Evaluating the “Hot Trend”: Assessing the True Potential and Efficiency of the Prepared Food Industry
When assessing whether a “hot trend” truly has broad prospects and isn’t merely a speculative rush, criteria such as its ability to drive upstream and downstream industries and the efficiency of industrial iteration are crucial. Prepared foods became a hot trend due to the COVID-19 pandemic, but they were not created for special periods. Prepared foods have already infiltrated our daily meals, hold a place in restaurants, and are changing the current and future eating habits of Chinese people. They symbolize the high industrialization of the food industry. Through this series of reports, we will break down every link in the prepared food industry chain, analyzing the current production landscape and future directions of prepared foods in China.
Prepared Foods = Meal Kits = Preservatives?
When people talk about prepared foods, such judgments may arise.
Companies involved in prepared foods have not chosen to avoid these public concerns. Liu Dayong, Vice President of Zhongyang Group and General Manager of Zhongyang Yutianxia, is well aware of consumers’ worries about additives in prepared foods.
“In the past, the use of preservatives in prepared foods mainly came from B-end demand. Due to the high demand for quick meal preparation and low storage environment requirements in kitchens, products that could be stored and transported at room temperature were used,” Liu Dayong told Jiemian News. “Therefore, preservatives and stabilizers that maintain ‘color, aroma, and taste’ for a long time were needed in seasonings for catering.”
However, the current situation is different. As the prepared food industry has developed, it has undergone a reshuffle. Shelf-stable prepared foods that required large amounts of additives to restore food flavor and were sold at low prices are exiting the market. The industry is gradually shifting towards frozen prepared foods relying on cold chain logistics.
Reducing Preservatives: How to Maintain Freshness?
The 2022 in-depth report on the prepared food industry by Huaxin Securities also pointed out that compared to traditional meal kits, prepared foods have a shorter shelf life and higher requirements for freshness. Moreover, downstream customers are more scattered, and product demand is diverse. Therefore, preserving freshness and timely delivery are core requirements for prepared foods.
“Currently, we use cold chain throughout the entire process for our aquatic products. This allows us to eliminate the need for preservatives and antioxidants when developing matching seasoning packets. Instead, we use biologically extracted seasonings,” Liu Dayong said.
Consumers are familiar with frozen prepared foods such as crayfish, blackfish slices in pickled fish, and cooked chicken. These now use quick-freezing technology rather than traditional preservatives for preservation.
For example, in the quick-freezing process, a different technology from traditional food freezing is used.
Many prepared foods now use liquid nitrogen quick-freezing technology during the freezing process. Liquid nitrogen, as an ultra-low temperature refrigerant, quickly absorbs heat to achieve rapid freezing when it contacts food, reaching -18°C.
The application of liquid nitrogen quick-freezing technology brings not only efficiency but also quality. The technology quickly freezes water into tiny ice crystals, reducing moisture loss and preserving the texture and nutritional value of the product.
For instance, popular prepared food crayfish are quickly frozen in a liquid nitrogen chamber for about 10 minutes after cooking and seasoning, locking in the fresh flavor. In contrast, traditional freezing methods require 4 to 6 hours to freeze to -25°C to -30°C.
Similarly, the cooked chicken from Wens Group’s Jiawei brand only takes about 2 hours from slaughtering, blanching, marinating, and simmering to using liquid nitrogen quick-freezing technology before it can be shipped nationwide.
Scale and Specialization in Cold Chain Logistics: Essential for Freshness
When prepared foods are frozen and preserved using technology and leave the factory, the race against time begins.
China’s market is vast, and prepared foods need the support of a scaled cold chain logistics system to penetrate different regions. Fortunately, the rapid growth of the prepared food market presents more opportunities for the logistics industry, which is why companies like Gree and SF Express are entering the prepared food sector.
For example, in August last year, SF Express announced it would provide solutions for the prepared food industry, including trunk and branch line transportation, cold chain storage services, express delivery, and same-city distribution. At the end of 2022, Gree high-profile announced an investment of 50 million yuan to establish a prepared food equipment manufacturing company, providing cold chain equipment in the cold chain segment.
Gree Group told Jiemian News that the company has over 100 product specifications to address efficiency issues in logistics handling, storage, and packaging during production.
The cold chain logistics field in China has undergone a long journey before it could “easily” deliver prepared foods to your table.
From 1998 to 2007, the cold chain industry in China was in its infancy. Until 2018, upstream food companies and foreign cold chain transportation mainly explored B-end cold chain logistics. Since 2020, under the prepared food trend, China’s cold chain development has seen unprecedented growth, with annual growth rates exceeding 60% for several consecutive years.
For example, JD Logistics established a prepared food department at the beginning of 2022, focusing on serving two types of customers: central kitchens (ToB) and prepared foods (ToC), forming a scaled and specialized layout.
JD Logistics Public Business Division General Manager San Ming said they categorize prepared food customers into three types: upstream raw material companies, midstream prepared food enterprises (including prepared food processors and deep processing enterprises), and downstream industries (mainly catering customers and new retail enterprises).
To this end, they designed a model that provides integrated production and sales supply chain services for central kitchens, including the construction planning of prepared food industrial parks, packaging, and digital farms. For the C-end, they use a tiered city distribution method.
According to San Ming, over 95% of prepared foods require cold chain operation. For city distribution, JD Logistics also has corresponding plans, including solutions for 30-minute, 45-minute, and 60-minute deliveries, as well as overall delivery plans.
Currently, JD’s cold chain operates over 100 temperature-controlled cold chain warehouses for fresh food, covering more than 330 cities. Relying on these cold chain layouts, customers and consumers can receive their prepared foods more quickly, ensuring the freshness of the products.
Self-Building Cold Chains: Pros and Cons
Prepared food production companies use different approaches for cold chains: some build their own cold storage and cold chain logistics, some cooperate with third-party logistics companies, and others use both methods.
For instance, companies like Heshi Aquatic and Yongji Aquatic mainly use self-delivery, while CP Group has built a cold chain logistics in Zhanjiang. Hengxing Aquatic and Wens Group have chosen to cooperate with Gree Cold Chain. Many small and medium-sized prepared food companies in Zhucheng, Shandong rely on third-party cold chain logistics companies.
There are pros and cons to building your own cold chain.
Companies aiming for expansion often consider self-building due to scale considerations. The advantage of self-built cold chains is the ability to more effectively control the logistics process, reducing transaction risks by closely monitoring logistics service quality. It also allows for quicker access to consumer information and market trends.
However, the downside of self-built delivery modes is the high cost of establishing a cold chain logistics system, requiring substantial capital investment. Without sufficient financial resources and a large volume of orders to support it, it could hamper the company’s development.
Using third-party logistics delivery has a significant advantage in separating sales and logistics, allowing the company to focus more on sales while reducing logistics costs.
Moreover, for prepared foods, logistics companies like Zhongtong Cold Chain are increasing “less-than-truckload” (LTL) cold chain express services.
In simple terms, road express is divided into full truckload and less-than-truckload logistics. From the perspective of the number of freight orders, full truckload logistics refers to a single freight order filling an entire truck.
Less-than-truckload logistics requires multiple freight orders to fill a truck, combining goods from multiple clients going to the same destination.
From the perspective of cargo weight and handling requirements, full truckload transportation usually involves large quantities of goods, typically over 3 tons, with no high handling requirements and no need for specialized stops and sourcing in transit. Less-than-truckload logistics usually carries goods under 3 tons, requiring more complex and detailed handling.
In essence, less-than-truckload logistics, compared to full truckload logistics, is a concept that, when applied to cold chain transportation of prepared foods, allows for more diverse types of prepared foods to be transported together. It is a more flexible logistics method.
“Prepared foods need less-than-truckload logistics. Whether for B-end or C-end markets, the demand for diverse categories of prepared foods is increasing. Prepared food companies are also expanding and enriching their product categories, naturally shifting from full truckload transportation to more market-adapted less-than-truckload transportation,” a local cold chain industry expert in Zhucheng once told Jiemian News.
However, using third-party logistics also has its drawbacks. For instance, if the information technology systems are not in place, logistics companies and clients cannot share resources. This means prepared food companies cannot quickly grasp market trends.
How Far Are We from Lower Cold Chain Costs for Prepared Foods?
Furthermore, upgrading cold chain logistics inevitably increases costs, leading consumers to ponder whether the convenience and flavor of prepared foods are worth the premium.
Several interviewed prepared food companies mentioned that the high retail price of prepared foods on the C-end is mainly due to cold chain transportation costs.
Qin Yuming, Secretary-General of the Food Supply Chain Branch of the China Federation of Logistics and Purchasing, told Jiemian News that the situation in the C-end market is particularly prominent, with average logistics costs reaching up to 20% of the selling price, significantly increasing the overall price.
For instance, the production cost of a box of pickled fish on the market may be only a dozen yuan, but cold chain logistics costs are also about a dozen yuan, making the final retail price of the box of pickled fish 30-40 yuan in supermarkets. Consumers perceive low cost-effectiveness mainly because over half of the cost comes from cold chain logistics. Overall, cold chain logistics costs are 40%-60% higher than regular logistics.
For the prepared food market in China to continue expanding, it needs a broader cold chain transportation system. “The development of cold chain logistics determines the sales radius of the prepared food industry. Without a developed cold chain network or complete infrastructure, prepared food products cannot be sold outside,” Qin Yuming said.
If you pay close attention, you’ll notice that recent policies on cold chain and prepared foods are also tilting in favor.
According to incomplete statistics, 52 cold chain logistics-related policies were issued at the national level in 2022. Guangdong was the first in the country to establish five local standards for prepared foods, including the “Prepared Food Cold Chain Distribution Specification” and “Prepared Food Industrial Park Construction Guidelines.”
With policy support and the entry of specialized and scaled participants, the future trillion-yuan prepared food industry could mature and truly explode. Consequently, cold chain costs are expected to decrease, bringing the goal of “delicious and affordable” prepared foods closer.
