The FMCG market has been significantly impacted by the global pandemic, leading to the decline of many companies, but in the business world, decline is always accompanied by rise. Pre-made dishes have emerged as a dark horse in this environment! According to data from the China Chain Store & Franchise Association, during the 2020 pandemic, over 90% of chain restaurant companies began selling semi-finished and pre-packaged foods to alleviate cash flow pressure from suspended dine-in services and digest inventory from the Spring Festival peak season. The pandemic has driven new consumption scenarios, accelerating the growth of pre-made dish sales. According to the '2021-2022 China Pre-made Dishes Industry Development Report', the market size exceeded 300 billion yuan in 2021. In 2021, pre-made dish sales grew 16 times year-on-year, with sales of 1-2 person small-pack semi-finished dishes increasing 3.5 times since the Spring Festival. The 'stay put for the New Year' policy boosted pre-made dish sales significantly. According to data from the Ministry of Commerce, since the launch of the 2021 online New Year shopping festival, sales of New Year's Eve dinner items increased 96% year-on-year, with semi-finished products growing over 380%. As the pre-made dish market heats up, upstream and downstream companies have entered the fray. According to Tianyancha APP data, in 2020, new registrations of pre-made dish companies reached a decade high, with 13,300 companies registered in the year. As of the end of January 2022, there are over 68,000 existing pre-made dish-related companies in China, mainly small and medium-sized enterprises.
01 Major condiment companies intend to enter the pre-made dish track
Meanwhile, major condiment companies, which had remained silent, have begun to speak out in unison this year: On February 21, Yihai Kerry announced it would officially expand into the currently hot pre-made dish track, stating that it already has 69 production bases in operation nationwide and is building Fengchu Central Kitchen parks in Hangzhou, Chongqing, Langfang, Xi'an, and other locations. Fengchu Central Kitchen (Zhoukou) Park. On March 18, Chuanwazi Food's self-media revealed that, based on its development advantages in the compound seasoning field, it would actively explore the pre-made dish track and has already developed specialty product series such as crispy pork, freshly simmered chicken soup, boiled fish fillets, spicy blood curd and tripe, and steamed pork with rice flour. On March 25, Haitian Flavoring held its 2021 annual results conference. When investors asked whether the company had considered entering the pre-made dish market to expand its product line, Haitian's board secretary Zhang Xin clearly replied: "This field is highly related to seasonings, and the company is actively conducting research." ...... As upstream companies in the pre-made dish industry, the entry of condiment companies is not surprising. As companies that also live on consumers' taste buds, condiment companies have natural advantages in making pre-made dishes, mainly in two aspects:
1. Seasoning expertise
A large part of whether pre-made dishes taste good depends on the seasoning packets, which fall under the category of compound seasonings. This is friendly to condiment companies with experience in compound seasonings, such as Teway Food and Yihai International, which have deep experience in compound seasonings and know customer taste preferences well, saving a lot of R&D effort.
2. Channels
Pre-made dishes are mainly supplied to B-end restaurants, which have advantages such as huge consumption and bulk purchasing, but at the same time, B-end competition is fierce, which is a considerable challenge for brands that are just starting out or cross-industry. Established condiment companies have a certain channel foundation, such as Lee Kum Kee and Haitian Flavoring, which already have a large number of high-viscosity B-end customers, which is a significant advantage. But can pre-made dishes really bring considerable performance growth to condiment companies?
02 Pre-made dishes can only be icing on the cake?
Before answering this question, let's talk about the pre-made dish industry. The current explosion of pre-made dishes has brought endless imagination and future prospects. Major consulting institutions believe that pre-made dishes will advance with irresistible force. According to iiMedia Research data, the pre-made dish market will grow at an annual rate of 20%, reaching 515.6 billion yuan by 2023. According to the '2021-2022 China Pre-made Dishes Industry Development Report', the market size is expected to exceed 830 billion yuan by 2025, and in the next 3-5 years, the industry is expected to become the next trillion-yuan catering market. Moreover, referring to Japan, where penetration is higher, pre-made dishes have a penetration rate of nearly 60%, with the top company Nichirei holding a market share of 20%-24%. In China, penetration is only 10%-15%, and no single company dominates the market, indicating significant future potential. From the data, the future of pre-made dishes looks bright, and there is no doubt about that. However, the development of any industry is bound to have obstacles. The current problems mainly fall into three points:
1. Insufficient C-end education
For C-end consumers, convenient pre-made dishes are indeed a "lazy person's gospel." But convenience is both an advantage and a disadvantage. Why? For example, suppose there are two bowls of soup with similar taste: one has been simmered for 8 hours by you or a chef, and the other only for half an hour. After tasting, which do you think is better? Under this psychological suggestion, most people would think the "8-hour soup" is better. Why? I believe everyone has heard of the egg theory: the more labor people put into an item, the more they overestimate its value. Consumers will think that such quickly obtained pre-made dishes are likely not as delicious as dishes made with care. For example, Xibei's initial "Jia Guolong Kung Fu Dish" may have experienced this. Jia Guolong was optimistic about the pre-made dish sector and named it after himself, planning to make a big move, but a large number of consumers called the smokeless Kung Fu dishes "high-priced canned food" and "airplane meals." Pre-made dishes are acceptable for simply filling the stomach, but it is difficult to get consumers to pay the price of dine-in restaurant meals for pre-made dishes. No matter how busy, people do not want to be deprived of the right to enjoy delicious food. Moreover, Chinese people generally believe that frozen food is not nutritious, and "frozen dumplings are always not as good as homemade ones." Of course, from a scientific perspective, nutritional value does not lose much. Weizhixiang's annual report also explains: "Quick-freezing technology refers to rapidly lowering the temperature of food to well below the freezing point of water (usually below -18°C), causing the water in the food to enter a 'supercooled' state. At this time, the 'ice crystals' formed in the food are very small, so small that they do not destroy the cells of the food, thus preventing various substances in the cells from flowing out. This minimizes the loss of nutrients and ensures the taste after freezing." But these deep-rooted concepts are not easily changed; people only believe truths within their cognition, and educating C-end consumers is a major challenge. In addition to inherent concepts, food safety incidents exposed in recent years have made consumers increasingly resistant. For example, in November 2018, the disgusting production environment of a meal kit factory was exposed, leaving a deep impression on consumers. This year, Yoshinoya was also exposed for food quality issues. Not long ago, Wang Zhigang, founder of Zhigang Think Tank, said bluntly in the "East Buy" live stream that "pre-made dishes are pig and dog food," which became a hot search topic, and many netizens agreed. This shows that consumers' recognition and acceptance of pre-made dishes are not high. Issues such as taste restoration, nutrition, and food safety are all consumer concerns. Condiment companies wanting to enter the market need to seriously examine these issues and whether the products they launch can dispel consumer concerns.
2. Increasingly fierce competition
The continuously expanding market size will inevitably lead to increasingly fierce competition among entrants. The "crazy expansion of the pre-made dish market" actually reflects a very interesting phenomenon in the domestic business world: as soon as someone makes money in a sector, a large number of peers and outsiders will flock in, quickly imitate, leading to a huge increase in supply, even far exceeding effective demand. Everyone thinks that standing at the forefront, anyone can make money, but blindly clustering will only intensify market competition, or even lead to a crash. Take Qudian as an example. In July this year, Qudian founder Luo Min announced his entry into the pre-made dish market with high profile, inviting celebrities to join him in live-streaming sales; by the end of August, Qudian's Douyin live room had stopped; in early September, Qudian released its Q2 2022 financial report, stating that due to increased marketing expenses related to pre-made dishes, the company had a net loss of 61.3 million yuan in the quarter. It is worth noting that Qudian invested a lot in marketing expenses to develop the pre-made dish business, but its Q2 2022 revenue was only 105.4 million yuan, a sharp decline of 74.4% compared to Q2 2021 when it had not entered the pre-made dish market. In this situation, Qudian said that based on its assessment of current market conditions, it decided to cut investment in the pre-made dish project, taking measures such as layoffs, terminating supplier cooperation, and clearing inventory. Similarly, the pre-made dish brand Shejian Hero, founded by Lu Zhengyao, former chairman of Luckin Coffee, has also faced consecutive store closures in Beijing, Zhengzhou, Chengdu, and other places, according to media reports. Image source: Bright Company. A company's energy is limited; for long-term development, it must stabilize its basic business. Blindly clustering will only weaken the company's strength.
3. Supply chain challenges
Currently, China's cold chain market is not yet mature, with low cold chain circulation rates, high product spoilage rates, and high transportation costs. Compared with developed countries, China's cold chain circulation rate is still low, and the spoilage rate is high, leaving significant room for improvement in cold chain efficiency. Early semi-finished food companies, such as Qingnian Caijun and Wochu, were affected by high cold chain transportation costs and scattered C-end demand points, and most eventually faced exit or shrinkage. In general, the future of pre-made dishes still needs to overcome many problems. After discussing the problems of pre-made dishes, let's return to the initial question: "Can pre-made dishes really bring considerable performance growth to condiment companies?" It seems there is an answer. Different people have different views. Earlier, I mentioned the advantages of condiment companies making pre-made dishes. We can see that the so-called advantages are only held by some companies, and there are many difficulties in entering the market, such as product R&D, supply chain, and cold chain costs. For companies with weak strength, if they haven't even perfected their own brand products, adding another sector is just a burden; for strong companies, it can only be icing on the cake. Condiment companies should be cautious when considering entering the market.
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