Industry Insight | The market scale and industry concentration of China's marinated food industry will further increase

According to different consumption scenarios, marinated foods can be divided into casual marinated foods and table-side marinated foods. Casual marinated foods are generally consumed in various leisure settings, including snack bars during meals, late-night snacks, social and sports activities, travel, study, work, or gaming, etc. They are usually small portions designed for easy portability, ready-to-eat convenience, and satisfaction, such as duck or chicken skewers and other small pieces of marinated food. Table-side marinated foods are generally consumed as a dish in dining venues such as homes, restaurants, and hotels.

According to the different raw materials, marinated foods can be divided into poultry (duck, chicken, goose), red meat (pork, beef, mutton), vegetables, aquatic products, and others. Among them, duck meat can be said to be the most popular marinated food in China, especially duck necks and other duck offal parts (such as duck wings, duck tongue, duck collarbone). Due to its unique flavor and addictive quality, marinated duck offal products are favored by consumers.

• Early development stage

In the early 1980s, marinated foods began to emerge nationwide in China, with some small and medium-sized marinated food enterprises first appearing in the Jiangsu and Zhejiang regions. However, the product mix of these enterprises was relatively single, with bland tastes and low production technology levels.

• rapid growth period

From the 1990s to 2002, the production technology level and product portfolio of marinated foods significantly improved. The number of enterprises in the marinated food industry grew rapidly, breaking the leading position held by companies from Jiangsu and Zhejiang provinces.

• Regional chain expansion period

From 2002 to 2012, the scale of the marinated food industry further expanded, with some enterprises gradually transitioning from traditional workshops to automated production lines. There have been significant changes in production in China's marinated food industry. At the same time, regional leading enterprises have emerged, placing more emphasis on brand building. Brand chain operation has become the mainstream business model in the industry.

• National expansion period

From 2012 to 2022, halal food enterprises engaged in fierce competition to seize market share. Compared with traditional street stalls, consumers prefer to buy halal products from branded chain stores. Leading enterprises with scale and brand advantages continuously increased their capital investment in procurement, production, quality and safety, to meet diverse consumer needs.

• Accelerated Integration Phase

Since 2022, the marinated food industry in the post-pandemic era has entered a phase of brand integration and increased concentration. With the continuous improvement of marinated food production standards, scale, and automation, the industry is accelerating integration, and its concentration will continue to rise in the future. Leading companies bring about economies of scale through mergers and acquisitions, thereby increasing market share and brand influence.

The brand chain stores in China's marinated food industry can be divided into three models: franchising (licensees), direct operation model, and distributor model.

Under the franchise (licensing) model, franchisees are responsible for daily operations, which means they independently form their own staff and teams, possess independent management capabilities, and bear their own risks.Franchisees are usually developed by the brand company, which grants franchisees the right to operate franchised stores within designated territories and provides them with formulas, a unified brand image, food safety standards, etc. For the brand side, the brand company grants franchisees the rights to use its brand, trademarks, and business systems in exchange for fees (brand management fees, information management fees, product sales revenue, etc.). Under the franchising model, the brand company has a strong asset-light attribute and relatively low gross profit margins.

Under the direct-operated model, brand companies have substantial capital and strong capabilities in talent output and store daily operations.Therefore, the company independently invests in opening stores, owns the store premises separately, manages and operates the stores independently, and controls all aspects of the business. At the same time, the company controls all cash flows of the stores and a large portion of sales revenue. Under the direct-operated model, brand companies have strong asset attributes and relatively high gross profit margins.

Under the distributor model, after the brand company sells products to distributors, the distributors then sell packaged marinated foods to end customers through major customer channels such as supermarkets, hypermarkets, convenience stores, and grocery stores.Typically, distributors are not responsible for daily operations but can provide some support and guidance to retailers, who then carry out the daily operational tasks. Distributors usually purchase products at a lower price and then sell them to retailers or end consumers at a higher price. The difference between these two prices allows distributors to make a profit. Under the distributor model, for brand companies, the asset-light nature is strong, resulting in a relatively lower gross profit margin.

From 2018 to 2022, the total retail sales of China's marinated food industry steadily increased from RMB 250 billion to RMB 340 billion, with a compound annual growth rate of 8.0% compared to 2018. Looking ahead, with the continuous expansion of the marinated food consumer group, further enrichment of marinated food varieties and flavors, the development of takeaway and e-commerce platforms, the upgrading of the supply chain, and the improvement of food quality and safety, the Chinese marinated food industry is expected to grow during the forecast period. It is estimated that by 2027, total retail sales will reach RMB 486 billion, with a compound annual growth rate of 7.4% starting from 2022.

The retail sales of casual marinated foods increased significantly from RMB 91 billion in 2018 to RMB 130 billion in 2022, with a compound annual growth rate of 9.3%. It is expected to reach RMB 190 billion by 2027, with a compound annual growth rate of 7.9% compared to 2022; the retail sales of snack marinated foods steadily increased from RMB 159 billion in 2018 to RMB 210 billion in 2022, with a compound annual growth rate of 7.2%. It is expected to reach RMB 296 billion by 2027, with a compound annual growth rate of 7.1% starting from 2022.

The retail sales of casual and tableside marinated foods accounted for 38.2% and 61.8% of total retail sales, respectively, from 36.4% and 63.6% in 2018 to these percentages in 2022.

Upstream of the industrial chain: raw material suppliers.It mainly includes marinated food ingredients and seasonings, including livestock and poultry, aquatic products, vegetables, spices, etc. In addition, it also includes machinery and equipment required for marinated food production and processing, packaging materials, etc. The raw material cost accounts for a high proportion of marinated food. Changes in upstream raw material prices will directly affect the production costs of the marinated food industry, thereby impacting the profit margin of products. Mature supply chain management capabilities can reduce the impact of raw material price fluctuations. Secondly, the freshness and safety of raw materials are a prerequisite for high-quality marinated food. Leading marinated food manufacturers ensure the quality of marinated food raw materials by developing a complete agricultural product quality traceability mechanism and cold chain logistics.

Midstream of the industrial chain: marinated food manufacturers.The business scope of halal food production enterprises covers the entire process from raw material processing, halal food production and processing to final sales. Among them, product design and research and development are the core links. Enterprises need to formulate products that conform to their brand positioning and consumer needs, while also continuously improving aspects such as raw material procurement, production technology, logistics, and sales.

Downstream of the industrial chain: various retail channels and end consumers.The sales channels for marinated foods can be mainly divided into online and offline, or direct-operated and franchised channels according to different criteria. Marinated food companies' layout of offline channels is adapted to their product positioning and consumer scenarios, typically concentrating in markets, community stores, supermarkets, shopping malls, entertainment venues, scenic spots, and transportation hubs. Online sales channels mainly achieve cross-channel traffic by cooperating with e-commerce platforms or building their own marketing platforms, thereby driving brand sales growth.

1) Increased disposable income and higher per capita expenditure on cured foods

With the development of the domestic economy and the increase in urbanization rates, China's per capita annual disposable income has grown to 36,900 yuan in 2022, and it is expected to further increase to 54,800 yuan by 2027. Economic growth and increased per capita income will significantly enhance consumers' purchasing power. An increase in per capita disposable income can drive an increase in per capita expenditure on marinated foods, thereby boosting the development of China's marinated food industry.

2) Expansion of consumer base

Brined foods, especially Sichuan-style spicy brines, have a long history and provide pleasure, satisfaction, and comfort. They are deeply loved by consumers of all ages. With the acceleration of urbanization and inter-provincial population mobility, various flavorful brined foods have become popular nationwide. The development of the internet, e-commerce, and social media has further popularized brined foods, with influencer experiences and social platform tastings accelerating their dissemination. In addition, new seasoning industry standards will reduce the content of food additives, salt, and oil, potentially benefiting leading enterprises with higher operational standards, thereby expanding a broader consumer base.

3) Wider and more diversified sales channels

Wider and more diversified sales channels are crucial for the development of the marinated food industry. The comprehensive strength and efficiency of sales channels in terms of breadth and depth directly determine the consumer base and competitiveness that marinated food companies can reach. At the same time, companies can connect with their customers domestically and globally. In addition, the rapid development of franchise models has not only optimized the sales channels of the marinated food industry but also brought new opportunities for its standardized business strategies. Furthermore, as young consumers' demand for online shopping continues to grow, expanding online channels to provide convenience and value can reach more consumers. Therefore, wider and more diversified sales channels, increasing consumer frequency, and gradually unlocking the potential of the marinated food industry are essential.

4) Optimization and upgrading of the supply chain

By optimizing and upgrading the supply chain, marinated food companies can ensure that their products meet consistent quality standards. It can improve production capacity and meet the growing consumer demand. In addition, a more efficient and standardized supply chain can improve their distribution network, enabling them to bring products to market faster and more reliably, produce higher-quality products at lower costs, and help provide the quality and safety of marinated foods. Upgrading the supply chain will drive future growth and innovation.

Currently, the industry concentration of China's marinated food market is still relatively low compared to other mature leisure food sub-sectors, indicating significant room for improvement. After the outbreak of the pandemic, the reshuffling and integration speed in the marinated food industry accelerated, bringing opportunities for top brands to expand. In addition, consumers have put forward diverse consumption demands for marinated foods, leading to continuous improvements in marinated food products, further segmentation of product lines, and the development of more independently packaged, gift-oriented, and high-quality high-value-added products.

In the future, with the branding, scaling up, and standardization of the production process across the entire marinated food industry, as well as consumers' increasing demand for food safety, product quality, and branded products, it is expected that the scale and industry concentration of China's marinated food industry will further improve.