"There's a Lawson in the county too?" This was Huang Min's first reaction when she saw a Lawson convenience store in her hometown. Her family lives in a county under a third-tier city in Hubei Province. While shopping with friends, she happened to notice the eye-catching blue-and-white store by the roadside. Huang Min first encountered Lawson in 2012 during a trip to Shanghai. It wasn't until 2016 that Lawson entered Wuhan, and now it has expanded down to small counties in Hubei. According to the "2022 China Chain TOP 100" list recently released by the China Chain Store & Franchise Association (CCFA), more than half of convenience store companies saw an increase in store numbers last year, adding over 6,000 stores in total. Among them, Meiyijia and Lawson saw the fastest growth, adding 3,840 and 1,175 stores respectively, ranking 11th and 43rd in total store count. County-level Lawson store (Image source: Time Finance Photo)
In previous years, convenience stores had already begun rapid growth. From 2019 to 2021, the average annual growth rate of convenience store outlets was nearly 10%, with average annual sales growth of about 20%, making it one of the fastest-growing retail formats in terms of sales in China. As stores in first-tier cities become saturated and costs rise, convenience store companies are choosing to expand into lower-tier markets to seize market share. A convenience store franchisee in a fifth-tier city told Time Finance that during the initial opening period, his store's highest daily sales reached 40,000 yuan, far exceeding the industry average of over 5,000 yuan per day. However, some franchisees who paid high costs have found it difficult to recoup their investment due to underperformance, and some have even reached a deadlock with the convenience store headquarters.
"Invested 550,000 Yuan to Open a Lawson in a Fifth-Tier City"
Currently, domestic convenience store brands include national chains such as Sinopec Easy Joy, Kunlun Hao Ke, and Meiyijia; Japanese-funded convenience stores like FamilyMart, 7-Eleven, and Lawson; and regional chains like Bianlifeng, Hebei 36524, and Tianfu. After "enclosing land" in first- and second-tier cities, the convenience store war has spread to lower-tier markets. CCFA data shows that in 2021, Meiyijia's store share in second- and third-tier cities reached 35%, and in fourth- and fifth-tier cities it reached 20%. Meanwhile, Easy Joy and Kunlun Hao Ke followed the layout of Sinopec and PetroChina gas stations to expand into lower-tier markets. After more than 20 years in China, Japanese-funded convenience stores have gradually penetrated various inland markets. Time Finance learned that to accelerate store expansion, Japanese-funded convenience stores typically choose local partners with certain retail experience and resources in the region, developing them as special distributors responsible for store franchising in that area. For example, Lawson cooperates with Zhongbai Group in Hubei and Hunan to launch Zhongbai Lawson, and with Zhongshang Group in Jiangsu to launch Zhongshang Lawson, while 7-Eleven cooperates with Youa Group in Hunan. Through such collaborations, Japanese-funded convenience stores have completed a round of market expansion. By the end of 2022, Lawson, 7-Eleven, and FamilyMart had 5,641, 3,319, and 2,666 stores in mainland China respectively, all ranking in the TOP 10 for store numbers in mainland China. (Image source: Pexels)
In 2020, Meng He franchised a Zhongbai Lawson store in Changsha. After two months of searching for a location, in November of that year, Meng He signed a contract with Zhongbai Lawson, paying 285,000 yuan (including a 70,000 yuan franchise fee, 200,000 yuan deposit, 5,000 yuan training fee, and 10,000 yuan project setup fee), and opened her first store near a school in Changsha the following month. Her store employed five staff with a monthly salary of about 4,200 yuan each. Including store transfer fees, utilities, and other costs, Meng He's first store required an investment of over 600,000 yuan. A few months later, she opened a second Zhongbai Lawson near another school. Meng He told Time Finance that the daily sales of her two stores are now stable at around 6,000 yuan and 9,000 yuan respectively.
Besides popular cities like Changsha, franchisees have enabled convenience stores to rapidly expand into even lower-tier cities. Last year, Chen Peng, who lives in a fifth-tier city in Liaoning Province, opened a Lawson convenience store with a friend in his hometown, which was the third Lawson in his city. Chen Peng told Time Finance that chain brand convenience stores are almost nonexistent in fifth-tier cities, especially 24-hour stores. "Paying the company a 50,000 yuan franchise fee, 100,000 yuan deposit, and 12,000 yuan miscellaneous fees is acceptable. But finding a store location that meets the company's requirements is difficult. They require a good location, high foot traffic, strong surrounding consumer base, and low rent. About 10 location proposals were rejected." After three to four months of investigation, Chen Peng and his friend's first Lawson store finally opened, with a total investment of about 550,000 yuan including decoration, goods, and rent. Chen Peng revealed that his store is about 60 square meters. In the first few months after opening, business was very good, with peak daily sales reaching over 40,000 yuan. After the initial opening boom, daily sales stabilized at around 8,000 yuan. "When business is good, the monthly net profit for a single store can reach 50,000 yuan, and in normal times, it can still achieve over 10,000 yuan."
Convenience Stores Compete for Franchisees, Even Engaging in "Price Wars"
As convenience store companies expand their coverage areas, competition for franchisees has intensified. Time Finance noticed that Lawson's franchising policies vary by region. In the Jiangsu market, which it entered in 2017, the franchise fee and deposit are 50,000 yuan and 150,000 yuan respectively. When it entered the South China market in 2022, the franchise fee and deposit in Shenzhen were only 50,000 yuan and 100,000 yuan. In addition, to encourage franchisees to open more stores, Zhongbai Lawson offers discounts for multiple stores: the second store has a franchise fee of 30,000 yuan and a deposit of 100,000 yuan; the third store has a franchise fee of 15,000 yuan and a deposit of 50,000 yuan; subsequent new stores do not require franchise fees or deposits. Thanks to Zhongbai Lawson's multiple-store discount policy, Meng He has already opened three Zhongbai Lawson stores. Chen Peng also said that there are certain preferential policies for franchising Lawson stores locally. "The more you open, the more discounts you get. Now there are 8 Lawson stores in our city, 5 of which are run by me and my friend."
Like Lawson, Meiyijia is also aggressively expanding. Although Meiyijia is weaker in fresh food and IP collaborations, it attracts franchisees with lower franchise prices. Public data shows that Meiyijia's franchise fee is only 25,000 yuan, with a deposit of 30,000 yuan. Including rent, employee wages, utilities, and other costs, the investment for a store is about 300,000-350,000 yuan, far lower than Japanese-funded convenience stores. According to a Meiyijia expansion manager in a prefecture-level city in Guangdong Province, Meiyijia does not offer discounts for multiple stores, but if franchisees open multiple stores, miscellaneous fees may be appropriately reduced based on the specific location. Additionally, the headquarters can provide loan support with a maximum amount of about 2 million yuan.
In addition to franchising systems, profit-sharing models also differ among convenience stores. A Zhongbai Lawson employee pointed out that according to the franchising system, franchise store revenue goes directly into the company's account. "The company conducts profit sharing on the 25th of each month, giving 65% of the gross profit to the franchisee and keeping 35%." That is, assuming a franchise store has monthly revenue of 150,000 yuan and costs of 100,000 yuan, the company uses the 50,000 yuan after deducting costs for sharing, with 65% going to the franchisee. Meng He revealed that her two stores currently receive about 45,000 yuan and 65,000 yuan per month including tax rebates. Meiyijia, on the other hand, does not participate in the subsequent profit sharing of the store, leaving a larger profit margin for franchisees. Perhaps benefiting from its franchising policy, Meiyijia added nearly 10,000 stores from 2020 to 2022. According to the "2022 China Convenience Store TOP 100" released by CCFA, Meiyijia's total store count exceeded 30,000, making it the brand with the most stores in the Chinese convenience store market. (Image source: Tuchong)
Daily Sales Below 100 Yuan: Some Franchisees Are Losing Money
However, franchising a convenience store is not always a surefire profit. With the first and second stores performing well in daily sales, Meng He quickly opened a third Zhongbai Lawson in Changsha, but it did not meet expected sales targets. She told Time Finance that unlike the first two stores located near schools, the third store innovated in location selection by opening in a community, but daily sales were 2,000-3,000 yuan lower than expected. This made her, who had originally planned to open five stores, more cautious. "I have already invested over 2 million yuan. In the future, I won't open stores as quickly as the first three. I will be more careful and have higher requirements for location selection."
Another franchisee, Sun Jiayue, is even more anxious. In April this year, she franchised 36524, the largest local convenience store brand in Hebei Province, in Shijiazhuang. The chain belongs to Hebei 365 Network Technology Group, which has 1,873 stores, ranking 17th nationwide. Sun Jiayue recalled that at the time, 36524 had a promotion with the Shijiazhuang Metro where shopping at the convenience store allowed free subway rides. Since the subway station had high foot traffic, she decided to franchise. After paying a 18,800 yuan franchise fee and a 130,000 yuan deposit, her franchise store opened inside the subway station. The store's goods and equipment were provided by the company, and daily revenue was handed over to the company, which deducted related fees (equipment fees, handling fees, etc.) and periodically returned funds to her. Initially, the store was profitable as Sun Jiayue expected, with daily sales of about 2,000 yuan and a daily net profit of about 700 yuan. However, just two months after opening, the promotion allowing free subway rides with purchases suddenly ended. She said, "After the promotion ended, daily sales suddenly became very low. On the worst days, daily sales were less than 100 yuan. After deducting labor, rent, and utilities, not only was there no profit, but we were losing money." Currently, Sun Jiayue is negotiating with the company to change the store location. "I don't want to open a store in the subway anymore. I hope to move to ground level, but the other party hasn't given a direct response."
Clearly, as convenience stores accelerate expansion, whether franchisees who bear huge costs can profit is also full of uncertainty. (At the request of interviewees, Huang Min, Meng He, and Chen Peng are pseudonyms.)