On November 14, the author was invited by UNIQLO to attend its 2017 Spring/Summer New Collection Launch in Tokyo and visit its denim fabric factory in Hiroshima. During this brief visit, the author gained a deeper understanding of Japan's convenience store industry. Our first stop was Onomichi City in Hiroshima Prefecture. Compared to China's cities with populations often exceeding one million, this city of just over 100,000 people seemed quite quiet. At night, the streets were sparsely populated, with only occasional speeding cars reminding visitors that this is a city in a developed country. Chen Liping, a professor at Capital University of Economics and Business, once pointed out that Japan's retail industry is showing a trend of polarization: first-tier cities like Tokyo and Osaka have dense customer traffic and developed commerce, while in some second- and third-tier cities, few people go out shopping after dark. From this perspective, his words ring true. At around 10 p.m. local time, on our way from Hiroshima Airport to the hotel, we passed a Lawson convenience store and stopped to shop. It was a store located beside a main road, and compared to the pitch-black roads and streets around it, the lights of this 24-hour convenience store were particularly striking. I tried to imagine a scenario: if I were in an unfamiliar city in China in the middle of the night and wanted something to eat or buy some food, what would I do? Usually, I would take a taxi to a night market in the city center, where I could have some barbecue or snacks, and around the night market there would always be one or two mom-and-pop shops open late. In any city in China, there is always a food street open 24 hours for you. In Japan, this consumption scenario is replaced by a single format: the 24-hour convenience store, which can meet almost any daily need. For Japanese consumers, convenience stores have become a lifestyle, not just a retail format. A survey shows that in Tokyo, if a rental apartment is next to a convenience store, the rent can be 500-1,000 RMB higher. The development of Japanese convenience stores reminds me of the current "convenience store craze" in China. The booming franchise opportunities and the rising convenience store index in major cities have made the industry feel that the spring of the convenience store format has arrived. Some Japanese media even predict that Chinese convenience stores will soon catch up with Japan. But after visiting Japanese convenience stores, my feeling is that although domestic convenience stores are increasingly "like" Japanese ones in terms of store image and product display, the underlying business logic is completely different. I even doubt whether Chinese convenience stores can reach the current "level" of Japanese convenience stores. This is not just an operational issue but also a consumption issue. The Monopolistic Advantage of Japanese Convenience Stores Is a Distant Goal for Chinese Ones Since a small sake shop in Tokyo opened the first 7-Eleven in 1974, the convenience store format has been operating in Japan for over 40 years. To date, the number of convenience stores in Japan has exceeded 56,000. What does 40 years mean? This time span is enough for three generations of consumers to form fixed consumption habits. In other words, Japanese convenience stores have used 40 years to educate consumers, firmly occupy their minds, and integrate into their daily lives. Data shows that in 2014, the domestic market size of Japanese convenience stores exceeded 10 trillion yen, far surpassing the 6 trillion yen of department stores and drugstores, and second only to supermarkets (18 trillion yen). Among them, 7-Eleven's sales were 4 trillion yen, and FamilyMart, with nearly 2 trillion yen in sales, surpassed Lawson for the first time to rank second. The top three convenience store chains accounted for 80% of the market share. It can be seen that Japanese convenience stores, whether in terms of cultivating consumer habits or their own scale and strength, have formed an independent force, and thus created a consumer ecosystem centered on the convenience store system—some scholars call this model a platform-based retailer. "Japanese convenience stores have formed a monopoly position, and with this monopoly, they control upstream manufacturing and even high-end industries such as finance and ticketing. They are actually a huge traffic entry point. For example, not only has 7-Eleven's SEVEN BANK become one of Japan's largest financial institutions, but 7-Eleven itself is also a huge ticketing agency," Tao Ye, general manager of Haolinju Convenience Store, told New Distribution. In contrast, Chinese convenience stores cannot form a climate. Despite rapid development in recent years, their strength is not enough to control upstream and downstream. This is the biggest difference between Chinese and Japanese convenience stores: Japanese convenience stores play an ecosystem, while Chinese ones focus on single-store profitability; Japanese convenience stores make money from value-added services, while Chinese ones rely on product sales. In addition, the uniqueness of consumers determines that even the same convenience store format will have different models. After long-term cultivation and market baptism, Japanese consumers have a clear positioning for different retail formats. For example, for boxed meals and fast food, they go to convenience stores; for drinking and entertainment, they go to izakayas; for cheap, temporary items, they go to 100-yen shops. In contrast, Chinese consumers are more casual and lack awareness of specialized formats, which also makes Chinese and Japanese consumers treat convenience stores very differently. New Distribution believes that the market determines the format, or rather, the consumers determine the enterprises. The birth of any retail format is a projection of consumers' pursuit of life. When Chinese retail enterprises develop the convenience store format, they should pay attention to the market drivers and consumption particularities behind Japanese convenience stores, and avoid blindly following trends. Weak Supply Side Is a Major Shortcoming of Chinese Convenience Stores Comparing Chinese and Japanese convenience stores, one phenomenon emerges: both have 2,000-3,000 SKUs, but Japanese convenience stores give consumers the impression of having much more variety. I asked a convenience store expert about this. The expert said that although Chinese convenience stores have a similar number of SKUs to Japanese ones, they have fewer categories, which makes their product richness lower than that of Japanese convenience stores. What New Distribution observed is roughly similar. Taking beverages as an example, Chinese convenience stores operate carbonated drinks, dairy products, tea drinks, alcoholic beverages, juices, and functional drinks, mostly concentrated in a few well-known brands. In contrast, Japanese convenience stores have dozens of types of cold drinks alone. In comparison, Chinese convenience stores have larger display areas for individual items but fewer categories; Japanese convenience stores are the opposite, and the same applies to snacks. I believe that the difference in product richness between Chinese and Japanese convenience stores is fundamentally due to a weak supply side—Chinese convenience stores lack high-quality, distinctive products. Japan's consumer goods manufacturing industry is developed, with a large number of high-quality products available for convenience stores. For example, 7-Eleven even cooperates with Muji to introduce its products into convenience stores. The shortage on the supply side in China is also due to insufficient attention from convenience store operators. When imitating Japanese convenience stores, we often focus on superficial aspects, such as store image, product display, and daily operations, but often lack in-depth research on the supply chain behind them. The definition of convenience stores also reveals the different emphasis on product supply. Yoshiaki Miyake, president of Lawson China, once corrected a concept: the professional term for convenience stores is "small trade area manufacturing retail." Behind this concept is that Lawson has 2,200 suppliers and partners providing a rich assortment of products. In contrast, domestic convenience stores have not given sufficient attention to the supply side, or rather, they lack the ability to integrate the supply chain. The Development of the Internet Adds Variables to the Chinese Convenience Store Model So, will Chinese convenience stores become part of consumers' lives like in Japan? If this question were asked several years ago, the answer would be yes. But now it is not so certain, because there is a huge variable: the Internet. "A big reason why Japanese convenience stores have become part of consumers' daily lives is that they integrate many services, such as utility bill payments, printing, ticketing, and ATMs. But the problem Chinese convenience stores face now is that these services have been taken away by the Internet," an analyst pointed out. Not long ago, a post circulated online: the reason e-commerce has not developed in Japan is mainly because physical stores, represented by convenience stores, are too strong. Comparing the development of the Internet and physical stores in China and Japan, this statement makes sense. In Japan, because convenience stores are very "convenient," consumers rarely use the Internet for such services. In China, the opposite is true—the Internet is "making consumers lazy," accustomed to waiting for delivery couriers to bring goods to their doors. Currently in China, convenience stores are seen as the best offline entry point for O2O. Many online giants have also cooperated with convenience stores to lay out O2O. Chinese convenience store practitioners are also trying models with "Chinese characteristics," which makes Chinese convenience stores increasingly diverge from Japanese ones in future development directions.