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wrote a column · Jun 16, 2022 10:02

Capital sparks, pre-cooked food faces challenges.

Recently, Lu Zhengyao, who was swept out by Luckin Coffee, has set his sights on the pre-cooked food track. This year, he officially launched the "Food Hero" pre-cooked food project and accumulated 1.6 billion yuan in financing in less than 4 months. He plans to open 3,000 stores within 5 months. Not only Lu Zhengyao and the "Food Hero" behind him, in the past two years, many new pre-cooked food brands have obtained financing under the dual drive of the market and capital. For example, since 2020, the precious taste of Xiaomeiyuan has received 5 rounds of financing of tens of millions of yuan; Penglai Catering Bag, which was established just last year, also completed a Pre-A round financing of nearly tens of millions of yuan recently. To a large extent, the extension of home time and the rise of lazy economy seem to give this market some room for imagination. But the reality is not as good as imagined. First of all, for the restaurant industry, doing the supply chain is a complex and costly task; secondly, in the C-end market, Chinese consumers do not have the relevant consumption habits, and in the B-end market, it is not an easy market for these new pre-cooked food brands. Under the trend, pre-cooked food, which is stir-fried, is not as delicious. Consumers find it difficult. In a broad sense, many semi-finished or fast food items can be called pre-cooked food. For example, around 2010, the rise of the food delivery industry led to the emergence of a large number of related semi-finished processed food brands. The produced semi-finished products are mainly supplied to food delivery restaurants. However, constrained by the low profit margins in the food delivery industry, as the upstream supply chain for pre-cooked food...
Recently, Lu Zhengyao, who was previously ousted by luckin coffee, has set his sights on the pre-cooked food track.
This year, he officially launched the pre-cooked food project of 'Food Heroes'. In less than 4 months, he has accumulated 1.6 billion yuan in financing and plans to establish 3,000 stores within 5 months.
Not only Lu Zhengyao and the 'Food Heroes' behind him, in the past two years, many new pre-cooked food brands have received financing driven by the market and capital. For example, since 2020, Zhenwei Xiaomeiyuan has received five rounds of financing totaling tens of millions of RMB; Pengpengdai, founded just last year, also recently completed a Pre-A round of financing totaling nearly tens of millions of RMB.
Recently, Lu Zhengyao, who was swept out by Luckin Coffee, has set his sights on the pre-cooked food track. This year, he officially launched the "Food Hero" pre-cooked food project and accumulated 1.6 billion yuan in financing in less than 4 months. He plans to open 3,000 stores within 5 months. Not only Lu Zhengyao and the "Food Hero" behind him, in the past two years, many new pre-cooked food brands have obtained financing under the dual drive of the market and capital. For example, since 2020, the precious taste of Xiaomeiyuan has received 5 rounds of financing of tens of millions of yuan; Penglai Catering Bag, which was established just last year, also completed a Pre-A round financing of nearly tens of millions of yuan recently. To a large extent, the extension of home time and the rise of lazy economy seem to give this market some room for imagination. But the reality is not as good as imagined. First of all, for the restaurant industry, doing the supply chain is a complex and costly task; secondly, in the C-end market, Chinese consumers do not have the relevant consumption habits, and in the B-end market, it is not an easy market for these new pre-cooked food brands. Under the trend, pre-cooked food, which is stir-fried, is not as delicious. Consumers find it difficult. In a broad sense, many semi-finished or fast food items can be called pre-cooked food. For example, around 2010, the rise of the food delivery industry led to the emergence of a large number of related semi-finished processed food brands. The produced semi-finished products are mainly supplied to food delivery restaurants. However, constrained by the low profit margins in the food delivery industry, as the upstream supply chain for pre-cooked food...
To a large extent, the extended time spent at home and the rise of the lazy economy seem to have provided this market with some room for imagination. But the reality is not as rosy as imagined.
Firstly, for the dining industry, managing the supply chain is a complex and costly task; secondly, in the consumer market, Chinese consumers do not have relevant consumption habits, and in the business market, it is not an easy market for these new pre-cooked food brands to tackle.
Under the trend, precooked pre-cooked food is not as tasty.
Consumer end is struggling.
In a broad sense, many semi-finished or fast food can be called pre-cooked food.
For example, around 2010, with the rise of the take-out industry, a large number of related semi-finished product processing brands emerged. The semi-finished products produced are mainly supplied to take-out restaurants. However, due to the low profit margin of the take-out industry, the profit space of pre-cooked food companies as upstream supply chains can be imagined.
At present, many new players in the pre-cooked food market have set their sights on the consumer market. Many brands and supermarket chains have adopted the supply model, and have expanded their online channels. For example, the main sales model of Zhenwei Xiaomeiyuan is cooperation with channels, and it has settled in Suning, Carrefour, Hema Fresh, and opened Tmall and JD flagship stores; Maizima started from WeChat business, and later launched multiple e-commerce platforms. Now it has cooperated with Walmart, Lianhua, and Hema Fresh.
Recently, Lu Zhengyao, who was swept out by Luckin Coffee, has set his sights on the pre-cooked food track. This year, he officially launched the "Food Hero" pre-cooked food project and accumulated 1.6 billion yuan in financing in less than 4 months. He plans to open 3,000 stores within 5 months. Not only Lu Zhengyao and the "Food Hero" behind him, in the past two years, many new pre-cooked food brands have obtained financing under the dual drive of the market and capital. For example, since 2020, the precious taste of Xiaomeiyuan has received 5 rounds of financing of tens of millions of yuan; Penglai Catering Bag, which was established just last year, also completed a Pre-A round financing of nearly tens of millions of yuan recently. To a large extent, the extension of home time and the rise of lazy economy seem to give this market some room for imagination. But the reality is not as good as imagined. First of all, for the restaurant industry, doing the supply chain is a complex and costly task; secondly, in the C-end market, Chinese consumers do not have the relevant consumption habits, and in the B-end market, it is not an easy market for these new pre-cooked food brands. Under the trend, pre-cooked food, which is stir-fried, is not as delicious. Consumers find it difficult. In a broad sense, many semi-finished or fast food items can be called pre-cooked food. For example, around 2010, the rise of the food delivery industry led to the emergence of a large number of related semi-finished processed food brands. The produced semi-finished products are mainly supplied to food delivery restaurants. However, constrained by the low profit margins in the food delivery industry, as the upstream supply chain for pre-cooked food...
However, in reality, pre-cooked food directly targeting the consumer market is in an extremely awkward position. Compared to dining out or cooking at home, pre-cooked food doesn't taste as good, and many additives are added to preserve it which is not healthy. Compared to take-out, most 2C pre-cooked food is not only more troublesome but also more expensive.
For example, taking the example of sour and spicy fish, the pre-cooked food product sour and spicy fish in Hangzhou Hema Fresh store is priced at about 36 yuan, while the combo of sour and spicy fish + rice on take-out platforms is generally less than 20 yuan.
Hangzhou's sour and spicy fish take-out / Hema Fresh pre-cooked food.
Among these newly established pre-cooked food brands, there is a significant phenomenon of product homogenization.
Indeed, in China's dining market where food is considered essential, there are various cuisines from all over the country. However, this has also led to diverse tastes, making it risky for most 2C pre-cooked food brands to develop a wide range of dishes. Instead, they choose to develop categories with higher acceptance rates among the public.
On Tmall, the best-selling aquatic dishes from brands such as Maizi Ma, Zhenwei Xiaomeiyuan, and Ding Ding Lazy Man's Food are all pickled fish. Brands like Wang Xiaoyu and Baima Liangshan have the best sales of pre-cooked food, mainly braised pork. Therefore, pre-cooked food brands are also trapped in a dilemma of monotonous taste and product homogenization.
Heavy flavors are also a common characteristic of various pre-cooked food products, such as pickled fish, crispy pork, braised pork, which are all star products of pre-cooked food. The reason behind this is simple - these heavy-flavored dishes do not require high freshness, their taste requires a large amount of salt, soy sauce, and other seasonings, or flavors like fried, sour, and spicy, which can significantly minimize the disadvantage of non-fresh ingredients.
Taobao screenshot
The structure of Chinese dining is complex, with distinct regional characteristics. Limited pre-cooked food categories cannot meet consumers' diverse dietary needs and remain in a niche market. Observational data from the agricultural industry shows that the pre-cooked food consumption market is concentrated in major first and second-tier cities, accounting for 65% of the market share.
In addition, with dispersed consumer demand, pre-cooked food companies need to establish warehouses in various locations and enhance cold chain transportation capabilities, which poses a significant burden. Most small and medium-sized pre-cooked food companies lack the relevant technology and equipment. Even after more than a decade since its establishment, known as the 'pre-cooked food industry leader,' Weizhixiang only covers the East China region in its supply chain. Financial reports show that in the last three years, the company's revenue in East China accounted for 98.81%, 96.80%, and 96.02% of total income.
Moreover, as a consumer product targeting 2C, it undoubtedly requires a substantial amount of marketing and advertising to establish market awareness and brand recognition. The enormous marketing expenses are also difficult for these new pre-cooked food brands to sustain.
Pre-cooked elevator advertisements/Zinc Finance shooting
Consumer habits have not yet formed, homogenized competition is severe, and the market scope is small, which is also a big obstacle for these pre-cooked food brands to take the 2C road.
The B-side market is unstable.
In this not-so-new pre-cooked food track, the 2B supply chain model is actually a viable option. The B-side market is the 'main battlefield' for domestic pre-cooked food, accounting for more than 80%. However, it is almost impossible for emerging pre-cooked food companies to cooperate with chain catering brands or large distributors.
Large chain catering brands often have their own central kitchens and pre-cooked food products, so they don't need to cooperate with other pre-cooked food companies. For example, Lipton Restaurant$GREEN TEA GROUP (06831.HK)$Plans to build its own pre-cooked food supply chain, and the company expects that about 90% of the semi-processed food produced by the facility will be supplied to Lipton's restaurants nationwide, while the remaining 10% will be sold as retail products to consumers.
Lipton Restaurant
According to data from the China Chain Operations Association, more than 74% of domestic chain catering brands have their own central kitchens, and more than half of the catering brands have developed pre-cooked food products.
The number of dining brands with a demand for pre-cooked food is limited, and the suppliers are often long-standing old brands.
Like McDonald's$BEST Inc (Delisted) (BEST.US)$and Haidilao$HAIDILAO (06862.HK)$supplier Qianwei Yanchu, which originated from traditional frozen food companies such as Sinian Food, has a large number of B-end resources. As of the end of December 2021, the company's major customer base reached 168; while the suppliers of Banu, Big Pizza, and others, under Meizhou Dongpo's Wangjiadu Food, have been established for over a decade and have built a complete B-end sales network themselves.
Qianwei Yanchu products
The level of chain operation in domestic restaurants is still in its early stages compared to the foreign market. Data from Meituan disclosed that as of 2020, the chain operation rate of restaurants in China was only 15%, which is significantly lower than the 50% chain operation rate in the USA.
As a result, there isn't much room for imagination for emerging pre-cooked food companies in the B-end.
Most of the independent small street shops on the market are not standardized in their dishes and are sensitive to prices. In order for pre-cooked food companies to cooperate with these stores, they must lower supply prices and provide specially made products to the restaurants. Even if they manage to qualify as suppliers, pre-cooked food companies can only obtain meager profits.
Pre-cooked food companies can also choose to cooperate with take-out shops, but it is not a good idea. Take-out shops rely on small profits and large sales, making it difficult to form stable and large-scale cooperation with them.
The pseudo-trend of pre-cooked food.
Pre-cooked food originated in the United States in the last century, where the geographical conditions were vast and the population had relatively homogeneous eating habits. The market welcomed processed food, and the pre-cooked food industry gradually matured.
Recently, Lu Zhengyao, who was swept out by Luckin Coffee, has set his sights on the pre-cooked food track. This year, he officially launched the "Food Hero" pre-cooked food project and accumulated 1.6 billion yuan in financing in less than 4 months. He plans to open 3,000 stores within 5 months. Not only Lu Zhengyao and the "Food Hero" behind him, in the past two years, many new pre-cooked food brands have obtained financing under the dual drive of the market and capital. For example, since 2020, the precious taste of Xiaomeiyuan has received 5 rounds of financing of tens of millions of yuan; Penglai Catering Bag, which was established just last year, also completed a Pre-A round financing of nearly tens of millions of yuan recently. To a large extent, the extension of home time and the rise of lazy economy seem to give this market some room for imagination. But the reality is not as good as imagined. First of all, for the restaurant industry, doing the supply chain is a complex and costly task; secondly, in the C-end market, Chinese consumers do not have the relevant consumption habits, and in the B-end market, it is not an easy market for these new pre-cooked food brands. Under the trend, pre-cooked food, which is stir-fried, is not as delicious. Consumers find it difficult. In a broad sense, many semi-finished or fast food items can be called pre-cooked food. For example, around 2010, the rise of the food delivery industry led to the emergence of a large number of related semi-finished processed food brands. The produced semi-finished products are mainly supplied to food delivery restaurants. However, constrained by the low profit margins in the food delivery industry, as the upstream supply chain for pre-cooked food...
McDonald's/KFC stores.
Subsequently, pre-cooked food gained popularity in the Japanese market. With a high population density and intense work schedule, supermarkets and convenience stores became the main dining places, and pre-cooked food developed. Currently, the penetration rate of pre-cooked food in the Japanese dining market is as high as 60%.
Compared to foreign markets, China has a developed take-out industry, complex dishes, and consumers with high demands for food taste. It does not have the genetic predisposition for the development of pre-cooked food. In the late 1990s, with the entry of foreign fast food chains such as McDonald's and KFC, net vegetable delivery processing plants began to appear in China. Around 2000, pre-cooked food companies started to emerge, but until the outbreak of the pandemic, the overall development of the industry was relatively slow.
In the past two years, with the fluctuating pandemic situation and increased demand for working from home, the concept of pre-cooked food has gradually become well-known. In this situation, the entry of capital has become a catalyst for the development of pre-cooked food. However, although the pre-cooked food market is hot in the capital market, emerging brands face difficulties in both the business-to-business (B2B) and business-to-consumer (B2C) markets. It is difficult not to suspect that it is just a pseudo-trend that has been pushed onto the stage.
In the past few years, the heat of capital investment has been constantly shifting. Now it's the turn of pre-cooked food. In 2017, fresh e-commerce was the hot investment trend, but with the suspension of "Dai Luobo" and the continued losses of "Meiri Youxian" and "Dingdong", capital lost its enthusiasm for the industry.
Tianyancha data shows that China currently has over 0.072 million pre-cooked food related companies. However, in the CCTV finance channel's previous poll titled 'Would you buy pre-cooked food?', over fifty percent of the netizens think 'not necessary to buy'. Capital's expectations and investments in pre-cooked food may end up being futile.
This bowl of pre-cooked food, which has been hyped by the trend, doesn't taste as good as imagined.
By / Chen Yan
Edited by / Dafeng
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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