For every Sinopec gas station, there is an Easy Joy convenience store. The era of "making money by just lying down at a gas station" is long gone. Under the carbon neutrality context, the sales prospects of oil products are declining, and non-oil sales were once seen as the best solution to offset the profit decline from refined oil. "This is a gold mine with huge potential." In 2014, Sinopec Chairman Fu Chengyu expressed strong optimism about non-oil sales. After 15 years of transformation, Sinopec has gone from being a leading oil tycoon to China's largest convenience store chain. How did it achieve this?

As many gas stations as there are, there are as many Easy Joy stores In 2007, Sinopec invested 1.5 billion yuan to renovate its gas stations, aiming to turn them into comprehensive service venues integrating refueling, rest stops, dining, shopping, and car maintenance. The "Easy Joy" brand was born. Easy Joy, as Sinopec's first non-oil business brand, officially represented Sinopec's entry into the convenience store market. Fifteen years later, Easy Joy has become the "king of stores." According to the "2021 China Convenience Store TOP100 List" released by the China Chain Store & Franchise Association, there are three convenience store brands with more than 20,000 stores in China, two of which are from oil companies. Sinopec's Easy Joy topped the list with 27,600 stores, 5,206 more than the second-place Meijiayi, and 7,388 more than the third-place PetroChina's昆仑好客 (Kunlun Hao Ke). In China, Easy Joy stores are basically set up following the locations of Sinopec gas stations. As of the end of 2020, Sinopec operated a total of 30,713 gas stations in China, an increase of 11 from 2019, of which 30,707 were self-operated, accounting for 99.98%. For years, the average annual refueling volume per Sinopec gas station has remained above 3,000 tons. According to the latest statistics for the first three quarters of 2021, the average annual refueling volume per Sinopec gas station has now risen to 3,633 tons per station, a year-on-year increase of 28 tons compared to the first three quarters of 2020. Based on the above data, it can be seen that Easy Joy's penetration rate at Sinopec gas stations has exceeded 90%. It can be said: as many gas stations as there are, there are as many Easy Joy stores. And from the perspective of average annual refueling volume per station, Easy Joy should not worry about customer traffic. However, Easy Joy's early development was not smooth. At its inception, Easy Joy's positioning was "automobile life post station." Since 2011, Easy Joy has vigorously built a marketing image of "no counterfeit goods in ten thousand stores," but it seemed to have not found a market breakthrough, and performance remained lukewarm. Sinopec's annual non-oil revenue hovered around 4-5 billion yuan. At that time, Fu Chengyu, who had just taken over as chairman of Sinopec, even "exposed his own shortcomings" and criticized Easy Joy: "You are guarding China's largest refined oil retail chain terminal, how can you be so poor that you have to beg for food?" In 2012, as Easy Joy stores exceeded 20,000, Sinopec's non-oil business revenue finally exceeded 10 billion yuan. In December 2013, Sinopec Easy Joy Sales Co., Ltd. was officially established. In 2014, Easy Joy welcomed a new turning point. With the clarion call of mixed-ownership reform of state-owned enterprises, Tencent and 25 other domestic and foreign private capitals subscribed to 29.99% of Sinopec Sales Company's equity for a total cash of 107.094 billion yuan. Non-public capital entered Sinopec's large network of refined oil and non-oil sales for the first time, bringing new technology and cross-border development ideas. Easy Joy also rode this wave and became the pioneer of Sinopec's mixed-ownership reform. From 2015 to 2017, although the domestic branded chain supermarkets and hypermarkets were in an awkward transition period with a sluggish market, Easy Joy maintained growth for three consecutive years during this period. Compared to its early days, Easy Joy's overall revenue had increased nearly 10 times by then. On August 1, 2017, Easy Joy opened its first unmanned convenience store at Sinopec Sales Company's Technical Training Center (Yunxiu Villa), taking the lead in opening a "new retail era." Subsequently, Easy Joy seemed to suddenly find the trick and accelerated: from incubating its own brands of FMCG and liquor; to exploring social e-commerce, O2O, and livestream selling; deploying national centralized procurement and cross-border e-commerce; cross-border car services, group buying, advertising, fast food cooperation... Easy Joy's scale grew larger and its layout speed faster, even launching a strategic new business on average once a month in recent years, earning it the title of "cross-border maniac."

3% VS 50% In fact, non-oil business at gas stations similar to Easy Joy has a history of more than 60 years abroad. Non-oil business at gas stations refers to businesses other than refined oil, including convenience stores, catering, car washing, car repair, auto parts, advertising agency, communications, ATMs, lottery sales, vending machines, and agricultural product sales. More than 80% of gas stations in Europe have convenience stores, and non-oil sales at gas stations usually account for 30% to 40% of total sales revenue, a proportion that is still rising. In the United States, where car culture and highway culture are more developed, the significance of gas stations has never been limited to "refueling." According to a set of statistics: in 2017, during a period of high fuel prices without the impact of COVID-19 and significant crude oil price declines, there were about 150,000 gas stations operating in the U.S., with total oil product sales of $364.1 billion and non-oil sales represented by convenience stores totaling $237 billion, with an income distribution ratio close to 3:2. Now let's look at China: even for the oil company with the largest number of gas stations in the country, Sinopec's non-oil sales revenue is still only equivalent to 3% of its total revenue, a huge gap compared to the 50% ratio of non-oil business in U.S. gas stations. In 2020, affected by the COVID-19 pandemic and the continued decline in international crude oil prices, the oil product sales of domestic oil giants generally showed a downward trend. Sinopec decreased by 23.0% year-on-year, but its total oil product sales revenue in 2020 still reached 1,102.2 billion yuan, of which gasoline sales revenue was 549.2 billion yuan, diesel sales revenue was 377 billion yuan, and kerosene sales revenue was 54.9 billion yuan, totaling 184.551 million tons sold. At the same time, Sinopec's non-oil business revenue in 2020 was only 33.9 billion yuan, an increase of 1.8 billion yuan year-on-year. In 2020, PetroChina's overall revenue decreased by 14.1% year-on-year, selling a total of 105.896 million tons of gasoline, kerosene, and diesel domestically, but its sales segment suffered an operating loss of 2.906 billion yuan. The reason for the disparity in convenience store retail business between Chinese and American gas stations is not difficult to understand: in the U.S., it has become a consumer habit for car owners to browse the convenience store at the gas station and buy items while refueling. According to the latest results of the 2020 Consumer Fuel Survey by the National Association of Convenience Stores (NACS): in the past five years, as gasoline prices have generally been below $3 per gallon and the price differences among different gas stations' refined oil products are small, more and more American car owners say that the products, services, or promotions of gas station convenience stores or associated stores determine where they choose to refuel. Nearly two-thirds of American drivers can name which gas station convenience store or chain they prefer. Among drivers aged 18-34, more than two-thirds enter the station store when refueling, and some even choose the refueling location based on their personal shopping needs. The survey also showed that previously, weekday evening rush hour was the most popular refueling time for American commuters, but in the past three years, noon has become the most popular time for these drivers. What caused the change? The survey revealed: it's "food." Shopping convenience and diverse fresh food, which help people save a lot of shopping time, have become the biggest advantages of gas station convenience stores in attracting American car owners. People's consumption habits have evolved from "go refuel, buy something on the way" to "go buy something, refuel on the way." But in China, most car owners stay at gas stations for less than 5 minutes, hoping to "refuel as quickly as possible and leave as soon as possible." There is still a lack of awareness, demand, and habit formation for the consumption behavior of "going to the gas station with the purpose of buying something." In addition, at domestic gas stations, most refueling services are completed outside the convenience store, and drivers don't even need to get out of the car, which indirectly leads to low foot traffic in gas station convenience stores. Convenience stores often reflect the efficiency of a city's operation and are also a warm corner in a busy city. Although it is envisioned that Easy Joy should also become a popular shopping destination like American gas station convenience stores, Sinopec Chairman Fu Chengyu once made a bold statement: "Wool comes from sheep's back; in the future, refueling can be free!" — He meant that consumers would come to gas stations mainly to buy non-fuel products, earn points through purchases, and redeem them for fuel, achieving "free refueling." However, compared to the U.S., convenience stores at Chinese gas stations have almost no "convenience" advantage. In a "Golden Store Manager" activity organized by the China Chain Store & Franchise Association, the evaluation results summarized: "golden convenience stores" with excellent customer traffic/transaction volume are mainly concentrated in residential areas of second-tier and above cities, mostly 24-hour standard stores of about 100 square meters, with SKU counts concentrated around 1,000-3,000, and a high proportion of fresh food core categories... This shows the importance of proximity-based formats and community traffic for successfully operating a convenience store in China. ▲ Portrait of an excellently operated golden convenience store. Source: 2021 CCFA Convenience Store Golden Store Manager and Store Survey, KPMG Analysis However, gas station convenience stores, which are located based on gas station locations, have from the start determined their location differences from regular convenience stores. In China, many urban gas stations are not located near core living areas due to fire safety requirements, and are far from busy commercial streets, schools, hospitals, scenic spots, etc. Outside cities, the most foot traffic for proximity-based formats is usually in highway service areas, but due to relevant regulations, gas stations in service areas often cannot open convenience stores inside. These factors ultimately lead to the huge difference in operating revenue structure between Chinese and American gas stations.

Can the "involution" of gas stations be saved by "new retail"? After 2020, many gas station operators had already anticipated that the refined oil market would remain difficult. Although retail oil prices rise year by year, as the petrochemical company with the largest number of gas stations in China, Sinopec's sales business gross margin in 2020 was only 7.8%. In contrast, upstream industries such as exploration and refining remain Sinopec's most profitable businesses, with gross margins reaching 37.6% during peak periods. Although oil product sales are Sinopec's largest revenue segment, its gross margin and total profit performance are not impressive. This phenomenon also occurs in the financial reports of another domestic oil giant, PetroChina: in 2020, PetroChina's sales business gross margin was only 3.5%. The common explanation in the industry for the low gross margins of petrochemical giants' sales businesses is: high operating costs of gas stations, fierce competition, and the increasingly obvious trend of micro-profits in the domestic refined oil market. After 2021, this trend has not reversed. With energy structure adjustments brought by climate change, "beyond petroleum" is becoming a global trend. With industry digitalization superimposed on the major trend of energy structure transformation, how to survive in the refined oil stock market of less than 3 trillion yuan? How to survive in the transformation of the 10 trillion new energy market? Every company in the refined oil industry is thinking about a way out. The importance of non-oil business has been repeatedly put on the agenda. In the face of the relentless attack of the COVID-19 pandemic and the sharp drop in international crude oil prices, developing non-oil sales business is also seen by oil companies as a magic weapon for smooth transition or a comeback from a trough. In addition to convenience stores, new energy, charging piles, logistics and distribution, fast food restaurants... any non-oil business that generates revenue is being tried by oil companies. These active attempts have begun to show initial results in recent years: since 2019, Sinopec's non-oil business profits have achieved stable growth for two consecutive years, with an average growth rate exceeding 10% even in the most difficult year of 2020. In the first three quarters of 2021, Sinopec's non-oil business created profits of up to 3.353 billion yuan. Among many non-oil businesses, the convenience store industry still holds an unshakable advantageous position due to its high average sales per square meter of 63 yuan/square meter/day. And in 2020, the top 20% of convenience store companies in terms of revenue had an average sales per square meter value of 76 yuan/square meter/day. And around convenience stores, new retail is an unavoidable topic. When the new retail boom surged, Sinopec also invested heavily to let Easy Joy ride the new retail express. In September 2019, shortly after Easy Joy launched its new brand "Easy Joy Coffee" based on the new retail concept, as a pilot unit for the State-owned Assets Supervision and Administration Commission's "Double Hundred Action" comprehensive reform, Easy Joy publicly recruited for the first time for positions such as president, vice president, and chief financial officer, with key requirements including more than 10 years of experience in the retail industry, having served as a main manager of a chain retail enterprise or internet platform enterprise, and preference for those who have served as CEO of a large retail chain enterprise or internet platform enterprise. Four months later, two former Walmart executives parachuted into Easy Joy: President Chen Cheng and Vice President Ye Zihui — the former had served as regional manager and president at retail companies such as Walmart and Phoenix Preferred; the latter had 20 years of experience in large retail chain enterprises and had held senior positions at Taiwan's 7-Eleven, Walmart, Baoneng Department Store, and other retail companies. The new executives took office and first proposed the digital transformation of Easy Joy stores, upgrading and deploying the new model of "Internet + gas station + convenience store + third party." Internally, 2020 was therefore regarded as the first year of the digital new retail process — not only to continue improving the operation of 27,600 stores, but also to activate the value of Sinopec's existing 111 million online (WeChat) users. Digital service providers began to race to expand their territory, helping Sinopec and Easy Joy expand boundaries from data, traffic, SaaS, and supply chain aspects. Easy Joy continuously conducted new retail attempts at online-offline integration:

  1. Optimize online platform usage, allowing consumers to "one-click refuel" and "one-click order";
  2. Launch the "delivery + in-store consumption" model, providing fresh food and grocery services;
  3. Expand convenience store fresh food categories and initiate recruitment of prepared food merchants;
  4. Gather national specialty products and poverty alleviation products for exhibition and sale;
  5. Launch the "Sister Yi" Luosifen retail product; link member cooperation to bring Walmart Sam's Club into Easy Joy stores... When traditional retail says to consumers: "Come, I have it." New retail says to consumers: "Don't speak, I understand." To do this "understanding" well, both scale effects and capital strength are indispensable. Oil giants have strong capital and the strength to make mistakes. The non-oil business market is growing, and as long as operations continue, scale effects will eventually have monetization value. But for the private gas stations that occupy the other 50% of the domestic refined oil market, they cannot invest the same enthusiasm in the convenience store-type non-oil business that state-owned oil giants are vigorously exploring. And for embracing new retail, the operators of these 57,000 private gas stations do not all see a clear prospect. Relatively speaking, in the transformation of non-oil business, private gas stations are mostly more interested in charging pile projects. Under the demand for carbon neutrality and the popularization of new energy, embracing non-oil retail is the only way out for all gas stations, whether they become chain convenience stores or "charging stations." Perhaps, as long as it is sales that can continuously develop the value of gas station floor area, it is the "new retail" they enthusiastically embrace.

Source: Huashang Taolue (ID: hstl8888) References: [1] "2021 China Convenience Store Development Report" KPMG China / China Chain Store & Franchise Association [2] "2020 Consumer Fuel Survey" National Association of Convenience Stores [3] "With 50,000 Convenience Stores, Is the 'Non-Oil Business' of Oil Companies a Good Business?" Interface News [4] "Sinopec Chairman: Future Refueling Free | What's Going On?" Xin Wan Bao [5] "Easy Joy Recruits President, Sinopec 'Refuels' Non-Oil Business" Beijing Business Today *Images: Internet, Tuchong Creative

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