The "Strange" "This Year" "Today's turnover is only 872 yuan, and for more than ten consecutive days, the turnover has not exceeded 1,000 yuan." Wang Lei, who has been operating a convenience store in Guiyang for over seven years, said helplessly. The business being so difficult this year is completely beyond Wang Lei's expectations. He said that in the more than seven years of operating the convenience store, business has never been as difficult as this year. "Thinking about it now, even during the pandemic, business was better than now. During the lockdown, we couldn't open, but as long as we could open, business was still okay." Wang Lei said helplessly, looking at the still quiet store, "Now even if we keep the store open 24 hours a day, there are no customers. The streets are also strange, not many people, very quiet." "Sometimes there are no customers for a long time, and occasionally one comes in, looks around, and leaves without buying anything. After calculating rent, utilities, and other costs, we lose everything." Wang Lei continued. Wang Lei summarized the reasons for the poor business from his perspective: First, after three years of the pandemic, he feels that people around him have really started to plan their daily consumption rationally. "Housing prices have been falling, but mortgage payments still need to be made. Many people around have lost their jobs or had salary cuts. Previously, when in urgent need of money, one could sell the house and have cash in hand. Now, houses keep falling in price, and if you don't cut the price significantly, you can't sell it." Wang Lei said, "People don't have extra money to spend. The money they earn is not enough for daily expenses. A trip to the vegetable market costs at least 100 yuan." Second, online shopping has taken away customers. "Now e-commerce directly takes away most of the market share. E-commerce is one of the main reasons for the dismal convenience store business. After the pandemic, people buy online instead of going to physical stores for anything they can. Online shopping is cheaper and more convenient, and consumers have become accustomed to contactless shopping." Third, everyone has reduced consumption, and the entire market is not doing well, forming a vicious cycle. "The cost of various raw materials has been rising, and labor costs have also increased. The economy is already not loose, barely covering daily expenses. People really don't have spare money to spend. Even for necessary purchases, they compare prices before ordering." Wang Lei said. Finally, although the convenience store business is unusually difficult this year, many people are still entering the industry, which also increases competitive pressure. "Besides the poor macro environment, a large part of the reason is competition from peers. In recent years, many people have lost their jobs. When idle, they need to find something to do, and opening a convenience store has become one of the main choices." Wang Lei said that opening a convenience store seems to have zero threshold and no technical content. You just rent a storefront, put up shelves, stock some goods, and you can start operating. As long as the selling price is not lower than the purchase price, you just wait for customers to come in and buy. So, people keep entering this industry, and after the pandemic, many new convenience stores have opened. "In the past two years, three or four new convenience stores have opened within 200 meters. Counting them, there are about a dozen convenience stores within 200 meters of our store, and more than 80% have tobacco licenses. The competitive pressure is indeed great." Wang Lei said. He said that the nearby population is limited, and as convenience stores increase, the customer base is diluted, so business naturally becomes cold. When the cake is not enough, everyone starts to think about lowering prices to attract customers. "Everyone is desperately cutting prices. Many products are sold at cost, so profits are so low that there are only coins left. The involution in business is too severe. Plus, this year, low-price snack discount stores are also competing for business, making it impossible to do business." Wang Lei cited beverages as an example: previously, when a bottle of drink cost about 1 yuan, the retail price was 3 yuan. Now, the purchase price of many drinks has increased several times to over 2 yuan. The manufacturer's suggested retail price is 3.5 yuan, but peers sell at 3 yuan. The merchant selling at 3.5 yuan will definitely be abandoned by customers. "My store doesn't have fresh food. The main income relies on selling cigarettes, but this year, low-priced cigarettes have been rising in price, and we can't even get stock." Wang Lei sighed and said, "I'll hold on for another year. If business is still this difficult, I'll transfer the store and find a job outside. After all, I have to support my family; not making money won't do." Fewer Low-Priced Cigarettes "Now even with a tobacco license, we lose money." Wang Lei said. "Cheap cigarettes are getting harder to buy. The tobacco license has become a decoration. The store basically has no inventory of low-priced cigarettes, and suppliers don't provide them. Now, the daily turnover is not much, and it still mainly relies on cigarettes. But with fewer low-priced cigarettes, the convenience store business is getting harder, and making a profit feels harder than reaching the sky." Wang Lei said. In fact, in recent years, with the reduction in the variety of "low-priced cigarettes," many convenience store owners have started to have headaches. The previously common "low-priced cigarettes" are now continuously rising in price or being discontinued. First, the country's tobacco control efforts are increasing. As a populous country, although the proportion of smokers is relatively small, under the huge population base, there are still a staggering 300 million smokers, far exceeding the total population of most countries. On another level, although tobacco sales bring huge profits, they also pose a threat to national health. Therefore, the state implements anti-smoking policies, including banning smoking in public places and restricting online tobacco sales. One of the most effective policies is to raise cigarette prices and reduce the variety of low-priced cigarettes. By intervening in tobacco prices, the state encourages some smokers to quit or reduce smoking frequency. The effects of these measures are obvious, especially among the younger generation, where the number of smokers has significantly decreased. However, this "radical" reform has directly impacted the operation of convenience stores. Second, the profitability of convenience stores is limited. Unlike vegetables and fruits, which are daily necessities, convenience store products are not always essential, so revenue is relatively unstable. The profitability of a convenience store does not solely depend on selling goods but more on selling tobacco products, especially cigarettes. Cigarettes are almost a necessity for smokers. As long as a convenience store can ensure sufficient tobacco supply, it can guarantee a certain daily revenue. Therefore, having a tobacco license and being able to sell cigarettes is crucial for maintaining daily operations. However, now even with a tobacco license, it is not so easy to make a profit. Third, tobacco sales involve a hierarchical system. A convenience store can apply for a tobacco license, but different licenses have different levels. Lower-level licenses allow fewer purchases per month or quarter and also restrict the quantity of expensive or low-priced cigarettes. It is understood that upgrading a tobacco license is becoming increasingly difficult. Some stores, although they get supplies of popular cigarettes, sell out quickly and cannot maintain stable revenue. In addition, the reduction of low-priced cigarettes leads smokers to reduce smoking frequency or quit, and convenience stores cannot make profits from low-priced cigarettes. Besides, raising tobacco taxes also squeezes the profit margins of retail operators. Anti-smoking policies have affected the profitability of convenience stores. Most convenience stores that rely on cigarettes for revenue will face even more difficult operations in the future. But the problem is that although convenience store business is difficult to profit from, it still cannot stop many people from entering the industry. Business Is Hard Why Are There So Many New Stores? Despite the unusually difficult business this year, new entrants continue to join, and chain enterprises have also expanded their store networks. In the first half of 2023, among the 15 typical convenience store brands tracked by GeoQ Data, 11 brands had more store openings than closures, achieving overall store network expansion. Meiyijia added more than 2,100 new stores, with the number of new stores even higher than the total new stores of the other 14 brands combined, showing rapid development. Lawson convenience stores also added 500 new stores. In comparison, the 20 chain supermarket brands had closures nearly three times the number of openings in the first half of the year, with the overall store scale still shrinking. Among them, Wumart had both many openings and closures, with a survival rate of only 36% for new stores opened in the first half of the year. When you walk through the streets and alleys, the most common stores you see are convenience stores. Three steps to a small store, five steps to a big store. An industry insider operating chain convenience stores in Beijing said, "Business is hard, but for those who want something to do, convenience stores are indeed easier than other businesses—almost zero threshold, no technical content. As long as you invest capital and rent a store, you can operate. If you join a franchise, it's even more convenient. You just choose a location, pay the rent and franchise fee, and the rest is done by dedicated personnel. You don't even need to stock goods; you can just 'lie down' and open the door." "If it's a mom-and-pop store, you don't need to go around looking for goods. Once the storefront is done, salespeople from various brands will come to you automatically. After negotiating prices, they will deliver goods to your door. When restocking, you just make a phone call, and they deliver again." The insider said. For convenience store franchisees, it is very worry-free. You don't need to know the purchase price of goods or worry about the retail price. Everything is done by machines; you just scan codes to collect payments. "When inventory is insufficient, the system automatically matches, and the next day, dedicated personnel deliver goods to your store and help you update inventory. You don't need to worry much. So, for these people, convenience stores are basically zero foundation and zero threshold." More and more people are joining, but business is still hard because there are great differences in each person's operating ability, store location, store scale, etc. Some lose money, and some make money through franchising. But one thing is certain: opening a convenience store carries relatively lower risk compared to other businesses. Even if you don't make money, you are unlikely to lose much, and even if you lose, it won't be too much. First, besides simple decoration, other investments in a convenience store are in inventory. Goods account for about 80% of the investment funds, mainly cigarettes, liquor, beer, daily necessities, and non-staple foods, all of which can eventually be converted into cash. For example, before closing, you can sell them at purchase price or lower, so even if you close, the goods can be quickly liquidated. Second, for many products in convenience stores, manufacturers provide display fees and end-cap fees. For example, for water and alcohol, as long as you stock a batch and put them on shelves or display them on pallets, the manufacturer will give a corresponding fee each month. Especially for liquor display fees, they are relatively high. Low loss, small investment, inventory can be liquidated, and display fees are the main reasons why many people continue to join, but whether they make money is another matter. Future: Head Effect Currently, the convenience store market in China is still in a period of rapid growth. Tianyancha data shows that in the past decade, the annual registration growth rate of convenience store-related enterprises (all enterprise statuses) in China has remained stable at 20% to 30%. Among them, in 2020, nearly 240,000 new related enterprises were added, the highest increase in a year. In the first half of this year, China added more than 127,000 new convenience store-related enterprises, a year-on-year increase of 26%. Regarding the future development of the convenience store format, industry insiders have different views. Zhang Li, chairman of Jianfu Convenience Store, who has been in the industry since 2006, has the following judgments: First, the head effect. "The big get bigger, and the small exit the game. There's no way around it." He said that in the future, the core competitiveness of Chinese convenience store enterprises will definitely be a comprehensive reflection of brand value, customer value, and organizational value. Convenience store enterprises will also transform from "marketing-oriented" to "efficiency-oriented," and from "wholesale-type" to "manufacturing-type." Second, within the next three to five years, the integration period for convenience stores will arrive. Based on regional integration, in the next three to five years, a truly profitable national local convenience store brand will inevitably emerge. Third, professionalization drives. "A convenience store enterprise that wants everything, like a restaurant that does both Shandong and Cantonese cuisine, will eventually go bankrupt. Without a trump card product or a trump card strength, I think it won't go far." Zhang Li said. Zhang Li said that he dared to enter this industry because he didn't know anything at the time, but as he learned more about the industry, he felt that the convenience store industry is too deep. You really need to understand operations and need an asset-heavy model to do well. "In essence, convenience stores are still about selling goods, but how to sell goods better and how to make customers' consumption more valuable is the core." Zhang Li said.