Dreams are always necessary, even if they sound distant. Wei Zhe, founder and chairman of Harvest Capital, came to the 2019 China Convenience Store Conference and gave Chinese convenience stores a "dream" in his speech—can future Chinese convenience stores achieve monthly sales of 2 million yuan per store?
Mind you, this is the annual sales level for many convenience stores now. A simple calculation: 2 million in monthly sales means an average daily sales of 66,000 yuan. This is almost equal to the highest single-store sales level publicly disclosed by Beijing 7-11's Dongzhimen flagship store. In other words, will yesterday's peak become tomorrow's norm?
Wei Zhe believes that achieving this would be true new retail. He also thinks that "the landing of new convenience will definitely be the earliest sub-sector to blossom and bear fruit in new retail." If you listen carefully to Wei Zhe's speech, you'll find that monthly sales of 2 million is not impossible.
Wei Zhe set the tone, emphasizing that the biggest advantage of convenience stores lies in serving the new generation of young consumers; and he turned against the internet industry he knows well, pointing out that the internet has repeatedly attacked the convenience store industry but has always returned in defeat. However, he also noted that being satisfied with the status quo will not bring a future to the convenience store industry; it should have greater development, such as monthly sales of 2 million yuan per store.
Besides serving as executive vice president of Alibaba Group, Wei Zhe was also president of B&Q China, making him a retail veteran. He is well aware that the convenience store industry is at a delicate turning point: seemingly growing rapidly, but facing many constraints; seemingly encountering setbacks in first-tier markets, but finding new opportunities in second-tier markets.
According to the "2018 China Chain Top 100 List" and the "2019 China Convenience Store Development Report" released by the China Chain Store & Franchise Association, on one hand, in 2018, China's convenience store industry maintained stable and rapid growth, with an industry growth rate of 19% (based on the 2018 China Convenience Store TOP100 data), a market size exceeding 200 billion yuan, and average daily sales per store exceeding 5,300 yuan, up about 7% year-on-year from 2017. Compared with supermarkets and department stores, the growth rate of the convenience store industry is very significant.
But on the other hand, compared with the 23% industry growth rate in 2017, last year's growth actually slowed down. Additionally, about 10% of convenience stores have cooperation with capital, and the market is becoming more rational. In terms of store growth, the number of convenience store outlets in 2018 was 122,000, a year-on-year increase of 14%, but this is also under the premise that Meiyijia and Suning Xiaodian aggressively opened thousands of stores. If these two are excluded, the overall growth rate might be somewhat discounted. At the same time, the challenges facing convenience stores are unprecedented: rising labor and rent costs, and the rise of delivery and home-service models, all of which will affect the industry's development.
Under such a complex situation, Wei Zhe's proposition is indeed thought-provoking. Huxiu believes that this proposition actually contains several key questions, and the key to these questions may be the answer to the ideal new retail. As for whether the specific number of 2 million can ultimately be reached, that may not be the most important thing.
Young People: More Homebound or Lazier?
Since the boom of e-commerce, the term "homebound generation" has often appeared in public discourse. Because urbanites are increasingly homebound, delivery-based e-commerce has become more developed. After the new retail concept emerged, even supermarkets began offering home services. Meituan and Ele.me have become beneficiaries of the "home economy." So, do people still need convenience stores at this point?
Think about it: "homebound" is a state, but what lies behind it? Laziness—not wanting to move or go downstairs—is certainly one reason, and laziness is a psychological state.
In Wei Zhe's view, the essence is young people's "laziness."
Wei Zhe first affirmed that convenience stores mainly serve young people; serving young people well is the key to capturing the future. This is true for Tencent QQ and also for Facebook abroad. Future convenience stores will definitely serve the post-95 and post-00 generations. This is basically an industry consensus.
Ren Guanglin, CEO of Inner Mongolia Anda Convenience Store, gave an example: he once opened a fresh food community store. Sales were good on opening day, but he soon decided to close it because the customers were all middle-aged women. Describing their characteristics, Ren said vividly: "They come when there's a discount. When there's no discount, they'll educate their children not to come to your store either." Young people, especially college students and young people who stay in cities, are the main customer base. Convenience stores must stick to this.
So why do young people need convenience stores? Wei Zhe first gave young people several labels: Xiaokang 1.0—they have never experienced poverty, so they don't care about discounts; Only-child 2.0—post-80s only children have no siblings, and post-95s only children don't even have uncles or aunts. This family-centered model leads them to have "family convenience" from childhood, which bluntly means "clothes come to hand, food comes to mouth."
This lifestyle carries into their adult work and life. At this point, the convenience they need has many extended meanings: simple, easy, foolproof operation (which is why many retailers are keen to launch semi-finished dishes), and so on. They need a simple life solution.
So why can't all "homebound" solutions completely solve this problem? Why can't the internet kill convenience stores? Wei Zhe proposed a viewpoint: "No matter how lazy consumers are, the last 500 meters still require consumers to take steps themselves; having suppliers take steps does not align with business principles."
Wei Zhe gave a relatively extreme example: the campus O2O from the first wave of O2O. This model had the most diligent students on campus serving the laziest students, delivering instant noodles to their dorm beds, but it fizzled out after more than a year.
Due to time constraints, Wei Zhe did not elaborate further. However, Huxiu believes that Wei Zhe's emphasis on "lazy people" not ultimately being homebound to death is more of a psychological analysis. First, psychology finds that if people stay in one state or play one role for a long time, they will develop rebellious psychology over time. Second, people's social nature determines their need for social interaction. This social interaction is not necessarily about making friends, but the instinctive need to connect with the outside world and interact.
Liu Zhongjian, founder of Linji Convenience Store, said he believes convenience stores not only sell convenience but also a "third space." So even as a startup brand, Linji provides rest areas in stores, with 12 rest seats in each store. "Young people today are increasingly inseparable from their phones; we need to give them a free urban space to charge their phones and play. Many of our female customers are fresh college graduates who are afraid to work night shifts alone. After coming here, some directly read, study, or date here."
Additionally, from the perspectives of convenience store business models and social culture, there are still two reasons why young people can only be lazy but not homebound. First, the essence of convenience stores is not only convenience but also freshness. This is why convenience stores constantly develop new products, stimulate new occasional needs, and emphasize turnover rates in business models. Second, young people raised in normal families who enter the workforce after graduation mostly face a faster pace of life and greater competitive pressure than the previous generation. The urgency of time makes them more likely to rely on convenience stores.
So, Wei Zhe believes that as long as young people continue to be lazy, that is an opportunity for convenience stores.
Is Personalization Actually a Pitfall?
Compared with the supermarket format, which is mainly standardized with personalization as a supplement, convenience stores are a format that pursues differentiation more. The theme of this convenience store conference was "Taking the Road of Convenience Stores with Chinese Characteristics." What are Chinese characteristics? Pei Liang, president of the China Chain Store & Franchise Association, pointed out that Chinese characteristics, when applied to different regions, are actually local characteristics. He explained, "Convenience stores in various places also have many local characteristics, such as Wuhan Today's hot dry noodles and Hebei 365's pancakes, which are often cited cases. Our enterprises have been very successful in creating local characteristics. What is the core factor? Is it because of the characteristics? I think the answer should be no. The key point is not the characteristics, but that they taste good."
What does "taste good" mean? Look at a few examples:
Liu Zhongjian, founder of Linji Convenience Store, is from Zhejiang, but after starting a business in Anhui, he found that local food is heavy on oil and salt, which makes it tasty, so Linji also developed localized products;
Song Yingchun, founder and CEO of Wuhan Today Convenience Store, pointed out that locals think Today's hot dry noodles are delicious, but outsiders may find them too spicy;
Liu Yue, a former executive at 7-11 China, joined Xi'an Every Day as vice president and came to Zhengzhou to develop the market. Liu Yue is very familiar with Japanese-style fresh food rice ball development, but in Zhengzhou, he still vigorously developed noodle-based fast food because locals think "noodles are delicious."
Every Day Vice President and Zhengzhou General Manager Liu Yue shared his experience.
In the end, it comes down to the old clichés of "when in Rome, do as the Romans do" and "adapt to local conditions." But truly understanding and implementing this is another matter.
As Liu Yue said, the real point is to innovate based on local needs. Now Beijing consumers are used to buying lunch at the 7-11 fast food island at noon. Few people know that when 7-11 Beijing first launched the fast food island, there was no precedent in Taiwan, Japan, or anywhere else in the world. The fast food island was a special in-store stir-fry model created by 7-11 for Beijing consumers. Although they are a foreign enterprise, they achieved localized innovation.
Wei Zhe also pointed out that the internet cannot defeat convenience stores because among the four words "more, faster, better, cheaper," e-commerce occupies "more" and "cheaper," but convenience stores still have "faster" and "better." The challenge is that in the product structure of convenience stores, apart from fresh food, there is not much room for differentiation. So in terms of "better," it requires not only good products but also extending to other chains, improving service and experience. "So our 'better' must be better in convenience, or more simply, the on-site experience must be good." Wei Zhe keenly pointed out that even in the matter of "hot food," the internet is helpless because heating is a service that requires manual labor.
For this reason, more and more convenience stores are willing to sacrifice a row of shelves to leave space for seating. So FamilyMart, after helping customers heat food, gives you a cardboard holder to prevent burns, similar to Starbucks' cup sleeve.
Deeper differentiation lies in the fact that ultimately, differentiation will shift from front-end differentiation to systematic differentiation. This systematization, in the 7-11 system, is summarized by Huang Qianli, former COO of 7-11 in Taiwan, as "three goods": good people doing good things; good store locations (correct site selection); and good products (innovation and differentiation). In China, the leading enterprise Meiyijia claims to have no directly operated stores, carving out a franchise path with Chinese characteristics. Two years ago, it also crossed the threshold of 10,000 stores, becoming a representative of the local Chinese model.
Meiyijia Convenience Store Chairman and General Manager Zhang Guoheng and his team.
When an industry can form such a systematic system and know-how, it is difficult for the internet to break through quickly. Because the variability of the convenience store format stimulates practitioners' immense creativity, and people's enthusiasm and wisdom are the driving force for industry progress.
However, since convenience stores are both fast and good, why are many convenience stores still not profitable now?
The Business of People
A few years ago, Wei Yingxing, chairman of FamilyMart, invited Wei Zhe to join and run FamilyMart together. Wei Zhe said that if it were just about increasing a store's monthly sales from 200,000 to 300,000 yuan, he wouldn't be needed; just doing fine management a bit better would suffice. Wei Yingxing asked Wei Zhe what he wanted to do. Wei Zhe replied: achieve monthly sales of 2 million yuan. "Wei Yingxing almost fell off his chair at that moment," Wei Zhe said.
Wei Yingxing was startled. Under the traditional product structure, cost structure, and organizational framework, the fine management of Japanese-style convenience stores has already maximized potential. For example, at the product level, fresh food has become a feature of foreign convenience stores because of its high turnover and high repurchase rates, which also bring high foot traffic. Ultimately, it's about achieving zero inventory for certain product categories as much as possible while closely meeting local consumer needs. The operational level of Japanese-style convenience stores in the past has approached its upper limit.
Wei Zhe proposed another possibility: "Let me do a simple arithmetic problem. If you have 2,000 members, as long as each member contributes 1,000 yuan per month to your store, that's 2 million. Or if you have 1,000 members, each contributing 2,000 yuan, that's also 2 million. We should aim for this goal. First, do you have 1,000 to 2,000 members? Second, how do you meet their spending power of 1,000 to 2,000 yuan? In urban life, spending one or two thousand yuan a month is normal. This is called the business of people."
In fact, this approach has a jargon in the industry: single-customer operation. But single-customer operation is far more difficult than single-product operation, at least in the discourse of convenience stores. Because it means building your own membership system.
Actually, Mr. Wei Yingxing doesn't need to be startled; FamilyMart is already recognized as the company with the best membership system in the industry. So, according to Wei Zhe's thinking, FamilyMart is theoretically closer to the goal of 2 million in monthly sales. And as everyone knows, 7-11 does not focus on membership operations. A book could be written on why 7-11 doesn't do memberships. But at least in current China, domestic convenience stores generally lack the ability to identify customers and deeply bind them.
According to the "2019 China Convenience Store Development Report," the domestic convenience stores with better membership operations are FamilyMart and the local leader Meiyijia. FamilyMart can precisely target post-90s customers through three major measures: points, promotional events, and online e-commerce. Meiyijia provided a case where, within two weeks, they used 20% discount coupons to wake up and activate 150,000 dormant members, generating 1.18 million yuan in sales during the campaign.
But for most companies, membership operations are still insufficient. Many have not even started. Sun Guochen, global strategy director at KPMG, pointed out to Huxiu that the maturity of a membership system can basically be said to be a sign of digital maturity; the two are positively correlated indicators. "Member acquisition is actually linked to digital channels. The wider your digital channel deployment, the more accurate and higher quality data you obtain, and when applied to the membership system, you can do better segmentation and subdivision."
In this way, it actually returns to the logic of new retail originally proposed by Alibaba: the digitalization of people, goods, and places. However, this should ideally be done in three stages. For convenience stores, the digitalization of people is a long and arduous task.
At least, Wei Zhe, from the perspective of an investor and former internet executive, has injected a shot in the arm for the convenience store industry at a crossroads. A participant who provides supporting systems for convenience stores said that what he most focused on at this conference was, after the fluctuations of 2018, everyone's confidence index for the future. "They say the economic situation is bad; do we still dare to open stores, do we still dare to develop?"
From the data in the "2019 China Convenience Store Development Report," external expansion through store openings is not a problem. KPMG believes that there is still great potential for growth in the franchise system, with franchise stores currently accounting for only 46%. Wei Zhe's proposition points to internal growth.
Sun Guochen believes that Wei Zhe's real purpose is to remind everyone that online and offline must develop simultaneously to achieve a significant increase in daily sales; relying solely on offline stores is very difficult. According to Wei Zhe, "we need to build a virtual big store." But Sun Guochen also raised a question: even if store sales reach an average of over 60,000 yuan per day, what should the net profit be?
For Chinese convenience stores, it's better to keep running hard first! Huxiu believes that if, when looking back in 2019, the industry can maintain a growth rate close to 20%, then the future is promising. Conversely, the industry may need more rational polishing and disruptive innovation.
Source: Gaojie Gaocan (ID: gjgc168)
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