At the end of 2015, the domestic retail industry collectively favored the development of small formats, especially with China Resources launching Tesco Express convenience stores, which made industry insiders particularly optimistic about the future of convenience stores. Subsequently, Nanchang in Jiangxi and Fuzhou in Fujian even provided high-level government support for convenience store development.
However, shortly after the Spring Festival in 2016, two news items seemed to disrupt people's attention. First, China Resources CEO Hong Jie stepped down; during his tenure, he had led the acquisition of Tesco by China Resources and the formulation and implementation of the small-format adjustment strategy. Would his transfer also cause the just-started convenience store business to die halfway? Second, the People's Daily published an article stating that Taiwan's convenience stores were facing a 'midlife crisis,' providing a reference for the mainland's convenience store industry, seemingly warning retail professionals that convenience stores are not the future of retail entities.
So, what is the actual state of the convenience store industry in mainland China? Are we currently facing a similar situation to Taiwan? These questions must be clarified to see the way forward.
Therefore, today we will provide a comprehensive analysis.
Lack of Leading Brands and Store Density, Future Market Remains Vast
All commercial companies in the world envy China and aspire to enter it, mainly because it is a market with enormous area and population. If such a market can be developed, the rewards would be unexpected. However, the overall development level of convenience stores in mainland China is not ideal, and it is still at a very preliminary stage. Leading brands such as 7-Eleven, Lawson, and FamilyMart have not opened many stores in the country.
Image source: 7-Eleven Chengdu official website.
As of the end of 2015, 7-Eleven had a total of 7,135 stores in China, with Taiwan alone having 5,047, while the vast mainland market had only 2,088. This shows that the store density nationwide is extremely limited.
Let's look at Lawson's store openings.
Image data source: Lawson official website.
Lawson's stores in China are concentrated only in Beijing, Dalian, Chongqing, and Shanghai. The number of stores is 461 in Shanghai, 107 in Chongqing, 50 in Dalian, and 34 in Beijing, totaling 652, which is only 31.2% of 7-Eleven's mainland stores.
What about FamilyMart?
Image source: FamilyMart official website.
Based on the statistics of the three leading brands, it is clear that their market share in mainland China is not high. This is both good and bad for the mainland convenience store industry. The good side is that competition is relatively less intense, allowing more local convenience stores to share the market pie. The bad side is that the lack of higher penetration reduces the demonstration effect; the mainland retail industry, despite its objective growth in numbers, lacks experience and urgently needs guidance from leading brands. Facing such a vast market, leading convenience store brands need to continue to cultivate it!
Local Brands Have Low Operational Levels, Market Competition Insufficient
If leading brands find it difficult to quickly capture the mainland market due to policy and other factors, then local convenience store brands should have ample development opportunities. However, the reality is not so. Local convenience stores first lack brand recognition; many are only local brands in a very small area, and their development model is often driven by hypermarkets, such as Shizu and Haode in Jiangsu and Zhejiang. Their business concepts are also outdated, resembling small grocery stores, making them weak in competition against hypermarkets and community stores. This is mainly due to the limitations of the development model, as Jing An elaborated in the article 'What Problems Exist in the Hypermarket-Driven Convenience Store Model?'
The only influential local brand, C-Store, is actually a Taiwanese enterprise and still relies on hypermarkets like Auchan and RT-Mart for its development model. Unfortunately, such brands are also very limited in market distribution, only in coastal areas.
Image source: C-Store official website.
From this, we can see that the convenience store market in China is actually not a highly competitive market, and it has been neglected for a long time. Many cities do not even have convenience stores. Even brands like Haode and Shizu, which claim to be local convenience store brands, are seen by consumers as just small grocery stores, with the only differences being 24-hour operation and relatively bright lighting.
It's Time to Change Concepts, Not a So-Called Crisis
In the People's Daily article, the reason for mentioning Taiwan's convenience store crisis is that Taiwan's convenience store development level is already quite high, with impressive density. Taiwan has the highest convenience store density in the world, with over 10,000 stores, averaging one for every 2,000 people. Under such high density, there are inevitably many brands and intense competition, which drives improvement in concepts and levels, and consumers have developed shopping habits for convenience stores. However, the situation in mainland China is the opposite. As mentioned earlier, the comparison of store numbers between leading and local brands shows that the vast majority of consumers in mainland China have not yet experienced convenience stores. In other words, local convenience stores have not truly embodied the essence of 'convenience,' which is the direction the industry needs to strive for.
What is convenience? First, time convenience: you can shop at any time, 24 hours a day. Second, location convenience: schools, hospitals, subways, office buildings, and even scenic spots with dense crowds. Third, product convenience: bento boxes, coffee, fresh-cut fruit, batteries, SIM cards, and daily necessities like oil, salt, soy sauce, and vinegar. Fourth, service convenience: copying, mailing, bill payment, train ticket purchase, and online shopping pickup can all be done at convenience stores, covering almost all needs of an individual and a family. If we compare, we find that local convenience stores only achieve 50% of this.
Therefore, there is no so-called consumer fatigue with convenience store shopping in mainland China; instead, there are more consumer groups to cultivate. Taiwan's 'midlife crisis' has no warning significance for mainland China.
Under Collective Transformation, Convenience Stores May Open a New Chapter
The reason the small-format trend was ignited in the past year is both due to the weakness of physical retail itself and the push from e-commerce seeking new blueprints. The reasons behind the physical retail downturn have been thoroughly analyzed by industry insiders, and Jing An will not elaborate further. But why is it said that changes in e-commerce have also stimulated the convenience store boom?
First, the pain point that e-commerce cannot overcome—the last-mile logistics solution. Due to the high cost of self-built logistics and the uncontrollability of third-party logistics, many e-commerce companies hope that convenience stores can serve as pickup points to solve this problem, such as Amazon's pilot in Hangzhou. Although the effect was not significant, at least e-commerce sees the multi-point advantage of convenience stores as a channel worth exploring.
Second, online competition is intense, and e-commerce expects new offline support to boost growth. In 2015, the hottest concept was O2O, which involved two-way traffic and transactions between online and offline, relying on the store count advantage of convenience stores to meet consumers' needs for pickup and exchange. Unfortunately, O2O seemed to go off track and was also constrained by capital, leading to the 'death' of many companies last year. But e-commerce did not stop there; they later launched an upgraded version of O2O, which is the current hottest concept—omnichannel.
So, what is the probability of success for physical retail to invest heavily in convenience stores to seek a breakthrough? Jing An has always been conservative and believes the prospects are not great. However, for the entire convenience store format, the combined force of physical retail and e-commerce has created opportunities!
First, consumers' awareness of convenience has improved. As physical retail moves from hypermarkets and shopping malls to community stores, consumers gradually become accustomed to selecting urgently needed items in relatively smaller spaces, cultivating rational consumption and placing more value on convenience.
Second, the service level of upstream and downstream has improved. Recent frequent cooperation between e-commerce and physical retail, especially the cooperation between Yonghui and Suning, has a certain demonstration effect on the industry. The cooperation point is fresh produce. Fresh produce e-commerce is the most promising project in the industry. Yonghui has strong fresh produce procurement capabilities, and Suning has more consumer traffic; the combination is a good match. However, to truly realize this plan, the specific implementation details are key to success, such as fresh produce delivery, pre-cut vegetable processing, and origin cultivation. The intermediate channels can be applied to other products, thereby forming new service awareness and methods in the industry, which promotes multi-point, high-frequency delivery and new product development for convenience stores.
Third, industry standards have improved. In the past, retail development focused on the terminal, such as store size, product display, and promotional activities. As consumers become tired of these formalities, both physical retail and e-commerce have refocused on the supply side, with product content becoming a new breakthrough point. This is a return to the essence of business. The fundamental reason O2O is prone to failure is that it does not solve the product problem. Take Ele.me's food delivery as an example; its most criticized aspect is the non-standardization of food supply points. When reading the book 'The Unrelated Society,' I came across a media description of Japan's food delivery production scene: 'There are strict hygiene regulations here... each finger and fingernail is disinfected twice before being allowed into the rice production line... The rice production line is conveyor-belt type...' This shows the gap between China and Japan.
When the entire industry truly values industry construction, the convenience store, a small format that needs to continuously and quickly update new products, will definitely benefit.
In summary, convenience stores are absolutely a format full of hope and imagination in the retail industry, especially in the vast market environment of mainland China, where there is still ample space for development, and even virgin territory. However, there are also challenges, including limitations in the development level of all aspects of the industry, choices of development models, and tests of business concepts. Only by firmly believing in the future and adhering to principles can one become the largest market player!
(Reprinted from Lianshang.com)
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