September 1, CJ Freshway's 20th Anniversary... Leading Industrialization of Food Ingredient Distribution Market
First in Industry to Surpass 3 Trillion KRW in Sales... Full-scale Operation of 'Central Kitchen' Secures Future Profits
[Asia Economy Reporter Lee Seon-ae] It has been 20 years since CJ Freshway launched an advanced system to compete in the barren food ingredient distribution market. As various issues such as hygiene and irrational pricing caused by complex distribution stages have been resolved, industrialization is taking place. CJ Freshway, a food ingredient distribution and catering company celebrating its 20th anniversary on the 1st of next month, is leading industrialization by establishing an advanced system that covers the entire process from securing food ingredients to productization. While the past 20 years were a period of pioneering for market advancement and infrastructure establishment, the next 20 years are planned to be a time of growth and harvesting future food sources.
20 Years Since Sowing the Seeds of an ‘Advanced System’... Changing the Market
According to the Korea Foodservice Distribution Association on the 28th, the domestic B2B (business-to-business) food ingredient distribution market is estimated to be about 38 trillion KRW in size. Although the scale is huge, the level of corporatization is only about 10%. Around 20,000 individual business owners and small-to-medium distribution companies, which account for 90% of the market, operate their businesses using distribution networks and systems inherited from the past.
The food ingredient distribution route goes through an average of six stages, and the excessive margins added during this complex process are cited as factors that harm the benefits of farmers and consumers. Distribution costs account for 53.4% of food ingredient prices (based on Korea Agro-Fisheries & Food Trade Corporation, 2017), and for some vegetables and fruits, this can reach up to 70%. Supply-demand fluctuations caused by monsoons, droughts, pests, and diseases are also troublesome. The so-called ‘prepayment’ practice, where payments are deferred to the next month, is another issue. Because money is tied up, farmers have no choice but to continue using existing distribution stages. Although numerous risk factors are scattered throughout the market, these problems have been repeated for decades without resolution due to the absence of a proper system.
When CJ Freshway entered the market 20 years ago in 1999 with a corporate system, it also faced challenges in this environment. Inside CJ CheilJedang, around 1996, a five-year plan was established related to group catering and food ingredient distribution businesses, and the Green Terra Selection was piloted at the new CJ CheilJedang building in Namsan. The 1988 Olympics led to economic advancement and increased national income levels. Consumers purchasing food became more interested in food quality, and the food industry improved both quantitatively and qualitatively. The direction was set not just to supply home meal ingredients from CJ CheilJedang but to enter the food service business. The most important consideration in planning the business was trust. While price was important, quality and the ability to supply large quantities on time were crucial. Establishing the essence of a systematized food ingredient distribution business was deemed most important.
In 2003, CJ Freshway applied an enterprise resource planning (ERP) system and established food safety centers and logistics centers in major regions nationwide. This was to simplify distribution stages and supply high-quality food ingredients stably and at reasonable prices.
The Food Safety Center proved effective in distributing food ingredients for hospital catering, where safety is critical. In 2007, it was the first in the industry to obtain HACCP certification at Yonsei University’s Sinchon Severance Hospital catering facility, and in 2010, it was the first private institution designated as a norovirus testing agency. In February last year, it also received HACCP certification at Gangnam Severance Hospital.
With ‘safety’ and ‘timely supply’ secured through the Food Safety Center and key logistics centers, growth accelerated. Sales, which were about 350 billion KRW in 2005, surpassed 1 trillion KRW in 2010. In 2015, sales reached 2 trillion KRW, and last year, they exceeded 3 trillion KRW. This is the result of dedicating efforts to market industrialization without losing the original intention of ‘healthy food distribution.’
Even amid rapid external growth, CJ Freshway strengthened its internal foundation. In 2015, it established a sauce supply line through the acquisition of Songlim Food, and in 2019, it acquired preprocessing companies J Farms and J& Foods to enhance customized food ingredient supply capabilities. This laid the groundwork for implementing a ‘one-pack solution’ through efficient raw material supply.
Forward Base for 20 Years: ‘Central Kitchen’... Preempting the Silver and Kids Markets
To solidify its position as the number one food ingredient distribution company, CJ Freshway completed the Central Kitchen Central Region branch in June in Icheon, Gyeonggi Province. The Central Kitchen covers approximately 11,173㎡ (3,380 pyeong) of land and has two floors above ground, producing about 25 tons of side dishes and semi-processed products daily.
The Central Kitchen produces products of uniform quality using its own standardized recipes. Delivered in RTH (Ready To Heat) and RTC (Ready To Cook) forms, it improves quality as well as efficiency and hygiene safety. Since preprocessing is not required at each catering site, food waste output can be significantly reduced, and thorough supervision prevents food safety issues such as cross-contamination or foreign substance incidents.
Through the Central Kitchen, CJ Freshway can proactively respond not only to existing group catering businesses but also to the growing silver (elderly) and kids markets. From securing specialized food ingredients through contract farming to preprocessing, processing, and productization, the entire process can be customized using the company’s infrastructure.
First, the senior-specialized food ingredient brand ‘Healthy Nuri,’ launched in 2015, was integrated and expanded into a total food care brand. This aims to become a brand that encompasses customized food ingredient supply, nutritional meal planning, service consulting, and social contribution projects. Recently, CJ Freshway signed a business agreement with ‘Visiting Angels Korea,’ a home visit care service company, to develop the ‘Angel Kit,’ which contains snacks and meals exclusively for seniors. It also signed a business agreement with ‘Love and Good Deeds,’ a company specializing in senior-friendly food production.
CJ Freshway launched the kids-only brand ‘Ai Nuri’ in 2014 and has been dedicated to distributing eco-friendly and organic agricultural products. Last year, it expanded its lineup by adding about 30 types of eco-friendly agricultural products, including ‘Ai Nuri Good Pesticide-Free Rice,’ vegetables, fruits, and grains. It continues to develop exclusive products that maximize safety and convenience, such as seafood with over 99% of bones removed, nitrogen-packed fresh antibiotic-free Korean beef and pork, and small-pack snacks made with domestic wheat.
CJ Freshway plans to operate menus centered on Central Kitchen products by composing standard menus at about 600 group catering sites currently in operation. It will actively utilize the strengths of products specialized for hospitals and the silver market and expand the product lineup to about 200 items, considering the characteristics of each customer group.
Virtuous Cycle of Coexistence... Bringing Korean Flavors Overseas
CJ Freshway is also committed to Creating Shared Value (CSV) management through contract farming with farmers. Farmers can expect stable income without worrying about sales channels, while the company secures high-quality raw materials by managing everything from sowing to processing and productization.
CJ Freshway’s efforts for coexistence have led to contract expansion. When contract farming first started in 2015, there were 135 participating farms and a purchase volume of 3,630 tons. Last year, this jumped to about 1,400 farms and 40,000 tons purchased. As of 2020, five years after the first contract farming, CJ Freshway partnered with 3,098 farms, with an expected purchase volume of 66,000 tons. Compared to the first year, the number of farms increased about 22 times and the purchase volume 17 times. This year’s contract farming covers 5,460 hectares (54.6 km²) across 51 regions nationwide, which is 20 times the size of Yeouido.
The company also fulfills its corporate social responsibility. To reduce food waste and participate in hunger eradication efforts, it is part of the ‘Zero Waste Zero Hunger’ campaign conducted with the United Nations World Food Programme (WFP), a UN relief agency.
CJ Freshway is actively conducting overseas business as well. It operates country-specific customized food ingredient distribution businesses considering local domestic food ingredient market characteristics, as well as global product sourcing and group catering. The office opened in Chile in 2017, the first in the industry, has become a hub for the South American network strengthening the competitiveness of primary agricultural, livestock, and fishery products from Peru and Colombia. Products sourced through the Chile office are distributed not only domestically but also to countries where CJ Freshway has expanded, such as China and Vietnam.
Through exclusive contracts with overseas brands, CJ Freshway introduces products that domestic consumers have had difficulty accessing. This is a business area practically impossible for individual and small-to-medium food ingredient distributors, and it is an achievement made possible by CJ Freshway’s distribution network and sales know-how accumulated domestically and internationally.
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