As new retail spreads offline, community convenience stores have become the most fiercely contested battleground. The warlords include internet and e-commerce giants such as Tencent, Alibaba, JD.com, and Suning, as well as established retailers. In particular, the conflict has escalated significantly in the past two weeks. As the saying goes, "When gods fight, the small fry suffer." While the giants are "slaughtering" community convenience stores, how can the millions of mom-and-pop shops escape this bloody storm? Why do internet and e-commerce giants place such importance on the battle for community convenience stores? What does success or failure mean for each of them? The Giants' Convenience Store Calculations Recent news offers some clues. First, according to Leidi.com, Bianlifeng recently received substantial investment from Tencent and Hillhouse Capital, valuing it at $1.6 billion, with each investor holding 8%. Bianlifeng has officially become Tencent's "spokesperson" in the convenience store sector. Next, JD.com has been thrust into the spotlight. Its JD Convenience Stores, which operate under a "white-label" franchise model, had previously boasted plans to "open 1 million stores in five years." However, Cyzone.cn has reported that many stores have already removed JD's signage and ended their cooperation with JD. Suning, feeling the heat, also announced last week that it would spin off its wholly-owned Suning Xiaodian to prevent future losses from affecting its listed company's performance and to facilitate independent financing and development. Additionally, according to Beijing Business Today, JD is planning to follow Suning's lead by opening directly-operated stores beyond its franchise convenience stores. Some team members come from other traditional convenience store brands in Beijing, and JD has also poached five management personnel from 7-Eleven Beijing. There are many more moves, big and small. For instance, Linjia, which suffered a capital chain rupture due to P2P defaults, was reported last week to be taken over by Wumart. Two weeks earlier, Tmall Xiaodian announced its 2.0 upgrade plan. What is the current layout of these players? Huxiu's Gaojie Gaocan has compiled the latest public information (as shown in the chart). What are the calculations behind the internet, e-commerce giants, and new and old retail players placing such importance on community convenience stores? Liu Qiangdong set an ambitious goal last year: "to open 1 million JD convenience stores nationwide in five years." In April this year, he claimed to open a thousand stores a day, but reality may be harsher. Alibaba certainly doesn't want to be outdone. Its B2B business, Lingshoutong, aims to "cover 1 million small retail stores." In September, Lin Xiaohai announced at the Lingshoutong strategy conference that it had covered over 1 million small stores offline, including several thousand Tmall Xiaodian stores. When Haolinju was acquired by Xianshenghuo, Greentown Service, and Yiguo in November last year, it was still Beijing's largest convenience store company. Xianshenghuo, the controlling shareholder, positions itself as a convenience store new retail enabler and works closely with Tmall. Yiguo also has Alibaba investment. Haolinju stores are also one of the offline channels for Tmall's "1-hour delivery" service, making it part of the Alibaba camp. Both Alibaba and JD are pursuing franchise and renovation routes to quickly scale up by "rebranding and absorbing" stores. The more extensive the convenience store network, the lower the marginal cost. Last year's Double 11 saw both JD Convenience Stores and Tmall Xiaodian participate. The logic is the same as Alibaba and JD moving offline: online growth is hitting a ceiling, so e-commerce is seeking performance offline. The giants behind JD Convenience Stores and Tmall Xiaodian share the same goal: to get traditional mom-and-pop shops to "white-label" and adopt JD or Tmall standards, transforming their store image while also serving as terminals for the two e-commerce giants to penetrate lower-tier markets and reach consumers. The goods come from JD's Xintonglu and Alibaba's Lingshoutong, making B2B wholesale the main profit model for the two e-commerce giants in community convenience stores. Ultimately, mom-and-pop shops are "working" for Ma Yun and Liu Qiangdong. However, both Xintonglu and Lingshoutong have limited control over store owners. For example, joining Tmall Xiaodian only requires 30% of goods to be purchased from Lingshoutong. If traditional wholesalers offer better prices, store owners will naturally choose the cheaper option. In contrast, Suning Xiaodian's advantage is that it can open stores directly within Suning.com, saving on warehouse and logistics resources. In June this year, Suning Retail Group Vice President Bian Nong stated that Suning Xiaodian would become the largest convenience store company in the Beijing market by year-end. As of the first half of 2018, Suning Xiaodian had 732 stores. Despite Suning's strong offline chain, its home appliance background makes it more susceptible to the real estate industry, and durable consumer goods are heavily influenced by macroeconomic conditions. From January to August 2018, retail sales of the top 100 large retail enterprises nationwide grew 1.5% year-on-year, a slowdown of 1.7 percentage points from the same period last year. Among them, home appliance retail sales fell 1.2% year-on-year, a slowdown of 3.7 percentage points, which was the main reason for the slowdown in large retail enterprises. Suning.com is now moving toward "department store" status, expanding from appliances to comprehensive categories to grow its business. Suning is not alone; many large retail formats are showing signs of sluggish growth. In the first half of this year, Walmart closed 16 stores, Carrefour closed 6, China Resources Vanguard closed 3, and Yonghui and Aeon each closed 2. Lotte Mart, affected by the THAAD incident, withdrew from China entirely, with its stores taken over by Wumart and Liqun. Large supermarkets' vast, complex layouts and wide product ranges consume shoppers' time and energy, compounded by crowding and inconvenient transportation. After being diverted by e-commerce, they now face diversion by small retail formats. Amid the wave of closures in hypermarkets and department stores, convenience stores alone have maintained high growth, with a compound growth rate of 17% in recent years, demonstrating strong demand. Thus, small-format stores have become one of the transformation paths for traditional retail. At the beginning of 2018, Yonghui acquired a 21% stake in the well-known Sichuan convenience store brand "Hongqi Chain," planning to cooperate with nearly 3,000 stores. Yonghui's own convenience-store-like format, Yonghui Life, already has 285 stores, with online orders delivered by Yonghui Logistics, and a target of 30,000 stores nationwide by 2020. According to Jiemian News, Wumart will take over Linjia Convenience, though this has not been officially confirmed. However, Wumart's convenience store business has grown rapidly this year. Wumart Convenience Store General Manager Dong Gang expects the number of Wumart convenience stores to reach around 370 by year-end. Next year, Wumart plans to open 260 new stores, 160 of which will be small-format stores. Tianhong has its own convenience store brand, Weiwu, with 167 stores. Last week, on October 18, Tianhong opened its first sp@ce Tianhong supermarket, aiming to be a fresh-produce-enhanced community lifestyle supermarket. Convenience stores, with their small size, high density, and proximity to community life, can generate network effects. This small retail format is a strategic stronghold that neither e-commerce nor traditional supermarkets can afford to lose. The Profitability "Trauma" of Chinese Convenience Stores Even the strongest Japanese convenience store chains have not had smooth sailing in China. FamilyMart turned profitable in 2014. Lawson, which was profitable, had previously expected to start making money in mid-2017, but in June this year, Lawson Vice President Zhang Sheng predicted that Lawson China would achieve overall profitability next year, in 2019. As for 7-Eleven, there has been no news of profitability in China to date. According to the China Chain Store & Franchise Association, in 2017, FamilyMart China had 2,181 stores, 7-Eleven China had 1,644, and Lawson China had 1,399. Japanese convenience stores have mature, replicable experience in private brands, buying systems, and supply chains. Yet after 20 years in China, they still haven't achieved overall profitability. This is partly due to the stage of economic development. Japanese convenience stores are mostly in first- and second-tier cities, and are rarely seen in lower-tier markets. Local convenience store brands are a major obstacle. Basically, every province has a large local convenience store brand, such as Dongguan Meiyijia with over 11,000 stores nationwide, Shanxi Tangjiu with over 1,400, and Zhejiang Shizu with over 1,700. These brands may not match foreign brands in management, but they can rely on local advantages and learning ability to "beat the master with wild punches." Additionally, entrepreneurs and investors focusing on the convenience store track naturally pour money into local brands. For example, Bianlifeng, which just received investment, shows more promise in business philosophy and flexibility than Japanese convenience stores. In China, 6 million mom-and-pop shops dominate community retail. Convenience store prices are often higher than these small shops, which limits their consumer base. Now, Japanese convenience stores are joining O2O platforms like Ele.me, Meituan, and JD Daojia to access more traffic. For local convenience store brands, the complexity of the Chinese market is also a challenge. Take Suning Xiaodian. According to Suning.com's announcement, as of July 31, 2018, Suning Xiaodian had net assets of -310 million yuan, a net loss of 296 million yuan in the first seven months of 2018, and debts as high as 653 million yuan. During its cultivation period, Suning Xiaodian opened stores at a rate of about 7 per day, making losses inevitable. Despite this, Suning Xiaodian President Bao Junwei believes the expansion needs to be faster. He stated that with Suning's years of accumulation in backend supply chains, only rapid store expansion to capture the market can demonstrate local advantages different from Japanese convenience stores, and gain market share through more flexible, differentiated management. Suning, through Zhang Jindong's son Zhang Kangyang, increased capital in Suning Smart Life, a wholly-owned subsidiary, thereby spinning off Suning Xiaodian from the listed company. This facilitates independent management and financing for Suning Xiaodian and also serves as a warning against future losses. The chart above shows Tianhong's Q3 2018 data. In terms of sales per square meter and gross margin, convenience stores are much higher than shopping centers, department stores, and supermarkets. However, revenue declined year-on-year, and total profit also fell significantly. Tianhong did not disclose specific convenience store profits, but the decline was double, indicating losses. This also reflects that the convenience store format has great potential, but operating and expansion costs are equally high. Convenience Stores + Group Buying: "Slaughtering" Communities Communities have become the vortex center: both e-commerce and traditional supermarkets are choosing communities for convenience stores, and community group buying, which is expected to be the hottest new retail trend, is also happening in communities. A Huxiu article has introduced this distribution model. Its advantage lies in stable community traffic, where residents are likely to develop loyalty, high household consumption frequency, and high repurchase rates. With urbanization, large communities are increasing, and residents have similar income levels, making precision marketing easier. The "goods find people" scenario has emerged: community group buying typically starts with high-frequency, essential fresh produce categories and expands to daily household items. Group buying products usually include fresh fruits and ingredients, snacks, rice, flour, oil, and household goods, using these essential items to open the market. Currently, community group buying has raised nearly 2 billion yuan in financing, with players like Pinduoduo, Missfresh, Youhaodongxi, and Meicai already entering the fray. Many community fresh convenience store projects are also targeting the commercial value of communities, using fresh produce as a lead. Examples include Qianshima, which received investment from JD's Qicheng Capital, and Fresh Legend, led by IDG with Sequoia and others following. Traditional supermarkets are doing the same. Yonghui, Tianhong, and others leverage their fresh supply chain advantages to increase the proportion of fresh produce in convenience stores. Suning Xiaodian and Haolinju's green-label stores also focus on prepared vegetables and fruits to meet residents' daily needs. Integrating online and offline to amplify the role of convenience stores as forward warehouses has become standard: Yonghui Life stores are delivered by Yonghui Logistics, covering a 3-kilometer radius. Online transactions account for 40% of Yonghui Life's total transactions, higher than Super Species' online sales share. Suning also relies on Suning Logistics for delivery. Xianshenghuo's green-label stores are forward warehouse formats, with small warehouses and full shelves, serving as one of the offline channels for Tmall's "1-hour delivery" service. Bianlifeng also uses Shansong for instant delivery. Not just fresh produce and daily goods, the "last mile" problem is gradually disappearing, prompting some restaurant brands to enter the community store battlefield. According to Canyinlaoban Neican, brands like Lèkésà, Starbucks, Xibei, and Xiabu Xiabu have begun opening small-format stores in communities, making delivery a core metric. Higher delivery revenue supports lower seating rates and table turnover in small community stores. Restaurant brands typically prefer shopping centers, but nowadays young people cook less frequently, especially single office workers who rely on delivery. Community restaurant stores cater to this trend. This is a new round of offline positioning. The most traffic-attracting shopping center complexes are the first choice for dining and retail, but foot traffic is concentrated on weekends. CBDs are also dense with convenience stores, restaurants, and delivery services, but outside working hours, these areas become deserted. People's activities generally revolve around work, entertainment, and life, and a positioning battle for community life scenarios has begun. It is foreseeable: in the end, the battlefield will be littered with casualties; the final winner will be the one who survives. Source: Gaojie Gaocan (ID: gjgc168) -END-