---
title: "Can Chain Convenience Stores Conquer the Lower-Tier Market?"
description: "During the Chinese New Year, the author noticed a new Lawson convenience store in their hometown county, prompting an exploration of why chain convenience stores are expanding into lower-tier markets. The article examines the current state, reasons, and challenges of this downward expansion, including market saturation, cost pressures, and competition with local mom-and-pop shops."
author: "赵胜男"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2023-03-04"
language: "en"
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---

# Can Chain Convenience Stores Conquer the Lower-Tier Market?

> During the Chinese New Year, the author noticed a new Lawson convenience store in their hometown county, prompting an exploration of why chain convenience stores are expanding into lower-tier markets. The article examines the current state, reasons, and challenges of this downward expansion, including market saturation, cost pressures, and competition with local mom-and-pop shops.

During the Chinese New Year, I returned to my hometown county and noticed a brand-new sign on an old street—a Lawson convenience store. I couldn't help but feel surprised. Although I had heard that chain convenience stores were shifting their battlefield from first-tier cities to third- and fourth-tier cities and expanding aggressively downward, it wasn't until I saw it with my own eyes that I truly felt it. Looking at the development history of major chain convenience stores, they all started in first-tier cities, with novel stores winning consumers' hearts and once becoming the exclusive "lights" of big cities. But starting a few years ago, the trend of chain convenience stores quietly blew into lower-tier markets and has been intensifying. Why are chain convenience stores, which are thriving in big cities, setting off a downward trend? Can they successfully establish a foothold in lower-tier markets? Will the tactics that once squeezed street-side mom-and-pop shops out of business in first-tier cities work in lower-tier markets? This article will explore these questions one by one.

**Current Status of Chain Convenience Stores Going Downward**

Let's first look at the current status of domestic chain convenience stores going downward. Currently, domestic chain convenience stores are divided into three factions: Japanese-style chains like Lawson, FamilyMart, and 7-Eleven; local chains like Meiyijia, Jianfu, and Bianlifeng; and internet-based chains like e-commerce giants JD.com, Alibaba, and Suning. All three factions are racing to expand downward rapidly. According to data from the New First-Tier Cities Research Institute, the number of convenience stores in lower-tier cities rose against the trend in 2022 (compared to 2019). Among the top 10 fastest-growing cities, 7 were third- and fourth-tier small cities like Ganzhou, Huizhou, Quanzhou, and Shaoyang. As of October 2020, Lawson, a Japanese chain, had opened 79 stores in the Hefei area, covering four districts and two counties, and 7 stores in the Wuhu area. In April 2020, Lawson Beijing signed a strategic cooperation agreement with Jindian Commercial in Beijing to enter Hebei through franchising. 7-Eleven has opened its first store in Dezhou, Shandong, and FamilyMart has entered Jiangyin, Zhejiang. Bianlifeng, a local chain, has been opening stores in multiple cities such as Shenzhen and Jinan since February 2020. After announcing over 1,000 stores in October 2019, Bianlifeng publicly reported more than 1,500 stores by May 2020. In July 2020, "Hongqi Convenience" began its cross-province expansion, planning to open 300 stores in Lanzhou in cooperation with Lanzhou Guozimin Asset Management Group Co., Ltd., with the first store opening on September 9. JD.com, an internet-based chain, announced in 2017 that it would open 1 million offline JD convenience stores within five years, with 50% of them in rural areas.

The operating conditions of these chain convenience stores, which are all heading downward, show a clear polarization. Some have tasted success in lower-tier markets, with obvious results. Zhang Sheng, Vice President of Lawson China, once said: "During the epidemic, Lawson's store performance in East China achieved a 30% month-on-month growth, with growth in third- and fourth-tier cities far exceeding that in first- and second-tier cities." However, some chain convenience stores are not going smoothly on their downward path and are under tremendous operating pressure. For example, FamilyMart and 7-Eleven are only profitable in some regions, while other regions remain in a loss-making state.

**Why the Downward Trend?**

In earlier years, chain convenience stores indeed preferred to take root in first-tier markets because, compared to lower-tier markets, the input-output ratio in first-tier cities was more attractive. Thus, a massive convenience store expansion war began, with many chain convenience stores leveraging their systematic and convenient advantages to clear obstacles and occupy every corner of the city. Gradually, the market landscape changed. Today, chain convenience stores are everywhere in first-tier cities, but problems have followed.

1) **Saturation of the First-Tier Market**

With the continuous expansion of chain convenience stores, the first-tier market is becoming saturated. The "2020 China Convenience Store Development Report" released by the China Chain Store & Franchise Association shows that the convenience store market in first-tier cities is relatively saturated, with markets in Shanghai, Guangzhou, and Shenzhen basically mature. According to the report, there are 6,430 convenience stores in Shanghai alone. In a saturated market, a slight misstep could lead to being swallowed by competitors, so there is a constant need to find incremental growth. Compared to the fierce competition in first-tier markets, third- and fourth-tier cities seem more peaceful, with sustained economic growth and more consumers beginning to prefer quality products. Convenience store companies naturally won't ignore this opportunity. The downward plan is inevitable.

2) **Rising Costs**

Rising costs refer, on one hand, to the increasing rent and labor costs in first-tier cities, while sales have not significantly increased. In contrast, rent in third- and fourth-tier cities is about one-fifth of that in first-tier cities, and sales may be half, leaving considerable profit margins. On the other hand, after market saturation, customer acquisition costs rise sharply. Previously, stores were sparse, and customer sources were relatively abundant, so business was not too bad. Now, as the market gradually saturates, competitors are getting closer, customer sources are extremely dispersed, and close combat also consumes energy and costs. Additionally, diversified shopping methods have diverted some customers. Cost pressure is especially difficult when the socio-economic environment is poor, especially during disasters like the epidemic, making it hard to survive gracefully in first-tier cities. To gain greater profits, the low-cost lower-tier market is a good choice.

Besides the saturation of first- and second-tier markets and rising cost pressures, the lower-tier market itself is full of temptation for chain convenience stores!

1) **Considerable Consumption Power in Lower-Tier Markets**

In recent years, retail consumption power in lower-tier markets has shown a vigorous upward trend, and more and more people are willing to accept new things. Ministry of Commerce data shows that from 2017 to 2019, the average growth rate of rural online retail sales was more than 5 percentage points higher than the national average, with rural online retail sales reaching 1.7 trillion yuan in 2019. According to Alibaba Retail and Aowei analysis data, there are approximately 6.3 million small stores in the current offline traditional commodity retail channel, with over 75% concentrated in third-tier and below cities, contributing nearly 40% of the domestic FMCG industry's shipment volume. More and more young people also need convenience store consumption. According to the "2021 China Urban Convenience Store Index," young consumers in second-tier and below cities account for 25% of the population but contribute 60% of consumption growth.

2) **Sufficient Disposable Funds**

Compared to people living in first-tier cities, people in third- and fourth-tier cities have more disposable funds on a daily basis. Although wages are higher in first-tier cities, the pressure of living is high, with many burdened by mortgages, car loans, and high prices, leaving severely insufficient disposable income. Wages in third- and fourth-tier cities are lower, but the cost of living is low, allowing for relative affluence.

3) **Ample Consumption Time**

Young people in big cities are mainly of two types: those with neither money nor time, and those with money but no time. Their time is mostly filled with work, leaving limited consumption time. In contrast, people in small cities live a slower pace of life and have ample consumption time.

4) **Young People's Consumption Needs**

Many young people, unable to bear the pressure of big cities, choose to return to their hometowns in small cities, but that doesn't mean they no longer have the needs of young people. They still need access to things that align with first-tier cities to enhance their happiness, and visiting a convenience store is a good choice.

**The Road Downward Is Long and Arduous**

No business can be easily built. The lower-tier market, seemingly a blue ocean, is not as smooth as it appears. There will be many difficulties awaiting chain convenience stores on their downward path. For example, JD.com's downward slogan was loud, but the planned 1 million offline convenience stores have not been fully implemented to this day. There are many specific difficulties, but this article will focus on two main points.

1) **Supply Chain Issues**

Convenience stores differ from traditional mom-and-pop shops. Besides traditional FMCG products, they also need fresh food and ready-to-eat meals, which require certain requirements for the distribution radius of processing bases. Although most parts of China, except for particularly remote areas, have the ability to independently supply fresh food, capability is one thing, but transportation costs are a problem that cannot be ignored. Without large-scale processing and distribution, transportation costs will deter many convenience store companies.

2) **Difficulty in Breaking Through Local Mom-and-Pop Shops**

Competing with local mom-and-pop shops is the biggest challenge for chain convenience stores going downward. Mom-and-pop shops have deep roots and are hard to break through. Some might say, "If they could pry open street-side mom-and-pop shops in first-tier cities, it shouldn't be difficult in third- and fourth-tier cities. Just replicate that model!" But in reality, convenience stores, which are deeply tailored to the fast pace of first-tier cities, may not integrate into the slower-paced third- and fourth-tier cities. Compared to efficiency, people in small cities care more about comfort. Harmonious interpersonal relationships and thoughtful greetings are sources of comfort that mom-and-pop shops can provide, but employees of standardized convenience stores may not necessarily offer. After all, working for oneself and working for others require different levels of effort.

Besides the irreplaceable customer relationships, the flexibility of mom-and-pop shops is also something chain convenience stores cannot match. Traditional mom-and-pop shops don't need to hire external employees, resulting in zero labor costs. During periods like the epidemic outbreak, mom-and-pop shops can survive as long as they don't lose money, but chain convenience stores must not only avoid losses but also ensure positive revenue; otherwise, they face closure if they can't pay wages. These difficulties are issues that chain convenience stores must confront when going downward.

But there are always more solutions than problems, and these are not insurmountable obstacles. For example, while mom-and-pop shops are hard to break through and divert consumers, they also have many shortcomings. Whether in product SKU, systematic management, or capital chain supply, they lag behind convenience stores, giving convenience stores the capital to compete. In the long run, the downward expansion of chain convenience stores is an inevitable trend. Economic development has always been like this: advanced products develop first in big cities, and after saturation, they penetrate small cities. It's just a matter of penetration depth. In small cities full of human touch, although mom-and-pop shops cannot be completely replaced, if convenience stores want to penetrate deeply, staying unchanged will likely not work. At this point, finding a way to integrate systematic operations with local services is particularly important. Some convenience stores have already found a path suitable for downward development. For example, Hongqi Convenience provides some convenience services to local residents, combining standardization with warmth. In the long run, the possibility of convenience stores overtaking mom-and-pop shops in lower-tier markets is high. But overall, most convenience stores are still in a stage of reluctance to change.

For current chain convenience stores, establishing a foothold in lower-tier markets will not be easy. Continuously seeking breakthroughs and changes is an urgent step.

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