China Food

In the 100 billion baking market, how can LEGO sit firmly on the throne of “the first share of baking raw materials”?

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frozen baking breeds a market of 100 billion yuan.
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The so-called frozen baked food is to preserve the texture and taste of pastries or bread baked by the central factory through quick freezing, store and transport them through cold chain facilities to the consumer market, and then eat them after thawing or simple baking by b-end bakery and C-end consumers. Frozen baked products are divided into semi-finished products and finished products – the former needs to be simply baked before eating, and the latter needs to be frozen and ready to eat.
In life, it is not difficult for us to see the figure of frozen baked goods. Chain bakeries such as holly’s and happy cake, as well as supermarkets such as boxed horse fresh food and Sam’s club are the main demanders of frozen baked goods.
Consumers love Sam Swiss rolls, sweet potatoes, and all kinds of desserts from Haidilao. Their predecessors are frozen baked foods.
100 billion market bred by freeze baking
In the past, China’s baked goods were mainly divided into prepackaged and freshly baked, and mainly prepackaged products produced by central factories.
On site baking is mainly in supermarkets or bakeries. The advantage of business format is that the products are fresh and personalized; The disadvantage is that the degree of standardization and scale of production is low, the personal dependence on chefs is large, and the requirements for venues are high. When manpower and space are scarce, catering, supermarkets and bakeries tend to give up the operation mode of on-site baking.
The format of pre packaging is that the central factory bakes the products into finished products. In some cases, the shelf life is extended by adding preservatives, vacuum packaging is carried out, and then distributed to the terminal for sales. Such finished product prefabrication realizes the large-scale production of baked products, reduces the production cost, and the products tend to be standardized; However, with the addition of preservatives, the freshness and taste of the products with extended shelf life are not as good as those roasted, and there are certain safety problems.
Large chain bakeries tend to build their own central factories, but the self built central kitchen has high requirements for the investment of production lines, and the capital burden of enterprises under heavy asset operation is heavy. When the sales capacity of their own terminals is limited, this often leads to the low scale efficiency of factories and the difficulty of category innovation.
In contrast, frozen baked products have the advantages of fresh taste and economies of scale.
Frozen baking refers to the storage of baked products or semi-finished products in a frozen manner. Under the freezing process, there is no need to do anti-corrosion treatment for food, and the shelf life is long, generally 3-6 months. More importantly, food can effectively retain flavor and taste. In addition, frozen baking is easy to coordinate production, sales and inventory, and easy to transport over long distances. Therefore, it expands the sales radius and fully adapts to large-scale industrial production. Therefore, frozen baked products have the advantages of fresh taste and economies of scale.
First of all, large-scale production of frozen baked goods can be realized in the central factory, and the domestic cold chain infrastructure tends to be complete, which meets the storage and logistics requirements of frozen baked goods – the product can be guaranteed for 6 to 9 months under the condition of minus 18 degrees, which is enough to complete the task of distribution to the national market. This enables the central factory of the enterprise to serve the national b-end market and maximize the economies of scale of production.
Secondly, the frozen baking technology has been mature in China. The taste and texture of thawed cakes and bread are no different from that of freshly baked cakes and bread; In addition, the quality of frozen baking is better than that of vacuum pre products at room temperature by quick freezing technology without adding preservatives.
Therefore, in terms of quality and scale, the conditions of frozen baking are better than the traditional on-site baking and prefabrication, which is the upgraded form of the latter two. For example, the daily consumption of doughnuts, egg tarts, baguettes, toast and other popular categories is huge. An industrial production line can produce hundreds of thousands of them a day, and supply bakeries and catering stores within the sales radius at the same time. If the latter is made by itself, in addition to the disadvantages of labor-consuming, time-consuming and low unit output, the standardization of products is also a problem. It is difficult to control the shape of doughnuts alone. [1]
With the blessing of its own advantages, the frozen baking industry has developed rapidly.
Source: Taobao flagship store of bread plan
According to the Research Report of Zhongtai securities, at present, the scale of China’s frozen baking market is about 10 billion-20 billion yuan, and the growth rate remains in the range of 15% – 20%. In addition, the retail sales of baked goods in China reached 170 billion yuan in 2016 and 256.9 billion yuan in 2020. According to this growth trend, it is expected to reach 285.6 billion yuan in 2021.
Such a huge market has also spawned some companies deeply engaged in baked food raw materials and frozen baked goods. Recently, Ligao Food Co., Ltd. landed on the gem of Shenzhen Stock Exchange and raised about 1.2 billion yuan in IPO, which successfully won the title of “the first share of baking raw materials”.
Stand tall and sit on the frozen baked throne
Founded in May 2000, LIGO food mainly focused on baking food raw materials at the beginning of its establishment, focusing on cream business, with cream sales accounting for more than 80%.
In 2014, Lego food acquired 51% of the equity of Guangzhou aokun Food Co., Ltd. and entered the frozen baked food industry as the focus of its business.
From 2017 to 2019, the average growth rate of Liguo’s frozen baked food business was more than 40%. In 2021, the revenue reached 1.718 billion yuan, a year-on-year increase of 79.7%, and the proportion of revenue increased from 52.84% in 2020 to 61%.
At present, the frozen baking products of LEGO food mainly include frozen pastries and frozen bread. Among them, Lengdong cakes mainly include Chinese cakes such as wife cake and mung bean cake, as well as Western cakes such as egg tart skin, mousse cake and Swiss Roll; Frozen bread includes sweet potatoes, doughnuts, croissants, Swiss rolls and other products. Among them, doughnuts, tarts, cassava and mousse cakes are all single products with sales of more than 100 million, and the scale of cassava is close to 300 million.
In the field of frozen food, Ligao has many competitive products. The more famous ones are Enxi village, Nanqiao and Anji. However, the revenue of these companies is mostly 100-400 million yuan, which is far from legao. How on earth did Li Gao sit on the throne of frozen baked goods?
1. Dealers playing the role of “connector”
By 2021, the company’s channel network has spread all over all provinces, municipalities and autonomous regions in China except Hong Kong, Macao and Taiwan, reaching 357 cities, with more than 1800 cooperative dealers, more than 380 direct sales customers and more than 50000 end customers. [2]
According to the financial report, Lego’s distribution revenue accounted for 77.8% and direct sales accounted for 13.5% in 2020. On the whole, Lego adopts the business model of mainly distribution and supplemented by direct sales.
Source: Lao Fan Shuo Gu
But Lego’s distribution model is different from the tradition. Compared with several well-known frozen baked food companies and bread companies in China, Lego’s dealers are smaller and mainly play the role of connecting the company with the terminal.
For example, end customers need professional training services when using frozen dough, and these problems will be connected to dealers who have closer contact with them. However, the main task of distribution personnel is to expand channels, so at this time, legao will send sales personnel with relevant professional capabilities to solve the needs of end customers together with dealers.
Compared with the situation that most other baking manufacturers rely on dealers to develop terminals and highly rely on dealers, Ligao dealers play a connecting role and deliver the company’s technology and products to end customers. It is more like a post station and a distribution center for small and medium-sized customers.
This approach has two main benefits:
1) From the perspective of scale, the overall scale of legao’s dealers is small, and the number of dealers with more than 5 million yuan is small. Through this small business model, the company saves transportation costs. Compared with the transportation cost rate of 12.6% for Taoli, another domestic bread leader, legao only accounts for 5.2%.
Secondly, it weakens the sales role of dealers, which is conducive to the company’s more direct grasp of customer resources and strengthen the stickiness with end customers.
2) From a regional perspective, the average revenue generated by a single dealer in the mature market – South China is much higher than that in other regions, close to twice the average. In the future, with the increase of freeze baking application scenarios and the improvement of market penetration, the company’s single dealer income generating ability in other markets has a large room for improvement. [2]
For example, since 2017, legao has implemented a new distribution method, adjusting the areas outside South China from one dealer covering multiple cities to one dealer responsible for one city, which is more conducive to the company’s fine management and channel sinking.
2. “Central factory + wholesale” supply mode
From the perspective of product structure, Ligao’s products can be divided into three plates. Baking food raw material plate composed of cream, fruit products and sauces; A frozen baked food plate composed of frozen bread and frozen cakes; And snack food for direct consumption.
According to the financial report of the company, the operating revenue of frozen food was 1.87 billion yuan, accounting for 1.71% of the total revenue in 2027; The revenue of baked food raw materials was 1.096 billion yuan, a year-on-year increase of 28.65%, accounting for 38.91%. Among the baking raw materials, the revenue of cream, fruit products and sauce was 471 million yuan, 218 million yuan and 184 million yuan respectively, an increase of 26.95%, 29.27% and 33.17% respectively.
Due to the perishability of baking raw materials and frozen baked foods, which account for the majority of products, and strict requirements for transportation and storage conditions, LIGO has built its own comprehensive cold chain logistics team.
In terms of distribution mode, Li Gao is similar to peach and plum bread. All adopt the mode of “central factory + wholesale”.
Because short-term bread also attaches great importance to product freshness, peach and plum bread will build a central factory in large and medium-sized cities to produce bread, and then take the factory as the center and distribute it to large retailers and distributors through logistics. Legao has successively established four production bases in Sanshui, Foshan, Zengcheng and Nansha in South China and Changxing, Zhejiang in East China. For the regions in Guangdong Province, it can be delivered through its own vehicles, with a distribution radius of about 300 kilometers and a distribution duration of less than 48 hours; Outside Guangdong Province, distribution is mainly carried out through third-party logistics companies.
Prospectus: tuliyuan company
In addition, in 2022, legao joined hands with the logistics information technology company operator to create the “legao food TMS project”, comprehensively promote the digital transformation of the supply chain, and establish a collaborative platform integrating logistics planning, implementation and settlement.
This project has opened up the upstream and downstream information channels in legao logistics system, systematized and automated offline operations, greatly improved the efficiency of logistics distribution, and made the whole logistics link efficient and transparent.
According to the channel research data of Lego, depending on the mature supply chain of Lego, most stores can realize the distribution frequency 2-3 times a week, and even once a day according to different customer needs.
3. Diversified and high-frequency customer base
Compared with other frozen baking enterprises focusing on a single channel, LIGO has more diversified customer channels. In addition to well-known chain bakeries such as holly’s and happy pastry, there are also large supermarkets focusing on boxed horse fresh food and Sam’s club, and chain catering brands focusing on Haidilao and Le Caesar pizza.
According to the staff of LIGO, the supermarket channel contributed 290 million yuan of monthly sales to LIGO food in 2021. Li Gao’s dealers also mainly focus on buffet and business hotels, which have a large demand for dessert.
The advantage of such diversified customer source channels is that the rich customer resources expand the sales scope of LIGO products, reduce the dependence on a single channel and avoid the channel risk to a great extent.
In addition, diversified sales terminals help promote the development of new products of Lego, so there are 900 kinds of products of Lego, which are suitable for different consumption scenarios.
Photo source: Ligao official website
In addition, Lego will also provide customers with one-stop services. For example, Lego will arrange staff to provide customers with door-to-door professional and technical guidance, such as post-processing and application of frozen baked foods, decoration and plate loading of desserts, etc. And according to different scenes, we have launched corresponding products, such as chocolate crispy bars, which can be used for sales on the cashier of bakeries and fully develop the cashier space.
LEGO will often carry out large-scale online and offline service activities and create a platform for industry insiders to communicate, which can not only improve customers’ identity and sense of belonging, but also help to serve customers more efficiently.
Such a one-stop and high-quality service enables end customers to frequently buy back LIGO products and establish an exclusive high-frequency customer base.
The future of baking
Frozen baked goods carry the flag
Although modern baking started late in the mainland, its development momentum is very strong. Since it was introduced by Hong Kong and Taiwan in the 1980s, the market scale of baked goods has grown to 100 billion yuan in just a few decades. According to the data, the scale of China’s bakery market exceeded 260 billion yuan in 2021.
This situation is also directly mapped to the financial reports of various companies. According to the 2021 performance forecast disclosed by LEGO food, the annual operating revenue is expected to be about 2.78 billion yuan to 2.85 billion yuan, with a year-on-year increase of 53.62% to 57.49%; The net profit attributable to the parent company was about 275 million yuan to 295 million yuan, with a year-on-year increase of 18.49% to 27.1%.
The optimistic data accurate to two decimal places gives great confidence to enter the cold chain baked food enterprises. It is worth discussing that what is the way forward for frozen baked food?
1. Jump out of end B and go to end C
Affected by the COVID-19, the public has cultivated the habit of home baking during the period of home prevention and control. Home baking is moving from niche to popular, which has promoted the demand of C-end for high-quality baking raw materials.
According to the big data of 2020 Spring Festival housing economy, the search attention of baking products has increased rapidly, and the sales volume of yeast has increased nearly 40 times. The semi-finished products of frozen baking can not only avoid complicated production processes, but also make people enjoy the fun of baking. They have become the choice for consumers to start baking and show great growth potential.
In addition, baking equipment continues to innovate, and its convenience and diversified functions also open an opportunity for frozen baked foods to move forward to the C-end.
It should be noted that the most important thing for C-end frozen food is convenience and suitable for consumer operation.
Here we cite the case of Pillsbury, an American food brand. The frozen baking products developed by it are very simple. Just open the package, tear up the divided triangular cakes, roll them up one by one and put them into the oven, and you can bake a plate of delicious croissants.
Source: Pillsbury official website
The big “simple” on the product packaging clearly shows its product characteristics – simple and convenient.
Similarly, Lego has launched the product combination of egg tart skin + egg tart liquid. Consumers don’t even need to prepare their own raw materials. Just pour the egg tart liquid into the egg tart skin and put it into the oven to get a plate of egg tart with good taste. Enxi village has also sold its own brand durian thousand layer, chocolate thousand layer cake and other refrigerated (0-8 ℃) baking products in online channels such as tmall.
Source: Ligao Taobao flagship store
2. The catering end may become the starting point in the future
Some experts pointed out that the larger increment of frozen baked food is at the catering end.
This logic comes from the trillion level track of catering, which provides a huge development space for frozen baked food. Take legao as an example. Previously, legao food focused its sales on bakeries and supermarkets. The volume of catering channels is small, and there is a lack of staffing, product support and customer resources in this regard.
However, in the past few years, with the efforts of thousands of sales teams, Lego food’s baking channel agent layout, including Ka, has been nearly completed. At this stage, Lego food’s sales team has begun to develop catering agents, with remarkable results.
A dealer of LEGO food catering channel said that he mainly sells egg tarts, cake series and other small items of LEGO food, accounting for basically one-third respectively. The main customers are restaurants and fashionable catering. The scenes include buffet, breakfast in business hotels or hotels. [4] 
In addition to legao, when the bakery market is gradually saturated, small and medium-sized frozen baking enterprises with less competitive power aim at the catering industry, which is also a choice to save the country.
3. Develop the consumption scenario of “+ baking”
In addition to baking shops, supermarkets and catering services, many new baking food consumption formats have emerged one after another, such as coffee beans, tea shops, convenience stores and so on.
Petty bourgeoisie consumption of “tea + baking” and “coffee + baking” quickly captured a large number of young people. Naixue’s tea and hi tea shops have successively launched baked goods, and consumers are more used to ordering a cup of milk tea with a European bag or cake box as afternoon tea.
Source: meituan takeout
China’s tea and coffee market has entered a stage of rapid development. By the end of 2020, there were 108000 cafes in China, including 27000 cafes in third tier and lower tier cities. According to the statistics of China chain operation association, the scale of China’s new tea market will reach 83.1 billion yuan in 2020 and 142.8 billion yuan in 2023.
The popularity of tea and coffee has driven the matching sales of baked goods. According to Naixue’s tea prospectus, the total retail consumption of cross selling products produced by China’s high-end current tea stores will reach 10.1 billion yuan in 2025, and the CAGR will be 35.6% from 2020 to 2025, showing a rapid growth trend.
In addition, some other consumption scenes are also being developed. More and more buffet, hotel tea break and other scenes choose frozen baked foods. Baiguoyuan, the giant of chain fruit supermarket, also sells fruit cakes on the takeout platform to develop new consumption scenes.
reference material:
[1] Little giant in the frozen baking market, Ligao food: production capacity, sales volume and income scale need to be expanded / source: Zhongyuan securities
[2] Distribution oriented, supplemented by direct sales, Ligao food: channel intensive cultivation has achieved remarkable results and built strong barriers / source: Lao Fan Shuo stock
[3] 100 billion refrigerated baking leader — LEGO food, the next 100 billion shares/ Source: Global baking Guide
[4] Despite the epidemic, how much money do enterprises make cassava and egg tart skin/ Source: FMCG
[5] LEGO Food Research Report: the industry is booming, and single products and channels drive up step by step / source: Debon securities
Author: Lu 77; Source: new consumer think tank (ID: Sichuan), reprint has been authorized. Reprint authorization and media business cooperation: Amy (wechat: 13701559246);
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