No one expected that convenience stores, initially an extension of large supermarkets, would become the most prominent retail format today. Especially since entering China in the 1990s, the convenience store sector has been advancing rapidly and achieving significant growth. According to the "China Retail Industry Development Report (2018/2019)" (hereinafter referred to as the "Report") recently released by the Ministry of Commerce, in 2018, domestic convenience store sales grew by 8.3% year-on-year, ranking first among retail formats. However, in China's ever-changing business landscape, the notion that "even pigs can fly when standing at the eye of the storm" is not universally applicable. Clearly, convenience stores are no exception; at the same eye of the storm, some are thriving while others are struggling. The Great Convenience Store "Chaos" When it comes to convenience stores, most domestic consumers first think of "star" chains like 7-ELEVEn, FamilyMart, and Lawson. Undoubtedly, in terms of visibility, these three are perhaps the most prominent convenience store systems. According to a compilation by National Business Daily, based on 7-ELEVEn's official website, as of the end of May 2019, 7-ELEVEn had opened 8,415 stores in the Chinese market. Lawson China disclosed in January this year that it had opened its 2,000th store across 5 provinces and 3 municipalities, and had previously set a target of surpassing 10,000 stores by 2025. China FamilyMart disclosed in May this year that it had 2,500 stores. Among them, 7-ELEVEn stores are mainly located in first-tier cities such as Guangzhou, Beijing, Shanghai, and Shenzhen, as well as some provincial capitals. According to information from FamilyMart and Lawson's official websites, Lawson's stores are mainly concentrated in Shanghai, Jiangsu, and Zhejiang. FamilyMart has 1,437 stores in Shanghai alone, accounting for more than half of its total stores. From this, it is clear that the above three companies are mostly located in more economically developed regions. However, for the vast Chinese market, the only truly national convenience store chains are Sinopec's Easy Joy and PetroChina's昆仑好客 (Kunlun Hao Ke), both born with a "silver spoon." According to the 2018 China Convenience Store TOP100 data released by the China Chain Store & Franchise Association, the two have 27,259 and 19,700 stores respectively. Relying on gas stations across the country, both companies have achieved nationwide coverage. The above list also includes some local retail giants. For example, Meiyijia, controlled by the Guangdong Province Dongguan Sugar, Wine and Food Group, has as many as 15,559 stores, making it the third-largest convenience store enterprise in China. There are also Guangdong's Tianfu (4,500+ stores), Sichuan's Hongqi Chain (2,817 stores) and Wudongfeng (1,187 stores), and Hunan's Xinjiayi (1,200 stores), among others. In the past two years, driven by capital and the internet, a batch of new chain convenience stores has rapidly grown, such as Suning Xiaodian, which has surpassed 4,500 stores. Furthermore, on September 25, at the 2020 Strategic Supplier Exchange Meeting, Bianlifeng announced that its national store count had exceeded 1,000, just 31 months after the brand's first batch of stores opened in February 2017, completing its original three-year goal ahead of schedule. If counted by individual convenience store brand name, Bianlifeng has already entered the top 20 convenience store chains in China. At the same time, Bianlifeng's executive director Xue Enyuan stated that surpassing 1,000 stores is a new starting point for Bianlifeng. In the future, Bianlifeng will continue to accelerate its nationwide store expansion. According to internal plans, Bianlifeng has raised its three-year store target to 10,000 stores. If Bianlifeng can achieve its goal of opening 10,000 stores within the next three years, its store count in the domestic market may also surpass that of Lawson, which has been in China for 23 years, completing its goal of over 10,000 stores ahead of the latter. Clearly, compared with traditional large supermarkets mired in a "wave of store closures," convenience stores are basking in glory. But according to the current market situation, the entire domestic convenience store system has formed a situation where foreign giants, local tycoons, and emerging forces compete with each other. It is not an exaggeration to describe the current convenience store competition as a "great chaos." Do Convenience Stores Make Money? On the Zhihu platform, there is a popular Q&A: "Why are all convenience stores in mainland China losing money?" Obviously, the answer is no. In business, everyone aims to make money. According to the "2019 China Convenience Store Development Report" jointly released by the China Chain Store & Franchise Association and KPMG China, in terms of industry scale and store conditions (based on the 2018 China Convenience Store TOP100), the market size exceeded 226.4 billion yuan, with a growth rate of 19%; the total number of stores was 122,000, a year-on-year increase of 14%. However, at the eye of the storm, the overall performance of China's convenience store industry is stable and improving, but not every convenience store is "in its element." For example, Quanshi Convenience Store, founded in 2011, quickly achieved rapid expansion by focusing on the Beijing market. Later, Quanshi began expanding nationwide with Beijing as its base, and also pioneered the only heavy-asset operation model among domestic convenience stores (with a single-store investment of over 1.5 million yuan). In 2017, it launched the "Hundred Cities, Million Terminals" plan, investing 10 billion yuan to cover "100 cities and 1 million terminals" in five years. Additionally, Quanshi spent tens of millions of yuan developing its management system "Quanshi Hui." Due to the heavy-asset model causing excessive operational burden on stores, Quanshi's development became difficult. Moreover, Quanshi's parent company, Beijing Fuhua Zhuoyue Commercial Management Co., Ltd., was affected by the collapse of its P2P platform Hai Xiang Finance in November 2018, leading to capital chain problems, which became the "last straw" that broke Quanshi's back. Subsequently, there were rumors that Nestlé, through its Yinqilu Group, would acquire all of Quanshi's stores in Beijing, Tianjin, and Chengdu, but these were quickly denied by Nestlé. In the end, the Quanshi Alliance sold off its convenience store assets in various regions separately: stores in Chongqing were sold to Lawson, stores in Changsha were taken over by Shanshan, and stores in Beijing, Chengdu, Tianjin, and Langfang were sold to Shanhai Lantu. In addition, in August 2018, Linjia Convenience Store suddenly collapsed overnight, closing 168 stores due to the capital chain rupture of its backer Shanlin Finance. A month later, due to problems with investor Chunxiao Capital, the founder of 131 Convenience Store went missing and was later detained... If the above examples are just isolated cases, it is still evident from the commonalities of convenience stores that making a profit is not easy. For example, international convenience chain brands like 7-ELEVEn entered the Beijing market in 2004 but did not offset cumulative losses and enter a profitable state until 2017. According to Shinji Uchida, chairman of 7-ELEVEn (China) Investment Co., Ltd., in a 2017 media interview, 7-ELEVEn's average daily sales per store can reach 36,000 yuan. Among local enterprises, Hongqi Chain, the first A-share listed convenience store chain, is doing quite well. Through continuous mergers and acquisitions, as of June 30, 2019, Hongqi Chain had 2,958 stores, achieving operating revenue of 3.829 billion yuan in the first half of this year, a year-on-year increase of 5.89%; net profit was 237 million yuan, a year-on-year increase of 52.93%. How many domestic convenience stores can achieve daily sales levels comparable to the above-mentioned convenience store enterprises? At the same time, Hongqi Chain also stated in its financial report: "With rapid economic development and intensified market competition, costs such as commercial property rental, personnel wages, and promotional expenses are inevitably on the rise. The company faces the risk of continuously rising operating costs, which puts significant pressure on its operations." Clearly, all convenience store brands face the same pressures as Hongqi Chain. According to the "2018 China Convenience Store Development Report," in 2017, operating costs in the convenience store industry rose rapidly, with rent costs up 18%, utilities up 6.9%, and labor costs up 12%. Over time, these costs have likely risen further. Moreover, taxes, losses, and other expenses also add to the cost pressures faced by convenience stores. As the Report points out, the retail industry's transformation and development still face some problems and difficulties: operating costs continue to rise; labor, rent, and financing costs remain high; transformation and upgrading, as well as technological iteration, involve high equipment renovation costs and technical difficulties; outdated commercial supporting facilities impose certain restrictions on retail enterprise development; regulatory mechanisms for internet integrity issues arising from online and offline retail development still need improvement; and the cultivation of retail professionals needs to be strengthened. "Thoughtfulness" is the Future of Convenience Stores Increasing industry concentration is also an inevitable trend in today's commercial society, and the convenience store industry is no exception. Under this trend, giants emerge, leading to a situation where convenience stores "squeeze both ends"—suppliers and consumers. For consumers, it's simple: those familiar with Sichuan's convenience store system will find that Hongqi Chain's retail prices are generally higher. Of course, this price difference is not unique to Hongqi Chain; in stores like 7-ELEVEn, FamilyMart, and Lawson, many products are also priced slightly higher than in ordinary stores. Naturally, since convenience is provided, the average price of the same product in convenience stores is 15% higher than in traditional supermarkets, and this reasonable price difference is understandable and acceptable to consumers. But for suppliers, facing the various fees required to enter chain convenience stores has always been a source of "dare to be angry but not to speak." For example, media have reported that the common barcode fee in the food industry ranges from 500 to 1,000 yuan per item in local supermarkets, and 1,000 to 1,500 yuan per item in foreign supermarkets. According to reporters, in regional strong chains like Chengdu's Hongqi Chain, if a product enters 1,000 stores, the annual barcode fee per item could reach nearly 30,000 yuan. In addition, most products sold in convenience stores are high-frequency consumer categories. If a supplier's products sell slowly in stores, they may face "barcode locking" or removal from shelves. To re-enter, the condition is simple: "pay up." Of course, the business games involved are decisions made from each party's perspective, and we need not elaborate further. But for the future of convenience stores, there is much more to consider. In China, many convenience stores only offer ordinary product sales, and such stores generally do not fare well. In Japan, where the convenience store format is most developed, the sophisticated convenience store system is hailed as the "lifeline of the nation." Convenience stores basically encompass various daily services such as express delivery, postal services, dry cleaning, photocopying, and faxing, and can even handle payments for insurance, taxes, and other non-public utility fees. Convenience stores serve as one-stop service centers. According to reports, only 20% of customers enter convenience stores solely for shopping. Generally, different product structures yield different gross margins: ordinary products range from 15% to 25%, while self-made food has a gross margin of over 50%. However, in terms of net profit, most convenience stores struggle to exceed a net margin of 5%. Therefore, in the domestic convenience store industry, companies with better performance have a significant proportion of self-made food in their stores. For example, in stores like 7-ELEVEn, FamilyMart, and Lawson, in addition to daily product sales, they offer oden, bento boxes, ready-to-drink coffee, and even hot buns and soy milk during breakfast hours. Local brands like Hongqi, which are doing well, also offer additional value-added services such as public transportation card top-ups and utility bill payments... These stores provide consumers not only convenience but also "thoughtfulness." Moreover, these chain convenience store brands with certain brand and scale effects also have strong bargaining power in sourcing channels. For instance, Hongqi Chain's direct procurement accounts for about 80% of its entire supply system, directly eliminating the "middleman" link and further increasing profits. It is undeniable that many convenience stores in China have closed down, but opening new stores remains the main theme. Whether you can make money depends on whether you truly provide convenience and "thoughtfulness." Source: Food Weekly (ID: foodweek) Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Committed to FMCG manufacturer and distributor transformation and channel digital solutions