---
title: "Loss-Making Third-Tier Convenience Store Franchisees: Hard to Transfer, Closing Means Losses"
description: "Wang Qiang, who franchised a Japanese convenience store brand in Qingdao, Shandong, decided to exit after seven months due to intense competition from discount snack stores and lower-than-promised margins. He faces difficulties transferring his store and will lose at least 100,000 yuan. Zhang Li, chairman of Jianfu Convenience Store, highlights key challenges for franchising and predicts an inevitable consolidation period in the industry."
author: "晴山"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2023-12-13"
language: "en"
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# Loss-Making Third-Tier Convenience Store Franchisees: Hard to Transfer, Closing Means Losses

> Wang Qiang, who franchised a Japanese convenience store brand in Qingdao, Shandong, decided to exit after seven months due to intense competition from discount snack stores and lower-than-promised margins. He faces difficulties transferring his store and will lose at least 100,000 yuan. Zhang Li, chairman of Jianfu Convenience Store, highlights key challenges for franchising and predicts an inevitable consolidation period in the industry.

**Franchisee Regrets Investment**
From the rapid store opening in April this year to now, seven months later, Wang Qiang, who franchised a Japanese convenience store brand in Qingdao, Shandong, has decided to "exit."
"I couldn't make a decision at the time, thinking I should persist and business would improve, but after several discount snack stores opened near my store, I lost all confidence to continue," Wang Qiang lamented.
"The market is completely chaotic this year. Our product prices are on average much higher than those in discount stores, so naturally we can't compete. Last month, I listed my store for transfer," Wang Qiang said helplessly.
Wang Qiang calculated that from contacting the franchise in April and quickly opening the store to now, he will lose at least 100,000 to 200,000 yuan.
Speaking of transferring the store, Wang Qiang finds it even more headache-inducing. "In this year's situation, how can transferring be easy? We have a convenience store owner group chat. There are too many owners wanting to transfer. Almost every day someone posts transfer information, and prices are not high, but few succeed."
Wang Qiang said, "Everyone finds it hard to transfer, and closing the store is also difficult because franchisees paid a deposit when signing the contract. According to our contract, if we don't operate for five years, we can't get the deposit back."
According to Wang Qiang, an owner who opened a store in May this year sought a transfer for several months but failed, finally choosing to close, losing over 400,000 yuan conservatively. So Wang Qiang doesn't have high hopes for transferring; he now thinks stopping losses is the priority.
Wang Qiang recalled that at the beginning, after several inspections, he dared to franchise this Japanese convenience store brand. The franchise fee was 200,000 yuan, plus rent, inventory, and labor, he invested hundreds of thousands in total. But after opening, he found the business wasn't as profitable as imagined before franchising.
"I had too high expectations, so there was a big gap after opening. At the franchise conference, the brand claimed gross margins that didn't match actual operations. They said the single-store profit model was: a 40-square-meter store with monthly sales of 60,000-80,000 yuan and annual profit of about 238,000 yuan. Additionally, fresh food items like rice balls, buns, and oden had gross margins of 50%, and average SKU gross margin was around 38%," Wang Qiang said. Actual operations didn't reach those figures. Franchisees order according to brand standards, but price advantages are small, and gross margins are low. Actual gross margin is usually 19%, so the earlier claims were exaggerated.
High labor costs are also a reason for not making money. Wang Qiang said labor costs in Qingdao are not low: a store manager earns nearly 10,000 yuan a month, regular staff 5,000-6,000 yuan, and a store needs at least three or four employees. Adding rent and utilities, with daily sales of 9,000-10,000 yuan, after deducting these costs, almost nothing is left.
"Competition this year is extremely fierce. I thought business would improve after the pandemic, but it's worse than before. Plus, the convenience store model has a very low barrier to entry, and many new stores are opening. Without extended services, it's hard to survive," Wang Qiang said helplessly. "Besides us, many independent convenience store owners are also struggling and planning to exit."
**Difficulties and Value of Franchise Stores**
Regarding the current domestic market, Zhang Li, chairman of Jianfu Convenience Store, which has over 2,000 stores, believes franchise stores face three main problems:
**First, franchising cannot guarantee profitability. "Take Jianfu as an example. I often ask employees: Does our franchise make people money? Or are development staff just fooling people to get a bonus?"**
**Second, if a store is profitable, are you willing to give it to others?**
**Third, to develop franchising, do you have the ability? Do you have real substance? Do you have unique products? Do you have retail technology?**
Zhang Li said many people don't understand that retail requires technology. In fact, retail is a high-tech job, not just buying and selling. How to combine product structure, how many toothbrushes to pair with one toothpaste—these are very difficult to understand. "Fewer but complete, small but beautiful" is the only value for convenience stores to survive.
In Zhang Li's view, the relationship between chain operation and standardization is like two legs; you need to stop and adjust after walking a while. You can only standardize after chaining. The standards for 5 stores, 50 stores, and 500 stores are different. At different stages, information systems, logistics systems, management systems, and even organizational systems must be discarded and rebuilt, so you often can't plan too far ahead.
"If you plan too far, current operating costs are high; if you plan too close, iteration costs are high. How to match strategic goals and strategic resources in between is the main task for leaders," Zhang Li said.
Zhang Li believes whether the franchise threshold should be high depends on your brand's premium capability. "Of course, I hope the threshold can be appropriately high. If it's too low, franchisees won't truly cherish it; but if the threshold is high, you must also consider whether your returns are high. That's the core."
In Zhang Li's view, if the returns to franchisees far exceed their franchise fees, then the threshold can be as high as it should be; conversely, if you let more people join but don't give them the ability to make money, even if you pay them, it's called fraud. So the threshold is positively correlated with the brand's premium capability and standardized output capability.
Additionally, Zhang Li believes supervision is very important for franchise stores. But currently, domestic practice is not good enough, possibly because the domestic market always thinks supervision means monitoring, leading, urging, and teaching. In fact, it's more about leading by example, helping stores remove obstacles to profitability, and achieving performance goals—that's the core work of supervision.
**Eleven Questions**
During a business inspection trip to Japan, Zhang Li visited a respected senior in the industry and asked how to operate a convenience store well and why it's getting harder. The senior asked him eleven questions in a row, which made him emotional:
First, have your store's location, time, space, and products truly made it convenient for customers?
Second, are your products what customers need, what you want to buy, or what suppliers promote?
Third, what unique value do you want to create for customers? Cheap? Convenient? Quality...?
Fourth, who are your customers? Do you understand them? Why do they enter your store? Why don't they?
Fifth, regarding franchising, do you really understand it? Why do they franchise you? For profit or values? How do you communicate and align with franchisees? What about organizational system guarantees (methods? cycles? personnel? scale? ...)
Sixth, the outside world has changed. Have you changed? Are you ready for change?
Seventh, the population structure has changed, aging has arrived, and the population base is shrinking. Has your store changed accordingly? What are your plans to respond?
Eighth, what is your "business philosophy"?
Ninth, which is more important, new products or bestsellers? What is the purpose of new products?
Tenth, are you only doing so-called "analysis" based on existing sales data? You must truly do "hypothesis verification" based on customer needs in the trading area; otherwise, you'll fall into an "information cocoon." Note it's big data, not small data.
Eleventh, what preparations have you made for the future? Prepare for the fiercest competition, such as online-offline integration, the birth of new enterprises and new business formats.
Zhang Li said, "In the future, we must try every means to truly achieve chain operation. Because our stores are scattered, and each organization is scattered. If we can't achieve true chain operation, our future situation will be very awkward and difficult."
But achieving scale and efficiency is hard. In this industry, around 200 stores is the first step of chain operation. After crossing that, you face the 500-store step, needing to think about upgrading logistics and information systems. At 1,000 stores, you need to consider product differentiation. After 2,000 stores, you face organizational reform.
"We must clearly understand the relationship between franchising and direct operation. Direct operation is for making model stores, putting all trial-and-error costs into direct stores, and then giving profitable direct stores to others for franchising. Without franchising, scale cannot expand, and the enterprise cannot go far," Zhang Li said.
Many domestic convenience stores prefer direct operation, thinking it's easier to build brand and control. In fact, franchising is much harder than direct operation because direct operation reflects unified thinking, while franchising requires more participants and managers working together.
Regarding the future development of convenience stores, Zhang Li believes they will inevitably enter a consolidation period. "Whether we are integrated by others or integrate others, this period has indeed arrived. Because we can deeply feel this wave, like a tsunami. In the next three to five years, convenience stores will definitely enter a consolidation period. It's unavoidable. The market doesn't give us much time."


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