- Why did 7-11 choose Sanquan as a partner to enter Henan?
- What impact will 7-11's entry have on Henan's retail landscape?
- Can Sanquan, which started in frozen food, really do well in retail chain operations after taking up the 7-11 banner?
On December 18, Sanquan Food's wholly-owned subsidiary Henan Sanyi Convenience Store Chain Co., Ltd. (hereinafter referred to as "Sanyi Convenience") signed a cooperation agreement with Seven-Eleven (China) Investment Co., Ltd. (referred to as "SEC"), officially obtaining the exclusive franchise rights for 7-11 convenience stores in Henan Province. With this, Henan finally has the presence of a foreign convenience store brand, and it also means that Sanquan has found a new outlet for its fresh food business segment.
But can Sanquan, the frozen food giant, really do well in convenience store retail?
- 01 - Sanquan "Joins Hands" with 7-11
Sanquan Food stated that its development of 7-Eleven convenience store business in Henan Province is based on the company's long-term optimism about the convenience store format and Zhengzhou's status as a national central city. Through cooperation with SEC, the company can deeply engage in the rapidly growing convenience store channel and understand customer characteristics, while accelerating the development of a nationwide fresh food supply chain, further expanding market scale, which is beneficial to the company's long-term development and significant for achieving its strategic layout. The first 7-11 convenience store in Henan is expected to open in the first half of 2020, and franchise plans will be gradually rolled out in the future.
Regarding future operations, Sanquan Food also revealed that, given that the convenience store business is limited to the Henan region and under the specific guidance of SEC, the company will steadily develop the convenience store business with a principle of prioritizing store quality. This investment will not have a material adverse impact on the company's future financial condition and operating results; at the same time, during the business operation, there may be uncertainties and risks such as contract performance capability, market competition, operation management, and investment returns.
Currently, 7-11 convenience stores are distributed across 17 countries and regions worldwide, with over 68,000 chain stores, making it the convenience store chain with the largest number of stores globally. The biggest feature of Japanese convenience stores like 7-11 and Lawson is their unique fresh food products, which are also a sharp weapon for differentiated competition and an important source of profit.
According to the "2018 Convenience Store Development Research Report" released by the China Chain Store & Franchise Association, in the Chinese market, 7-11's fresh food products account for 40% of sales and 60.4% of gross profit, which constitutes the biggest synergy point for 7-11 joining hands with Sanquan.
"7-11 can quickly take root in the Central Plains market with the help of Sanquan Food's regional resources, while Sanquan Food can quickly deploy in the terminal market through 7-11's fresh food business segment, and can promote in-depth cooperation on fresh food supply chains at the national level. This is a win-win situation," commented an industry insider on this cooperation.
- 02 - The Henan Convenience Store Market: Not Easy to Succeed!
Despite having the golden signboard of 7-11, it is not as easy as imagined for Sanquan to do well in the convenience store business in Henan.
As a populous province, Henan's convenience store market has been quiet. With the catalysis of capital and the rise of the convenience store format in recent years, more and more retail chain brands and internet companies have begun to covet this largest piece of cake in Central China, but most have returned in defeat, the most typical examples being SF Express's Hi Family convenience stores, Suning Xiaodian, and national chain retail giant Meiyijia. "No national convenience store chain system has truly achieved scale in Henan Province. How can Sanquan, together with 7-11, break the deadlock? It's difficult," asserted Wang Jun, an expert in the new retail industry.
Why is the Henan market difficult? Based on previous interviews with local retail entrepreneurs in Henan, we can get a glimpse:
1. Market Misjudgment
According to international convenience store experience, when per capita GDP reaches $10,000, the industry enters a mature stage. For Zhengzhou, whose per capita GDP exceeded 100,000 RMB in 2018, the convenience store industry theoretically has the conditions to enter a mature stage. But in reality, convenience store operations are also directly related to population density, store density, category structure, service capability and level, and consumer habits. Simply relying on GDP as a standard for whether a city is suitable for convenience stores is clearly inappropriate.
2. Lack of Nighttime Consumption
Not only Henan, but the entire North China region relatively lacks nighttime consumption. Compared to the convenient nightlife in South China, the longer cold winter period blocks most consumers from going out at night, which is closely related to the city's economic structure, commercial culture, and residents' living habits.
3. Unequal Competitive Position
As a well-known commercial city nationwide, Zhengzhou's urban area is crowded with wholesale markets, farmers' markets, mom-and-pop stores, and spontaneous street stalls, with a concentration that ranks among the top in the country. More importantly, under the reality of unequal tax conditions, convenience stores often find themselves at a disadvantage when competing with mom-and-pop stores.
At the same time, the business mentality of local retail enterprises is also an important reason hindering the development of convenience store companies in Henan.
"Supermarkets dominate, and making a fortune daily is the reality for most retail enterprises. In this situation, who has the mind to calmly do convenience stores? Some large supermarket chains do convenience stores just to increase brand awareness and place a few more outdoor billboards, " said a person in the retail industry in Henan.
However, local entrepreneurs in Henan have never stopped trying convenience stores.
Since 2002, Apollo, Zuoyoujian under Jiutouya, Sida, Quanrixian under Denies, and Silin Convenience have been the most active forces in the convenience store market. In 2003, 24-hour convenience stores appeared in the market. In 2005, Sida and Zuoyoujian once formed a "chain duo," with single-brand chain stores exceeding 100. Unexpectedly, overnight, the top three almost all failed.
Later, the Zhengzhou municipal commerce department issued several specific subsidy policies to support the development of the convenience store format, but the new generation of the market was extremely sluggish, and without large capital to drive market restart, the market remained stagnant for years. In 2013, convenience store companies like Ai Bianli and Yu Bianli appeared in the Henan market, but they eventually stopped due to difficulty in achieving profitability.
In the view of many industry insiders, the Denies Quanrixian stores, which are widely distributed in the current Zhengzhou market, only fall into the category of micro-supermarkets and cannot truly be counted as convenience stores; Yuelai Yuexi and Xi'an Meitian, which have developed rapidly in recent years, have begun to be recognized by more and more young consumers, but there is still a considerable gap between them and modern convenience stores driven by technology and with a thousand stores with a thousand faces.
- 03 - Taking Up the 7-11 Banner, Can Sanquan Do Well?
Looking at the current FMCG industry, Nongfu Spring has launched sesame shops, FamilyMart is backed by Ting Hsin International Group (which owns brands like Master Kong and Wei Chuan), and Three Squirrels is vigorously deploying offline stores. Returning to the cooperation between Sanquan and 7-11, can Sanquan really do well in the chain retail business?**
In this regard, Wang Jun, an expert in the new retail industry, said:
Sanquan is crossing over to become a provincial agent and operate Japanese convenience store chains. In fact, those familiar with this frozen food giant should not be too surprised. It's in their genes:
Sanquan is not a completely traditional enterprise. Over the years, it has been innovative, having done the earliest meal vending machines, the current hot community supply chain platform "Quanbao," and created its own community group buying platform "Youzhi Youwei." In terms of model innovation, Sanquan has never stopped. It's just that it has been lukewarm and hasn't attracted much outside attention.
From a path perspective, it has always tried to get closer to consumers and establish its own strong control channels. Now that it has secured 7-11, it will once again try a track it is not familiar with, and this track is particularly arduous in Henan Province.
No national chain system has succeeded in Henan, and for years, apart from Denies, local convenience store brands have been very small in scale. Even Yuelai Yuexi, which has done relatively well locally, has only about 300 stores.
Compared to other populous provinces where brands easily have thousands of stores, this is unreasonable, but it is the fact.
Why can Sanquan do well? First, we need to see how it breaks the deadlock that no one else has broken.
Taking the Zhengzhou dilemma as an example:
High housing prices, high break-even point for a single store;
Labor costs are not low, and the proportion of meal sales is low;
There are many small tobacco and alcohol stores, diverting FMCG sales;
Mom-and-pop stores deeply cultivate the community surroundings and have all added fresh produce, with strong customer attraction;
The CBD business district stores that 7-11 excels at have already been seized by Meiyijia, Meitian, and local brands;
Looking at 7-11's domestic cooperation cases, and even expanding to the national agency layout of the three major Japanese convenience store chains, they mostly choose strong local supermarket retail groups. Those "store kings" often have property resources and location resources of local partner companies. In the cold start phase of Sanquan, the most difficult thing is still high-quality locations; this is the second difficulty.
The third difficulty is talent.
Currently, the person responsible for Meitian's Zhengzhou market is Liu Yue, a former Chinese executive of 7-11 in its early years, and his team. During Sanquan's cold start, how much manpower 7-11 headquarters can support will determine the efficiency and quality of store openings.
Despite so many visible difficulties, I believe that this food brand we are very familiar with can move faster and more steadily on the path of new retail exploration.
Chain convenience retail is a traditional industry, a business of picking up small change, with extremely fine management granularity. As long as we adhere to long-term value investment and steady development, there is an opportunity to grow bigger and stronger. Avoid being too aggressive.
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