---
title: "Convenience Store Expansion Wave: Hot, But the Water Runs Deeper"
description: "Convenience stores are expanding rapidly in China, with major players like FamilyMart, Lawson, Alibaba, and JD.com all racing to open thousands of stores. However, this boom may be more hype than substance, as profitability remains elusive for many, and the industry faces challenges such as high costs and a lack of true innovation."
author: "任慧媛"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-05-10"
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# Convenience Store Expansion Wave: Hot, But the Water Runs Deeper

> Convenience stores are expanding rapidly in China, with major players like FamilyMart, Lawson, Alibaba, and JD.com all racing to open thousands of stores. However, this boom may be more hype than substance, as profitability remains elusive for many, and the industry faces challenges such as high costs and a lack of true innovation.

**Rapid expansion, crowded markets, and a blaze of competition—China's convenience store arena is ablaze. But is this a real opportunity or just hype?**

FamilyMart plans to open 10,000 stores in China by 2024.
Lawson also plans to expand its store count in China from 1,000 to 3,000 within three years.
Alibaba and JD.com have both launched renovation plans for mom-and-pop stores: Alibaba announced it will open 10,000 "Tmall Small Stores" within a year; JD.com claims it will open 1 million JD-branded convenience stores in the next three years.
Startups like Bianlifeng and Xingbianli have also secured hundreds of millions in funding over the past year, opening dozens of stores annually.
...
With the favor of giants and the push of capital, small convenience stores are attracting increasing attention. Not only are domestic and foreign large retail enterprises and hypermarkets building convenience store formats, but giants and startups are also accelerating their entry into the convenience store industry.

**Hidden Concerns Behind the High-Speed Growth**

Currently, the so-called "regular army" of traditional convenience stores and the "new forces" of e-commerce giants are both primarily competing on store count, relying on short-term viral replication for rapid expansion.

Recently, the China Chain Store & Franchise Association and Boston Consulting Group jointly released the "2018 China Convenience Store Development Report," which states: **In 2017, China's convenience store industry grew at a rate of 23%, with a market size exceeding 190 billion yuan. Both new store openings and same-store sales grew, and there is enormous market potential in first- and second-tier cities.**

But behind the rapid growth lie significant hidden dangers: same-store growth rates for department stores and hypermarkets have gradually fallen into negative territory, while convenience stores, as a small format, are one of the few physical retail segments still growing.

**The Two Sides of JD Convenience Stores**

Convenience stores, due to their proximity to consumers and numerous outlets, have become a breakthrough for online-to-offline and solving the last-mile problem. Thus, it is no accident that capital giants have set their sights on convenience stores, with JD Convenience Store being a typical example.

It is understood that JD Convenience Stores currently come in two forms: one, similar to Alibaba's approach, involves "incorporating" and renovating mom-and-pop stores; the other involves partnering with companies, where the company selects the location and opens the store, and JD provides its branding, with a higher tier than mom-and-pop stores. In both forms, JD provides the renovation plan, and the store owner bears the renovation cost. The owner then orders goods from JD's procurement platform called Zhangguibao, and JD's delivery system delivers the goods. In this way, **JD is essentially doing a B2B business, without directly participating in operations and management.**

Clearly, JD's strategy in this cooperation is to expand offline traffic entry points and increase incremental business. So what benefits does this bring to the small stores? A JD Convenience Store owner told us that most owners have brand awareness and want to be high-end and well-known. Franchising with 7-Eleven might require hundreds of thousands in franchise fees, but cooperating with JD requires no franchise fee, yet still elevates the store's tier and visibility. In the owner's view, the store simply uses JD's logo and sources goods from JD—nothing more. JD has no other involvement.

Zhou Yong, a professor at Shanghai Business School and director of the Lianshang Senior Advisory Group, commented: **On the positive side, the "small stores" being done by JD, Alibaba, and many other giants are all B2B operations. To put it broadly, they are building supply chains; to put it practically, they are supplying goods, doing wholesale, and using wholesale to drive retail.** Since large companies have advantages in supply chain, pricing, and logistics, it is reasonable for them to do this business. Through such integration, starting from supply, they gradually renovate existing traditional small stores, making them more standardized, trustworthy, and tangible, even becoming hubs in an omnichannel network. This is a meritorious endeavor.

A major difference between retail in China and abroad is that these small stores, despite their high efficiency, have a relatively backward overall image. Through the empowerment of internet companies, these stores can be transformed from traditional to modern formats via internet, mobile, and digital upgrades. This is also a key part of new retail.

However, Zhou Yong noted that there is another side: small stores have their own calculations. They are pragmatic and flexible, highly price-sensitive, and more effective at cost control than large convenience store companies. So their principle is simple: do it if it's profitable, don't if it's not. They won't be fooled by big companies; if they see it's not working, they'll quickly turn around and go solo, and they'll still survive.

From this perspective, JD's stickiness with small stores, or the loyalty of small stores to JD, is not very high. However, JD is certainly not satisfied with merely being a convenience store at the retail end. It always likes to expand its scope, and the convenience store sector is no exception.

The aforementioned JD Convenience Store owner also revealed to reporters: they will next extend services, such as parcel collection and delivery, logistics, laundry services, and repairs. In other words, JD has plans to become a "one-stop convenience service."

In fact, JD's "convenience" approach is largely imitating Japan's one-stop service model. However, most local convenience stores share a common ailment—"similar in form but not in spirit." They have learned the external shell of Japanese brands but not their true essence. **Compared with foreign brands, these local brands are more like upgraded traditional grocery stores. Not only is product homogenization severe, but service attitude and quality also cannot compare with Japan or Taiwan.** In this regard, Zhou Yong said that from the theory of product and business escalation, if the brand is well-established and sales and service content are appropriately extended, it is beneficial for both customers and merchants.

But Chinese consumers have their own scales; they have different brand preferences for different service needs and will not accept one merchant to meet all needs. So the idea of becoming a "one-stop convenience service" and wanting to do all kinds of business often falls flat.

**Bianlifeng:**
**Real Demand vs. Fake Demand: Have We Truly Distinguished?**

Seeing the vast market prospects, they keep accelerating store openings, but a fast opening pace does not mean the investing company grasps the essence of convenience stores. They must understand consumers; profitability is a secondary concern.

As a pilot for "new retail," Zebra Capital invested $300 million in the startup project "Bianlifeng," defined as a "technology-driven" innovative convenience store enterprise. The so-called innovation is reflected in Bianlifeng's initial establishment of a "store + App" dual-line operation architecture, **offering four shopping experiences: online, there are "online payment, delivery to door" and "online payment, offline pickup"; offline, there are in-store self-checkout and traditional checkout at the counter.** The delivery-to-door option seems to be what many consider convenient, but it relies solely on a few store staff for delivery, which is certainly insufficient in capacity. Building a self-operated logistics team is also difficult to achieve in the short term.

Bianlifeng states in its corporate vision: "Bianlifeng will improve existing retail models through the internet. Using big data and intelligent hardware and software, it will break through the inherent convenience store shopping experience, be user-centric, provide personalized services around each individual user, and bring tangible convenience to users."

It is precisely Bianlifeng's attempt to break through the inherent shopping experience that seems to contradict the operational logic of convenience stores, leading many to say they can't understand Bianlifeng. In fact, Bianlifeng's so-called internet approach, intuitively, is just adding an App, differing from traditional convenience stores only in checkout methods and product recommendations. Moreover, Bianlifeng has not created sufficient competitive differentiation from other convenience stores through its App. After the initial subsidies stop, how to attract customers to stay on the App may be a question Bianlifeng needs to consider.

Zhou Yong said that doing business requires insight into real demand, hitting consumers' pain points and needs. One cannot fantasize or be delusional; the result of fantasy and delusion is mistaking "fake demand" for "real demand." So, things that are "logical" may not work, and things that seem to work may not be valuable. If innovation does not make consumers "happily accept" it, everything is "useless." In fact, the fundamental attribute of a convenience store is to meet consumers' basic convenience needs, which means organizing goods well. This is the "basic skill." Other technological innovations, model innovations, or IP innovations are just empowerment after the "basic skill."

**Slowing Down, Boldly Innovating: "Chaoshifa Lawson"**

In comparison, as a traditional convenience store regular, Beijing's "Chaoshifa Lawson" (the result of cooperation between Chaoshifa and Lawson) has a more precise grasp of consumer needs.

Chaoshifa's convenience store format truly began with its cooperation with Lawson. In August last year, three "Chaoshifa Lawson" convenience stores debuted in Haidian, Beijing, and became an instant hit. Currently, nine Chaoshifa Lawson stores have been opened. The pace is not fast, but it is noteworthy that Chaoshifa Lawson's "atypical" feature is its composite business format tailored to the property layout—each store is different.

Take the Beijing Sidaokou Lawson store as an example. This convenience store is a typical composite format with a bold combination: "convenience store + book bar + Gong Cha + flowers." In addition to purchasing daily necessities, consumers can order a drink and rest in the book bar. This layout consideration is related to the unique location of the Sidaokou store. Located on Xueyuan South Road in Haidian District, it is surrounded by more than 10 prestigious universities, including Beijing Jiaotong University, Beijing Normal University, Beijing University of Posts and Telecommunications, and Central University of Finance and Economics. Therefore, the combination of book bar and Gong Cha is highly targeted and thus more popular, with daily sales reaching over 20,000 yuan, which is a good performance among domestic convenience stores.

**Convenience Store Expansion Wave: Beware of "Megalomania" and "Emperor Complex"**

Regarding the current scramble for territory in the convenience store sector, Li Yanchuan, chairman of Chaoshifa, said that besides policy support, the main factor is the influx of capital, leading to disorderly store openings. For example, some convenience stores have such high opening costs that they dare to open even with rents of 20-30 yuan per square meter per day. Of course, they are spending capital's money, but whether these stores can be profitable is highly questionable. "The most important thing when opening a store is to identify your customer base, so you know what products and environment to organize. Everyone wants to occupy space and open stores, but opening stores regardless of cost—the key is whether you have calmly considered this business format," Li Yanchuan lamented.

More than a decade ago, China's physical commerce experienced a phase of rapid expansion and crazy store openings. The outcome is now clear: a large number of stores were either closed or died. In this regard, Zhou Yong summarized: **Chinese businessmen have a "megalomania" and "emperor complex." Fifteen years ago, when they grew a bit bigger, they became arrogant and wanted to be the "industry emperor," resulting in "returning to zero." Now our "businessmen" have a delusion, talking to themselves, without deeply investigating consumers' real needs.**

In fact, the overall profitability of the convenience store industry is not optimistic. Public data shows that only a few convenience store brands are currently profitable, such as FamilyMart and Lawson. Even the well-known 7-Eleven cannot achieve stable and sustained profitability in China. Earlier, there were rumors that Beijing's largest convenience store chain, Quanshi, was forced to seek acquisition due to operational issues.

Convenience stores are hot, but the water runs deeper. They require not only substantial capital investment but are also influenced by many external factors. Zhou Yong believes that the convenience store industry is not easy to play; convenience stores worldwide are supported by large groups. If a convenience store is poorly managed, losses can be so severe that even those who "burn money without limits" would be afraid. Therefore, many investors who think convenience stores are a trend will become "cannon fodder," reaping nothing.

After all, Ito-Yokado took 40 years to perfect a single 7-Eleven.

Source: Value China

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**China FMCG + Internet Professional New Media**
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