Source: Frozen Food Headlines (ID: dptoutiao) Author: Toutiao Jun

One morning in early December, with the sun shining just right, at the Zhengzhou Zhongyuan Siji Aquatic Products Logistics Port, the largest cold-chain logistics distribution center in central China, loading worker Lao Zhang was basking in the sun in a corner because there was nothing to do.

Nearby, logistics trucks delivering to various cities were also parked waiting for goods. Lao Zhang knew they wouldn't depart until the last moment. But in his view, as usual, they definitely wouldn't be fully loaded today.

Lao Zhang had been puzzled lately. He had worked as a loader in the market for several years and had never encountered a situation like this year. Now it was December, and in previous years, the market would be bustling with trucks coming and going, but this year it was exceptionally quiet.

Merchants in the market shared similar feelings with Lao Zhang. Sometimes they were idle and anxious, but they could do nothing except post on social media, hoping customers would place orders soon.

****Manufacturers Keep Announcing Price Hikes: Real or Fake?

Price increases have become the main theme of this year's frozen food peak season.

Since September, when the traditional peak season for the frozen food industry began, the "price hike announcements" have been almost non-stop. Frozen food manufacturers are either announcing price increases or on the verge of doing so.

In November, led by Anjoy Food, followed by Haixin, Sanquan, Synear, and Qianweiyangchu, the leading companies in the quick-frozen food industry all raised prices, pushing the wave of increases to a climax.

The "thunder" of price hikes is rumbling, but for distributors, has the "rain" actually fallen?

"Large manufacturers have only raised prices on a few categories; it's more like 'testing the waters.' Most small and medium manufacturers have genuinely raised prices, and across the board," Henan distributor Wang Bing (pseudonym) told Toutiao Jun.

As a veteran distributor in the frozen food circle, Wang Bing fully understands manufacturers' pricing decisions. "This year, raw materials have indeed risen too much. If manufacturers don't raise prices, they'll lose money. Especially for vegetable-filled products, their processing and production costs are inherently higher than meat-filled ones, leaving little room for price adjustment. Plus, oil, eggs, vegetables, etc., have risen significantly this year, so many products have to be priced higher."

Under the situation of across-the-board increases in raw and auxiliary materials, large manufacturers can still hold the line, only raising prices on a few items. Wang Bing analyzed that this is mainly due to their strong ability to lock in prices for upstream raw materials. "They lock in prices for a year, so temporary price adjustments have minimal impact on large manufacturers."

Moreover, large manufacturers' products have strong brand power, and the profit margin from brand premium is also larger.

In contrast, small and medium manufacturers lack the ability to lock in prices—even buying a carton box is subject to market fluctuations—and they don't have brand power, so their profit margins are already low. "Once raw material prices rise, profits are eaten up, so they have to raise prices."

Among them, low-end products sold through catering channels are even worse off. Since restaurant kitchens never recognize brands, if a manufacturer raises prices, Wang Bing usually abandons the product and finds a cheaper alternative.

"The reality is that whoever raises prices first loses sales. After I raised the price of a low-end dumpling product, sales immediately halved. At this point, if a manufacturer can hold off on raising prices, they might directly eliminate those same-tier brands that raised prices," Wang Bing predicted.

****Distributors' Cold Storage Overflows, Funds Turn into Inventory

Since the industry-wide price hike wave began in November, Wang Bing admitted he feels "under great pressure." Before the manufacturers' price increase dates, he needs to seize the opportunity to stock up at old prices as quickly as possible.

At the end of November, a brand enterprise notified him that starting in December, they would raise prices on several high-volume products, such as wontons, hand-grabbed pancakes, buns, simple-packaged tangyuan, youtiao, and simple-packaged chive and egg dumplings.

Wang Bing knew these products were "hard currency," so he had to stock up more. Before the price increase, he stocked several thousand cases of each product.

Since Wang Bing represents many brands, totaling six or seven hundred SKUs, he spent the entire November busy stocking up at old prices.

By the end of November, as expected, Wang Bing's 2,000-square-meter cold storage was full. "Now we basically can't get any more goods in."

Correspondingly, his account funds were almost completely tied up. "The worst time, we used up the 2 million yuan limit on our transfer card in one day."

He learned that fellow distributors made surprisingly similar decisions about stocking up. "Everyone is actively stocking up; no one is 'not biting,'" Wang Bing joked.

****Downstream Price Hikes Difficult, Distributors Squeezed from Both Sides

According to common sense, price increases starting from raw materials should gradually transmit downstream, eventually reaching retail terminals. But in reality, distributors find it hard to raise prices for downstream customers.

Wang Bing told Toutiao Jun that as of now, the price increase pressure in the frozen food industry has not been transmitted downstream at all; it's basically all absorbed by distributors.

"The frozen food industry has thin profits, and downstream customers are very price-sensitive. Whoever raises prices first offends customers," Wang Bing said.

Objectively, Wang Bing indeed cannot raise prices. He explained that most manufacturers don't use exclusive distribution models; they open many distributors in one region. Once he raises prices, downstream customers will immediately switch to other sources. "WeChat makes communication so convenient. Downstream customers can figure out the latest price list in less than a week, or even a day if they're quick."

In Wang Bing's view, distributors are currently holding on: "It depends on who has more stock, who has financial advantages, who has warehouse space, and who can endure longer. The longer you hold on, the more capable you appear to downstream customers."

He analyzed that the price increase pressure in the frozen food industry might have three outcomes:

First, distributors swallow their pride and bear the price increase pressure themselves, resulting in reduced profits.

Second, some supermarket retail channels can actually raise prices, such as those with good customer relationships. If manufacturers issue formal price increase notices and inform in advance, the pressure can be pushed directly to terminals.

Third, manufacturers provide expense support. The expense policies given by large manufacturers can offset the price increase pressure to some extent. This is also a reshuffling for small and medium manufacturers, as their market share will definitely be further eroded.

"I won't raise prices unless absolutely necessary. The peers I've contacted haven't adjusted prices downstream either; they'd rather take a loss," Wang Bing said.

****Poor Terminal Sales, Overall Volume Plummets

Stocking up, although it occupies distributors' inventory and funds, is not a problem as long as sales are smooth. "I don't care about stocking up; it's just the difference between money in the account and goods in the warehouse," Wang Bing said.

Stocking up happens every year, but this year is particularly difficult because of "poor sales."

Wang Bing's cold storage is located near the Zhengzhou Zhongyuan Siji Aquatic Products Logistics Port, the largest frozen food distribution center in central and western China, where a large amount of quick-frozen food flows to the whole country daily. But now, the logistics trucks running in the market are basically not fully loaded...

"At this time last year, logistics trucks were loaded and departed by 7-8 a.m. This year, they wait until around noon, when they have to leave, and often only half-loaded," Wang Bing said. He believes that even this large frozen food wholesale market has no throughput, indicating that terminal consumption is very weak.

Now Wang Bing sits in his office every day, often feeling anxious: "In the morning, a few trucks leave the market; in the afternoon, it's quiet. Without customers, how can there be business?"

Wang Bing also noticed that many wholesale merchants in the market have started breaking bulk. Previously, wholesale markets only shipped whole cases; no one wanted to bother with mixed loads. Now many merchants are hiring people specifically to break cases and assemble orders. "When business gets to this point, everyone is forced to do it."

Distributor Mr. Zhao's cold storage is located in another major frozen food market in Zhengzhou—Xinji Market. He also reported that logistics trucks can't get goods this year, and they don't depart until noon. Because there's no business in the market, when the weather is good, everyone even goes out to bask in the sun. "I'm also anxious!"

In Wang Bing's company, two channels have seen particularly significant declines this year:

One is the catering channel, with sales basically halved. Products Wang Bing supplies to chain restaurants, such as crispy pork, youtiao, desserts, and ciba, have seen sales halve this year.

Another hard-hit area is the community e-commerce channel, with sales only one-third of last year's. Wang Bing personally visited the community e-commerce warehouse and found only a few staff members and very little goods, far less prosperous than last year. "Jingxi used to have 50,000 orders a day, but now it's said to only manage 10,000."

Overall, under this wave of price increases, manufacturers have pushed a lot of inventory onto distributors, but in the weak consumption environment, poor sales and slow turnover have directly impacted distributors' operations.

Wang Bing believes that few distributors will make money this year; those who struggle to maintain their market may break even; and those who lose money will be numerous.

****The Hardest 'Peak Season': Manufacturers and Distributors Must Weather It Together

In Wang Bing's memory, he has never encountered a situation like this year in his years in the industry. Although the peak season has long begun, there's no feeling of a peak season at all.

For distributors, although sales have declined significantly, daily expenses such as wages, warehousing, and rent are unavoidable. In this situation, what distributors can do is "increase revenue and reduce expenditure."

Increasing revenue means adjusting product structure, expanding new sales channels, and making products move as much as possible. Reducing expenditure means improving efficiency in all aspects of company operations and cutting unnecessary expenses. For stocking up, they must act within their means.

At the same time, from another perspective, the situation distributors face may seem like their own pressure, but it's closely related to upstream manufacturers. 'Manufacturers and distributors are one.' In a severe market environment, no link can stand aloof.

Therefore, manufacturers should also pay more attention to distributors' inventory and sales conditions, assisting distributors in digesting inventory from multiple aspects, rather than standing by and only pushing goods. Otherwise, if downstream sales are sluggish and products pile up in distributors' warehouses, this pressure will eventually transmit back to upstream manufacturers.

For the frozen food industry, this "peak season" is destined to be difficult, and cooperation between manufacturers and distributors will be the best strategy.

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