The convenience store industry in China, which has struggled for over 20 years, is entering the darkness before dawn. Recently, Alibaba and Bailian Group jointly invested 1 billion yuan to establish a convenience store project—Yike Convenience—and its first store officially opened in Shanghai, with claims to open 500 stores this year. Yike Convenience is very similar to traditional convenience stores, but it increases the proportion of dining areas, focusing on the concept of "convenience store + dining." Unlike traditional convenience stores that often have only a few scattered window seats, Yike Convenience has over 20 dining seats, accounting for 60% of the store's total area. This is another new move by Alibaba following its attempts in the convenience store sector over the past two years, including Tmall Xiaodian (supply chain empowerment for mom-and-pop stores), Tao Coffee (exploring unmanned convenience store technology), and investing in the traditional chain convenience store brand Xishiduo. Not only Alibaba, but internet giants like Tencent, JD.com, and Suning have also been active in the convenience store field. The most famous is perhaps JD.com's announcement in 2017 to open 1 million offline convenience stores within five years. In addition to giants, the capital market is not far behind. According to incomplete statistics, since 2017, there have been no fewer than 70 investments in the convenience store sector, with amounts reaching tens of billions of yuan, an unprecedented boom. However, with the consecutive closures of three convenience store brands in Beijing at the end of last year, the industry began to face widespread skepticism. These three convenience store companies are Linjia, 131, and Quanshi, all of which were star convenience store startups in previous years. Their closures were due to the collapse of their main investors, leading to forced liquidation and transfer. The capital market has also begun to question: Is the convenience store industry worth investing in? To this end, Xiaofanzhuo interviewed: Zhang Li, chairman of Jianfu Convenience Store, a veteran in the convenience store industry who has been operating in Fujian for 12 years; Tao Ye, chairman of Haolinju Convenience Store, one of Beijing's oldest convenience store brands (Tao Ye is also a very senior investor in the convenience store field); Gu Jun, vice president of the emerging convenience store startup Xiaomaipu (which has explored unmanned convenience stores, container-style convenience stores, physical convenience stores, and other models); and Pan Jinju, founding partner of Kuangchuang Venture Capital, one of the most active investors in the convenience store sector in China. We will deeply analyze the essence and innovation, opportunities and challenges of the convenience store industry from multiple dimensions: from south to north, from traditional brands to startup brands, from the industry market to the capital market. Next, we will answer the following three questions as a starting point to reveal the business logic and investment logic of the convenience store industry:
1. Is there a clear development trend in China's complex convenience store industry?
2. What are the business logic and competitive focus of the convenience store industry?
3. What are the investment opportunities and practical challenges in the convenience store industry? 01 Trends Surge, All Roads Lead to One In 1927, the world's first convenience store prototype appeared in Texas, USA, founded by the American Southern Company, later renamed "7-Eleven" (hereinafter referred to as "7-11"). After nearly a century of development, a saying has become widespread in the convenience store industry: "In the convenience store industry, there are only two brands: 7-11 and others." But it was not the American Southern Company that expanded 7-11, but the Japanese company Ito-Yokado (later renamed Seven & i Holdings), specifically Suzuki Toshifumi, the former chairman of Seven & i Holdings. Tao Ye, chairman of Haolinju Convenience Store, praised to Xiaofanzhuo, "It was Mr. Suzuki's team and the strength of the entire trading company that drove changes in Japan's industrial environment, which made 7-11 successful. So I say it was 7-11 that made convenience stores, not convenience stores that made 7-11." In the 1960s and 1970s, Japan was in a period of rapid industrialization. Due to the strong purchasing power of the people for material life, large supermarket chains developed rapidly, but this also led to intense conflicts between large supermarkets and small shops, as the increasing number of large retail formats on the streets made life harder for street-side shops. In his autobiography "The Philosophy of Retail," Suzuki Toshifumi summarized, "I noticed that the reason for the poor performance of small and medium-sized retail stores was not the rise of large supermarkets, but that their business methods had fallen behind the times and were being eliminated by customers." He had been looking for a model suitable for small retail stores to achieve "coexistence and co-prosperity" with large supermarkets. In 1973, 38-year-old Suzuki Toshifumi visited the United States with a company delegation and encountered 7-11 convenience stores for the first time, and was pleasantly surprised to find that this might be the solution he had been pondering. Suzuki immediately began applying to his company to introduce 7-11 to Japan. After persuading the company and undergoing difficult negotiations, he finally obtained the brand usage rights and franchise rights for 7-11 in Japan on November 30, 1973. When opening the first store, the team had disagreements. Some members believed the first few stores should be company-operated to accumulate practical experience, but Suzuki insisted on franchising because it aligned with his original intention of introducing 7-11—coexistence and co-prosperity between small and large stores. The first franchisee of 7-11 Japan was originally running a liquor store with a bleak future, but decided to switch careers after seeing 7-11's franchise advertisement. Thus, on May 15, 1974, Japan's first true convenience store, "7-11 Toyosu Store," officially opened. Since then, 7-11 has established the standard for convenience store expansion—franchising. It is said that both in Japan and China, 7-11 ensures that more than 98% of its stores are franchised, with strict control over the proportion of company-operated stores. Uchida Shinji, executive director of Seven & i Holdings, once told the media that company-operated stores should not exceed 80, otherwise it would be very difficult for the headquarters to manage. In addition, due to the small store area, typically only 100-200 square meters, convenience stores cannot offer a wide range of products like large supermarkets. Instead, they mainly meet the timely and convenient consumption needs of residents within a 500-meter radius, focusing on food. In Tao Ye's words, convenience stores mainly solve the "eating" problem. Moreover, because the convenience store format is small and needs to meet timely and convenient needs, it must be flexible in operation, especially avoiding unsold inventory. The supply chain must achieve small-volume, high-frequency, and timely delivery. Each store must also dynamically adjust based on feedback from surrounding residents, achieving "thousand stores, thousand faces." To meet these demands, 7-11 has continuously innovated a series of business concepts and practices, including dense store placement, joint delivery, single-item management, private brand development, heavy investment in information systems, emphasis on communication with employees, and timely collection of customer demand information. These business concepts of 7-11 have gradually become benchmarks for the entire industry, helping 7-11 become one of the world's top 5 retail giants, with a market value of over $30 billion, nearly 70,000 stores worldwide, and sustained growth for over 40 years. Image from 7-11 (Chengdu) official website Moreover, due to the successful management of 7-11 Japan, it acquired the American Southern Company (7-11's parent company), which was facing bankruptcy due to poor management, in 1991, becoming the true owner of 7-11. Suzuki Toshifumi attributed 7-11's success to three reasons: 1. Always implementing a dense location strategy; 2. Having a basic system for product development and supply; 3. Emphasizing direct communication with employees. Zhang Li, chairman of Jianfu Convenience Store, who has explored the Chinese market for 12 years, combined his own practice and reference to 7-11, and summarized six barriers that Chinese convenience stores must establish to succeed, similar to Suzuki's success concepts: 1. High-density store placement; 2. Efficient logistics; 3. Unique products; 4. Intelligent information systems; 5. Customer insight; 6. Team learning and growth. It is evident that mainstream convenience store operators have come to regard these concepts as standards. Specifically for the Chinese market, whether local entrepreneurs can replicate 7-11's success, or even create greater success than 7-11, has become a concern for everyone. (1) Chinese-style Opportunities "The real explosion period for 7-11 in Japan was in the 1990s. On one hand, Japanese society was undergoing transformation, with changes in the supply side; on the other hand, consumers' demand for convenience was becoming mainstream," said Pan Jinju, founding partner of Kuangchuang Venture Capital, which invested in Linji Convenience and Meitian Convenience, to Xiaofanzhuo. According to data, from 1973 to 1990, over 17 years, 7-11 opened 4,000 stores in Japan; but from 1991 to 2001, over 10 years, 7-11 opened 5,000 new stores (exceeding 9,000 stores by the end of 2001), almost adding 1,000 stores every two years, a pace that has continued to this day (limited to Japan). This is mainly because, after entering the 1990s, Japan basically completed basic industrialization and entered the post-industrial era. The economy of scarcity basically ended, and ordinary households had almost fully equipped themselves with basic daily necessities, so people's impulse for large-scale procurement gradually disappeared. The corresponding phenomenon is that large supermarket formats, which focus on discounts and large-scale procurement, began to slow down. At this time, people's consumption shifted to timely, convenient, and personal consumption, and convenience stores began to rise. This is reflected within Seven & i Holdings, 7-11's parent company, where the profit contribution from 7-11 has been increasing, reaching 70% in 2012; while supermarkets and department stores have gradually fallen into losses. In 2016, Third Point LLC, one of the major shareholders of Seven & i Holdings, issued an open letter suggesting that the company should sell the loss-making SOGO·Seibu department store as soon as possible and promptly reorganize or sell the less profitable Ito-Yokado. A very popular saying in the convenience store industry is shown in the table below: Image from the internet And current China is exactly in the state of Japan in the 1990s, beginning to enter the post-industrial era, basically bidding farewell to the economy of scarcity, with per capita GDP approaching $10,000 in 2018. In fact, since 2015, various retail formats in China have undergone changes: supermarkets, malls, and department stores have seen growth slowdown or even losses; the convenience store format has grown against the trend, maintaining a growth rate of about 20% almost every year. "This has been the case in recent years, and it may become even more severe in the future," Zhang Li added. Tao Ye recalled, "Around 2015, the demand side had already begun to explode, but China's supply side had not yet caught up." (2) Various Strategies? Those who see the convenience store trend are not only convenience store practitioners, but also internet giants seeking offline traffic, and entrepreneurs rushing into the battlefield with capital. Since 2017, the convenience store field has been unprecedentedly active, with various new models and explorations emerging one after another. First, in December 2016, Amazon launched its unmanned convenience store Amazon Go, which quickly sparked an unmanned convenience store startup boom in China. Subsequently, the unmanned shelf startup model also emerged, spreading like wildfire. On the other hand, internet giants such as Alibaba, JD.com, and Suning have turned their attention to convenience stores to expand offline traffic. Just like the first 7-11 store in Japan, chain convenience store brands have transformed individual small retail formats such as mom-and-pop stores in Japanese society into branded chain convenience stores. According to an industry insider, in Japan, there is a branded convenience store every 500 meters, and mom-and-pop stores have basically disappeared. China has more than 6 million mom-and-pop stores, accounting for 40% of the total shipment volume of social retail channels. Alibaba and JD.com have both set their sights on them. They hope to connect their powerful supply chain capabilities and data analysis capabilities to these small stores, making them their offline retail terminals. JD.com directly claimed to open 1 million offline convenience stores within five years. But since the second half of 2018, news of JD.com convenience store closures has kept emerging, and Tmall Xiaodian seems to be lukewarm. In contrast, Suning has been more aggressive, directly opening company-operated stores. It is said that in 2018, it opened 5,000 stores. Zhang Jindong even claimed at Suning's 2019 annual work plan and deployment meeting that it would open 15,000 Suning Xiaodian stores in 2019. But while Suning Xiaodian expands crazily, there are doubts about its continuous losses. Suzuki Toshifumi also mentioned in "The Philosophy of Retail": The key to a chain convenience store business is not the total number of stores; the priority should be to improve the quality of each store. Publicly announcing "how many stores to open in a few years" will undoubtedly lead management astray. Zhang Li also told Xiaofanzhuo, "Single-store operation and single-item management" should be the top priority. During Jianfu's development, it must ensure that more than 90% of its stores are profitable, "otherwise there's no point in playing." In addition to the strategies of giants, a large number of startup companies are also making various attempts: Some are committed to underlying technology research and development, such as Bianlifeng, which has built a technology team of over 1,000 people, opened more than 600 company-operated stores, collected various store operation data, iterated models, and hopes to develop an intelligent store operation system to improve the operational efficiency of the chain convenience store network. Others are rapidly iterating models, such as Xiaomaipu, which has gone from the earliest unmanned convenience stores to manned convenience stores, from container-style convenience stores to mobile food truck convenience stores, and now to physical convenience stores. According to Xiaomaipu Vice President Gu Jun, Xiaomaipu has iterated 6 times, trying various possibilities. The latest convenience store format of Xiaomaipu focuses on fresh food, with a proportion as high as 80%, covering 24 hours from breakfast to late-night snacks. Like Yike Convenience, it has a large number of dining seats. According to Gu Jun, it averages over 10 table turns per day, with daily revenue of 20,000-30,000 yuan, almost on par with 7-11. Compared with the classic chain convenience store model created by 7-11, the strategies of internet giants seem completely divergent and too rough. From the current situation, although it cannot be said to be successful, it cannot be asserted that it will definitely fail. Zhang Li analyzed this situation, "Perhaps giants can see dimensions we cannot see and make money in other ways, but from our perspective, we have reservations about this model." But for entrepreneurs and investment institutions, if a certain strategy can only be played by giants, it is beyond discussion. We are more concerned about where the opportunities for entrepreneurship and investment are. (3) Is 7-11 the Only Answer? For local convenience stores like Jianfu and Haolinju, perhaps the biggest challenge still comes from Japanese convenience stores like 7-11. In terms of the number of stores, it seems everyone is still on the same starting line. After 20 years in the Chinese market, 7-11 has only opened more than 2,800 stores in China, while Jianfu currently has more than 1,500 stores, and Haolinju has nearly 400 stores. There is no order-of-magnitude difference between them. Moreover, the Chinese market is large enough. If converting 6 million mom-and-pop stores is the goal, the current total of 100,000 branded convenience stores is less than 2% of the potential market size. Therefore, the current gap between them is almost negligible. But from the perspective of historical accumulation and underlying resources, local brands are not on the same starting line at all. Because all experience is learned from 7-11, and local brands are far from meeting 7-11's standards. However, all interviewees unanimously stated that 7-11 is not insurmountable, and the 7-11 model is not the only answer for Chinese convenience stores. There are roughly four reasons: First, a new group of consumers is rising in China—post-95s and post-00s—who do not have strong brand loyalty to Japanese convenience stores, giving local Chinese brands an opportunity to capture user mindshare; Second, standing on the shoulders of giants allows avoiding many detours. For example, Zhang Li cited that 7-11 originally had separate ambient and cold chain logistics, and separate bakeries and fresh food factories, but now they are centralized in one park for intensive management. When Jianfu built its supply chain network, it adopted intensive management from the start; Third, new technologies can indeed improve efficiency, and new technologies are not barriers accumulated by history. On the contrary, China is ahead of Japan in mobile internet, AI, IoT, etc., giving local brands a better chance to overtake on curves; Fourth, convenience stores particularly emphasize regional advantages and local culture. "Rice balls are a quick solution for Japanese people to solve their eating problems, but they are not a cultural tradition for Chinese people. Chinese people prefer pancakes, fried noodles, etc., and China is vast with significant regional differences," Tao Ye analyzed. This is indeed the case: Jianfu has become the leading brand in Fujian, Haolinju has a certain audience in Beijing, and 7-11 has not established a monopoly nationwide, nor has it achieved full coverage in key markets like Beijing and Chengdu. (4) The Eve of Explosion Zhang Li analyzed 7-11's development history and found that the first 7 years of convenience store entrepreneurship were an exploration period, where it was hard to say success or failure; 7-15 years roughly entered a growth period, beginning to form regional scale advantages; after 15-18 years, it roughly entered the profit harvest period, where the parent company could truly achieve scale profitability. "7-11 only began to achieve scale profitability after opening 2,000 stores. Jianfu has been developing for 12 years, currently has more than 1,500 stores, and will exceed 2,000 stores in the next 2-3 years, entering the profit harvest period," Zhang Li told Xiaofanzhuo. China's convenience store industry has been developing for 20 years, and leading brands have emerged in some regional markets, providing a realistic foundation for expanding outward to build national brands. Zhang Li predicts that within the next 5-10 years, there will be large-scale mergers and acquisitions in the convenience store field in China, ultimately resulting in fewer than 10 national brands. Tao Ye's attitude is relatively conservative. In his view, whether national brand expansion can occur depends on whether capital plays a driving role behind it. But he also said, "Now is indeed the eve of industry explosion. At least in regional markets, the rapid expansion of convenience store brands has already begun." Although the convenience store industry is on the eve of explosion, convenience store operation is a very troublesome business. To do well, you need to do many things right simultaneously. Once actions deform, it is easy to fall into one 'big pit' after another. 02 The Cruel Game of Survival of the Fittest Although the trend has arrived, convenience stores are a cruel game with thin profits. Any poor management detail can eat away the meager profits. According to the "2018-2023 China Retail Industry Outlook and Investment Strategy Planning Analysis Report" released by Qianzhan Industry Research Institute, the gross profit margin of the convenience store industry is 20%-30%, but after deducting costs such as rent, labor, utilities, and logistics distribution, the average net profit margin is very low, with most below 2%, and many companies have been in a loss state. Among the three Japanese convenience store giants, 7-11, Lawson, and FamilyMart, it is said that FamilyMart only turned a profit 10 years after entering China in 2004; according to Lawson Vice President Zhang Sheng, Lawson China will achieve overall profitability in 2019; and 7-11, which entered China as early as 1996, has not yet reported profitability in the domestic market. The industry often jokes, "Convenience stores are a business of bending down to pick up coins." To survive in such an industry, you need to do many things right simultaneously, roughly the principles summarized by 7-11, including location, product selection, supply chain and information systems, capital, brand, service, and team. Next, we will make a horizontal comparison from the following six aspects: (1) The "Trap" of Scale Suzuki Toshifumi has already summarized that simply pursuing nationwide expansion will only lead the enterprise astray, because convenience stores must achieve single-store profitability before pursuing scale expansion, and the expansion strategy determines whether single stores can be profitable. "If a single store is not profitable, there is no opportunity for overall profitability. This is different from the internet approach," said Gu Jun, vice president of Xiaomaipu. The strategy of dense store placement in a region, advocated by 7-11, is actually the foundation for ensuring single-store profitability, because only then can distribution costs be reduced, advertising and promotional campaigns be more effective, and sufficient brand awareness be established in a certain area. Conversely, adopting a scattered store placement strategy, with a few stores in different cities, makes it difficult for such a small business format as convenience stores to ensure operational efficiency, and external market fluctuations can easily cause store losses. Therefore, convenience stores must first focus on density before talking about scale. A person close to 7-11 once sarcastically told Xiaofanzhuo, "Convenience stores are not a format that can expand rapidly. Those new participants who rush to expand on a large scale probably have neither made technical preparations nor psychological preparations." In addition to adhering to the dense store placement strategy, site selection is also a very difficult task. Zhang Li, chairman of Jianfu Convenience Store, believes that the success of a store is determined 50% by location, 30% by product quality, and 20% by service. Moreover, rent costs account for a large portion of a store's total costs. In recent years, the rapid increase in rent costs has put great pressure on the convenience store industry, especially in first-tier cities, where the same store location faces competition not only from peers but also from other small formats, making it particularly difficult to operate convenience stores in first-tier cities. Therefore, for an ambitious convenience store enterprise, to achieve great success, it not only needs to stably select good locations, but also achieve regional scale coverage, while also focusing on future national scale expansion. Convenience stores are really not that easy to do. 7-11 has painstakingly operated for over 40 years in Japan to open more than 20,000 stores. Those enterprises that casually claim to open tens of thousands or even millions of convenience stores within a few years are indeed worth pondering in their business strategies. (2) Fresh Food and Private Brands Are Both "Pits" In the Japanese convenience stores we usually see, they generally sell fresh food such as oden, rice balls, bento, and bread. The sales of these fresh foods often account for 40%-50% of a store's sales and contribute 60%-70% of gross profit. They not only bring traffic but also make money, so fresh food is regarded as the key to convenience store product selection. Gu Jun even bluntly said, "In this industry (convenience stores), you simply cannot survive without fresh food." But Zhang Li pointed out that for an early-stage convenience store enterprise, fresh food is a "big pit." Because without an efficient supply chain and a self-owned fresh food factory, it is impossible to produce fresh food that is delicious, hygienic, and inexpensive. But if these three points cannot be achieved, fresh food has no competitiveness, and the high loss rate of fresh food will drag the enterprise into a loss-making quagmire. However, if an enterprise wants to build its own supply chain and fresh food factory, without having more than 500 stores in the region, the numbers simply do not add up. Therefore, rashly introducing fresh food is indeed a big pit for an early-stage enterprise. In addition, in terms of product selection, 7-11 has also created a magic weapon—private brand products. Because private brand products not only contribute higher gross margins but also offer greater autonomy, allowing timely development of marketable products based on changes in market demand. This is particularly important for convenience store formats that pursue customer experience. From the perspective of brand control, Zhang Li, chairman of Jianfu Convenience Store, divided the retail industry into four stages: the leasing stage represented by department stores, the wholesale stage represented by supermarkets, the design stage represented by Adidas and Nike, and the production stage represented by Zara and Uniqlo. He called production-oriented retail enterprises the ultimate form. And convenience stores will eventually develop into production-oriented retail formats, with private brands being the key. But Zhang Li also pointed out that private brands are also a "big pit" for early-stage enterprises. "If your channel brand cannot cover the product brand, then the private brand products you make are worthless. When it comes to cola, will users choose Coca-Cola or a certain convenience store brand's cola?" Zhang Li asked rhetorically. Due to the characteristics of convenience stores, even 7-11 currently still sells 40% of circulation brand products, not all private brand products. Moreover, Zhang Li told Xiaofanzhuo that for convenience stores, the most important private brand products are actually fresh food, and to do fresh food well, you cannot avoid infrastructure such as supply chain, self-owned factories, and information systems. (3) Intelligent Supply Chain Is the Lifeline At the founding of 7-11 Japan, Suzuki Toshifumi found that dozens of vehicles delivered goods within a day, with several vehicles for milk alone from different brands, which was very inefficient. Therefore, 7-11 established a joint delivery mechanism, where manufacturers, suppliers, and 7-11 cooperate for intensive management. For example, the same category can be delivered centrally. Later, delivery was further intensified, divided into four temperature zones: frozen, refrigerated, constant temperature, and insulated. In the logistics link, through self-built logistics, a small-volume, high-frequency delivery mechanism was achieved, changing the large-batch procurement model of the supermarket era. This is also more in line with the convenience store's purpose of flexible operation and not stocking up on goods. "Logistics distribution is the lifeline of convenience stores. Handing logistics distribution to others is like handing your life to others," Zhang Li said. Regarding the phenomenon that fresh food in many convenience stores is both unpalatable and expensive, Zhang Li explained: If products are processed by others, profits are distributed multiple times, and quality cannot be controlled; if distribution is done by others, costs will further increase, and to be profitable, prices must be raised. The result is that it is unpalatable and expensive, "and users are not stupid, so why would they buy it?" When an enterprise enters a planned stage, with tens of thousands of convenience store outlets to manage, it must introduce information management systems. As early as the 1970s and 1980s, 7-11 introduced its own ERP system, regional system, and POS system to achieve more efficient ordering, data collection for sales forecasting, etc. 7-11's early POS system had four keys on the keyboard (child, adult, male, female). Cashiers had to select the corresponding attribute of the customer when checking out to record consumer data. This can be said to be the earliest application of big data. Now, with mobile payment, facial recognition, and behavior capture technology, we can record users' consumption and even behavior data in stores from more dimensions, thereby formulating more targeted sales and procurement strategies. According to Zhang Li, Jianfu has developed a facial recognition membership and payment system in collaboration with several technology companies. When consumers enter the store, facial recognition captures user information and forms a corresponding user code. When the consumer visits next time, they can be identified, turning consumers into users. "This achieves seamless membership, which is more easily accepted by users than the method of asking for phone numbers to convert members," Zhang Li compared. Establishing more efficient information systems through new technologies and promoting intelligent supply chains to improve store operational efficiency and service experience is one of the important opportunities for local convenience store startups to overtake on curves. (4) Capital Is a Double-Edged Sword Whether it is expanding stores, building self-owned logistics, integrating supply chains, building fresh food factories, or developing information systems, all require high investment. Therefore, capital strength is also an important barrier in the convenience store industry. In Zhang Li's words, Japanese convenience stores have an obvious advantage: they all have "rich fathers." Local grassroots entrepreneurs can only promote enterprise development through self-generated cash flow and financing. Zhang Li frankly told Xiaofanzhuo, "Without 1 billion yuan, there is no way to talk about cross-regional expansion." Convenience stores are a money-burning industry, but capital is also a double-edged sword. The closures of Linjia, 131, and Quanshi were all results of capital over-expansion. Once the capital chain broke, problems immediately arose. Wang Lei, former CEO of Linjia Convenience Store, claimed in a media interview that an investor asked him to open 10,000 stores within a year, showing the madness of capital. Domestic venture capital funds typically have a 5-7 year exit period, which is not enough time for many convenience store startups to "slowly" develop. But blindly expanding will lead to a vicious cycle of incomplete organizational building and insufficient self-sustaining capability. An insider close to 7-11 once told Xiaofanzhuo, "7-11's store opening strategy has always been relatively conservative. One reason is that it takes considerable time for business exploration and data collection to understand customer preferences in a region; another is that to provide perfect convenience store services in a new region, supply chain adjustments are needed, which also requires time for coordination. Therefore, 7-11 has long been building its convenience store chain network in the Beijing area under the strategy of 'hypothesis-execution-verification.'" And Wang Lei also said, "I could open 2,000 stores if asked, but they would have to be closed later." For investment institutions, Zhang Li gave three attitudes: First, mutual respect: "We must respect the other party, after all, they are investing money," and ensure the safety of their investment, but also hope they respect entrepreneurs and do not interfere with the business pace. "We do not do crazy expansion by burning money." Most importantly, we will not choose short-term investors; Second, mutual understanding: While providing money, we hope investors can bring some resources, such as talent resources, industrial resources, social relationship resources, etc.; Third, mutual honesty: Be able to discuss issues honestly, rather than one spying on the other. "For a person concentrating on driving, if someone in the passenger seat is giving orders, you really want to throw them out." Zhang Li's attitude basically represents the voice of the vast majority of convenience store entrepreneurs. Some investors also expressed hope that more capital would invest in convenience stores, because some regional leaders have emerged, and they will enter the profit harvest period in the next 5-10 years, already within the range of venture capital funds. (5) The Value of People Zhang Li summarized that for a convenience store to operate well, there are four points: complete product structure, guaranteed freshness and quality, thorough hygiene and cleanliness, and friendly and fast service. The latter two points are closely related to people. In Suzuki Toshifumi's three success reasons, the last one is emphasizing direct communication with employees. Within 7-11, regular store supervisor meetings are held, where supervisors from all over the country gather at the headquarters, and Suzuki personally presides over discussions and learning, proposing new ideas and suggestions. Because the role of supervisors is to serve as a hub between the headquarters and stores, collecting real-time store information to help headquarters formulate strategic plans, and conveying headquarters policies to help stores achieve better operations. It can be said that supervisors are the internet of convenience stores. But Tao Ye, chairman of Haolinju Convenience Store, said that China lacks convenience store retail talent, especially good supervisors and store managers. The labor cost of Chinese convenience stores is not only due to wage increases, but also due to high turnover and difficulty in recruiting. Moreover, very few Chinese convenience stores even say "Welcome," let alone provide thoughtful and meticulous service. Therefore, talent is also an important barrier in convenience store competition. When unmanned convenience stores first appeared, the concept of "unmanned can cut labor costs" was promoted, but industry insiders were dismissive because, in their view, people are not a cost for convenience stores, but an important carrier for creating value for users. Zhang Li metaphorically said that technology and capital are wings, the team is the cockpit, and convenience stores are the runway. With these four elements, the enterprise airplane can take off smoothly. In Jianfu's development, he particularly emphasized introducing structural and guiding talents. For example, Jianfu invited Huang Qianli, former COO of 7-11 in Taiwan, China, and other experienced convenience store elites to join, guiding the team on when to do what and how. If Alibaba is the Whampoa Military Academy for Chinese e-commerce talent, then 7-11, FamilyMart, and Lawson are the Whampoa Military Academy for China's convenience store field. Wang Zi of Beijing Bianlifeng, Yang Bo of Quanshi Convenience Store, and Wang Lei of Linjia Convenience Store are all general-level talents who came from 7-11. But from the current situation, the supply of students is still insufficient, and the development of Chinese convenience stores still needs more retail talent. (6) Brand Is Important and Not Important Compared with retail channel brands that cover a large population, network-type retail channels composed of small formats have less brand value than the former. "If there is an unknown supermarket 3 kilometers away and a Walmart 5 kilometers away, you might choose to go to the farther Walmart. But if there is an unknown convenience store 100 meters from your home and a 7-11 700 meters away, you are more likely to choose the former," an industry insider gave an example. For users' timely and convenient needs, location is much more important than brand. But when a region is already covered with a sufficient number of convenience stores, the value of the brand becomes prominent. Joint marketing, product promotions, and other activities are more likely to stimulate users multiple times, thereby driving product sales, and the brand becomes valuable again. Therefore, in the convenience store field, brand is a booster, not the main force. "Doing convenience stores is like collecting Dragon Balls. Only by collecting all 7 Dragon Balls can you summon the dragon," Zhang Li joked. With so many competitive dimensions and barriers to establish, convenience stores are not easy to do, but they are the optimal choice after society fully enters a buyer's market. In Japan, convenience stores almost carry many social infrastructure services. Pan Jinju even judged that convenience stores will be the ultimate retail format. So for the value of convenience, we may need to re-examine it. 03 Re-evaluating the Commercial Value of Convenience Stores Retail talks about three elements: "people, goods, and places," but the value ranking of these three elements varies in different periods. In the era of offline chain hypermarkets, society was in an economy of scarcity, and people had a strong impulse to buy things. Therefore, hypermarkets placed more emphasis on "places," popularizing strategies like "discounts and one-stop shopping." As long as you could build a hypermarket and stock a full range of products, you could wait for consumers to come and buy. Later, in the e-commerce era, especially in the mid-to-late stages of e-commerce development, society basically bid farewell to scarcity, and users' purchasing behavior became more casual. Moreover, online products are more abundant, meeting people's very long-tail needs. Therefore, e-commerce platforms place more emphasis on the value of "people," turning consumers into users. The accounting logic of e-commerce platforms is no longer how many products are sold, but how much value a single user can bring to the platform over their lifetime. From "goods, places, people" to "people, goods, places," the valuation models of different forms of retail enterprises have also undergone significant changes. E-commerce platforms that can calculate the value of individual users often receive higher valuations. Alibaba compared with Suning: the former is a representative enterprise of the e-commerce era, the latter is a representative enterprise of the offline chain retail era. The former has a P/E ratio of 43 times, while the latter has 12 times, making the former 3.6 times the latter. In the convenience store era, many institutions habitually use offline retail valuation models to value convenience stores. But whether convenience stores follow the "goods, places, people" logic or the "people, goods, places" logic is not so certain. Convenience stores establish dense retail networks offline, contacting users through small stores, providing timely convenience services. Although the average transaction value is small, it is high-frequency and rigid demand, generating lasting stickiness, very similar to the internet. Moreover, with the introduction of new technologies, convenience stores have gradually established membership systems, able to identify and record every consumer who visits the store, turning consumers into users, dynamically analyzing user needs, and providing targeted personalized products and services, also more like the internet. For example, Xiaomaipu's newly launched "convenience store + meal" model can cover users' all-time convenient dining needs from breakfast, lunch, afternoon tea, dinner, to late-night snacks. At night, it can also pull up the gate to leave a second space for unmanned retail business. Moreover, Zhang Li and Tao Ye both stated that compared with supermarkets meeting family consumption needs, convenience stores meet more of the personalized consumption needs of young people, targeting individuals and small families, especially young people. Therefore, convenience stores, as a retail format that targets individuals, provides all-time service, is high-frequency, rigid demand, timely, convenient, and networked, are closer to the internet and more like a "people, goods, places" logic. And unlike large retail stores that focus more on investing in "places," convenience stores often adopt a franchise system. The investment in stores is made by franchisees, while the parent company invests more funds in system development and sales network management, which is also more consistent with internet logic. According to Tao Ye's view, convenience stores do not apply the traditional offline retail valuation model based on sales, but are more suitable for the valuation model that calculates the lifetime value of a single user. Especially for early-stage convenience store projects, if the old valuation model is used, it is difficult for enterprises and investment institutions to reach a consensus. The former may miss development opportunities, while the latter may miss a good project. Some investors predict that China will see several convenience store projects with valuations of tens of billions of yuan in the future. Whether projects with a market value of hundreds of billions can emerge depends on the final degree of market integration. If estimated by market size, 7-11 has opened 70,000 stores with a market value of over $34 billion. China has 6 million mom-and-pop stores. Even if branded convenience stores can achieve 10% coverage, that is a total market of 600,000 stores. If an enterprise with over 100,000 stores can emerge, a valuation of hundreds of billions is highly likely. For convenience store entrepreneurs, for a long time to come, the main challenges are whether they can obtain sufficient capital support, the rent pressure caused by real estate market price fluctuations, and how to cultivate or find more excellent retail talent and retain them. In this complex battlefield of convenience stores, China needs its own "7-11." Source: Xiaofanzhuo (ID: xfzmedia) -END-