‘Ready to Cook’ food is beginning to occupy a larger share of table space. As the market continues to expand, investors and firms are following the tastes of diners and attractive price points. However, there is also fierce competition in the industry and challenges remain.
What motivated a large financial technology company, namely Qudian Inc (Chinese: 趣店, QD:NYSE), to transform and dive into the preprepared dish industry. Well, as people's demand for food safety and quality increases, more and more people are choosing to buy convenient, fast and nutritious preprepared dishes (Chinese: 预制菜). The COVID-19 pandemic and the rise of the ‘lazy economy’ has accelerated consumers' acceptance of the idea. Dining in is also under pressure. We are also seeing restaurant owners starting to prefer preprepared dishes because they can effectively reduce operating costs and mitigate the loss of dine-in revenue. Therefore, these two driving forces, combined with other factors such as favorable policies, pushed the size of China's preprepared dish market to over CNY 419 billion in 2022. The market is expected to maintain a high growth rate in the future and will reach a size of CNY 1,072 billion by 2026, according to iiMedia Research.
Nashi Technology (Chinese: 纳食科技) found that the current sales channels of preprepared dishes basically cover catering enterprises, supermarkets, convenience stores, e-commerce, community group purchasing and others. Among these, catering companies constitute the most important sales channels for preprepared dishes; the category is often described as a primarily B2B business type. This B2B business is also remaining dominant, with a sales volume of CNY 350 billion this year, compared to less than CNY 100 billion for the B2C market. However, the gap is expected to shrink as exposure and penetration continue to increase on the C-side. For instance, the sales volume of preprepared dishes witnessed exponential growth on major e-commerce platforms during the Chinese New Year holiday. Nashi Technology's chairman, Li Yan, noted that "eventually there will be no difference in consumption power between the B2B and B2C markets."
Moreover, competition in the prepared dish industry is fierce, with many local emerging brands such as Sanquan Food (Chinese: 三全食品) and traditional restaurant companies like Xibei (Chinese: 西贝) entering the market. In the short term, the industry pattern of fragmentation is expected to remain. Besides, investors continue to pour money into the industry. Funding peaked in 2015 and 2016, with 14 and 17 cases respectively. In 2020, there were a total of 23 financings in 2020 and 2021 for the preprepared dish track. As a result, there are many new entrants in the industry, all in the initial stage; the scale of each enterprise is small, and there are no leading enterprises that can guide the market's development. For instance, the market share of companies that laid out early in the preprepared dish market such as Anjoy Food (Chinese: 安井食品) is less than 2%.
In this highly competitive market, how to stand out is the key question. First, Li Yan told EqualOcean that "it is important to establish a reputable brand image that can be known and remembered by consumers." Nearly 94% of Chinese preprepared dish consumers will consider the brand before making a purchase. Another aspect to look for is the appearance of the product. Since most C-side users are young people, particularly females, whether the product looks visually appealing can make a difference. Given that the market is filled with homogenous products, having a unique point of differentiation is also important. Li Yan said that "let your products have their own characteristics and labels as early as possible, so that they can be competitive." Firms may achieve this through research and development.
Nonetheless, firms in this developing industry face challenges on multiple fronts. EqualOcean learned that preprepared dish offerings face low acceptance, high unit costs, and a trade-off between standardization and diversity. Low acceptance and high unit costs may be addressed as soon as the market penetration rate improves, and economies of scale are achieved. However, satisfying diversified tastes using standard production methods is extremely difficult. There remain many supply chain issue that need to be solved. In addition, the industry lacks comprehensive industry standards. Besides, the Consumer Protection Commission recommends that firms improve food safety, enhance consumer satisfaction, standardize product details, protect consumers' right to know, protect the conditions of transport of goods and improve distribution efficiency to solve these pain points.
Looking ahead, the industry will continue to expand thanks to the two-wheel drive flexibility of of this B2B / B2C business type. The rise of preprepared dishes is in line with the trend of social rhythm and economic development and meets the current consumer demand for both quality and efficiency. It may exhibit the characteristics of segmentation. For instance, there will be prepared dishes that suit different consumption scenarios, such as in the office or workplace. Digitalization will also play an important role. Nashi Technology helps to shorten the time for products to reach the market through digitalization and improve timeliness, which in turn cuts costs for businesses.