The level of awareness determines the amount of profit. After three years of pandemic, consumer habits have changed, and physical store traffic has declined. Data from the China Chain Store & Franchise Association shows that in the past year, 67.2% of convenience stores saw a year-on-year decrease in customer visits, while only 21.9% saw an increase. With large-scale traffic declines, convenience stores are at a critical juncture. Zhou Chenmin, operations director of Wuhan-based convenience store chain Today, said, 'Before 2020, our average daily foot traffic per store was around 550 people. After the pandemic, offline traffic has decreased significantly, and now it's down by more than 100 people, which is very serious.' Mr. Yang, a mom-and-pop store owner, also said, 'During the worst of the pandemic, daily income plummeted to just over 100 yuan, not even enough to cover rent. Stores around me closed one after another, and after paying rent, there wasn't enough money for food.'

Despite the decline in foot traffic, overall convenience store sales have shown the opposite trend. Data shows that in 2022, 64.1% of convenience store companies still saw year-on-year growth in total sales, with one of the main reasons being the adoption of instant retail. Apart from foreign-funded convenience stores, most of the net new stores are from leading local convenience store companies. While mom-and-pop stores are struggling with declining foot traffic, increased expired goods, and even closures, chain convenience stores have moved ahead and reaped the benefits early.

Convenience stores use 'instant retail' to navigate the cycle

Offline physical stores are undergoing a new round of reshuffling. Many businesses did not survive the pandemic winter and fell before policies were relaxed. According to incomplete statistics from the Lianshang.com Retail Research Center, at least 7,400 offline stores closed in 2022, including supermarkets, restaurants, cinemas, and others, among which were stores under star companies like Hema Neighborhood, Yonghui Superstores, and Starbucks. As the format closest to consumers, convenience stores have maintained a sales growth rate of over 10% for three years, but they have also been significantly affected. A clear signal is that Bianlifeng, which expanded rapidly last year, closed more than 700 stores, accounting for a quarter of its original store count. Despite the booming convenience store industry, the situation has changed.

1. From the industry's own perspective, the Matthew effect in convenience stores is evident. In recent years, sales growth in large supermarkets has slowed, while convenience stores closer to consumers have continued to increase. Convenience stores have been sought after and have expanded wildly. With leading companies increasing their efforts, 121,000 new stores were added in 2020 and 2021, directly exceeding the total number of convenience stores added over the past two decades. Foreign companies like 7-Eleven and Lawson are also accelerating their expansion into lower-tier markets, leaving less space for mom-and-pop stores. In 2022, sample convenience store companies opened 13,255 new stores and closed 4,405, a net increase of 8,850. Apart from foreign companies, new stores mainly come from leading local convenience store companies.

2. Rapid expansion has also brought side effects, with increased store density. Beijing was once called a convenience store desert, but this has changed significantly in recent years. In the most extreme cases, opening a map shows more than 50 convenience stores within a one-kilometer radius. Convenience store customers are highly dependent on surrounding foot traffic, and excessive density directly drains the traffic within a three-kilometer radius, leading to declining orders per store. At the same time, rent and labor costs have risen year by year, while consumer confidence has not recovered, further squeezing convenience store profits.

3. The pandemic during this period completely changed consumer habits, delivering a 'critical blow' to convenience stores. The China Chain Store & Franchise Association recently released an overview of the development of the convenience store industry in 2022, showing that 67.2% of convenience stores saw a year-on-year decline in customer visits, while only 21.9% saw an increase. The boom in e-commerce, front warehouses, and community group buying has made consumers more homebound and lazier, leading to further traffic loss and forcing convenience stores to go online. 'Traditional e-commerce traffic is not good, and consumers are not used to it. We closed our Tmall and JD stores and later moved to member mini-programs. We are actually still a trading and circulation company, but in the past two years, our private brands have increased. However, the development of live-streaming e-commerce has led to manufacturers moving forward, putting pressure on us as circulation companies,' summarized Wu Teng, deputy general manager of Hebei 36524 Convenience Store, on previous online attempts.

Under the influence of various factors, the development of convenience stores has reached a critical moment, urgently needing to navigate the cycle. In the same environment, sales have shown clear divergence. The overview pointed out that in 2022, 64.1% of convenience store companies still saw year-on-year growth in total sales, while 35.9% saw a decline. From another set of data, we can find the reason for the divergence between sales and foot traffic: among companies operating online, 70.3% achieved positive sales growth. Instant retail is one of the main reasons. Since the formed consumption habits are irreversible, the best way is to follow the trend to have a chance for a turnaround.

'Instant retail is a source of new orders and new customers—the most extreme order was on a street in Shijiazhuang where there were 7 stores, and the nearest order was placed just 30 meters across the street, with a delivery distance of no more than 100 meters, buying iced drinks and snacks. If we didn't offer instant retail, that order definitely wouldn't be ours,' said Wu Teng, deputy general manager of Hebei 36524 Convenience Store. 'Customer consumption habits and demands have changed. Although your store network is dense enough, consumers find it inconvenient to go out, or even don't want to. We are on JD Daojia and Ele.me, but the main platform is Meituan.' Like Hebei 36524, many local convenience stores have taken the lead in embracing instant retail and reaping the benefits. Henan Yue Lai Yue Xi also said, 'For top stores, Meituan Waimai accounts for about 30% of orders, bringing about 50% incremental growth.'

Local convenience stores are emerging from the shadow of declining offline traffic, first by surprising in supply, creating differentiated advantages, and playing a combination of moves.

Differentiated supply leverages the instant market

Local supply is the foundation of instant retail, and the prosperity of offline stores determines the scale of the local market. The demand side is consumers within a three-to-five-kilometer radius. Why do consumers go to convenience stores? To quickly obtain relevant products. It can be said that immediacy itself is a label of convenience stores, with food being the largest demand category. Instant retail is essentially still retail, but it requires tapping into demands that offline and e-commerce have not yet met.

First, 'differentiated products.' It should be clear that for retailers, the competitiveness of 'standard products' lies in price, and convenience stores do not have an advantage over traditional supermarkets. However, making products that foreign and traditional supermarkets do not have, focusing on local characteristics, satisfying local 'tastes,' and forming stable repeat purchases within the region is key to whether convenience stores can make money. In this regard, local convenience stores are more adept.

1. Fresh food becomes the first focus. Convenience stores also cover the working meals of office workers. Doing fresh food well will bring stable repeat purchase rates to stores. Products like sandwiches and sushi from Lawson and 7-Eleven are uniform nationwide, and these products are still in the early market education stage. Consumers may try them occasionally, but it's hard to form stable sales. In this regard, local convenience stores can more easily achieve differentiation. Specialty fresh food is the core competitiveness of local convenience stores against foreign ones. 'Fresh food is the main direction, mainly making snacks that suit local tastes, such as Wuhan hot dry noodles and Heqi grilled sausages. Our Japanese team also developed super-soft sandwiches that are very popular,' said Zhou Chenmin, operations director of Wuhan Today. 'Fresh food has brought a 90% growth in Today's instant retail orders. Our delivery business also focuses on fresh food, and we negotiated fresh food discounts with Meituan, with merchant subsidies plus Meituan subsidies. Online orders started at just over 2,000 per month, and now exceed 10,000 per month. Consumer awareness has been cultivated, such as having safe, healthy, and delicious bento boxes and fresh food at convenience stores.'

'We follow local consumption habits and needs, launching spicy products like spicy duck neck, duck wings, duck intestines, bundled chicken, spicy meat, toothpick beef, and edamame. These are all Hunan specialty fresh foods,' said Deputy General Manager Tang of Hunan Xinjiayi.

2. Convenience stores also add local brands, evoking local nostalgia and driving consumption. This also deepens customers' awareness of regional stores and gives them a sense of belonging. 'Last year, we made an exclusive cooperation with Gaocheng Beverage, a local time-honored brand familiar to old Shijiazhuang residents. Related products are exclusively sold in our stores, awakening memories of old Shijiazhuang,' said Wu Teng, deputy general manager of Hebei 36524 Convenience Store.

3. Focus on short-shelf-life products to grasp consumers' immediate needs. For long-shelf-life products, JD and Tmall have price advantages and better meet consumers' 'stockpiling' needs. For short-shelf-life products, consumers need them immediately, they are consumed quickly, and immediacy is especially important. Compared with traditional e-commerce, this is a differentiated advantage for convenience stores in instant retail. Compared with foreign convenience stores, local convenience stores have obvious price advantages. Hunan Xinjiayi focuses on short-shelf-life products such as milk and bread, ensuring 24-hour availability, increasing the proportion of home delivery sales. Sales of short-shelf-life products tripled year-on-year. With our own cold chain, we can offer cost-effective products. For example, Japanese brand models are expensive; 7-Eleven and Lawson outsource, and the outsourcing supply chain takes a few percentage points, and suppliers' bargaining power is not as good as ours. For major milk brands, we directly source, eliminating middlemen and reducing costs. Our financial pressure is the monthly payment to suppliers, but we turn over quickly, thanks to our product selection and short-shelf-life product strategy, creating a virtuous cycle.

In contrast, why do local convenience stores achieve better results with localized products? Whale Business believes the fundamental reason is related to the service targets. Retailers choose their consumers, and then they open a store accordingly, which corresponds to the supply. Just as foreign companies entering need to localize, local convenience stores, with their early accumulation in stores and supply chains, can better understand and meet local consumer needs. Although local convenience stores are fragmented across regions, unlike foreign ones that are nationwide, the advantage of deep localization will release more potential in the future.

In this process, 'instant retail,' as an important engine for the incremental local retail market, connects local convenience stores with consumers, further driving regional retail. Consumers do not need to wait as long as with traditional e-commerce, nor do they need to run around; local convenience stores can grasp consumption trends and reduce inventory pressure. Instant retail improves the efficiency of all links in the local retail market.

Finally, beyond products, local convenience stores place more emphasis on service value than before, which is most evident in 'instant retail.' For example, in retail, whether it's a large supermarket like Carrefour or a roadside mom-and-pop store, Coca-Cola and Master Kong are the same, with no difference. Consumers shopping offline see store layout and displays, which are completely absent online; the only differentiation is service. Hunan Xinjiayi has strict requirements for franchisees in this regard. 'When receiving customer orders, we require pickers to put themselves in the customer's shoes. For example, if we have three bottles of yogurt with different shelf lives, from the customer's perspective, they would take the one with the best date, and use the best delivery packaging. We always require prioritizing online customers, using the best dates, and being customer-centric. The principle is that online customers pay first, so their interests should be guaranteed first.' They also select products for customers, such as only listing 5-6 best-selling SKUs for cookies, reducing decision costs and increasing repeat purchases.

Behind the sales increase of local convenience stores through fresh food, short-shelf-life products, and improved services is the solid guarantee of digital supply chains.

'Instant retail' accelerates digitalization

If local supply is the foundation of instant retail, then digitalization is the necessary step to 'move' physical shelves to online stores. The challenge of online delivery is accurate inventory, accurate data flow, and controllable products. Especially for chain stores that have expanded rapidly, the unified standardization of products and prices among franchisees is key to building brand awareness. In the long run, digitalization can improve the traditionally weak sell-through rate and increase overall retail efficiency. The development of instant retail is forcing the digital upgrade of traditional retail supply chains.

The first step in digitalization is to build a good 'online shelf,' which requires accurate inventory and data to ensure customers can order with confidence. Wuhan Today has implemented a 'store online inventory modifiable' function. Convenience stores have many short-shelf-life products that face expiration and near-expiry issues. With this function, stores can manually modify inventory. For example, if fresh milk expires in one day, the system should show online inventory, but because it's near expiry, if a customer orders it, the store cannot deliver, leading to cancellations. With this function, cancellations due to inventory issues have been reduced, and the negative review rate has decreased.

Based on sales data, stores can continuously optimize products, improving the traditional weak sell-through and inventory backlog. Delivery has become a new tool for testing product selection, using big data to empower rapid iteration and eliminate poorly performing SKUs. Henan Yue Lai Yue Xi updates 15% to 20% of its products weekly, eliminating hundreds of SKUs. The logic for elimination: first, sales volume, based on consumer demand. Currently, there are about 3,000 SKUs in stock, and the product department holds new product meetings almost daily for product replacement. Those with slow sell-through and too low margins are eliminated; second, trends are considered. For popular online products or seasonal items, the proportion of SKUs predicted to be popular with consumers is increased.

Local convenience stores also use membership systems to judge consumption trends. Hebei 36524 has established its own membership system. Through data research, they found that as consumption levels rise, the customer base has become younger by five to seven years, so they immediately introduced matching Japanese-style convenience store fresh foods like grilled sausages, oden, and fried foods, as well as popular Japanese desserts.

The user experience of 'instant retail' has also driven digital reforms. To build a good online reputation, Hunan Xinjiayi has implemented many online store control measures, such as ensuring all stores have low negative review rates, replying to all reviews (positive or negative), and highlighting five-star reviews. Because if we, as consumers, order delivery, we definitely look at sales and reviews. If a store posts a review and doesn't respond for three months, it definitely seems like a shady store, so we definitely reply. Stores can also use reviews to improve their services in reverse.

Digital supply chain reforms have improved the efficiency of local convenience stores, and local retailers are accelerating development to follow the wave of instant retail. Mom-and-pop stores that previously relied only on local acquaintance transactions should learn from the experience of local convenience stores, improve their own capabilities, and ride the fast train of local retail development.

1. Create distinctive supply, first build awareness, and gradually increase repeat purchase rates. For example, a mom-and-pop store launched handmade dumplings, which are tastier than frozen ones and received unanimous praise from office workers. Mom-and-pop stores are usually run by local residents who are more familiar with the community and can find products consumers need. 'A customer wanted a 50-centimeter large iron pot, which was nowhere else, and I got it within 2 hours.' With consumption convenience, when a need arises, people's first reaction is to search and inquire online, rather than going out and searching aimlessly. Mom-and-pop store owner Yang Jialong posted in his online store's bulletin: 'If the store doesn't have the product you need, you can call me, and we will list it as soon as possible.'

2. Improve warehousing and picking efficiency, increase labor productivity and digitalization. For mom-and-pop stores with fewer staff, product placement must be scientific to enable timely picking. Additionally, they can try introducing digital systems. For example, a small store in Beijing's Chaoyang District, previously reported by People's Daily, introduced a digital system that uses big data to empower product selection. Before opening, the system provides historical consumption and search data of consumers within a 5-kilometer radius, clearly outlining consumer profiles, allowing store owner Zheng Mingyue to select products with purpose. After opening, the system provides timely prompts based on sales, seasonal changes, and bestseller changes, allowing Zheng to sync with consumer demand.

3. Mom-and-pop stores can also offer convenience services, such as parcel collection and delivery, community group buying, to increase foot traffic. The pandemic has accelerated consumers' shift online, and 'instant demand' has also driven the resurgence of local retailers. In this context, instant retail, based on local physical supply, as an online extension of traditional retail, is the necessary path for high-quality operations and output. Relying on instant retail platforms represented by Meituan, convenience stores that penetrate the capillaries of cities have received new blood transfusions.

Local mom-and-pop grocery stores urgently need to further improve their operational capabilities and embrace new business formats to withstand the impact and ride the fast train of instant retail development.