Click to read the original article for details After reports emerged that Bianlifeng might go public in Q4 this year or early next year, the company responded to Zimu Bang (ID: wujicaijing) saying, "At this stage, there are no listing plans, but we do not rule out the possibility of listing in the future. Currently, the company's main task is still on store expansion." The interesting part is that this convenience store chain, potentially the first in the industry to go public, started in Beijing, which is widely recognized as a 'convenience store desert.' The contrast is so stark that it reminds me of a phrase often used by debaters: "How does a good flower produce a bad fruit?" When he was still at Qunar, Zhuang Chenchao often complained about the poor dining environment in Zhongguancun West, where his office was located. He described it as "earning Manhattan-level income while only enjoying dining conditions of a rural-urban fringe." With a poor dining environment, the convenience store environment was even worse, and Beijing was even called the "death place for convenience stores." According to the "China Urban Convenience Store Index" published on the official website of the China Chain Store & Franchise Association, in 2013, Shenzhen, Dongguan, and Taiyuan ranked top three in the index, while Beijing, with the second-highest per capita GDP in the country, ranked second from the bottom. By 2016, Beijing's convenience store index ranking jumped to fifth. However, its saturation level still lagged far behind, with one convenience store per 7,185 people on average. By 2020, Beijing's convenience store saturation was 8,889 people per store, still ranking 26th, while Dongguan, ranked first in the country, had 1,242 people per store. But from another perspective, the other side of the desert is a blue ocean. Zhuang Chenchao saw the opportunity, and so did others. In 2016, with $1 billion in hand, Zhuang Chenchao chose to enter the convenience store industry in Beijing. Almost at the same time, a large number of Chinese apprentices of the three major Japanese convenience store chains (7-Eleven, Lawson, FamilyMart) emerged again in Beijing. Two years later, most of those "apprentices" had failed. Linjia went bankrupt, Quanshi suspended operations, Hao Linju was sold, and Suning Xiaodian opened and closed. The "masters" were also far from success, as the Japanese convenience store chains that had been cultivating the Chinese market for years still found it difficult to turn a profit. Beijing's reputation as a convenience store desert was further solidified. Unexpectedly, Bianlifeng expanded against the trend. 7-Eleven took 14 years to open fewer than 200 stores in Beijing, while Bianlifeng has over 500 stores in Beijing, more than the total number of stores of Japanese convenience store chains like FamilyMart, 7-Eleven, and Lawson combined. Even more surprising, Bianlifeng claims that its Beijing stores have achieved "front-end profitability." According to Bianlifeng executives, the company plans to open 4,000 stores nationwide by the end of 2021 and 10,000 stores by 2023. Assuming the public information is true and credible, how did Bianlifeng succeed? How did flowers bloom in the desert? After research, Zimu Bang found that the answer is—algorithms. In his book "Value," Hillhouse Capital partner Zhang Lei commented on Zhuang Chenchao: "When founding Bianlifeng, Zhuang Chenchao still sought answers in the details. He didn't follow trends but looked at logic. When he discovered that the convenience store business model could be driven by algorithms, and no one in China had done it yet, he started his entrepreneurial journey again." Around 2016, Beijing began to attach importance to the development of the convenience store industry, providing support through policies and funds every year. From foreign brands like Lawson, FamilyMart, and 7-Eleven, to local brands like Hao Linju and Quanshi, and even so-called new species like Suning Xiaodian and JD Convenience Stores, all entered the market. However, the good times didn't last. After Bianlifeng had just opened more than 200 stores, the convenience store track experienced a brutal reshuffle. In 2017, Hao Linju, a veteran convenience store chain that had been deeply rooted in the Beijing market for 15 years, was sold for $84 million. In August 2018, Linjia Convenience Store was exposed to have a capital chain rupture, and all 168 stores were closed. 131 Convenience Store, founded in August 2016, also faced a capital chain rupture and eventually closed after two years. The reshuffle continued. Suning Xiaodian, which entered the market hastily, was divested by Suning.com in 2019 due to severe losses. JD's plan to open one million convenience stores in five years also went bankrupt. Quanshi Convenience Store issued a closure notice in May 2020. Among the three major Japanese convenience store chains, only Lawson has announced full profitability. According to Lawson's financial report, in fiscal year 2020 (March 2020-February 2021), it achieved revenue of 61.3 billion yen (approximately RMB 3.649 billion), marking its first full-year profitability in China. As of the end of February 2021, Lawson had a total of 3,344 stores in China. Reviewing the failures of the aforementioned convenience stores, they were undoubtedly affected by the capital chain ruptures of their investors or parent companies, but they also exposed a common problem in the convenience store industry: traditional local convenience stores lack the ability to generate their own cash flow and can only survive on financing. Blindly pursuing expansion and scale will only backfire. Bianlifeng was not immune during the same period, with reports of layoffs at the end of 2018. A netizen verified as a Bianlifeng employee revealed on Maimai that Bianlifeng forced layoffs, requiring employees to resign voluntarily without any compensation. Two months before the layoff news broke, Qichacha data showed that Bianlifeng had just received Series B funding from Hillhouse Capital and Tencent Investment, with a post-investment valuation of $1.6 billion. Among the many factors affecting the development of convenience stores in Beijing, one widely accepted view is that convenience stores in Beijing are doing "half-street business." NetEase Shudu pointed out in "Why Beijing is a Convenience Store Desert" that the scarcity of convenience stores in Beijing is related to the prevalence of deep courtyards and the lack of street culture. The absence of commercial streets near subway stations and the prohibition of shops in those areas are considered major factors limiting the opening of convenience stores in Beijing. In addition, the continuously rising rents and labor costs in Beijing have increased pressure on convenience store operations. According to the "2021 China Convenience Store Development Report," employee salaries and rent account for more than 60% of the total cost of convenience stores. For Zhuang Chenchao, how to make Bianlifeng consistently profitable and avoid repeating the mistakes of previous fallen convenience stores became a top priority. Accelerating store expansion to form economies of scale was the path Zhuang Chenchao found to counter the challenges. But without profitability, expansion alone would eventually lead to bankruptcy due to capital chain rupture. In 2018, Zhuang Chenchao made a change, switching Bianlifeng's underlying ERP system and other operations to algorithm-driven automated processes. "This was an extremely difficult decision. I struggled for the entire year of 2018, wondering whether I dared to entrust the company's fate to a newly born system. But now I think, if I could do it again, I would have made this decision earlier. So far, except for special circumstances, no one can beat the system at Bianlifeng," Zhuang Chenchao described the uniqueness of Bianlifeng's model in an interview on Qingteng's "One Question" program. According to 36Kr, Bianlifeng currently has technical staff accounting for more than 60% of its workforce. All decisions are determined by data and algorithms, and all employees in the business chain only need to execute strategies prompted by the software. Algorithm-driven programs, including intelligent ordering systems, big data product selection systems, self-checkout systems, and dynamic pricing systems, have directly freed store employees from tedious tasks such as ordering, product selection, and checkout. For ordering alone, it can save store staff about 3 hours of work. Algorithms have become the core of Bianlifeng, and the algorithm-driven system is the invisible contributor to Bianlifeng's overall profitability in Beijing in 2020. In response to the industry's repeated mentions of Beijing as a "convenience store desert" and the perception that "you can only do half a year, half a day, or half a street of business," Zhuang Chenchao believes that the essence is the low operational efficiency of traditional convenience stores, resulting in revenue that cannot cover costs. Therefore, to control costs, most convenience stores have to shrink service hours and scope, creating a vicious cycle. In addition to efficiency improvements, a unique approach at the hardware level has also contributed to profitability. In terms of regional distribution, Bianlifeng's stores in Beijing are mainly concentrated in office buildings and business districts, serving mostly white-collar workers. These areas are also where Bianlifeng's most profitable stores are located. From a supply chain perspective, in 2017, Bianlifeng invested in Yami Yami, a fresh food partner factory of Beijing 7-Eleven. Since then, it has invested in multiple fresh food factories in North China and East China, and in February last year, it planned to build a fresh food supply base in Tianjin to serve 3,000 future stores. With the traffic and quality behind prime locations, as well as industry chain resources including suppliers and fresh food factories, Bianlifeng has everything that traditional convenience stores have. Coupled with operational efficiency and algorithm-driven automation, in May 2020, Bianlifeng announced that its stores in Beijing achieved overall profitability. For Bianlifeng, algorithms mean everything. With this algorithm system, the experience in Beijing can be replicated in other cities. A Bianlifeng representative told Zimu Bang that as of April this year, in addition to Beijing, cities that Bianlifeng entered before 2018 have also achieved overall profitability, including Shanghai, Tianjin, Langfang, and Nanjing. Bianlifeng's replication strategy based on "algorithms" seems to have been validated, and the 10,000-store plan is being implemented intensively. Convenience store revenue is positively correlated with the income level of the location. Although Bianlifeng has achieved overall profitability in Beijing, not every city has a Guomao or Wangjing, nor does every city have a Zhongguancun or Xi'erqi. Take Zhengzhou, a city Bianlifeng entered in 2020, for example. The same product, such as Pumido Tomato Meat Sauce Pasta, sells for 16.8 yuan at the store in Building 10, Jincheng Times Square, Zhengzhou, and also 16.8 yuan at the store in Building 14, West Zone, Jianwai SOHO, Beijing. During the same period, Beijing's per capita disposable income was 69,434 yuan, while Zhengzhou's was 36,661 yuan. An office worker living in Jinshui District, Zhengzhou, said, "I occasionally go to Bianlifeng and buy water, but I've never bought ready-to-eat meals because the prices are a bit high. I often go to Yuelai Yuexi; almost every residential community has one." Such second- and third-tier cities will account for more than half of the 10,000-store plan announced by Bianlifeng. Among the cities where Bianlifeng has publicly announced profitability, only those entered before 2018 have achieved overall profitability. The profitability of cities entered after 2018 remains a question mark. Although when announcing the 10,000-store vision, Bianlifeng's executive director Xue Enyuan said that Bianlifeng "has prepared sufficient funds to support the development of 10,000 stores," Bianlifeng's business ultimately cannot escape the essence of convenience stores: heavy asset operation. For Bianlifeng, if new stores cannot quickly achieve profitability, the operating costs of 10,000 stores in the future will be enough to drag it down. In addition to the high-cost crisis, Bianlifeng, which needs to expand southward, will also face competition from established players in new regions and cities. Take Zhengzhou, which Bianlifeng entered in 2020, for example. According to a report by Henan Business Daily in October 2020, at that time, the local brand "Yuelai Yuexi" had 350 stores, while Bianlifeng had 30 stores. Yuelai Yuexi is hailed as the "Henan version of 7-Eleven." Further south, Bianlifeng will face an even bigger local powerhouse—Meiyijia. Founded in 1997, Meiyijia is a giant in the southern retail sector. According to Meiyijia's official website, as of May 2021, Meiyijia had more than 23,000 chain stores, mainly distributed in Guangdong, Fujian, Hunan, Jiangxi, Hubei, and other southern regions. In 2018, it entered the Jiangsu-Zhejiang-Shanghai region, forming four major development regions: Guangdong, Central China, East China, and North China. Meiyijia's expansion strategy has been to avoid bustling areas where brands like 7-Eleven gather, instead choosing residential areas, industrial zones, and even rural-urban fringes with lower rents. For Bianlifeng, which selects locations similar to 7-Eleven, how to develop the lower-tier market will be an unavoidable challenge. Moreover, in lower-tier markets, mom-and-pop stores and small supermarkets contribute 40% of the shipment volume in the domestic FMCG industry. According to data from Alibaba Retail and Aowei Analysis, there are approximately 6.3 million small stores in the current offline traditional commodity retail channel, with more than 75% concentrated in third-tier and below cities. How to compete with these 6 million mom-and-pop stores is a question that Bianlifeng needs to answer before going public. 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