China Food

With the rise of compound condiments, will Haitian still be yyds?


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Are we ushering in a market inflection point?

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In the past few decades, the rise of basic condiments mainly comes from the increase of penetration rate under the demographic dividend. With the Engel coefficient of Chinese society decreasing to 30.2%, and gradually rising to the level of developed countries, China’s basic condiments market has also reached the ceiling of consumption.
with the transformation of condiment market from incremental market to stock market, the Matthew effect within the industry has strengthened, and the head brands have become bigger and bigger. In October this year, Haitian flavor industry announced an increase in the ex factory prices of some products such as soy sauce, oyster sauce and sauce. Other brands have followed, showing Haitian’s great influence on the industry. According to the annual report of Haitian flavor industry in 2020, the company’s The growth was maintained at 15.13% and the net profit was as high as 28%.
but is this a sustainable prosperity? In Haitian’s financial report, we found that soy sauce still accounts for nearly 60%. Compound condiments are classified as “other condiments” “Under the category, of course, the scale is far less than the two basic condiments, soy sauce and oyster sauce. Players like Haitian, standing on the gold mine of high profit, do not pay enough attention to composite condiments. However, the migration and upgrading of condiment market to composite condiments is the general direction. This upgrading process will bring valuable time and opportunity windows to other players.
in the process of discussing this issue, we studied the four evolution stages of the Japanese condiment market and the two value characteristics behind it. We also reviewed how the Japanese Basic condiment giant Kikka Wanhe weizhisu transformed to the compound condiment track. Through their cases, we analyzed the success and failure cases and the reasons behind them, and tried to improve the Chinese market Put forward some ideas for future development.
 

Industry changes under the trend of substitution and enrichment

 
In our opinion, compound condiment is not a simple addition of 1 + 1 = 2. The “condiment prepared by two or more condiments” described in most industry reports is only a product level definition. However, compound condiment is not only a compound in taste, but also a standardized solution for families and catering industry.
 
In Japan, a mature market, the boundary between condiments and processed foods has become very blurred. Compound condiments account for 61.5% of Japan’s seasoning production, except salad dressing (excluding mayonnaise) In addition to the three head categories of, Western instant soup and Japanese noodle soup, food seasonings such as bagged curry and instant soup account for about 20%. The emergence of diversified seasoning solutions also makes the proportion of basic seasonings in Japan only 39.5%. Even the soy sauce category of high moat is difficult to escape the general trend of category change. As a sauce, as shown in the figure below The consumption expenditure of concentrated noodle soup bottom as an oil substitute has exceeded that of soy sauce in 1994.
The average annual expenditure of noodle soup per household in Japan exceeded that of soy sauce
in 1994
what stage has Japan’s condiment industry gone through and developed to the current category characteristics? We roughly divide the process into the following four stages:
 
In the first stage, seasoning industrialization (1910s ~ 1960s): seasoning realized industrialized production, improved production efficiency, reduced price and increased the penetration of categories in the population.
in the second stage, seasoning compounding (1960s ~ 1970s): with the increase of national income, Engel’s base decreased to 30%. People need to save time and enrich the table, and the number of compound seasonings exploded.
 
In the third stage, seasoning food (1970s ~ 1990s): the demand for convenience of consumers and the diversification of diet scenes expand the potential demand for processed food, and convenience becomes more important.
 
In the fourth stage, the seasoning was diversified (1990s~): the basic seasoning declined significantly, and the compound seasoning entered the saturation period. Most seasoning companies have completed the diversified layout of products, and the product innovation is very “internal”.
 
in the above product changes, we see that the value characteristics of substitution and enrichment run through and drive the development of the whole category.
 
Alternative demand creates convenience. The increase of single people and double working families, as well as the diversification of meal scenes, make consumers more inclined to more convenient solutions. From the data, the average cooking time of Japanese women decreased from 172 minutes in 1986 to 88 minutes in 2016, and shortened to about half in 30 years. In addition, the shrinking of family units also makes the packaging of condiments smaller and smaller. Taking guijiawan’s packaging as an example, the proportion of small packaging soy sauce has increased year by year, and the vacuum soy sauce packaging series of 350ml ~ 500ml has been launched since 2010.
 
Enrichment gives consumers more choices. For example, from the perspective of category taste, Japanese compound condiments first appeared in Western food, then Chinese food and Korean food, and finally Japanese food. Consumers are more likely to bring the dishes they have eaten but can’t cook to their dinner table with the help of composite condiments.
 
China’s condiment industry is facing a similar inflection point as Japan’s seasoning compounding and seasoning food, but we don’t think China will continue Japan’s evolution path. Different from Japan’s iterative development, China has experienced four stages of industrialization, compounding, foodization and diversification at the same time, and has also produced innovations that other countries have not experienced, such as large-scale timely distribution. In addition, Japan’s small population base makes it difficult for some new products to support the emergence of a new generation of enterprises. The unique nature of the Chinese market means that the market is providing entrepreneurs with iterative opportunities in multiple industries in a short time.
 
With the improvement of Chinese consumers’ requirements for time-saving, labor-saving and richness, the compound condiment market has also entered the fast lane of development. Under the new changes, we can’t help thinking: are the barriers of giants really indestructible? Can other players achieve curve overtaking through category innovation and brand building? In similar historical periods, guijiawanhe weizhisu faced challenges similar to those in China, but they gave different solutions.
 
The difficult transformation
of guijiawan, the leader of soy sauce
The growth crisis of guijiawan occurred in the late 1950s, the end of condiment industrialization. With the post-war economic development, soy sauce has completely penetrated into people’s life, and there is no other growth space. In order to seek new growth, guijiawan has taken two different transformation paths: business diversification and soy sauce internationalization.
 
In terms of diversified expansion, guijiawan launched the “wanwei” (later changed to Wanmian) at the bottom of noodle soup based on the extension of soy sauce category. However, the extension of this category ended in failure.
 
The first reason for failure lies in the mismatch between enterprise capability and product nature. Different from basic condiments, compound condiments are alternative needs, which requires enterprises to have strong enough marketing ability to make consumers willing to try, get used to and complete the substitution. However, guijiawan has not been able to provide matching marketing resources for new products. At this time, guijiawan has a strong brand potential in Japan, and the more scattered retail channels can only listen to its orders. The channel control force makes guijiawan pay insufficient attention and investment on the consumer side.
 
Another important reason for failure is that enterprises are trapped in their own customer resources. At this time, several fast-growing compound condiment enterprises similar to Ebara barbecue sauce have appeared in the Japanese market. As a soy sauce supplier of these new brands, guijiawan has also achieved growth. The management of guijiawan also believes that it is better to wholesale soy sauce to more emerging brands than to try and make mistakes in the field of composite condiments. This decision made guijiawan stay away from the compound condiment market for more than 30 years and seize a business that is large but not profitable. Too strong soy sauce factory culture hinders the diversified development of enterprises.
 
Compared with the difficult business diversification, guijiawan has achieved greater success in seeking population penetration overseas. Success comes from the repositioning of soy sauce. With all purposemaking and delicious on mean, soy sauce has become a seasoning that enriches the taste of dishes and is closer to composite seasoning. Since entering the U.S. market in the mid-1950s, guijiawan has put on TV advertisements for the U.S. presidential election, promoted trial eating activities in offline channels, and invited cuisine researchers to develop recipes that use a large number of soy sauce dishes. The price of guijiawanyong was three times higher than that of local soy sauce in Asian supermarkets at that time, taking “natural brewing” as the core differentiation point, it penetrated into white middle-class families in the United States. Kikkoman soy sauce has become a natural brewing condiment of soybean with and soy sauce taste but with localized use in the hearts of local consumers.
 
 
In 1994, the consumption expenditure of Japanese soup in Japan exceeded that of soy sauce, which also forced guijiawan to shift the focus of development to composite condiments. Yoshiro MaoMu, who is responsible for developing overseas markets, returned to Japan to take over as president. It has infiltrated soy sauce into overseas methods and thinking, and has been successively applied to a variety of composite seasoning product lines such as soup bottom, barbecue sauce, Japanese fried bag “my family’s dinner”. In 2008, it acquired Jiwen’s soybean milk brand, transferred the consumption scene of soybean milk from breakfast to afternoon snack rest, expanded the user population and demand scene, greatly increased the category and achieved a market share of more than 50%.
 
The success of guijiawan in compound condiments since 1994 has benefited from the experience of MaoMu yousanlang in the U.S. market. To sum up his thinking in one sentence, he repeatedly mentioned in the interview: “the market does not exist, but is created. We have actively created consumer demand in the United States. Only when people’s potential demand is transformed into effective demand through product innovation can demand be truly created and added value appear.” so far, Guijiawan has also successfully transformed from a traditional soy sauce factory into a global player promoting the concept of “Japanese ingredients” to overseas markets.
 
MaoMu yousanlang, the ancestor of Kyoka wanzhongxing
 
Under the background of the industry changing from condiment industrialization to condiment compounding, the biggest strategic mistake made by guijiawan is to retreat from the compound condiment track and choose the wrong category for extension. As Clayton Christensen mentioned in the innovator’s dilemma, the operation of enterprises depends on the resources of customers and investors, but they are often unable to make the best choice due to the limitation of existing resources, and the existing customers hinder enterprises from making product innovation and iteration.
 
Due to the stable demand for soy sauce, a basic condiment category, guijiawan failed to establish an enterprise ability in line with the marketing of compound condiments. The sluggish performance of “Wanmian” and other composite condiments makes it abandon the new track and become an upstream supplier at the end of added value. This decision also made guijiawan lose the opportunity to become the first brand of Japanese compound seasoning. Fortunately, the success of guijiawan in the overseas market has supported its steady development in recent decades.
 

Flavor element
that successfully crosses the three stages of development

 
At the end of the condiment industrialization stage, weizhisu company is facing a more severe dilemma and crisis than guijiawan. The challenge of monosodium glutamate to human health and the competition of competitors in production technology put the company’s market position at risk.
 
Unlike guijiawan, weizhisu has broken through the market ceiling brought by monosodium glutamate, a basic condiment, by actively carrying out business diversification. The biggest feature of weizhisu’s successful transformation is to use the most important resources of the whole company to focus on the new business sector. The proportion of weizhisu food increased year by year, and surpassed the seasoning business of the industry around 1975. Corporate income also increased from 54.4 billion yen in 1965 to 374.3 billion yen in 1980.
 
Category extension tree of flavor element (1909 ~ 1980)
 
The transformation of weizhisu from basic condiment to compound condiment is inseparable from the cooperation and learning with American Carrefour Group. In 1962, American Carrefour Group proposed to establish a joint venture with weizhisu. Both sides produced a series of soup products in the same year. The joint venture quickly gained 80% market share in the instant soup market.
 
The cooperation with Jiale group has not only brought new growth categories to weizhisu, but also advanced marketing thinking and methodology. Jiale group sent expert groups in many fields such as commodities, advertising, marketing and consumer research to weizhisu to teach weizhisu team the logic and methods of modern marketing.
 
The core of the transformation is to transform the company led marketing model into a marketing and product definition model that listens to the needs of consumers. For example, in terms of the positioning of corn soup products, weizhisu found out the consumption and use scenarios of soup products in different regions and income classes, held several consumer group evaluation and analysis, and comprehensively scored and discussed the cooking time, packaging weight, appearance design and retail price. Finally, “pure western food soup that can be easily made” is taken as the product value appeal, and the integrated operation of supporting sales, advertising, promotion system, offline stacking and pop label is carried out. Weizhisu’s president at that time repeatedly stressed that “the market has changed from increment to stock. We should let consumers be upstream and brands be downstream, undertake consumer demand and tap potential pain points.” in order to strengthen the marketing ability of the enterprise, the proportion of weizhisu Headquarters sales personnel increased from 18.4% in 1965 to 48.2% in 1980, greatly strengthening the control of retail channels.
 
Since then, weizhisu began to iterate and replicate the marketing methodology learned to other compound condiments and processed foods. In 1968, weizhisu and Jiale cooperated again to develop American mayonnaise with slightly sweet taste and more emphasis on health in composition, and fought head-on with Chubi salad dressing. The products have occupied more than 20% of the market share two years after listing. Weizhisu entered the bread and butter market again in 1970, with a market share of 20.7% in five years. In the competition, companies such as Chubi are weizhisu’s customers, but weizhisu did not compromise with its b-end customers.
 
Weizhisu mayonnaise
 
In 1972, Ajinomoto entered the fast-growing frozen food track with the least relationship with the main seasoning industry. Through in-depth consumer research, weizhisu found that the existing products have three negative impressions: bad taste, stale and no nutrition. In this regard, weizhisu selected 12 single products such as cream Cola cake, roasted food, dumplings and chicken baked rice layer by layer, which poked the pain point of consumers with the image of high price and high quality. Through self built cold chain logistics, we can shorten the distance with channels and consumers to ensure the freshness and inventory of frozen food. Through the difference of product taste and unique logistics sales mode, weizhisu has won the first position of TOC frozen food in Japan.
 
The most classic battle is “cook do”, a Chinese fried bag brand launched by weizhisu in 1978. At this time, most Japanese condiment enterprises have entered the stage of compound condiment. Cook do is a prefabricated Chinese food mixed seasoning bag. It uses a pressurized heating sterilization bag and adds spices, Douchi, vegetable puree and other ingredients. Cook do condiment reduces the threshold for frying Chinese food, so that consumers can make Chinese dishes that can only be eaten in restaurants, such as dry cooked shrimps, shredded pork with green pepper, double cooked meat and so on. This feature just solves the pain point that family consumers need a “hard dish” for dinner. Cook do has created a new category and gained nearly 80% market popularity within one year of sale.
 
Cook do extends inversely from compound condiment to base condiment
 
Based on the strong mental position of cook do brand in Chinese food frying bag, the brand reversely launched basic condiments to break into the pit of basic condiments with the image of Chinese food experts. In the photo, we can see that cook do obtained two shelves of basic condiments and compound condiments at the same time. In addition, the shelf of Japanese fried material package composite condiment follows the logic of “one cuisine and one to two brands”. For relatively unfamiliar cuisines, consumers are willing to accept a comprehensive solution given by a category expert to avoid the risk of stepping on the pit. Such psychology also provides an opportunity for brands to innovate a variety of products in a large cuisine.
 
Each cuisine has 1 ~ 2 brands
 
From basic condiments to compound condiments, and then to processed foods, the successful diversified development of weizhisu benefits from the improvement of four abilities:
 
1. Brand positioning: changing a commodity from a name to a brand is a process in which the corporate image breaks away from the entity and moves towards an abstract value. The enterprise’s positioning has upgraded from the earliest physical commodity of “monosodium glutamate” to the abstract dynamic concept of “bringing out the flavor”. For the categories that are not suitable for the use of weizhisu brand, the enterprise obtains better brand effect through joint venture with European and American brands.
 
2. Organizational structure: weizhisu puts “development of new categories” in the most important position. Whenever a new plan appears, a project team will be quickly established to promote it and upgraded to a subsidiary at a certain stage to ensure the high autonomy of the new product development team.
 
3. Capacity replication: weizhisu head office coordinates the channel management of products, and its subsidiaries are responsible for production and logistics. The sales ability of the enterprise is unified in the parent company, which enables the upgrading of the enterprise’s marketing ability to cover most of its products, and there are also opportunities for echo between products.
 
4. Basic research: the competitive barrier of weizhisu comes from R & D capability. Since the establishment of the Central Research Institute in 1956, weizhisu has been deeply engaged in the research of basic raw materials, production technology, taste and seasoning, established a taste evaluation team, and accumulated social taste data. In particular, amino acids are the source of “fresh taste”. The research advantages in this field allow the flavor element to repeatedly precipitate product technology and understanding on the road of condiment and processed food research and development.
 
Different from basic condiments, compound condiments need brand marketing ability and strong channel control. The cooperation between weizhisu and Jiale makes it learn and experience completely different marketing and channel management modes. In the early stage, the flavor element extended the knowledge to multiple category projects through internal repeated learning and penetration. Let enterprise knowledge extend and circulate to all branches and leaves like the water inside a big tree.
 
Japanese business scholars Yujiro Nonaka and Hiroko Takeuchi analyzed in the knowledge creation company that the innovation ability of enterprises comes from the internal management of experience and knowledge. The enterprise needs to share the nonverbal knowledge owned by the team, refine and convert it into language, and finally implement the extracted knowledge into the form of the enterprise and executable projects. Open the knowledge limited to some people from the black box and apply it to the overall innovation of the enterprise through systematic management.
 

Where are the opportunities for Chinese condiments?

Condiment itself is a category with limited space for product innovation and difficult to fully differentiate. However, the complex changes in society have brought about the potential breadth and density of market demand. Enterprise innovation drives the upgrading of categories and services. The two values of substitution and enrichment always run through the changes of the whole condiment industry.
 
However, the changes that have taken place in Japanese society do not mean that they will be repeated in China. Japanese social consumption habits tend to be conservative, the ceiling of the local market is low, and new categories are difficult to support the emergence of a new generation of enterprises. This is also why the Japanese condiment track has basically no new players since it ushered in the listing of many enterprises in the 1970s. In contrast, the Chinese market has richer marketing means and retail channels. At the same time, the industry is also facing the development stage of industrialization, compounding, food and diversification. New players in the track have more space to play and imagine.
 
Based on our comparative analysis with the Japanese market, we want to boldly put forward three ideas for new and old players in China:
 
  • In the traffic era so far, we rely on single products to sell goods, but next we need to rely on comprehensive concepts such as cuisine to establish the brand. New players can occupy the pronoun of cuisine categories and take the lead in gaining brand intelligence as cook do does. The richness of Chinese cuisine choices is far more than that of Japan, which naturally provides more opportunities for category extension. But in the form of products, we can do some localization innovation or misappropriate them from overseas.
  • The inspiration and resources for category development often come from other tracks with the strongest potential (such as the impact of the game industry on retail and consumption). Takeout is the most advanced track in China’s food track. It provides efficient access and sufficient supply chain resources. The commercialization of takeout goods may be a direction to find new solutions and new goods.
  • Compound condiments, especially the category closer to food, will have certain product life cycle characteristics. This fashion risk itself is an opportunity for new players to cut in. For players who want to occupy a certain category share for a long time, how to find the same in the change (looking for relatively stable items or occupying relatively stable shelves) has become the top priority.
 
The most important thing is patience and persistence. Condiment is something consumers eat every day and put into their mouth. Eating habits are difficult to change easily, but everyone has the opportunity to become a loyal user. Entrepreneurs need enough patience to gradually penetrate, create new needs and win the trust of every new consumer.
 
Patience and persistence are painful. As Martin Heidegger said, all kinds of anxiety we face now comes from the uncertainty of the future and the forgetting of the relationships around us, but the state of anxiety and instability can also be interpreted as our infinite potential facing the future. Carefully observe the inextricable relationship between current industries, enterprises, commodities, channels and consumption scenes, we will be able to find new solutions and wonderful ideas.

Reference source:

interview

Former guijiawan soy sauce executive October 24, 2021

documentary

The palace in Tokyo. A guide to shrinking the market, growing up, miracles, managing the world’s oil, oil and gas. 2019

Reference books (in different order)

Rohit Deshpande and Hal Hogan.”Kikkoman Corporation: Consumer-Focused Innovation” Harvard BusinessSchool.2005.

Clayton Christensen. The innovator’s dilemma. 2010

Yujiro Nonaka, Hiroko Takeuchi. Knowledge creation company. 1995

Chen Xiaolong. Condiment Marketing Book 1. 2014

Yoshiro MaoMu. The border between Vietnam and China. 2013

Fazheng University, entrepreneurial activities, history of Japan’s food industry, 2014

Hasegawa Masayoshi. Strategies for the management of taste factors. 1982

Hiro Koichi. Weisu we}21 project. 1989

Weisu. 80 year history of Weisu. 1989. Weisu. Centennial history of Weisu

Shitian Xianwu. Development trend of seasoning and food industry. 2014

Web pages and news

CICC highlights. Compound condiment: golden track, leading rise, boom at the right time

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