ZWC insight| How Prepared Dish Can Dominate Kitchen In It's Highlight
March 3, 2022

This world can never be without food, and a “kitchen revolution” initiated by prepared dishes is becoming the center of attention.

Recently, many upstart catering companies have sprung up. Zhenwei Xiaomeiyuan, Sancanyouliao, and others have managed to secure funds; Lu Zhengyao (Charles), CEO of Luckin Coffee and Qu Bayu, has released the high-profile “Tongue Tip Workshop”; and industry leaders in chain catering such as Guangzhou Restaurant, Haidilao, and Xibei have been actively making new layouts. Recently, in the A-share market, stocks in prepared dishes have also entered the limelight, reaching the upper limit for three consecutive days.

Featuring easy cooking, prepared dishes are favored by consumers. For instance, Dingdong (Cayman) Limited achieved a 300% increase year-on-year in its sales of all prepared food in 2021; sophisticated dishes served by Fotiaoqiang and Wellington Catering have found their way onto household dinner tables; and the “ready-to-cook reunion dinner” has ranked first among Tmall’s top ten “new” special purchases for the Spring Festival.

Through an in-depth investigation of the prepared dishes market, as well as a review of the development history of prepared dishes in the American and Japanese markets, ZWC Partners predicts that prepared dishes will embrace a boom period. On this racetrack to be filled with imagination, why is the prepared dishes market so promising at this time? How can these players thrive? How can the game be won in the “Blue Ocean Competition”? We will also actively share our thoughts for your reference.

As a combination of delicacy and efficiency, prepared dishes are worth seeking out.

  1. With demand in the C-end sharply rising and the B-end market expanding, prepared dishes will soon embrace a boom period

The spirit of food exploration has always been in the DNA of Chinese people, who have always given particular care to “eating”. To be honest, prepared dishes cannot be regarded as some kind of novelty, but why they are winning such popularity on the dining table?

(1). With concerted efforts, prepared dishes are making their way onto tables of millions of households
First, the product experience of prepared dishes is increasingly fitting the needs of C-end users.
The pandemic has undoubtedly served as a catalyst for lifestyle changes. People have become more health-conscious. Dining out and ordering takeout pose certain health risks, while self-catering is somewhat cumbersome. Moreover, the social division of labor, accelerated pace of work, and women piling into the job market all result in increased time costs. Therefore, the convenience of cooking has been increasingly emphasized. The emergence of prepared dishes efficiently balances the issue of food safety and the convenience of cooking.
In the meantime, with the development of the economy and improved per capita income, people have increased their consumption of meat, poultry, vegetables, and snacks. Consumers’ purchasing power for prepared dishes has also been enhanced; the diversification and convenience of purchase channels also offer a more convenient shopping experience, thereby stimulating the consumption of prepared dishes in turn.
Furthermore, prepared dishes can realize category integration; that is, they can deliver a complete solution of “what to eat” for users. Consumers’ purchases can be made on the basis of “one dish” instead of a single food ingredient, which is more suited to users’ purchase habits.

It is worth noting that the contents of the various vigorously-developing new media have also inspired consumers’ desire to enhance their cooking skills. Young people, who are fond of sharing and innovating, have enabled the sharing of food on social media to become fashionable. In this regard, the threshold for cooking prepared dishes is low, so they are more likely to be posted and shared by beginners. What’s more, the one-stop process of watching, buying, and sharing on comprehensive-content platforms has become more convenient. Easy-to-make prepared dishes that look delicious can motivate consumers’ passion for cooking to an extraordinary degree.

The B-end market, however, is more important. The space for the prepared dishes market has also been steadily expanding as the downstream catering industry and cold chain logistics industry have advanced.

The ever-burgeoning catering industry has enhanced the scale of its procurement of catering materials, while the costs of raw materials, labor, rent, and so on in the catering industry are also rising. According to data from the China Hospitality Association, the average lifespan of restaurants in China is only about 500 days, and they also have weaknesses in risk resistance capabilities. The business dilemma where “three highs” cause “one low” (low gross margin) requires half-finished food ingredients to cut costs and promote the “industrialization” of catering enterprises.

And the chain operation mode of catering enterprises also has higher requirements for product standardization and the need for more prepared food ingredients. In addition, the market continues to reinvigorate the industry. For example, the features of dining together, such as strong predictability and replicability, naturally coincide with the advantages of prepared dishes. Rural banquets involving a large number of diners are expected to be carried out in a safe and standardized manner. With the emergence of prepared dishes, it is more convenient to purchase food in the countryside, so prepared dishes are favored by the sinking market.

Moreover, the boom of takeout calls for more efficient cooking, driving the market demand for prepared food ingredients that can respond to catering needs quickly.

The refinement of the “infrastructure” of the prepared dishes industry chain has also stabilized its development. The rapid progress of the cold chain logistics industry and the improvement of food preservation technology both ensure the stable transportation of mass prepared dishes, which helps to further expand the business scope of prepared dishes enterprises.

Moreover, the convenience brought by e-commerce logistics also paves the way for prepared dishes to thrive in more places. The development of big data has introduced precision marketing and improved enterprises’ production, sales, and operation management efficiency, thus reducing losses and increasing efficiency; furthermore, agricultural industrialization has reduced the cost of agricultural and pasture products, indirectly elevating the purchasing power of consumers.

(2). Judging by the time, the boom period of prepared dishes is imminent

What does the future hold for prepared dishes? The development path of the prepared dishes overseas market may provide an insight into where Chinese prepared dishes are about to go.

Looking back over the development path of American and Japanese prepared dishes enterprises, we can see that their core driving force had much in common with that of the current Chinese market: the development and innovation of quick freezing technology lay a foundation for the evolution of prepared dishes; the supporting facilities at the B-end and C-end (such as refrigerators and induction cookers) provide supporting conditions for the development of prepared dishes; both ends are optional directions for market expansion; and the taste and convenience of the products are being continuously optimized to keep up with the market demand.

For example, Japanese prepared dishes developed in leaps and bounds in the late 1970s and early 1980s, and grew at a rate of more than 20% every year. Currently, the penetration rate of prepared dishes in Japan has reached more than 60%.

The core indicators of China’s current social structure are very similar to those of Japan in the late 1970s. Economic and social development requires the comprehensive improvement of efficiency, so the emergence of convenient consumption has led to the development of prepared dishes.

Moreover, the penetration rate and chaining rate of the Chinese catering industry have exceeded those of Japan in the 1970s, and China is a match for Japan in terms of the penetration rate of prepared dishes. It is projected that China’s B-end market will also welcome a golden rising period similar to that of Japan in the next decade. At the C-end, with a sharp increase in the proportion of one-person and two-person households in China, the average number of people per household has fallen to the same level as that in Japan. The employment rate of Chinese women has always ranked first in the world. The maturity of the core drivers of the C-end accelerates the growth of the market.

In 2020, the income of China’s prepared dishes market reached CNY 31.4 billion (ex-factory statistics) with a year-on-year increase of 49%, and its CAGR has reached 95% in the past five years.

In addition, although Chinese prepared dishes are focusing on the B-end, the proportions of the B-end and C-end will be gradually adjusted considering the industry development path of Japan. The B-end and C-end revenues of Chinese prepared dishes enterprises account for 80% and 20% of the total respectively, a remarkable contrast with 60% and 40% in Japan. There will be great structural changes and surging market opportunities in the future.

  1. The prepared dishes market is booming, and multiple players are vying to enter

Weizhixiang was listed last year as the first stock in the prepared dishes industry; in the primary market, a great number of emerging prepared dishes brands have also received many rounds of funding. By the end of April 2021, the number of enterprises related to prepared dishes in China had reached 71,900. However, they are generally small, weak, and scattered. With evident regional characteristics and low industry concentration, they are still involved in the “Blue Ocean Competition”.
This situation provides players with a fully competitive environment. Due to the positioning of prepared dishes between catering and retailing, their supply and retailing are diversified. At present, enterprises in the game are mainly classified as professional, catering, retailing, and comprehensive enterprises. For example, when catering enterprises, that naturally provide catering services, offer prepared dishes, these dishes are highly in line with the products sold in the restaurants of these enterprises. Comprehensive enterprises providing frozen and quick-frozen food are popular with consumers. Although the success of their cross-category products remains to be seen, their consumer base is in place.

At the same time, in the competition between new retailing and traditional supermarkets over the channels, prepared dishes also represent a significant innovation. Young people have become the major consumers, and they have higher requirements for the quality, convenience, and options of catering. New retailing channels can meet the needs of these users by providing more varied and higher-quality prepared dishes. Compared with traditional supermarkets, Freshippo can obtain both a higher per-customer price and increased repurchase frequency in fast food catering because it has created a barrier of ready-made prepared dishes by virtue of its digital capabilities and supply chain resources.

  • Digital operation: big data feeds supply and marketing information back in real-time to guide procurement and inventory; supporting users’ immediate purchase and use by means of real-time delivery, as well as the on-site selection and cooking at outlets, which improves the operational efficiency of the whole chain of fresh prepared dishes from production to sales.
  • Cold chain and fresh food resources support: the reuse of cold chain resources and fresh food supply chain enables a prominent comparative advantage in costs; local fresh food supply chain resources can better support regional products on the shelves, solve the critical problem of regional preferences and establish regional advantages.
  • Immediate distribution plus outlet channel: there are over 300 outlets in the first and second-tier cities, and the immediate delivery service can reach consumers efficiently; the outlet channel is conducive to brand exposure and the establishment of brand image. It can also meet the immediate needs of consumers for prepared dishes.

The strength harbored by professional enterprises is also remarkable. As an expert in the catering channel of quick-freezing rice and flour food, Qianwei Yangchu is making efforts on the B-end. With outstanding advantages in R&D, it has constantly broken through the traditional modes and developed many new rice and flour products suitable for a wide range of scenarios. Through customized services, it can directly serve its major customers, who become long-term customers because of such an exclusive supply mode. Through the national dealer network, general goods are sold in large quantities. Fried dough sticks of KFC and steamed stuffed buns of Kungfu are both among its products.

  1. Daybreak and victory of prepared dishes

Generally speaking, China’s prepared dishes market is in its infancy. In particular, the foundation of the C-end needs to be consolidated, and the market requires further growth. The supply end must figure out a way to choose the right product categories, in order to grasp golden opportunities of profiting from the emerging products. We preliminarily predict that the development of domestic prepared dishes will be driven by the supply side. The key to embracing the daybreak will be how to achieve differentiated competition with takeout.
At present, a very distinctive point of China’s catering market is its high penetration of takeout, which accounted for 14% in 2019. Takeout has impacted the C-end market of prepared dishes to a certain extent. The supply side should try to avoid direct competition with takeout when choosing product categories, or else the risk of being replaced will be too high; at the same time, the choice of target customers should avoid core takeout users (young people under the age of 30 accounting for 60%) in order to achieve differentiated competition and improve conversion efficiency.
For example, at the C-end, catering products that are rarely involved in takeout, difficult to cook at home, and easily leave a deep impression are recommended (such as internationally popular foods rather than over-competitive domestic local snacks). Moreover, it is recommended to target people in the new middle class, as they have strong purchasing power and are quality-seeking and busy. At the B-end, prepared dishes will gradually replace some central kitchens to widely serve takeout, fast food, chain stores, and other subdivided formats.
Let’s further focus on the close competition of players in the prepared dishes market.
As for the B-end, its demand for food ingredients is gravitating towards half-finished products, intensification, and standardization. Prepared dishes enterprises need to strengthen their service awareness and related capabilities:

  • Digitalization capability: the digital capability of enterprises should be promoted through big data, industrial software, the industrial Internet, and so on, thereby boosting refined management and improving business efficiency.
  • Customization capability: the differentiated competition of catering enterprises’ products calls for more customization requirements in the upstream catering supply chain, demanding that prepared dishes enterprises have a stronger level of R&D capability, communication ability, and industry awareness.
  • Flexible supply capability: quick response to customer demand is of vital importance. Currently, due to the rapidly changing market dynamics, diversity of consumer preferences, and personalized competition between catering brands, prepared dishes enterprises need to build a flexible supply chain based on digitalization and customization capabilities.

At the C-end, it is advised to always seek considerable insights into consumers’ critical problems and grasp the needs of core consumers. Currently, new retailing channels and the competition of branding are bringing new market opportunities. To secure a decisive victory, prepared dishes enterprises need to build dual capabilities in both branding and supply chain:

  • Prepared dishes brands basically cover all traditional sales channels, and the advantages of new retailing channels shall bring great benefits to brand development.
  • Brand establishment serves as the core competitiveness. The establishment of a brand image can help enterprises to distinguish themselves from other similar competitors, escape fierce price competition, establish their own advantages and enhance the added value of their products.
  • Strong supply chain capability can solve the most critical problems of enterprises and help them to establish their competitive advantages. In every link of the supply chain, new brands need to consider whether they should build their supply chain by cooperation or on themselves based on the actual situation.

As the saying goes, “The finest food is never fine enough.” However, in our efficiency-oriented daily life, where we lack time and energy, we are unable to guarantee a table of delicacies for every meal. Therefore, prepared dishes that are delicious, convenient, and replicable in bulk have become the best solution for a huge number of people. However, prepared dishes also lack a trace of the indescribable “cooking smell” of three meals in a day. In addition, people from different places have their preferences. How to meet the various and differentiated dietary requirements of local consumers is a problem, and it urgently needs a solution.

Consumers are not machines composed of industrial components, as their stomachs measure the warmth of life. In addition to enjoying the convenience, we expect prepared dishes enterprises to present meals with more fragrance of life, allowing people to have a bite of the authentic “taste of home”.