Click to read the original article for details The king of convenience stores has fallen from its pedestal. 7-ELEVEn, hailed as the textbook example in the industry, recently underwent a major personnel change: Uchida Shinji, former chairman of 7-ELEVEn China, officially stepped down, and the new chairman is Yan Qian, former CFO and general manager of 7-Eleven China. "I only have ten years left before retirement, and there's only so much I can do in ten years," Uchida admitted at an industry forum in 2019. Sitting next to him was his old rival and friend Miyake Nobuyuki, president of Lawson China, who was speaking to hundreds in the audience about his future plans. "So I hold study sessions every week to cultivate my successor, preparing to hand over the China operations to them even if I'm called back to Japan at any time." Leading 7-ELEVEn China for eight years, Uchida and 7-ELEVEn once reached the pinnacle, achieving daily sales per store exceeding 20,000 yuan in a market where the average was 6,000-8,000 yuan, establishing their dominance in the industry. But in the past two years, 7-ELEVEn has been seen as "failing to keep up with the development pace of China's convenience store market." In terms of store count, according to China Chain Store & Franchise Association data, by the end of 2021, 7-ELEVEn had 2,893 stores nationwide, while FamilyMart, which entered China around the same time, had 2,902, and later entrant Lawson had 4,466. According to Future Consumer, Bianlifeng, a new convenience store concept founded in 2019, also has over 2,000 stores. In terms of per-store revenue, 7-ELEVEn's average annual sales per store in 2021 were 2.74 million yuan, even lower than its own 2018 figures. Many retail formats like hypermarkets and supermarkets are facing historical headwinds, and their decline seems inevitable. But in the still-thriving convenience store sector, 7-ELEVEn has unfortunately "aged." 1 Lost Territory Whether defending its existing strongholds or attacking new markets, 7-ELEVEn has struggled in recent years. In its home base of Beijing, 7-ELEVEn's store count has actually declined. According to its official website, 7-ELEVEn Beijing's latest store count is 258, including 9 new stores opened this year. Three years ago, at the end of 2018, 7-ELEVEn had 266 stores in Beijing. Even though 7-ELEVEn Beijing's official WeChat account promotes franchise opportunities in weekly posts, the pace of new store openings can't even keep up with closures. The reduction in foot traffic at physical stores due to the pandemic is one external factor affecting 7-ELEVEn's store numbers. "Four years ago, when I first joined as a franchisee, business was decent—making 20,000 yuan in net profit a month wasn't a problem. In the last two years, it's been unprofitable, just breaking even," a 7-ELEVEn franchisee in Tongzhou District told 36Kr. Due to the macro environment, some franchisees chose not to renew their contracts when they expired. Meanwhile, Beijing, once called a "convenience store desert," has been coveted by many domestic and international convenience store brands as the most promising market in recent years. Lawson and FamilyMart, both Japanese convenience store chains, have expanded their Beijing store counts from single digits to over 200 and over 100 stores respectively in the past five years. Local brand Bianlifeng has opened over 500 stores in Beijing. The influx of players has further squeezed 7-ELEVEn's original territory. Among these, Bianlifeng's aggressive expansion strategy, dubbed "convenience store 3.0," is noteworthy. To quickly gather enough big data to drive its algorithms, Bianlifeng has been rapidly opening stores with Beijing as its base since 2017. One of its site selection strategies is to open stores right next to 7-ELEVEn. For example, if 7-ELEVEn opens at the best location near a subway exit, Bianlifeng will choose a slightly less desirable spot nearby, sometimes even opening multiple stores to compete. "The 7-ELEVEn under my office building is closing at the end of the month, while the Bianlifeng across the street is still running a 10% discount promotion," wrote Xiao Wang, a Beijing resident, on social media. But in reality, whether it's black swan events or competition, these are inevitable challenges in a company's development. The difficulties 7-ELEVEn faces are more due to internal factors. Looking at the longer timeline, 7-ELEVEn's slow expansion was evident even before the pandemic. 7-ELEVEn embodies the typical Japanese corporate style: rigorous and stubborn, which is first reflected in site selection. 7-ELEVEn's standard store format is a 120-square-meter square, and it doesn't do irregular-shaped stores. By this standard, there are only about 1,000 suitable locations in Beijing. To strictly adhere to standards, according to 7-ELEVEn franchise recruiters, D-type franchisees typically have to wait over three months for a suitable store to become available. This stringent site selection has, to some extent, slowed 7-ELEVEn's store expansion. The D-type franchise mentioned here is one of two individual franchise models at 7-ELEVEn. Specifically, franchisees don't need to provide their own store; they only pay a franchise fee of 350,000 yuan (350,000 in Beijing, 300,000 in some provinces), plus employee wages, store operating costs, and shrinkage costs. Rent and renovation costs are borne by 7-ELEVEn, with profits shared on a tiered basis. 7-ELEVEn also offers an A-type franchise, where franchisees provide their own store and pay an upfront franchise fee of 1 million yuan (1 million in Beijing, 800,000 in some provinces), plus employee wages, renovation costs, delivery fees, and other expenses, but they keep 100% of the profits. The hefty franchise fees, often hundreds of thousands to millions of yuan, deter potential convenience store owners from joining 7-ELEVEn. Remember, this is just the franchise fee, not including initial capital for inventory, equipment, and other startup costs. A rough estimate puts the initial investment for even a D-type franchise at over 600,000 yuan. In comparison, Lawson, another Japanese convenience store chain, states on its website that franchisees need only 450,000 yuan or more in funds. Among domestic Japanese-style convenience stores with a focus on fresh food, Tangjiu Convenience's franchise package is around 400,000 yuan, and Fulu Family in Henan is around 200,000 yuan. For lower-tier markets, 7-ELEVEn's franchise fees are too high; in first- and second-tier cities, rising rents and labor costs further squeeze already thin profits. Although Uchida Shinji has explicitly stated plans to lower franchise entry barriers for lower-tier markets, the current franchise policy has yet to see significant changes. 2 Slow Downward Expansion Stagnant store growth is just one aspect of 7-ELEVEn's midlife crisis. During the new retail boom years of 2017 and 2018, many venture capital-backed convenience store startups emerged, such as Linjia, Beijing 131, and Quanshi, but they all collapsed after burning through their cash. There were also products incubated by internet giants like Suning Xiaodian and JD Convenience Stores, but they ultimately fizzled out. The capital entering convenience stores at that time was driven by the internet logic of "scale first, profits later." Practitioners then believed that short-term losses weren't a big deal; once you captured the market, you could naturally achieve profitability through economies of scale. Uchida Shinji disagreed. In his view, 7-ELEVEn always prioritized profit as the primary metric. Expansion was premised on ensuring that new stores had healthy profit models; stores that couldn't meet expectations would be closed. "7-ELEVEn doesn't pursue vanity metrics like extremely high store counts," commented an industry insider. But in reality, scale and profit in convenience stores are not mutually exclusive; they complement each other. Zhang Sheng, vice president of Lawson China, once admitted that in a city with rents as high as Shanghai, if you only focus on short-term profits, you could achieve profitability by opening about 470 stores and then stopping expansion. But then, suppliers wouldn't invest more in a retail company that isn't growing, meaning that without store growth, the company would gradually lose its bargaining power, negotiation ability, and capability to launch new products. 7-ELEVEn isn't unwilling to accelerate expansion. In fact, as early as 2018, Uchida Shinji told 36Kr that he hoped to open 20,000 stores as soon as possible. To reach the 10,000-store level, a convenience store brand needs to enter most second- and third-tier cities, and even more down-market cities. Therefore, both 7-ELEVEn and Lawson began penetrating new first-tier cities like Nanjing as early as 2017 to explore downward expansion. But looking at it now, 7-ELEVEn's downward expansion hasn't been ideal. For foreign companies to do down-market business in China, partnering with local companies is essential. The reason is that small-format stores like convenience stores require more refined operations. Unlike large supermarkets that are managed at the city level, convenience store operations need to be fine-tuned to the street and business district level. Therefore, the prerequisite for opening profitable stores is being sufficiently familiar with the city you're entering. Zhang Sheng of Lawson China previously explained this in an interview with 36Kr. He gave an example: Initially in Hangzhou, Lawson opened stores entirely through self-operated models. But the process was painful. He couldn't judge the pros and cons of the store locations his team submitted because he wasn't familiar with the surrounding population, transportation, or environment. 7-ELEVEn's cooperation model with local companies is the conventional franchise model, where the local company handles store operations, store manager recruitment, and factory and supply chain construction, while the Japanese side only provides operational strategies and guidance. 7-ELEVEn's franchise partners include Sanquan and Youa. But building a dedicated factory and supply chain for convenience stores is a massive investment, and the profit cycle for convenience stores is typically over three years, making it difficult to find local companies that meet Japanese standards and are willing to cooperate. In contrast, Lawson's franchise model is much more flexible. The most common model is the "master franchise," where they find a local company with retail experience and connections to act as a regional master franchisee, essentially an individual franchisee operating many stores. Supply chain, logistics, and operations are all provided by Lawson's headquarters; the company just needs to open stores. Through the master franchise model, local companies have a much lighter upfront investment, only needing to leverage their familiarity with local consumer habits. The difference in franchise models for down-market expansion is directly reflected in the stagnant store counts in various franchise regions. For example, in Wuhan, where 7-ELEVEn entered two years ago, it still has fewer than 20 stores. In contrast, Lawson, which entered Wuhan two years earlier in the form of Zhongbai Lawson, has over 500 stores. 3 Can "Staying the Course" Work? 7-ELEVEn's new chairman, Yan Qian, is the former CFO and general manager of 7-ELEVEn, a Chinese executive personally cultivated by Uchida Shinji. Typically, when a business head takes over as general manager, there's a significant strategic shift, but when a CFO takes over, it's likely to continue Uchida's governance policies. Recently, Yan Qian appeared at an online forum of the China Chain Store & Franchise Association, outlining 7-ELEVEn's future development priorities. First, continuing the strong product strength that Uchida repeatedly emphasized. 7-ELEVEn's private brands differ from others. For example, ALDI, the German discount store also known for private brands, achieves similar quality to market brands but sells at lower prices. 7-ELEVEn's products, on the other hand, create barriers by achieving high quality that others can't imitate. "If you just lower prices, that's a price war, and anyone can imitate that." Currently, products from 7-ELEVEn's fresh food factories are mostly private brands, accounting for 30%-40% of store sales. "Our product development concepts and approaches are sound; next, we'll strengthen our exploration of Chinese consumer tastes," Yan Qian said. Another future focus for 7-ELEVEn will be instant retail like food delivery. According to Yan Qian, 7-ELEVEn Beijing stores currently get over 10% of sales from delivery. In June, 7-ELEVEn's internal delivery system will go live, aiming to further improve delivery data and maximize the use of third-party resources. 7-ELEVEn's integration with instant delivery platforms came later than Lawson and FamilyMart. In 2018, Uchida Shinji believed that delivery didn't have a significant impact on convenience stores. As the pandemic further accelerated the shift of consumption online, Yan Qian believes that instant retail does pose a significant challenge to the convenience store format. Of course, the costs associated with instant retail, such as service fees, still put considerable pressure on companies. "So, the question of what model to use for instant retail, or how to reduce costs given the increase from instant retail, is something the company needs to consider comprehensively." Currently, on Meituan and Ele.me platforms, some 7-ELEVEn stores offer free delivery, while others charge. After inquiring with multiple stores, 36Kr found that stores with free delivery are mostly company-owned, while those charging are mostly franchised. It's certain that the Chinese market will remain a key development target for 7-ELEVEn Japan headquarters in the coming years. There's speculation that Uchida Shinji was called back to Japan to help with the struggling Japanese business, but he will still remotely guide China operations. "We hope to accelerate the development of stores and supply chain construction in China." But 7-ELEVEn still has its principles. "However, in this process, we will absolutely not blindly pursue quantity," Yan Qian stated directly. "Each brand has its own development model. Based on our existing franchise model, we are very focused on the satisfaction of each franchisee." It's clear that in the short term, 7-ELEVEn won't make major changes to its franchise system or store count growth. Yan Qian has chosen to follow 7-ELEVEn's original pace, taking small steps. But it's worth noting that Japanese convenience stores like Lawson are accelerating their downward expansion, and regional chains like Linji and Tangjiu are expanding beyond their provinces. On a track where competitors are sprinting, should 7-ELEVEn adjust its pace to match the environment? Source: Future Consumer APP (ID: Future Consumer APP) -END-