Click to read the original article for details Are lower-tier cities, once considered to have insufficient purchasing power, really ready for downmarket expansion? Convenience store giants have repeatedly broken sales records in lower-tier markets and even in first-tier cities. Are lower-tier cities, once considered to have insufficient purchasing power, really ready for downmarket expansion? On October 25, Beijing Business Today obtained sales figures for the opening day of 7-ELEVEN's first store in Henan, which exceeded 650,000 yuan, breaking the previous record of 500,000 yuan set by the brand's first store in Hunan. Not long ago, Lawson's first six stores in Tangshan achieved total sales of over 560,000 yuan on their opening day, also setting a new record for comprehensive sales indicators for new Lawson stores in China. Although second- and third-tier cities have lower rent and labor costs compared to first-tier cities, their purchasing power has long been unable to match that of first-tier cities. Behind the record-breaking first stores, the high standards of convenience store operators themselves, and whether they can sustain long-term operations through surrounding consumption after the initial "novelty" purchases, are also tests in the process of downmarket expansion. -01- First Store Sales Repeatedly Break Records 7-ELEVEN's first store in Henan opened in Zhengzhou over the weekend, attracting long queues of consumers. The store's sales on that day exceeded 650,000 yuan, setting a new global record for single-day sales per store. According to local media reports, queuing to enter the store took about half an hour, and consumers were still in the store until the early morning. More exaggeratedly, the first consumer of the day started queuing at 2 a.m. Due to the large customer flow, to maintain supply, Henan Sanyi set up a temporary warehouse and standby logistics vehicles on site for allocation. In fact, the Henan first store is not the first to experience such a situation. Previously, 7-ELEVEN had achieved opening sales of 390,000 yuan, 420,000 yuan, and 500,000 yuan in Xi'an, Fuzhou, and Changsha, respectively. According to data provided by 7-ELEVEN's Hunan franchisee, Youa Group, the first store in Hunan achieved opening sales of 507,300 yuan, breaking the global convenience store industry record for single-store single-day sales, with a cumulative customer count of over 5,000, an average of nearly 300 customers per hour, and hourly sales of 29,800 yuan. It is worth noting that while 7-ELEVEN has repeatedly broken sales records, Lawson, another Japanese convenience store chain, has also been breaking its own sales records. In August this year, Lawson's first six stores in Tangshan achieved total sales of over 560,000 yuan on their opening day, also setting a new record for comprehensive sales for new Lawson stores in China. Among them, the Wanda Plaza store achieved sales of over 350,000 yuan, breaking the record for the highest turnover on the opening day of a Lawson convenience store in China. In the view of Lai Yang, executive vice president of the Beijing Commercial Economics Society, the reason 7-ELEVEN and Lawson can develop rapidly in downmarket areas is that consumers in these regions have reached an explosive period in their pursuit of quality and fashionable lifestyles, giving these business formats more room to grow. "The biggest characteristic of convenience stores is their correlation with consumers' purchasing power. In the development history of convenience stores, a development level of per capita GDP above $6,000, or even $10,000, is necessary for convenience stores to develop rapidly." -02- Swarming into Downmarket It is precisely because they have sensed such opportunities that more well-known convenience store brands are accelerating their layout in downmarket areas. Beijing Business Today noted that on the same day the Zhengzhou first store set a global record, 7-ELEVEN's Hunan market announced the opening of franchise registrations. This is half a year earlier than the original plan to gradually open franchises in April next year. When 7-ELEVEN's first store in Hunan opened, the brand's plan for the Hunan market was to open 20 stores this year, reach 50 stores in 2021, and a total of 100 stores by 2022. At that time, Hu Shuo, executive director of Youa Convenience Store Management Co., Ltd., stated that after establishing a profitable model in Changsha, franchises would gradually open in April 2021. According to official data, as of now, 7-ELEVEN Hunan has opened 14 convenience stores across the province, mainly distributed in the core business districts of Changsha. The successive sales records have given foreign convenience store giants hope in downmarket areas, especially after the gradual saturation of first-tier city markets such as Beijing, Shanghai, and Guangzhou. According to Beijing Business Today, Lawson plans to enter Ma'anshan at the end of October, with an expected opening of 5 stores. As of now, Lawson has opened 79 stores in the Hefei area, covering four districts and two counties, and has 7 stores in the Wuhu area. Earlier, Lawson signed a regional authorization license contract with Hainan Qingzi Industrial Co., Ltd. to enter Hainan Province, with plans to open 300 stores within three years. In April this year, Lawson Beijing and Jindian Commercial signed a strategic cooperation agreement in Beijing to enter Hebei in the form of franchised operations. In addition to foreign convenience store brands, local convenience store brands are also competing to accelerate their downmarket layout. Bianlifeng, known for its rapid store opening speed, has been opening stores in Shenzhen, Jinan, and other cities since February this year. After announcing the milestone of 1,000 stores in October last year, as of May this year, Bianlifeng has publicly disclosed a store count of over 1,500. In July this year, "Hongqi Convenience" began its cross-province expansion, planning to open 300 stores in Lanzhou in cooperation with Lanzhou State-owned Assets Limin Asset Management Group Co., Ltd., with the first store opening on September 9. -03- Supply Chain Challenges The "2020 China Convenience Store Development Report" released by the China Chain Store & Franchise Association shows that the convenience store market in first-tier cities is relatively saturated, while second- and third-tier cities have become new frontiers for convenience store enterprises' market expansion due to sustained economic growth and the cultivation of consumption habits. Lai Yang believes that the downmarket expansion of convenience stores means that the entire supply chain system must also go downmarket, not just opening one or two stores. "Because convenience stores, in addition to traditional FMCG products, carry a considerable amount of fresh food and ready-to-eat meals, which have certain requirements for the distribution radius of processing bases." "Prepare the supplies before sending troops. Before expanding, convenience stores usually need to consider the layout of the supply chain first." Wen Zhihong, a partner at Hejun Consulting, also believes that for convenience store enterprises, whether the supply chain capability can radiate to or support the downmarket cities is an important factor in their development. In addition, the report also mentioned that "community-oriented" will become an important scenario for convenience stores. Currently, many supermarket brands have begun to intensively lay out community formats, including leading players in the supermarket industry such as RT-Mart and Hema. It is understood that in March this year, Hema announced that Hema mini would accelerate store openings on a large scale and replicate across the country; in June, Gome's first community fresh supermarket, "Mei+ Fresh" life supermarket, opened in Tongzhou; in July, RT-Mart's small format, "Xiaorunfa RT-mini" community supermarket, opened in Nantong. In this regard, Lai Yang believes that the decline in performance of large-format stores has made exploring community-oriented small stores an inevitable trend, and the boundaries between consumer formats are becoming increasingly blurred. However, different store formats have different characteristics and target different consumer groups. "Taking 7-ELEVEN as an example, fast food and creative new products are 7-ELEVEN's strengths, but fresh food is its weakness. Some community supermarkets have advantages in fresh food, but they have differences and weaknesses in fresh food and ready-to-eat meals." Source: Beijing Business Today, Authors: Zhao Shuping, Zhao Chi