Source: Yun Yangzi O2O New Retail (ID: yyzxlsnc) In the past month, I shared insights on "The Great Transformation of Convenience Stores" at Huatai Securities and China Merchants Securities for fund analysts in the secondary market. From an investor's perspective, hundreds of millions of yuan have flowed into the convenience store track in the past year, indicating capital's optimism. However, new retail supermarkets represented by Hema's Hou Yi are offering 30-minute home delivery services, posing a cross-industry threat to convenience stores. In the new retail era, convenience stores are brewing a major transformation, with both opportunities and crises. 1. Convenience Store Sales Are 10 Times Lower Than Supermarkets Based on reports from the China Chain Store & Franchise Association, Yun Yangzi selected some representative convenience stores, as shown in the table below:

  1. In terms of establishment time, convenience stores and supermarket hypermarkets are products of the same era, beginning development in the late 1990s. The first foreign convenience store, Lawson, entered Shanghai in 1996.
  2. The convenience store with the highest sales (excluding Yijie and Kunlun) is Dongguan Meiyijia, just over 10 billion yuan; the hypermarket with the highest sales is RT-Mart, approaching 100 billion yuan, nearly 10 times larger.
  3. Compared to hypermarkets, the biggest advantage of convenience stores is proximity, but two obvious disadvantages are: 10 times fewer SKUs and prices about 10% higher than hypermarkets. These are the main reasons for the 10-fold sales difference between the two formats. A convenience store executive friend showed me the following chart: the left side represents current China, the right side current Japan. It suggests that convenience store sales share will rise from 8% to 54%, surpassing supermarkets in the future. I have reservations about this conclusion. How can convenience stores surpass supermarkets just by being closer? Instead, new-type hypermarkets represented by Hema are starting to attack convenience stores from a higher dimension. In June 2017, I organized a discussion on this topic. Hou Yi expressed a clear view: "It's more than enough to defeat community convenience stores—more products, cheaper prices, better service, and faster delivery." I (Yun Yangzi) agree with Hou Yi. My view at the time: "Hema convenience, 30-minute home delivery, better, more, and more convenient... It can capture 10%-20% of sales from young people's minds. If community convenience stores don't change, they will definitely lose. Honestly, the lethality of the Hema model is very strong, more powerful than media reports suggest. I've told investment institutions that it's shocking. How should community convenience stores respond? I haven't seen good cases yet. However, the Hema model is hard to copy, so there's still time to respond." Convenience stores are currently facing a crisis, and it's an industry-wide crisis. 2. Does Capital Really Favor Convenience Stores? In the past year, venture capital has begun to enter the convenience store track on a large scale. In 2017, it mainly supported unmanned shelves, not traditional convenience stores. Investors started "crazy" investing, with angel and Series A rounds bringing over 2 billion yuan into the market within six months. In the eyes of some disruptors, unmanned shelves are a good business: low operating costs, no rent, and unmanned retail terminals. They can solve two major problems of traditional convenience stores: high rent and high labor costs. So, in some investors' eyes, unmanned shelves are new retail and can overtake traditional convenience stores on a curve. By 2018, the unmanned shelf industry fell into a downturn.
  4. In January 2018, Bing便利 was the first to make adjustments, a strategic shift. The model was upgraded to a "convenience-honeycomb" model, slowing expansion in third- and fourth-tier cities.
  5. In March 2018, internal employees of Bianlifeng revealed that except for the existing 8 pilot cities for smart cabinets and 3 planned cities, all 38 cities with simple shelves would be withdrawn.
  6. In April 2018, Guoxiaomei announced a strategic transformation, abandoning the unmanned shelf track and shifting to social e-commerce. In 2017, there were few investments in traditional convenience stores, but two public cases were representative. Bianlifeng: On February 9, 2017, former Qunar CEO Zhuang Chenchao announced a $300 million investment to establish Bianlifeng convenience stores, incorporating the Linjia convenience team led by Wang Zi. Fresh Life: On October 29, 2017, Fresh Life announced that a joint venture with Greentown Property and Shanghai Yiguo would sign a transaction agreement with Morgan Stanley to acquire Haogelin for $84 million. These signals clearly indicate: outsiders are crossing over to integrate convenience stores. In 2018, venture capital entered traditional convenience stores at an accelerated pace.

Xi'an Every Day (March 2018): Announced a 200 million yuan Series A investment, led by Chunxiao Capital. By the end of 2017, it had over 1,000 stores and annual sales exceeding 1 billion yuan.

Fujian Jianfu Convenience Store (April 2018): Raised 240 million yuan, with Sequoia Capital as investor, valued at 1.2 billion yuan.

Beijing 131 Convenience Store (April 2018): Raised 40 million yuan in angel round, with Chunxiao Capital as investor.

Wuhan Today (June 1, 2018): Announced completion of a 300 million yuan Series B+ round, valued at over 3 billion yuan, with General Atlantic as investor. Six months earlier, on November 20, 2017, Today had completed a 200 million yuan Series B round, led by China Equity Group, with Sequoia Capital following, valued at nearly 2 billion yuan.

Yundou Convenience Store (June 2, 2018): Raised 100 million yuan, led by Xinnanfang, with Hongdao Capital following. From the second half of 2017 to the first half of 2018, billions of yuan in financing occurred. A simple conclusion: Convenience stores are currently an opportunity! If we analyze the capital investment path more deeply, convenience stores are not an opportunity for everyone.

  1. Before 2017, convenience stores rarely received venture capital. Why? Because the industry is hard to make money, and the return on investment cycle is too long. For example, the three major Japanese convenience store chains have been in China for at least a decade, but only FamilyMart has started to profit. Lawson is expected to be profitable overall in 2019, and 7-Eleven China's profitability timeline is unknown.
  2. In 2017, venture capital invested billions in unmanned shelves and outsiders integrated traditional convenience stores (Linjia and Haogelin), but rarely invested in traditional convenience stores. What does this indicate? Perhaps capital sensed that convenience stores were brewing a major transformation but hoped outsiders would break the deadlock.
  3. In 2018, venture capital truly entered traditional convenience stores, but the amount was not large—around 1 billion yuan—and valuations were not high (except for Wuhan Today). What does this indicate? Traditional convenience stores have value, perhaps more as targets for integration and acquisition. So, traditional convenience store owners shouldn't be too happy too soon; the convenience store war has just begun. 3. The Competitive Landscape of Convenience Stores Faces Cross-Industry Disruption The convenience store war has already started, with new forces disrupting convenience stores from other industries. Community Scenarios:
  4. The most formidable are the fresh produce players, which are attacking from a higher dimension. Community fresh supermarkets like Yonghui Life and Yipin Fresh have more SKUs, cheaper prices than convenience stores, and are close to residential areas. Yipin Fresh operates 24 hours and offers home delivery. How can community convenience stores survive?
  5. Supermarket players offering 30-minute home delivery can take away 10% of convenience store sales. Hema, a representative new retail supermarket, has already achieved 24-hour delivery for emergency services, promising "delivery within 30 minutes." In the future, all new retail supermarkets will offer 30-minute convenient home delivery.
  6. With internet giants' support, mom-and-pop stores are resilient. Alibaba's Retail Link, JD's New Path, Tencent-invested Hui Xiadan, and Meituan-invested Zhangshang Kuaixiao—these FMCG B2B platforms ultimately aim to empower mom-and-pop stores to improve their competitiveness. Can community convenience stores survive with a 10% price premium against these competitors? Office Scenarios: The disruptors in office scenarios are the unmanned shelf players. Almost every convenience store practitioner thinks unmanned shelves are nonsense, and indeed many are, but there are clear-headed players in this faction, such as Rong Guang of Xiaoe Weidian. Xiaoe Weidian, without supply chain advantages or capital comparable to internet giants, managed to survive the first half. In June, it had 1,800 locations in Beijing, with personnel costs around 1 million yuan per month, a loss rate of about 7%, logistics accounting for 7%, marketing 5%, and Beijing's monthly revenue around 7 million yuan. Without marketing, the Beijing market could break even (excluding headquarters costs). Xiaoe Weidian's survival in the first half must be due to doing something right. This case is worth studying. Unmanned shelves are entering the second half, truly engaging in new retail practices. I mentioned several directions in [Yun Yangzi New Retail Internal Reference]:
  7. Physical terminals: gradually shifting from unmanned shelves to smart shelves (loss prevention + full digital operation).
  8. Shopping behavior: the first step of shopping shifts from unmanned shelves (offline) to mobile apps (online) to view products? (Very important)
  9. Sales share: 100% from unmanned shelves; shifting to 80% from online and 20% from offline retail terminals. MissFresh's Bianli Gou should not be underestimated; it's a major force seizing the office afternoon tea scenario. Ele.me NOW, if it pushes hard, could seize the office meal scenarios and also become a major force. 4. Industry Issues Facing Convenience Stores: The real competitors of traditional convenience stores are not from within the industry but from cross-industry players. These cross-industry competitors will bring different perspectives to traditional convenience stores. Everyone should think about three major industry issues:
  10. Do convenience stores have to be 10% more expensive than supermarkets? (This is important; it's a question I've been deeply pondering.)
  11. Can high store rents not be solved? (In the new retail era, stores in slightly worse locations can also survive.)
  12. Can new product sales be solved? (If a retail channel cannot incubate white-label or new product sales, its channel value will always be limited.) In recent months, I visited some convenience store executives and specifically discussed the topic of capital favor. Everyone generally believes the spring of convenience stores has arrived. But the most impressive was Tao Ye, general manager of Beijing Haogelin, a top expert in the industry. He rationally stated that convenience stores should not be overly optimistic; the industry's major problems have not yet been truly broken through, and everyone is still trying to solve them. Convenience stores are at a point where they need to be redefined and restructured. Only by solving these major industry problems can convenience stores have a real opportunity. Star Mark: New Distribution Don't miss any message! -END-