Recently, an interesting thing happened in Nanjing: convenience store chain Lawson entered the city with five stores opening simultaneously, attracting long queues and selling out various foods, leading some to suspect a queue-marketing strategy. Regardless of the truth, this brand, ordinary in Shanghai's streets, became an instant hit in Nanjing.
On Shanghai's streets, a street of less than 100 meters has a convenience store at each end; across a 10-meter-wide road, one on each side, the number of convenience stores is indeed high. The choices are also wide: if you don't like Lawson, there's FamilyMart; if not FamilyMart, there's 7-Eleven; if you don't like any of these, there are also Haode, Kuaike, and Kedi.
What is supporting the massive expansion of convenience stores?
It's puzzling: while various supermarkets are hit by online shopping, why are convenience stores aggressively expanding offline?
Take Shanghai as an example: the fastest-expanding convenience store is FamilyMart. I remember when I graduated from university in 2010, the number of convenience stores of various brands in Shanghai seemed evenly matched; by 2013, the streets were dominated by FamilyMart's green logo. Currently, Shanghai has 1,213 FamilyMart stores, compared to Lawson's 561 stores and 7-Eleven's 90 stores, giving FamilyMart an absolute advantage in numbers.
In fact, convenience stores have three special advantages over general supermarkets, which make them less affected by online shopping. Specifically:
First, convenience stores operate 7x24 hours, which is very convenient. No matter when you have shopping needs, even at 1 or 2 a.m., you can see a bright sign shining in a dim street corner. Additionally, most convenience stores have a small area with tables and chairs for customers to eat in.
Second, they have a complete range of categories and facilities. Although small, convenience stores offer a wide variety of products, including prepared foods, snacks, tobacco and alcohol, daily necessities, magazines, umbrellas, and more. Especially for women, convenience stores are very thoughtful: if you get a blister from high heels, you can buy a band-aid; if your stockings tear before a client meeting, don't worry, buy a pair; if you forget your towel or facial cleanser on a business trip, buy them. When it comes to food, convenience stores are even richer: oden, sushi, salads, pasta, chicken leg rice, duck neck, and dried tofu—they fully satisfy your stomach. Additionally, they have microwaves and hot water.
Third, they provide value-added services. Convenience stores can collect utility bills, top up transit cards, and allow self-service credit card repayment. They also accept package deliveries, which is especially convenient for office workers who are away during the day. With convenience store pickup, you can retrieve packages after work, no longer worrying about being yelled at by delivery drivers.
Of course, providing such convenience, 24-hour year-round operation, and covering streets and CBDs means operating costs are not low, and product prices are higher than similar items in supermarkets or online. But the convenience and solving urgent needs make people overlook the slightly higher prices. So, the rapid expansion of convenience stores is essentially a result of urban consumption upgrades.
Regional Differences in Convenience Store Expansion
However, consumption upgrades in major cities have regional characteristics. From the layout of convenience stores, they are mainly concentrated in first- and second-tier cities, with more in the south than the north.
By analyzing the three larger convenience store chains—FamilyMart, Lawson, and 7-Eleven—their layouts are mainly in the Yangtze River Delta, Pearl River Delta, and first- and second-tier cities in the west or north, with a focus on the Yangtze River Delta and Pearl River Delta (see Table 1). This shows that although the number of convenience stores is expanding rapidly, the choice of cities is cautious.
On one hand, the number and density of convenience stores in southern cities are much higher than in northern cities. Comparing the total number of FamilyMart, Lawson, and 7-Eleven stores, Beijing, Shanghai, Guangzhou, and Shenzhen have 294, 1,864, 408, and 206 stores respectively. Beijing's store count is only slightly higher than Shenzhen's. Considering store density and city area, the number of stores per unit area in Beijing, Shanghai, Guangzhou, and Shenzhen is 0.02, 0.29, 0.05, and 0.10 respectively. That is, Beijing's density is much lower than the other three, while Shanghai's density leads, being 14.5 times that of Beijing.
On the other hand, convenience stores are mostly located in economically developed first- and second-tier cities, with few in third- and fourth-tier cities. Among the cities where FamilyMart, Lawson, and 7-Eleven are present, only Lawson has a store in Jiangyin, a county-level city in southern Jiangsu. Although Jiangyin is a county-level city, it ranks first among the top 100 counties, with strong economic strength. In 2016, its GDP reached 308.33 billion yuan, and per capita disposable income was 46,300 yuan. What does this mean? Compared to Nanjing, the capital of Jiangsu Province, whose 2016 GDP was 1.05 trillion yuan and per capita disposable income was 44,000 yuan, Jiangyin residents' per capita disposable income is higher than Nanjing's. Additionally, Jiangyin has a developed private economy and a relatively high proportion of working population, providing an economic and customer base for convenience stores.
Why is the coverage of convenience stores in the north much lower than in the south?
So why are branded convenience stores more prevalent in the south? Is it a difference in preferences between northern and southern residents? Of course not! To summarize, there are roughly three reasons:
First, the climate in the north differs from the south. One advantage of convenience stores is 24-hour operation. In the north, cold nights account for almost half the year; late autumn, winter, and early spring nights are freezing. During the heating period from November to March, if I were there, I wouldn't want to bundle up and go out to a convenience store at night. But in southern cities like Shanghai, Suzhou, and Shenzhen, there is no heating, and even in winter, the temperature difference between indoors and outdoors is not large.
Second, road design in the north differs greatly from the south. Take Beijing as an example: roads are straight, seemingly endless, and square, with few curves or forks. Also, roads are wide, making crossing not easy; you often have to use underpasses or overpasses, which might take several minutes to find. Sometimes you see a convenience store across the street, but walking there takes 10-20 minutes, so you give up. But in southern cities like Shanghai, roads are winding and narrower, and crossing takes less than a minute. So in northern cities, a convenience store might only serve half the street, which is awkward.
Third, population density in the south is significantly higher than in northern cities. Convenience stores choose to locate in areas with higher population density, and the Yangtze River Delta and Pearl River Delta have significantly higher density than northern cities. In 2016, among the top ten cities by population density, except Beijing, all are in the Yangtze River Delta and Pearl River Delta. Shenzhen, Shanghai, and Dongguan have densities of 5,963, 3,816, and 3,351 people per square kilometer, respectively, while Beijing ranks tenth with 1,324 people per square kilometer.
Why do convenience store brands rarely cover third- and fourth-tier cities?
This is actually easy to understand: convenience stores have more market in first- and second-tier cities, and consumption upgrades gradually transition from economically developed and higher-income areas to less developed areas, which takes time.
In depth, first- and second-tier cities have a faster pace of life and larger urban areas; commuting might take over two hours round trip. Many office workers have lunch near the company, and convenience store bento boxes are a good choice. On the other hand, compared to restaurants around CBDs, convenience store lunches have a price advantage. For example, a black pepper steak rice at FamilyMart costs about 20 yuan, while a similar set meal at a nearby restaurant costs over 30 yuan.
But in small and medium-sized cities, such location and price advantages are not obvious. In small and medium-sized cities, especially third- and fourth-tier ones, the commute from home to company is usually within half an hour, and the pace of life is slower; more people eat three meals at home. Even if they don't go home for lunch, there are more cost-effective options because prices are lower, so the price advantage of convenience stores disappears.
Finally, let's boldly predict: how long will Lawson's popularity in Nanjing last? From the current boom, on one hand, early promotion was effective, and people are curious to try something new; many might not even know what Lawson is but still queued. On the other hand, one of Lawson's selling points is its tasty meals, but Nanjing is also famous for its various snacks nationwide, so after a while, it should return to normal.
The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to explore new chapters of cross-industry integration!
Core topics of this conference:
How can the FMCG industry leverage B2B to achieve new growth opportunities?
How should the new supply chain behind new retail be built?
How can intra-city logistics help B2B achieve leapfrog development?
Highlights of this conference:
The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
Case sharing of excellent transforming and upgrading distributors
Upgraded conference + exhibition, Hall 6 Internet Technology Exhibition strengthens docking
Alibaba Retail Link, Puhua Finance, Yiyatong Supply Chain, Baishidianjia, Yijiupi, Hdware: leaders from the most well-known enterprises in various fields will give speeches and share pioneering views.
Registration is now open. Long press the QR code below or click "Read Original" to register.
Add friend with note "Conference Registration"
Click the links below to review the highlights of the first and second FMCG + Internet conferences:
2016 "FMCG + Internet" Summit Forum
-END-