Unlike the top-down approach of Japanese convenience stores, regional convenience stores are essentially bottom-up. How does Xinjiayi, a convenience store chain deeply rooted in Changsha, remain standing? Source: Huxiu, Author: Fang Yu. If you haven't seen Changsha at 3 a.m., you haven't truly been to Changsha. At this hour, the commercial streets are still brightly lit, not because people have to get up early for work, but because last night's revelry hasn't ended. Past midnight, many young people are still strolling arm in arm, or sitting down at roadside stalls for barbecue; their time and world are just beginning. Anyone with a business sense knows that in Changsha, the golden hours for business are from midnight to 4 a.m., and you need to open shops in high-traffic areas where young people gather. "In Changsha, you can even run a convenience store in reverse," says Wu Minyi, founder and CEO of Xinjiayi Convenience Store. "Open late in the morning, but stay open all night." Changsha is not only home to Super Girl and Happy Boys, betel nut and rice noodles, but also countless small street-side shops. It has fruit chain brands ranked in the top three nationally, is the birthplace of community group buying (because fruit is a hot category for attracting customers), and has over a hundred colleges and universities that bring in wave after wave of young people. Changsha's real estate prices are considered by outsiders to be the most cost-effective in the country. A recent viral article said: "Speculators who come to Changsha are guaranteed to leave empty-handed!" With speculators driven away, people who want to settle down can stay, making Changsha one of the cities with the highest net population inflow, with an estimated net inflow of hundreds of thousands in 2019. During the May Day holiday, Changsha was besieged by tourists. Although Changsha has many fruit shops, they don't suit the night vibe—who would insist on eating a dragon fruit at 3 a.m.? Restaurant business is good but hard to scale. Such a passionate and unrestrained long night becomes a paradise for chain convenience stores. In northern markets, people cite the long, cold winter nights as a reason for underdeveloped convenience stores, but here, you can't find a reason not to open one. After graduating from medical school, Wu Minyi failed to realize his dream of "healing the wounded and rescuing the dying" for various reasons, so he enlisted a few fellow townsmen to help him open an unremarkable small shop in a resettlement community in Changsha. Wu admits that the shop he opened then would now be considered a community store, not a strict convenience store. But from the start, this small shop stood out by insisting on 24-hour operation, back in 2007. An old man running a shop next door noticed the new competitor and asked him how much he sold per day. Wu said, "Over two thousand yuan a day." The old man scoffed, "Young man, don't fool me. On the same street, I only sell a few hundred a day; how could you sell two thousand?" In fact, by the second year, that unremarkable shop averaged daily sales of over 10,000 yuan. That's twice the average daily sales of local convenience stores in China 12 years later. Although Changsha's medical system lost a promising young man, the entire convenience store market landscape in Changsha was changed as a result. Today, Xinjiayi Convenience Store, founded by Wu Minyi, is the undisputed "King of Hunan." In the 2018 China Convenience Store Top 70 Ranking published by the China Chain Store & Franchise Association, Xinjiayi ranked 16th with over 1,100 stores. At this time, Xinjiayi's headquarters had only about 100 employees, and the total number of employees paid by headquarters was just over 700. This is a company with more stores (mostly franchised) than registered employees. Geographically, Changsha differs from Xiamen (where Jianfu is) and Xi'an (where Meitian is). Changsha is the intersection of South and Central China. Brands from the central region want to go south, and Guangdong brands want to expand out of the province; Changsha is a battleground for all. Only Today in Wuhan faces a similar situation. Holding firm in Changsha is not easy for Xinjiayi, and the challengers are heavyweights like Meiyijia. According to industry reports, for three consecutive years, Changsha has ranked first in industry development index and is the city with the most intense competition. But competitors come and go, while Xinjiayi stands firm, even the local number one brand Meiyijia can't do anything about it. Some competitors opened stores door-to-door, only to find their daily sales were half of Xinjiayi's. When peers came to inspect, they found similar product categories on the surface and were baffled. What's Xinjiayi's secret? Wu Minyi says, "Maybe because I dare to be behind others." We've only heard of daring to be first; what does daring to be behind mean? Stockpile Grain In the 2018 China Convenience Store Top 70 Ranking, the 13 brands ahead of Xinjiayi are the three major Japanese brands and state-owned or state-restructured brands. In the top 20, Xinjiayi (16th), Xiamen Jianfu (14th), and Xi'an Meitian (19th) represent grassroots local convenience stores. The advantage of Japanese convenience stores is that they can prepare supplies before moving troops. State-owned brands have obvious network advantages in store expansion, meaning they can secure better locations. Compared to them, grassroots entrepreneurs who started from scratch rely on "millet plus rifles" to carve out their territory. Having started from nothing, Wu Minyi worked every position in a convenience store, from cashier to warehouse keeper. At first, he didn't realize that while others saw a small shop from the outside, in his eyes it had become a cow under the butcher's knife. He devoted all his time and energy to studying every aspect of the shop: customer flow outside, displays inside, what hot products were nearby, and how to arrange items at the entrance to attract more people. "We were busy all day, stocking shelves, cleaning, and searching all over Changsha for best-selling products to try in this small shop," Wu recalls. So it's no surprise that a 32-square-meter shop achieved daily sales of over 10,000 yuan. Xinjiayi's No. 1 store, also the starting point of Wu Minyi's entrepreneurial journey. In industry terms, this is called polishing the store model. However, this small shop didn't have oden or other common convenience store staples. Wu Minyi had never even heard of 7-Eleven at the time. If he had seen 7-Eleven, he might have been tempted to imitate and copy it like many others, and perhaps there would be no Xinjiayi today. In terms of strategy, Wu Minyi also differs from many peers. In the second year, after opening six directly-operated stores, the small shop had earned over 2 million yuan. But Wu didn't continue opening his own stores; instead, he opened franchising to employees. Five years later (2012), the total number of stores reached 100. Looking back, if 7-Eleven is the aristocrat of convenience stores, then Xinjiayi is playing the "commoner's card." "Sometimes we think 'earthy' is not a derogatory term, because convenience stores are meant to closely follow the daily needs of ordinary people," Wu says. This guiding principle has run through from the first store to crossing the 1,000-store threshold. Xinjiayi, opened for the "common people," is extremely flexible. Many Xinjiayi stores don't have the rice balls and sushi common in Japanese convenience stores, but instead offer local favorites like rice noodles, shepherd's purse boiled eggs, and sugar-glutinous rice cakes. To ensure product quality, Wu and his colleagues worked hard on product development. It's said that to make delicious tea eggs, Wu ruined over 800 tea eggs before mastering the right heat. In China, when discussing convenience stores, fresh food is an unavoidable topic. Many believe this is the core difference and gap between Chinese and Japanese convenience stores. But Wu looks at it from another angle. He asks himself: What's behind fresh food? Through industry exchanges and field visits, Wu saw that behind the excellent fresh food capabilities of Japanese convenience stores is a supply chain platform capability so strong that competitors can't catch up. Japanese convenience stores have their own invested fresh food factories, allowing them to develop hundreds of new products a year and maintain a high replacement rate; they have long-term partnered urban distribution companies, enabling them to pioneer city-level cold chain joint distribution. These ecological conditions are not yet fully available in the Chinese market. On the surface, this is a gap in financial strength and supply chain systems. But Wu also realized that the reason Japanese convenience stores can have such a strong backend is that their front-end store scale is large enough and dense enough to absorb such production capacity. Fresh food is short-shelf-life products with only one or two days of shelf life. Only when store sales are stable enough can there be fast enough product turnover. Otherwise, the constant flow of fresh food would crush an entrepreneur like Wu who started from scratch. So why are Japanese convenience stores confident in selling these short-shelf-life products? Because customers have developed purchasing habits for these products. In other words, the front-end store sales capability and customer awareness and habits also need to match the backend. After such careful observation and thinking, Wu Minyi self-taught himself a "knowledge system" for convenience store fresh food: Fresh food appears to be a product issue, but behind it is actually the product of the alignment of three factors: "mature user demand—store scale density—logistics supply chain capability." If any one of these three fails, it's a disaster for a small startup. The entrepreneur's responsibility is to find the right development path to ultimately achieve balance among the three. Among these three, the first factor—mature user demand—is the most easily overlooked by local second-tier companies. When consumer habits haven't formed, these standard products from first-tier cities may feel unfamiliar to locals. Even if some try them, it's a niche demand that can't generate stable sales. Forcing them in would cause significant losses. In first-tier cities, the symbolic meaning of convenience stores is fresh experiences and light food trends. But in Changsha, Xinjiayi's primary function is to "closely follow" the high-frequency needs of locals' daily lives. Therefore, there are no hot meals here, and bread baking isn't as popular as in northern markets, but there are their own internet-famous products. Recently during the Lantern Festival, Xinjiayi launched sweet wine boiled dumplings, selling for only three days. One store sold out 100 portions in half a day, with a better conversion rate than rice balls. So, after initially finding his way in the early days of entrepreneurship, Wu Minyi began using franchised stores to capture the market and expand scale. Besides products, Xinjiayi's store-opening capability adapts to every corner of Changsha, including community business districts, schools, and hospitals. For example, stores in hospitals increase personal care products. Xinjiayi can also open stores in special properties. For instance, one store is on the 28th floor of an office building, a rare "store in a building." Currently, the survival rate for new directly-operated stores is over 95%, and for new franchised stores, over 90%. The vast majority of stores are profitable. The average daily sales of Xinjiayi stores are over 8,000 yuan, with the highest reaching over 20,000 yuan. Wu Minyi knows the importance of density. In the early stages, Xinjiayi's footprint covered all of Hunan Province. But now, with more stores, Xinjiayi has actually "contracted": over 1,200 stores are mainly concentrated in the Changsha-Zhuzhou-Xiangtan area, with over 800 stores in Changsha alone. Because when stores are highly concentrated, Xinjiayi's backend supply chain can play a greater role. When the store scale expanded to 500 stores, Wu Minyi began building his own logistics and distribution system. However, in the aforementioned model, only the first point—"mature user demand"—cannot be changed by a single company's efforts. Wu Minyi's strategy is simple: wait patiently! Wait for the entire convenience store market to mature and consumers to differentiate. That's "daring to be behind." Of course, Wu Minyi hasn't been passively waiting. With the maturity of logistics and distribution systems, especially cold chain, Xinjiayi found another differentiating entry point: dairy products. In many directly-operated stores, daily sales of yogurt and fresh milk can form a 1:1 ratio with beverage sales, surprising many industry insiders. Why is there such a large market for dairy products locally? On one hand, it's due to store marketing guidance; on the other hand, it's related to the supply chain advantage Wu pursues. Xinjiayi actively cooperates with upstream suppliers, seizing opportunities where many channels lack cold chain support and fresh milk sales are insufficient. Using its self-built cold chain logistics, it helps dairy manufacturers sell fresh milk directly, forming a local category advantage in the Changsha market. Only in the past two years, after Xinjiayi crossed the 1,000-store threshold, did fresh food similar to Japanese convenience stores begin to enrich and increase. But Wu always emphasizes that convenience stores can't be one-size-fits-all; you have to see the complexity of the market. He lets some directly-operated stores try Japanese-style fresh food first, while other stores "wait and see." The so-called complexity means that in the same Changsha city, on the same street, three models can still coexist: loose franchise stores similar to B2B models, tightly franchised stores like Xinjiayi, and stores with a higher proportion of Japanese-style fresh food, beautiful decor, and targeting young office workers. Wang Hongtao, deputy secretary-general of the China Chain Store & Franchise Association, commented on the Changsha convenience store market: "High, medium, and low-end markets coexist, like a three-layer cream cake, each with its own survival space." Such a multi-tiered and clearly layered market structure is rare in China, if not unique. Isn't the current state of the Changsha market the legendary consumption stratification? Build High Walls Of course, no market structure is completely stable, especially in a city like Changsha, full of youth, vitality, noise, and restlessness. Now, if you visit the No. 1 store where Wu started his business, you'll find those streets have become the "Triangle Hill" of convenience stores. Within a block of less than 200 square meters, four Xinjiayi stores are interspersed with five or six competitor stores, some even facing each other or side by side. This is the norm for convenience store competition in Changsha. In the Ferris Wheel business district, downstairs from Xinjiayi's headquarters, Wu can often visit his own stores and then conveniently inspect competitors' stores along the way. Competition is open and no one avoids it. A Xinjiayi manager recalls that this might be related to the rise of new retail. Starting in 2017, competitors increased, and many came from other regions with similar scale. "We were all a bit nervous at the time." But by the second half of 2018, many competitors closed stores and retreated to their original regions. Xinjiayi can't see competitors' complete financial information, but through field research, it found that localized fresh food is still the decisive factor. For example, in stores on the same street, Xinjiayi stores can sell over 80 rice balls a day, while competitors sell only about 20, with the best being half of Xinjiayi's. Wu Minyi breathed a sigh of relief. He knew that his step-by-step strategy over the years had withstood the first wave of new retail impact. In the fierce alley fight, since foot traffic and rent levels are similar, but adjacent stores' sales can differ by 50%, the decisive factor is still front-end product strength and back-end supply chain capability. Before reaching 100 stores, Wu personally selected and reviewed every Xinjiayi store. But after 100 stores, he found he no longer had the energy to participate in each one. At that point, he was like a train driver, unable to inspect every carriage. How far Xinjiayi can run depends more on system support. At this stage, system failure would be more fatal than Wu's personal misjudgment. For the convenience store industry, the most important systems are the logistics supply chain system and the information system. Currently, Xinjiayi has one ambient warehouse and one cold chain warehouse, totaling 10,000 square meters. It can achieve two deliveries per day across all temperature zones, covering up to 2,000 stores within a 150-kilometer radius, reaching as far as Yueyang City, which is also Wu's hometown. In Xinjiayi's ambient distribution warehouse, Huxiu saw a humorous warning sign: "Anyone caught eating betel nut in the warehouse will be fined 100 yuan!" This sign with local characteristics indicates that any logistics warehouse in China still relies on human management. Fully automated logistics is a great dream, but greatness means it's very far away. Wu Minyi is a firm advocate of information digitization and logistics automation. But even so, the information system, after several iterations, is helpless against betel nut, which Changsha people can't live without. However, this system can turn workers who previously needed a month of training into new employees who can get online after just 10 minutes of training. Although Xinjiayi's logistics is still semi-automated, its information system is gradually liberating manual labor. This data capability is what Xinjiayi pursues. In the past, warehouse staff had to rely on experience to remember storage locations; now this information is digitized and task-based, and staff just execute commands. Similarly, at the front-end stores, digital ordering systems are replacing store managers' experience-based ordering. On a long sorting line, there are four workers on each side, each corresponding to four sets of shelves. When an order comes in, workers pick goods according to the order and place them in baskets on the conveyor belt, then press the red light on the shelf to signal completion. Typically, one store order requires four workers to collaborate. They walk 55,000 to 60,000 steps a day in a 2.3-meter-long work area, which is also the basis for coordinating their workload. The shelf display is also carefully designed: bottled items are placed on the lowest shelves to reduce damage, and candies, biscuits, and puffed foods are grouped together for efficiency. Currently, the average time for a worker to pick an order is 45 seconds. The logistics department is one of the departments with the longest working hours at Xinjiayi, working 362 days a year with only three days off from New Year's Eve to the second day of the new year. But thanks to system support and increasing automation, workers can now leave at 4 p.m. to have tea and go fishing. In the future, Wu hopes to achieve three deliveries per day, separating ambient, chilled, and frozen deliveries. This would also mean further exploration of fresh food at front-end stores. For many retail companies, warehousing and logistics are cost centers, but Xinjiayi has another plan for three deliveries a day: whether it can eventually export its cold chain logistics capabilities, turning the cost center into a profit center. The excellent performance of the aforementioned yogurt products gives Wu confidence. However, Wu also admits that compared to the logistics system construction, which has shown some results, digital construction still has a long way to go, and they've stepped on many pitfalls. But he believes, "Digitization is the best opportunity for local convenience stores to overtake Japanese convenience stores on a curve." Slowly Claim Kingship Although the first wave of fierce attacks starting in 2017 has subsided, Wu also believes that more intense competition for second-tier convenience stores is still ahead, especially today when capital is betting on second-tier leaders. The market landscape is far from settled. Before May Day, Xinjiayi held a team-building event. Wu organized the team to go to the desert to experience how to survive in an environment with scarce resources. He knows that as they go further, Xinjiayi needs the power of the team. In the first 1,000-store development stage, he relied on his personal cognitive ability and insight, using his "knowledge system" to overcome one hurdle after another. But as stores increase and competition intensifies, can he transform his personal "cognition" into the team's "knowledge system"? This is what worries him most now, more than considering competitors. Wu Minyi graduated from medical school but stumbled into retail. Wu values the "knowledge system" so much because, compared to Japanese convenience stores and Japanese-style models, Xinjiayi has taken a very localized development path. But for greater development, Xinjiayi must also move from "guerrilla warfare" to "positional warfare," and from positional warfare to "group army operations," just like China's revolutionary history, where there's no template to copy even if you want to. Not only are the names similar, but many people also mention the similarities and differences between Xinjiayi and the domestic leader Meiyijia. Huxiu believes that, aside from internal differences like founder experience, there are at least two major external differences between Xinjiayi and Meiyijia. First, the era in which Meiyijia developed early on cannot be repeated; it was a rare historical opportunity. Meiyijia's channel capability derived from its tobacco and alcohol company background cannot be replicated. Second, Meiyijia's Guangdong market has a capacity of tens of billions of yuan, while Hunan's market is only a few billion yuan. The overall capacity of the two markets differs, and the corresponding strategies should also differ. Every ambitious person complains their market is too small, which is why regional convenience stores have been expanding out of their provinces and fighting each other. But Wu's short-term strategy is still to deeply cultivate the Hunan market. Clearly, Wu, born in the 1980s, has a caution that belies his age. Many attribute this to his medical background. Wu also laughs, saying he's used to the medical school mindset of "doing clinical trials first for everything," so he thinks things through first, experiments after understanding, and only then implements on a large scale. This may have missed some opportunities, but it also avoided many detours because competitors stepped on the pitfalls first, and Xinjiayi simply walks around them. To some extent, Wu lacks the innate "gambling nature" of many grassroots entrepreneurs. This gambling nature seems to be a common factor in the rapid early development of many Chinese entrepreneurs. A research institution once summarized: "Chinese entrepreneurs are generally better at attacking than defending." This means many can play well when ahead but perform poorly during economic downturns, or when expanding, they can attack but fail to defend their home base. In Hunan, a province with revolutionary traditions, having an entrepreneur like Wu without a "gambling nature" is very unconventional. But at least for now, Xinjiayi is still the undisputed "King of Hunan" in convenience stores, with a store scale five times that of the second-place competitor. But Wu has his own theory to defend himself. His biggest reason is that if a single market like Changsha is so complex, the complexity of the Chinese market is exponential, and the market is always full of plausible but false theories; the reckless die young. Of course, the situation is pressing. Giants like Meiyijia have begun national expansion. According to data from the 2018 Chain Top 100 list just released by the China Chain Store & Franchise Association, in 2018, convenience store top 100 companies saw sales growth of 21.1% year-on-year, store count growth of 18.0%, and 11,944 new stores, accounting for 62.5% of the total new stores in the top 100. Obviously, expansion is still the industry theme at this stage. Isn't Wu afraid of missing the window period? Wu asks himself: Why doesn't Meiyijia pursue single-store sales now, but instead accelerates store openings in the past two years? His research conclusion is that each brand has a different break-even point in each market tier. Japanese convenience stores focus on first-tier and quasi-first-tier cities, possibly at 8,000 yuan, while Meiyijia, which is sinking into China's hinterland and starting to open stores in third-tier markets, might only need 2,000 yuan. So a store selling 4,000 yuan a day is already double profit. Will Xinjiayi sink down? "What products should be sold in third-tier markets?" he asks Huxiu in return. Until this is figured out, Xinjiayi clearly intends to remain a firm centrist, eating the middle layer of the entire market cake. In his view, unlike the top-down approach of Japanese convenience stores, regional convenience stores are essentially bottom-up, and this set of tactics and systems is far from systematic, with much room for correction and exploration. A wise man submits to circumstances; slowly claiming kingship is not cowardice. At least that's what Xinjiayi thinks. Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Committed to FMCG manufacturer transformation and channel digital solutions