooted in history. Noodles, porridge, stir-fries, cold dishes... each can be considered a major category on its own, and now these major categories are grouped under a larger concept of "dishes." Before being carried away by the trillion-yuan market concept, companies might as well return to basic skills, such as insight into demand, focusing on target groups, designing USP, and a series of fundamental actions. From the B-end perspective, pre-made dishes test pre-sales and after-sales, R&D capabilities, and supply chain capabilities. Therefore, whether B-end or C-end, they are completely different businesses. Controversy always exists, and there are many problems that pre-made dishes need to solve. Pre-made dishes—this new type of processed food that might be called semi-finished products—are sweeping in like a hurricane. In elevators, the ubiquitous "舌尖英雄" (Tongue Hero) tells people "Everyone can easily be a chef"; in supermarket freezers, frozen food giant Anjoy Foods and aquatic product leader Guolian Aquatic are bringing the pre-made dish war to offline; "provincial national teams" have also entered one after another, with the first provincial-level pre-made dish industry investment fund in China announced in Guangzhou... When this hurricane blows to Xiamen, Qudian's Luo Min has a new story and new troubles. In recent days, with the escape of stars like Fu Shouer and Jia Nailiang, Qudian's pre-made dishes have fallen into unprecedented "original sin controversy." No one could have imagined that just over half a month ago, Boss Luo, who mustered the courage to face the media again, gave his company a new definition under the screen reading "Target 200,000 stores": "Qudian pre-made dishes is not an internet company; we are a consumer company, or rather, we are a food company." Whether Boss Luo's words are true or false, or whether he really understands the model of pre-made dishes, this sentence precisely summarizes the complex competitive landscape of the current pre-made dish world: There are internet cross-border players, new retail and catering giants, and also agriculture, forestry, animal husbandry, and fishery enterprises that have been silently working in upstream raw materials for over a decade. According to securities researchers' forecasts, in 2022, China's pre-made dish market size will further reach 415.15 billion yuan, and by 2025, this number will double, approaching the trillion-yuan threshold. But behind this seemingly beautiful business, only a few are destined to reach the finish line. Whether it's consumer market education or the supply-side scaling challenge, there are many questions to answer. Those processed food manufacturers running ahead or newly entering want to tell us that pre-made dishes achieve the "fast and good" life we want; we no longer gather around the stove, and everyone is a chef. But don't forget, in their hands, these semi-finished products are products of industrialization, not nutritional products, but weapons they deploy to defeat competitors. To understand this war over pre-made dishes, we still need to return to offline.

01 From Supermarkets to Wet Markets: Pre-made Dishes Fight the "Freezer Battle" In the summer of 2022, the story of freezers no longer belongs to ice cream and water. Many people have personally felt that in this not-so-new and not-so-large sales area, new players are arriving. Clearly feeling this change is Li Hong, a salesperson who has been in supermarkets for over 20 years. She has noticed that many young people who don't seem like they can cook are now visiting this area, thanks to the layout of leading pre-made dish players. "Which one is more convenient and tastier?" This is a question Li Hong has been asked frequently recently. Some of those asking such questions are young people like Chen Jie. After being bombarded by elevator ads, Chen Jie decided to try pre-made dishes herself. In the aquatic products section, she witnessed the "freezer war" of pre-made dishes firsthand. Nanjing Yonghui Supermarket offline store, photo by author Not far away, on the supermarket's electronic screen, the advertisement "Eat grilled fish, choose Xiaobaolong!" loops. In front of her, Guolian Aquatic—the aquatic pre-made dish giant—has its freezers stuffed with various dishes: chopped pepper fish head, flavored grilled fish, garlic vermicelli scallops... The distribution effort is visible, and Guolian Aquatic even uses the slogan "Guolian pre-made dishes, a table of dishes in 30 minutes." Nanjing Yonghui Supermarket offline store, photo by author On the other side, frozen food company Anjoy Foods firmly occupies people's breakfast scenes, strongly binding spokesperson Su Bingtian with "Breakfast is fast." In 2021, Anjoy's pre-made dish business revenue reached 1.429 billion yuan, accounting for 14.21%, a year-on-year increase of 112.41%. Nanjing Yonghui Supermarket offline store, photo by author In March this year, Anjoy invested 1 billion to place its first pre-made dish production base in Honghu, Hubei. On the day of the signing ceremony, Anjoy Food Group Chairman Liu Mingming excitedly pointed out: "(The Honghu pre-made dish base) will greatly enhance Anjoy's comprehensive competitiveness in the pre-made dish channel." Chinese people value "food is the first necessity of the people," but Anjoy says "food is the first necessity of the people." To some extent, this is true. To cater to the fast-paced lifestyle, food manufacturers are trying to explain the idealism of pre-made dishes to consumers just in the offline freezers: A whole table of dishes can be completed with pre-made dishes, and everyone can become a cooking master in their social circle. Compared to the battle for attention in supermarkets, some brands choose to stay in a corner. Weizhixiang, known as the "first pre-made dish stock," hides in the city. At the entrance of a Nanjing agricultural market, Caijing Wuji visited Weizhixiang's offline store. In the small storefront, the freezers mainly sell prepared meat products and ready-to-cook dishes. Written on the wall along with the stock code is Weizhixiang's dazzling menu of pre-made dish categories. In terms of product categories, Weizhixiang's offline stores mainly sell prepared meat products. The store owner told Caijing Wuji that fish balls, chicken legs, etc. sell very well. In another freezer, finished dishes like shredded pork with garlic sauce are cold and lonely. Closely tied to the wet market, this is Weizhixiang's unique channel strategy, which started from the wet market. With decades of channel operation, by 2021, Weizhixiang has formed an offline channel network of "1,319 franchise stores and 572 distributors." Nanjing Weizhixiang offline store, photo by author Lu Zhengyao, who is "starting a second business," has also brought "Tongue Hero" to the entrance of residential communities. You can see many "Luckin Coffee" shadows in this pre-made dish brand. For example, coupon subsidies, and delivery modes can be chosen as "self-pickup" or "delivery." If you choose self-pickup, at a "Tongue Hero" store, you will see the following scene: When an order is generated, the store owner takes out sealed ingredients and seasonings from the freezers displayed at the back of the counter according to the dishes in the order, then packs them into brown paper bags. If you don't know how to handle these semi-finished products, it's okay; the paper bag has a QR code attached, and you can "scan to see the cooking method." Nanjing Tongue Hero offline store, photo by author At a "Tongue Hero" offline store in Nanjing, the store owner enthusiastically showed Caijing Wuji the store's best-selling items. "Our lamb chops are very delicious." She pointed to the picture above the freezer and described the texture of the lamb chops to Caijing Wuji. "There's also Kung Pao Chicken, but it's sold out now." From coffee to noodles to pre-made dishes, Lu Zhengyao's entrepreneurial business is strikingly similar to Qudian's Boss Luo. At the pre-made dish trend, the two meet again, also equally controversial. Time rewinds to mid-July in Xiamen. Luo Min started the "price war" of pre-made dishes with a one-cent sour cabbage fish. At that time, he might not have anticipated the direction of subsequent events. At that day's strategic launch conference, Boss Luo talked a lot about the idealism of pre-made dishes, such as "letting users use our products to gain an extra hour every day" and "doing something more altruistic." Whether it's the offline war or the founder's story, these are full of idealism. But behind pre-made dishes is a much larger proposition. It's not a problem of a certain category, not a problem for a certain type of consumer, but the difficulty of industrialization of Chinese cuisine. To some extent, pre-made dishes are just a flag on the ship of Chinese cuisine industrialization. To make this flag fly, the ship must first move.

02 To B or C: They Might Be Two Different Businesses In fact, pre-made dishes are not a new thing. In the 1990s, with the entry of Western fast food like McDonald's and KFC into China, clean vegetable processing plants and distribution factories began to appear. If you open the supplier lists of McDonald's and KFC, from chicken to egg tarts to fried dough sticks, a batch of supplier companies such as Sunner and Qianwei Central Kitchen have emerged. Unlike these companies focused on working for terminal brands, at the beginning of the millennium, professional semi-finished dish production enterprises began to appear domestically. Haodelai and Weizhixiang, two semi-finished production companies born in Suzhou, were established successively, with offline being the home advantage of such enterprises. At that time, China's pre-made dish market was far from as prosperous as it is now. Ordinary Chinese people's concept of pre-made dishes mostly focused on primary processed ingredients: shopping in a supermarket, picking some fish balls from the freezer; or entering a wet market, buying some marinated chicken legs or shredded pork on a whim. Change is often related to the times. Every generation of catering professionals needs an external revolution. The rapid development of food delivery platforms ignited the fuse for the development of the pre-made dish industry. With the trend of catering chainization, catering companies have increasingly higher requirements for standardization, directly driving the increase in B-end demand for pre-made dishes. C-end demand directly stems from repeated epidemics. Convenient pre-made dishes allow kitchen novices to cook a good table of dishes. The high demand from both B and C ends has made pre-made dishes a hot business. Qichacha data shows that ten years ago, the number of registered pre-made dish-related enterprises was less than 2,000; ten years later, by 2021, it exploded to nearly 60,000. The heat is still rising. In the first half of 2022 alone, more than 1,020 new registered enterprises were added, with a growth rate of 42.7%. Determined investors are confident in pre-made dishes. One investor believes that pre-made dishes carry the heavy responsibility of Chinese cuisine industrialization: "KFC and McDonald's burgers and chicken legs can sweep the world. Can our braised pork do the same? This is the market for pre-made dishes." According to incomplete statistics, from 2021 to 2022, there were more than 20 financing events in China's pre-made dish industry, with financing amounts reaching tens of billions of yuan. A clearer pre-made dish industry chain has thus formed. Upstream are those raw material suppliers with mature experience, who choke others at the source of raw materials. Midstream are professional pre-made dish enterprises and frozen food companies, who are good at deep processing, and channel layout is also what they have been doing. Downstream, close to consumers, a large number of C-end players have emerged: one type is cross-border retail companies like Hema; another is internet players like Qudian and Tongue Hero; and another is catering companies like Haidilao and Kungfu. They are closer to fickle consumers and better able to grasp the taste changes of Chinese people. As mentioned above, pre-made dishes are not new in China. There are only three paths for industry players:

  1. Either only do B-end, be the "worker" behind the brand, rely on scale and volume, although gross profit is less than C-end, but at least it's stable.
  2. Or only do C-end, open stores in front of consumers, rely on brand premium, with enough room for price increases, but how to grasp consumer tastes becomes a mysterious business.
  3. Or walk on two legs, both B and C ends, and most companies seem to follow this path, with a trend of two-way penetration between upstream and midstream. For example, frozen food giant Anjoy has adjusted its corporate strategy in recent years to "balance B and C, dual-wheel drive." When B-end catering companies performed weakly under the epidemic, it chose to seek new growth curves from the C-end. Guolian Aquatic launched the seafood pre-made dish brand "Xiaobaolong." When replying to investors' questions, management clearly stated that in 2022, the company will actively expand C-end channels and accelerate the penetration of pre-made dishes in the C-end market. But the B-end and C-end of pre-made dishes might be completely different businesses. On the B-end, hotels, chain catering, small and medium-sized catering enterprises, and the food delivery industry constitute a huge and certain market. Why certainty? Because pre-made dishes can indeed reduce costs for catering companies. Among China's leading chain catering companies, Kungfu, Xibei, and others have used pre-made dishes in proportions exceeding 80%. As a representative of all-in pre-made dishes, Xibei founder Jia Guolong directly brought the pre-made dish named after himself, "Jia Guolong Kung Fu Dish," to the front lines, cheering for this Chinese cuisine revolution on various occasions. But although demand is certain, there are differences in demand between large B and small B, which also tests the capabilities of pre-made dish companies. In the large B-end, mainly hotels and chain catering, more emphasis is placed on product quality, customization, and differentiation. This requires pre-made dish companies to have certain R&D and pre-sales and after-sales capabilities. Such customers have strong stickiness and are typical closed channels. The small B-end is different. Unlike hotels and chain catering that focus more on differentiation capabilities, small and medium-sized catering enterprises and food delivery companies mainly pursue product standardization and cost-effectiveness. The more SKUs, the better; the more affordable the price, the better. Therefore, it's not hard to see that the B-end business of pre-made dishes values the comprehensive strength of players. Not only must they have sufficient channel power to maintain contact with the B-end, after all, China's catering market is very fragmented; on the other hand, they also need product R&D capabilities and supply chain capabilities to ensure products can be both customized and mass-produced. Half flame, half sea, the C-end is another scene. In the C-end business of pre-made dishes, most players tell the story of penetration rate. For example, Luo Min once said: "Ordinary people don't have deep contact with pre-made dishes," so penetration rate is also an important anchor for the market to bet on the future of the C-end of pre-made dishes. But for now, unlike the certain demand on the B-end, C-end pre-made dishes are still low-frequency consumption. Data from iResearch shows that in 2021, users purchased pre-made dish products 1-3 times per week on average. That is to say, on the C-end, demand for pre-made dishes is not rigid, and market education is still in its infancy. One reason for low frequency is determined by the C-end demand pyramid. From the consumer profile, the target consumer group for pre-made dishes is not the top 10% of full-time housewives or nannies, nor the bottom group extremely sensitive to price, but the middle class with certain spending power, pursuing overall cost-effectiveness, and indeed lacking time to cook. According to securities analysts' estimates, such C-end consumers will account for about 30% of the overall pre-made dish market by 2025. Another major reason is the lack of brand power of terminal pre-made dish brands. A local "Tongue Hero" store owner in Nanjing told Caijing Wuji that the store's orders are still mainly from food delivery, mostly bought by young people. "Most people don't know (this brand)." The store owner said so. But if a pre-made dish company can both meet the complex needs of the B-end and build a brand on the C-end, making both B-end and C-end willingly accept "semi-finished products," can this company rest easy? The answer is definitely no. In China's vast and profound catering world, the story of pre-made dishes has actually been played out countless times.

03 The Prisoner's Dilemma of Pre-made Dishes: The Pain of Chinese Cuisine Industrialization In China, doing catering is an extremely difficult task. Regarding the future of Chinese pre-made dishes, in the eyes of researchers, there are actually two models: one is the American model, and the other is the Japanese model. The development of American pre-made dishes benefited from the significant improvement in quick-freezing technology, population density, and industrialization. In the book "The Rise and Fall of American Growth," the author describes in detail the prosperity of processed food companies: "From street vendors to corner grocery stores, they are all selling foods that now seem unsuitable for human consumption." American families have long been familiar with coexisting with pre-made dishes. Each family consumes 2 pounds of fish and 1 pound of salmon per week in meat, and weekly dairy consumption includes 1 pound of butter, 1 pound of cheese, and 16 eggs. Grain foods include 7 loaves of bread, 49 rolls, 2 boxes of cookies, and 1 box of breakfast cereal. Image source: pexels Behind these pre-made dishes lying on supermarket shelves are large comprehensive food groups including Nestlé, Sysco, Conagra, etc. The model of these American leading companies is mostly through multi-brand operations and horizontal mergers and acquisitions to complete expansion. Japan, which is in the same East Asian circle as China, took a different path. After World War II, Japan faced extreme shortages of resources and food, and the Japanese government began to vigorously develop the frozen food business. With economic recovery, consumer demand increased. By around the 1960s, the number of women going out to work increased significantly, and Japan's economy entered a period of high growth. People began to leave the dining table and turn to restaurants and food delivery services, and frozen food quickly penetrated the B-end. In this process, under the guidance of economies of scale, leading companies including Nichirei Corporation increased their market share by acquiring other small and medium-sized enterprises. The market concentration of Japan's entire pre-made dish industry continued to rise, with CR3 increasing from 51.4% to 59.0% from 2005 to 2016, and CR5 increasing from 70.1% to 79.2%. But returning to China's pre-made dish world, the situation is much more complex. On the one hand, Chinese food culture is broad and profound, with the eight major cuisines forming the SKU of China's catering market. Compared to Americans' frozen pizzas and pre-made salads, and Japanese fried rice, ramen, and tempura, the complex dishes and taste systems of Chinese cuisine make it difficult for any pre-made dish company to achieve everything. On the other hand, there is the fragmentation of China's catering market. Taking Weizhixiang as an example, although its offline store count has surpassed competitors, its market share is still less than 1%. Boss Luo, who is starting a business again, said one thing very correctly. When asked about the goal of 200,000 offline stores, Boss Luo believed: "Not only is there no brand understanding at the front end, but no one is doing such a thing at the back end." In his view, even small mom-and-pop stores are potential opportunities. For Chinese pre-made dishes, there is a typical prisoner's dilemma: No company can handle the huge SKU, and no company can master the extremely fragmented offline channel network. Perhaps it can be understood this way: most catering practitioners have not figured out the routines of consumers and the market, and industrialization seems to be the only story to tell. After all, no one in the catering industry doesn't envy KFC and McDonald's. Because under the epidemic, the noodle shop run by your second uncle might close, but the KFC at your doorstep will definitely not. In uncertain times, seeking certainty, industrialized products represented by pre-made dishes have naturally become the best sustenance for catering professionals. To achieve industrialization, one must first cross the threshold of scale. Although securities researchers have filled their research reports with expectations for the prospects of pre-made dishes, in their recommendations for companies to watch, most still focus on those frozen food companies. Taking Anjoy Food as an example, its rolling P/E ratio is 60.71 times, with a market value of over 40 billion yuan. Weizhixiang's rolling P/E ratio is 42.39 times, with a market value close to 6 billion yuan. Guolian Aquatic only turned its non-GAAP net profit positive in the first quarter of this year, finally emerging from the quagmire of three consecutive years of losses. In the complex pre-made dish world, how much the market loves frozen food companies can be seen by comparing Anjoy Food and Guolian Aquatic. Anjoy Food's revenue is twice that of Guolian Aquatic, but its market value is 10 times that of Guolian Aquatic. The advantage of frozen food companies lies only in the comprehensive capabilities accumulated over years in channels, product R&D, and supply chain. In the fragmented Chinese catering market, people value them simply because these frozen food companies are the most likely batch of players to achieve scale. More critically, the complex catering culture has long spoiled the stomachs of Chinese people. When you start choosing to eat pre-made dishes, you have already fallen into a manufactured health and busyness. To some extent, this is a kind of filtered human fireworks. At a Tongue Hero offline store in Nanjing, the store owner told Caijing Wuji a similar story. The store owner used her daughter as an example to describe this craze: "Previously, my daughter only ate takeout, but now with pre-made dishes, she would spend two or three hundred yuan to buy pre-made dishes and invite friends over to eat. Taking photos also looks quite nice." (The interviewees mentioned in the article are pseudonyms) Source: Caijing Wuji (ID: caijwj) Author: Shan Hetao -END-