---
title: "Battle for the Lower-Tier Market: Can Convenience Stores Outcompete Mom-and-Pop Shops?"
description: "As chain convenience stores rapidly expand, mom-and-pop shops are not standing still. The competition in lower-tier markets is intensifying, with both sides leveraging their strengths—chains offering quality and standardized service, while independent shops rely on flexibility and community ties."
author: "王梓旭"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2021-05-13"
language: "en"
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# Battle for the Lower-Tier Market: Can Convenience Stores Outcompete Mom-and-Pop Shops?

> As chain convenience stores rapidly expand, mom-and-pop shops are not standing still. The competition in lower-tier markets is intensifying, with both sides leveraging their strengths—chains offering quality and standardized service, while independent shops rely on flexibility and community ties.

**"While chain convenience stores are sprinting to expand, mom-and-pop shops are not idle either."**

For a city, what do convenience stores tucked in streets and alleys really mean?

Xiaomeng has lived in Shanghai for several years, and what impresses her most is the density of convenience stores. "Sometimes I work late, and walking alone at night as a girl is somewhat scary, but seeing the sign of a convenience store puts my mind at ease. Many are open 24 hours (and are linked to the police network). For me, convenience stores are not just about convenience; they provide a sense of security."

According to the "2020 China Convenience Store Development Report" jointly released by the China Chain Store & Franchise Association and KPMG, Shanghai had 6,430 convenience stores in 2019, with a population coverage of 3,769 people per store.

Earlier, the Ministry of Commerce issued the "Notice on the Three-Year Action to Promote the Branding and Chaining of Convenience Stores," aiming to reach 300,000 branded chain convenience stores nationwide by 2022, compared to only 132,000 in 2019—a significant gap.

Favorable policies have accelerated the expansion of convenience stores. Japanese convenience store brand Lawson recently released its financial data: in fiscal year 2020 (March 2020 to February 2021), its overseas business grew 9.2% year-on-year, achieving revenue of 61.3 billion yen (approximately 3.649 billion RMB), and its China operations turned profitable for the first time on an annual basis.

It is reported that this year Lawson will maintain a growth rate of 30% to 40%, planning to open about 1,100 new stores and expand into one or two new provinces. As of the end of February 2021, Lawson had 3,344 stores in China.

In fact, not only Lawson but other chain brands are also actively expanding, and competition among convenience stores is shifting to new markets.

**-01- "Sprinting" to Open Stores**

Convenience stores first appeared in 1927 when the Southland Corporation established Tote'm stores in Dallas, Texas, selling ice, milk, and eggs. In 1946, they extended business hours from 7 a.m. to 11 p.m., renaming the stores 7-Eleven.

After East Asian urbanization in 1980, convenience stores became popular in densely populated areas and spread to many countries. In October 1992, China's first chain convenience store, 7-Eleven, opened in Shenzhen. In subsequent years, companies like Lawson and Hong Kong's Circle K entered the market. Since 2000, Shanghai has opened an average of over 1,000 convenience stores annually.

Wu Meng, a lawyer at Beijing Jinshi Law Firm with over ten years of experience in the convenience store industry, told New Retail Business Review that convenience stores provide convenience to consumers. This convenience is not only about time (meeting the need for immediate product acquisition) but also about choice (meeting the need for specific products).

It is these two "conveniences" that have allowed convenience stores to withstand the impact of rapidly developing e-commerce. The expansion data of convenience stores illustrates this well: as of 2019, Shenzhen and Guangzhou had 7,524 and 5,317 convenience stores, respectively.

According to the "2020 China Urban Convenience Store Index," the convenience store markets in first-tier cities like Shenzhen, Guangzhou, and Shanghai have basically matured. Coupled with rising rents and labor costs in first-tier cities, the operating pressure on convenience stores is increasing. Meanwhile, with the continuous improvement of consumption levels, second- and third-tier cities show great development potential, prompting many branded convenience stores to explore lower-tier markets.

Starting in May 2020, 7-Eleven opened stores in Hunan and Henan. By November, Hunan 7-Eleven had opened its franchise system. Recently, 7-Eleven entered Jinan with three new stores, planning to open no fewer than 100 stores in the Jinan area within two years. Currently, 7-Eleven stores in Qingdao and Yantai exceed 120.

Lawson has also accelerated its store opening pace. In August 2020, Lawson opened six stores in Tangshan, Hebei; in October, five stores opened in Haikou, while also expanding into the Fujian market. As of the end of February this year, Lawson had 3,344 stores in China, with a net increase of 252 stores over the past year.

At the "2021 Bianlifeng Supplier Conference," Bianlifeng's executive director Xue Enyuan revealed that the company will enter a high-speed expansion mode in 2021, planning to exceed 4,000 stores. Recently, Bianlifeng has entered Guangdong, Shandong, Henan, Anhui, and other provinces.

Hongqi Chain, which has been deeply rooted in Sichuan, has also started opening stores in Lanzhou and established a subsidiary in Hainan to expand into the Hainan market.

The battle among branded chain convenience stores in second- and third-tier cities has begun. It is foreseeable that they will leverage their supply chain and management advantages to bring better products and more standardized, convenient services to lower-tier cities, changing consumers' consumption awareness and habits while taking away a large number of customers from traditional mom-and-pop shops.

According to data from Alibaba Retail and Aowei Analysis, there are approximately 6.3 million small stores in the traditional offline retail channel, with over 75% concentrated in third-tier and below cities. These widely distributed small retail stores contribute 40% of the shipment volume in the domestic FMCG industry.

In Wu Meng's view: "The entry of chain brands into the lower-tier market will have a fatal impact on traditional mom-and-pop shops."

**-02- The Other Side of the Coin**

While chain convenience stores are sprinting to expand, some mom-and-pop shops are not idle either.

In a WeChat group for convenience store owners, a store owner from Inner Mongolia emphasized the importance of location, saying, "Currently, no chain convenience stores have entered my area. If they do in the future, I'm not really afraid."

A store owner from Jiangmen, Guangdong, knows this well; he opened his shop downstairs from a KTV: "I mainly sell cigarettes and betel nut, plus some drinks and yogurt."

For retail, location is always an unbreakable truth. And looking at the mom-and-pop shops densely scattered in streets, alleys, and communities in lower-tier markets, there are few good locations left for chain convenience stores.

Industry insider Xiaoma analyzed that the advantage of traditional mom-and-pop shops lies in lower rent and labor costs. They also have low requirements for store size; owners can always "make do in a small space," generally not worrying about image or store layout.

However, the quality difference of the products sold and the bargaining power for quality products are always beyond the reach of mom-and-pop shops. Wu Meng believes that as branded convenience stores enter lower-tier markets, with their high-quality products and standardized, convenient services, they will inevitably change consumers' consumption habits and awareness, thereby taking away a large number of customers from mom-and-pop shops.

Store owner Xiaosheng, while conducting market research, found that in recent years, many mom-and-pop shops or urban village stores are undergoing transformation and upgrading. From decoration to product arrangement, staff training, inventory, and environmental management, they are becoming standardized, no longer as chaotic as before.

He told New Retail Business Review that more and more mom-and-pop shops are catching up with chain stores. Now his own small shop, like chain convenience stores, offers ready-to-eat foods such as oden, hand-grabbed pancakes, and fried skewers. "However, I don't have fresh produce here because it requires a high-level supply chain," Xiaosheng added.

Xiaojia is a store owner in Zhanjiang, Guangdong. He told New Retail Business Review that chain convenience stores entering Zhanjiang include Meiyijia, Hongpingguo, and 7-Eleven.

To cope with fierce competition, Xiaojia chose a differentiation route, actively trying products popular on Xiaohongshu and Douyin. "As long as the nearby market doesn't have it, I dare to sell at a high price. There are quite a few young people who want to try new things."

Besides differentiation, Xiaojia is also engaged in community operations, offering free nearby delivery for customers in the community group and occasionally sending red envelopes and giving away small snacks in the group.

"I pay attention to the frequency of promotions; I only push when there are new products, for fear of annoying people. But since I've added friends, I can make good use of my Moments. Gradually, I get closer to consumers, and even if they don't buy this time, there will always be a time when they do."

In fact, not all store owners have a foundation like Xiaojia. Especially with the rise of community group buying, some convenience stores have been affected. Xiaojia noticed that some store owners in the group have switched careers, some are considering joining community group buying with the mindset of "if you can't beat them, join them," and others are considering investing to join branded convenience stores.

When talking about competition with branded convenience stores, Xiaojia said, "I still try to make my boat bigger so I can withstand the waves."

**-03- The Road to Upgrading**

Currently, the convenience store market share in China is mainly occupied by petroleum companies, with the largest shares held by "Easy Joy" and "Lucky" (Kunlun Haoke). Leveraging their gas station networks, they account for 36% of the store count share in China. The other eight convenience store brands (Meiyijia, Tianfu, Suning Xiaodian, Hongqi, FamilyMart, Lawson, Shizu, and 7-Eleven) share 32% of the market.

Unlike Japan, where the three major brands—7-Eleven, FamilyMart, and Lawson—hold 89% of the market, the influence of China's leading convenience store brands is mainly regional. For example, Meiyijia holds a 65% market share in Guangdong.

Why is it so difficult to build a national convenience store brand? Xiaoma told New Retail Business Review that any branded convenience store faces huge challenges in opening stores nationwide.

On one hand, China's vast territory and regional differences not only lead to uneven economic development but also cause significant differences in consumption habits. It is almost impossible for convenience stores to use similar products and services to "win everywhere with one trick."

On the other hand, opening a store is easy, but keeping it running is hard. Whether it's employee quality, operational management, or supply chain, all must keep pace with the expansion of convenience stores.

The combination of these factors determines that the development of chain convenience stores cannot rely on blind store openings; instead, they should first cultivate their internal strengths.

Bianlifeng "bets" on digitalization, leaving daily operational decisions to the system. Store managers and staff who are not responsible for business indicators like turnover and profit only need to follow system prompts, focusing more on meeting consumer needs. At the same time, staff training cycles are significantly shortened.

Xue Enyuan once said in an interview, "Bianlifeng is not only a convenience store company but also a technology and digital company. An efficient 'system' is the key to supporting our rapid development."

Lawson, on the other hand, is exploring new retail formats. It is reported that Lawson will focus on communities, including store layout, category breakthroughs, and service breakthroughs. Drawing from Japan's experience, future convenience stores may become new retail formats like "convenience store + coffee, catering, pharmacy," with increased product categories and expanded service scope. They will also create different scenarios around women, men, children, and communities.

In addition to selling a rich variety of products, Japanese convenience stores also offer services such as ATMs, restrooms, printing, parcel delivery, lottery tickets, and utility bill payments. Although in China these needs are being met by various apps, in lower-tier cities, these "extra" services of convenience stores still have considerable demand.

It is reported that Hongqi Chain, which has been deeply rooted in Sichuan, has previously provided services such as public transportation card recharge, postal services, tuition payment, and bus ticket sales.

Facing the fierce "artillery fire" of chain convenience stores, mom-and-pop shops naturally cannot sit still. However, relying solely on their own strength may not be enough; it might be better to leverage platform resources and empowerment.

For example, JD.com has launched a renovation and upgrade plan for community mom-and-pop shops, providing support in procurement, delivery, and other business operations. Moreover, JD Fresh intends to turn mom-and-pop shop owners into community group buying "leaders," improving the efficiency of order placement and delivery pickup.

Alibaba's Retail Link also offers similar services. By authorizing the "Tmall Xiaodian" brand, it upgrades and renovates mom-and-pop shops, providing not only rich product selections and smart store management systems but also helping owners with category planning and procurement to improve overall operational efficiency.

Alibaba and JD.com have indeed shortened the distance between mom-and-pop shops and branded convenience stores in terms of supply chain and scale to some extent.

According to statistics, mom-and-pop shops with an area of 50 to 200 square meters typically need 2,000 to 4,000 SKUs, while the usual procurement platform has about 10,000 SKUs, which can basically meet the needs of mom-and-pop shops. At the same time, the logistics system provided by the platforms, which delivers directly to warehouses or stores, saves time, energy, and effort for mom-and-pop shops.

However, mom-and-pop shops' dependence and loyalty to these procurement platforms are not high; they mostly go where the discounts are. Therefore, for various platforms, standardizing the upgrade of mom-and-pop shops requires more exploration.

But one thing is certain: whether it's the downward expansion of branded chain convenience stores or the upgrading of traditional mom-and-pop shops, the ultimate beneficiaries are consumers.

Suzuki Toshifumi, founder of 7-Eleven, once said, "In our eyes, the real competitors are not other convenience store brands, but the ever-changing customer needs."

So, whether you are a branded chain convenience store or a mom-and-pop shop, keep an eye on your customers. After all, for them, being able to conveniently buy what they want at their doorstep is the real deal.

Source: New Retail Business Review (ID: xinlingshou1001)

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