--- title: "Convenience Stores: The Path for Domestic 7-Eleven in the New Retail Era" description: "Globally, East and Southeast Asia are the most suitable regions for convenience store development, and mainland China has the potential to give rise to several giants on the scale of 7-Eleven. Convenience stores are easy to learn but hard to master; the so-called 'invisible core competitiveness' requires domestic brands to continuously refine and iterate in the darkness before dawn to break through." author: "源码" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2017-09-21" language: "en" canonical: "https://xinjignxiao.com/en/articles/convenience-stores-the-path-for-domestic-7-eleven-in-the-new-retail-era-f45fa1a5/" markdown: "https://xinjignxiao.com/en/articles/convenience-stores-the-path-for-domestic-7-eleven-in-the-new-retail-era-f45fa1a5.md" original_source: "https://mp.weixin.qq.com/s/9bcjsljF1B4QNfi4d8WhIg" translation: "https://xinjignxiao.com/zh/articles/%E4%BE%BF%E5%88%A9%E5%BA%97-%E6%96%B0%E9%9B%B6%E5%94%AE%E9%A3%8E%E5%8F%A3%E4%B8%8B-%E5%9B%BD%E4%BA%A7711%E5%87%BA%E8%B7%AF-f45fa1a5.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/convenience-stores-the-path-for-domestic-7-eleven-in-the-new-retail-era-f45fa1a5/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Convenience Stores: The Path for Domestic 7-Eleven in the New Retail Era > Globally, East and Southeast Asia are the most suitable regions for convenience store development, and mainland China has the potential to give rise to several giants on the scale of 7-Eleven. Convenience stores are easy to learn but hard to master; the so-called 'invisible core competitiveness' requires domestic brands to continuously refine and iterate in the darkness before dawn to break through. > ○ Globally, East and Southeast Asia are the most suitable regions for convenience store development, and mainland China has the potential to give rise to several giants on the scale of 7-Eleven. > > ○ Convenience stores are easy to learn but hard to master; the so-called 'invisible core competitiveness' requires domestic brands to continuously refine and iterate in the darkness before dawn to break through. 1 **A Vast '7-Eleven' Opportunity** Since 1927, when the American Southern Company established Tote'm store in Dallas, selling eggs, milk, and ice products, the convenience store industry has been around for nearly a century. However, the industry truly began to flourish only in the last forty years. 7-Eleven and Lawson, two brands born in the United States, did not thrive in their homeland in the first half of their existence but crossed the ocean to East Asia, where they became dominant players. "There are only two kinds of convenience stores in the world: 7-Eleven and the others." **As of mid-2017, 7-Eleven had opened 19,588 stores in Japan, generating annual sales of up to 4.5 trillion yen.** Moreover, 7-Eleven actively expanded overseas, with 62,935 stores in 17 countries and regions by mid-2017, and continues to add over 3,000 stores annually, making it an undisputed retail giant. In developed countries such as the United States and Europe, the chain convenience store format has not become the most mainstream retail format. According to the National Association of Convenience Stores (NACS), as of the end of 2015, there were 154,000 convenience stores in the U.S., with a compound annual growth rate of only 1.2% over the past 13 years. **Of these, 63% are single-store operations (i.e., non-chain).** More interestingly, **80% of gasoline in the U.S. is sold through convenience stores** (the vast majority of U.S. convenience stores have fueling equipment), meaning the U.S. primarily has gas station convenience stores. Based on the development history of convenience stores in major countries and regions worldwide, East and Southeast Asia are the most suitable regions for convenience store development. **1. Four Key Elements: Population Density, Economic Level, Culture, and Eating Habits** **Population Density:** Small-store formats generally require high population density to be sustainable. More than half of U.S. convenience stores are concentrated in the densely populated eastern U.S. Many countries do not meet the population density requirements, while the highest population density regions globally are in East and Southeast Asia. **Economic Level:** The industry generally recognizes that when per capita GDP exceeds $7,000, the convenience store industry will flourish. Convenience store prices are on average higher than hypermarkets; in less economically developed areas, consumption levels cannot keep up, and the premium for 'convenience' is hard for consumers to accept. **Culture:** The cultural factors affecting convenience store development are mainly the pace of life and the richness of nightlife (both typically manifested in large cities). The faster the pace of life, the higher the demand for 'convenience'; simultaneously, the richer the nightlife, the more only 24-hour convenience stores can meet consumer needs at late hours. Both were well reflected in Japan and Taiwan in the late 1970s and early 1980s. **Eating Habits:** Eating habits have two dimensions: dietary structure and the culture of eating out. One characteristic of modern convenience stores is that food sales (especially fresh food) account for a significant proportion of store sales. Countries and regions with richer dietary structures (especially snacks) and better eating-out culture (usually accompanying the development of megacities) are more conducive to convenience store development. **2. Domestic City Groups Meeting the Four Elements** With the continuous advancement of urbanization, McKinsey predicts that China will form 22 city clusters, each developing around 1-2 central cities. In our research on numerous new retail projects, we have studied and visited over a dozen core first- and second-tier cities, most of which already possess the four elements above, and some have already nurtured chain convenience store brands ranging from dozens to thousands of stores. From macro statistics, the population of central cities is increasing year by year, and per capita GDP is rising annually. From field research, central cities (mostly provincial capitals) have a clear population absorption effect on surrounding cities. **Urbanization has accelerated the pace of life, reduced the frequency of cooking at home for those born after 1985, and the booming entertainment and out-of-home consumption all favor the development of the convenience store industry.** Mainland China is vast, with population and land area several times that of Japan and Taiwan. Based on the experience of Japan and Taiwan, where one convenience store can be supported by every 2,000-2,500 people, China's core first- and second-tier cities each have the capacity for thousands of convenience stores, indicating significant market potential. **Adhering to the principle of regional dense store placement, before the market undergoes nationwide consolidation, there are major opportunities in each region to form a '7-Eleven'.** 2 **The Internal Strengths of Domestic Convenience Stores** A good convenience store system should include at least three key success factors: **systems, supply chain, and franchise system.** **Systems:** Convenience stores are an industry with very low profit margins, typically with operating profit margins of 3-5 percentage points, leaving little room for error. At the same time, convenience stores are a highly operations-intensive industry. Product life cycles are increasingly short, customer demands are increasingly differentiated, and the passive sales model can no longer adapt to environmental changes. Fine-grained data-driven operations across the three dimensions of people, goods, and place can greatly improve operational and management efficiency. The convenience store information system needs to connect headquarters, store managers, suppliers, warehousing and logistics, and consumers, addressing the flow of goods, logistics, capital, and information. A good information system is the brain of a convenience store, coordinating tens of thousands of end stores, and surgical precision in operations can greatly enhance system efficiency. From 1978 to the present, 7-Eleven's information system has been upgraded to the sixth generation, with cumulative R&D investment reaching the billion-dollar level, demonstrating the importance 7-Eleven places on information systems. C-end CRM is relatively weak in traditional Japanese convenience stores. Domestically, we have a unique mobile internet environment, and in traditional industries like catering, we have seen the role of CRM. We believe that the current 7-Eleven model may not be the final form of convenience stores; a model that integrates online and offline traffic is full of imagination. **Fine-grained data-driven operations across the three dimensions of people, goods, and place can greatly improve operational and management efficiency.** Under 'new retail,' convenience stores will inevitably adopt a model combining online and offline, expanding the physical and category boundaries of convenience stores to better meet user needs and improve labor productivity and sales per square foot. **Supply Chain:** Convenience stores typically carry 2,000-3,000 SKUs, requiring careful selection of products with high turnover or high gross margins. **Beyond regular products, the most important categories are fresh food and private brand (PB) products.** Delicious fresh food can bring stable customer traffic and also improve store gross margins. Looking back at the history of Japan's three major convenience store chains, a key part of competition has been differentiation in fresh food categories, with each company going to great lengths to attract consumers. However, the supply chain for fresh food is more complex than imagined. The most critical aspect is R&D capability. Consumer tastes are increasingly picky, and unchanging products quickly become tiresome. **7-Eleven replaces 70% of its SKUs annually to meet changing consumer demands.** R&D requires not only new menus and recipes but sometimes new ingredients and processes. Japan's 7-Eleven leads fresh food R&D, with ingredient suppliers and kitchen equipment suppliers participating in the development, and the team oversees all stages from product planning to implementation. **Localization is also a challenge in fresh food R&D.** Japan's 7-Eleven divides Japan into 9 regions, developing different products based on regional taste differences. Mainland China is vast, and Chinese people are more particular and discerning about food, with significant taste differences. Our research has also found that Japanese convenience stores have seen bento boxes sell well in one location but poorly in another. Many convenience stores are actively exploring fresh food supply chains and considering building their own fresh food factories or central kitchens. We believe that in the long run, the fresh food supply chain is indeed a core competitiveness for convenience stores and requires investment in funds and effort to build. Fresh food factories need to achieve lean production, with no errors in food safety; they also need to develop a strong R&D system, which is no easy task. **Core talent for fresh food factories is indeed scarce; we recommend that companies determined to build a fresh food supply chain increase investment in core talent.** **Franchise System: Convenience stores are suitable for franchising. Nearly 80% of 7-Eleven stores are franchised, and this proportion is increasing year by year.** On one hand, convenience stores have many locations, with significant investment in decoration and equipment, making it a semi-heavy asset industry, and direct-operated models expand relatively slowly. On the other hand, due to thin profit margins, store managers need to exercise more initiative, and franchisees tend to manage stores more diligently than direct-operated store managers. The relationship between franchisees and headquarters must be a good partnership for long-term sustainability. A good franchise system can clearly define the responsibilities of both headquarters and franchisees, thereby determining a reasonable profit-sharing method. Although more and more franchisees are willing to enter the convenience store industry, overall, the domestic convenience store industry is still in its infancy, and franchisees generally lack rich operational experience. How headquarters provides training and empowerment, and exports standards and operational capabilities to franchisees, is also a major challenge for headquarters. In recent years, the offline retail format has faced major changes, with large-store formats continuously impacted, while chain small-store formats have seized a once-in-a-lifetime opportunity. Various core cities have gradually formed regional chain convenience stores with dozens to hundreds of stores, gradually building reputation and brand locally, and gradually improving systems, supply chains, and beginning to try franchise systems. The 'windfall' theory of convenience stores has been discussed for many years, but the wind has not yet blown. **Rome was not built in a day; the construction of systems and supply chains, and the improvement of franchise systems, all require significant investment and the re-establishment of standards.** Convenience stores are a demanding industry, requiring a solid foundation in the early stages and hard work in the dark. 7-Eleven took 6 years to open its first 1,000 stores, and now it opens over 3,000 stores annually. We believe that good convenience stores in various regions can easily accumulate first-mover advantages in the early stages, occupy consumer mindshare, secure advantageous positions, and achieve the great cause of a domestic 7-Eleven. **Wu Di** Senior Investment Manager Mr. Wu Di joined Source Code Capital in 2016, focusing on growth-stage projects and consumer investments, with key projects including Toutiao, Palm Quick Sales, etc. Before joining Source Code Capital, Mr. Wu Di worked at BDA, serving first-line dollar hedge funds and dollar PE, with rich research experience in e-commerce, gaming, and internet advertising. Mr. Wu Di graduated from the University of International Business and Economics with a bachelor's degree in management. Contact: wd@sourcecodecap.com Source: Source Code Capital (sourcecodecapital) **The 3rd (CFIC) China FMCG + Internet Conference** will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting **1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions** to jointly explore a new chapter of cross-border integration! **Core Topics of This Conference:** > * **How the FMCG industry can achieve new growth opportunities through B2B** > > > > > > > * **How to build a new supply chain behind new retail** > > > > > > > * **How intra-city logistics can help B2B achieve leapfrog development** > **Highlights of This Conference:** > * **The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"** > > > > > * **Case sharing of excellent transforming and upgrading distributors** > > > > > * **Conference + exhibition upgrade: Hall 6 Internet Technology Exhibition strengthens matchmaking** > > > > > * **Alibaba Retail Link, GL Capital Finance, Eternal Asia Supply Chain, Best Store Plus, Yi Jiu Pi, Haiding: leaders from various fields deliver speeches and share pioneering views.** > **Registration is now open. 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