Core Views
- Under new retail, small formats, especially convenience stores, are typically fragmented and regional operations. Their business essence will not rapidly iterate due to new technologies and concepts. After short-term capital attention, the industry must return to the core model of traditional formats. What changes is the method, but what remains unchanged is the essence; practitioners should maintain a normal mindset in the face of the current boom.
- Get closer to consumers, closer and closer. Convenience stores, as a model of proximity and instant consumption, will evolve into an online-offline integrated model centered on membership through a series of store user data and marketing upgrades, thereby leveraging the core service value of high-density store locations. New business models such as community group buying will continue to emerge.
- Category innovation becomes an important upgrade goal: customized FMCG, fresh food, and fresh produce categories will gradually become standard, and the supply chain needs behind them will give rise to more professional supply chain service companies that grow stronger.
1 Traditional small formats enter the fast lane of development Once a Cinderella that no prince fancied, until... At the end of 2018, Alibaba finally made a move, reportedly acquiring C-Store, a chain convenience store under RT-Mart, with nearly 1,000 stores nationwide. At this point, Alibaba's new retail strategic layout, from hypermarkets, supermarkets, fresh produce supermarkets, chain convenience stores, channel franchise stores, to unmanned retail, had completed its overall offline framework. In this offline channel chain, chain convenience stores were the last to be acquired. Also in this year, the valuation of chain convenience store companies continued to rise, with several large financing rounds pushing store valuations to historical highs. Before 2018, the small-format retail industry of chain convenience stores was a completely different scene. "Bending down to pick up coins" and "Worrying like selling drugs, but earning like selling vegetables" — these are the two most common self-deprecating phrases used at the annual CCFA conference. This situation continued until January 2017, when it seemed that this cash-rich industry was still far from capital. Only one chain convenience retail company was listed on the domestic main board: Sichuan Hongqi Chain, and only one chain convenience retail company had received mainstream VC investment: Wuhan Today... But more than 200 chain convenience companies across the country still lit up the 24-hour lights in the streets and alleys of cities, serving thousands of households. Difficult management, low return on investment, fierce competition, and difficulty in making profits — that was the small-format retail at that time. Despite the legendary case of 7-Eleven as a benchmark, the chain convenience store industry in China was still ignored by venture capital. All this changed in 2017, especially after the concept of "new retail" gained momentum, and convenience stores stood at the "wind vane" for the first time. The most obvious manifestation was the entry of venture capital and the increase in corporate valuations. Analyzing the reasons, there are mainly the following three points:
Among retail formats, chain convenience stores continue to develop rapidly. Under the trend of continuous decline in hypermarket formats, the future of small formats is promising;
The 6 million mom-and-pop stores in traditional channels face competition and upgrade, and their chain process will inevitably accelerate;
Online traffic growth is drying up, and the value of convenience stores closest to consumers offline is highlighted, with the rigid demand gene as a new retail traffic entrance; In this regard, both industry insiders and investors have shown contradictory attitudes. On the one hand, more capital inflow will inevitably promote the accelerated development of the industry, giving a shot in the arm to practitioners who have worked hard for many years; on the other hand, a large number of new brands are flooding in, frantically grabbing people and territory, further increasing the industry's operating costs that have been rising year by year, which makes some people worry that after the bubble is blown, the industry itself will suffer.
2 The "Cold Winter" under the Wind Vane Capital promotion has made the traditional retail industry attract more and more attention, and more and more entrepreneurs have flocked to this track. However, in the rapid development, it is inevitable that there will be various problems. At the beginning of 2018, Yatang Xiaochao expanded rapidly within one year, frantically franchising 50,000 stores through subsidies, which shocked the entire retail circle. It is worth noting that Meiyijia, the first brand of domestic convenience stores, took decades to expand to 15,000 stores. The subsequent suspension of Yatang Xiaochao also made people see the hidden dangers of ignoring business laws and blindly chasing the wind under huge capital, which became the beginning of a series of explosions in the chain convenience store industry in 2018.
On July 31, Linjia decided to stop all business from August 1 and gradually stop store operations;
On September 18, Beijing 131 Convenience Store issued a notice stating that due to capital turnover problems, it could not operate normally and would reconcile accounts with suppliers from September 20 to September 25, which would officially expose the capital problems behind it;
On September 20, Quanshi Convenience was exposed to be in talks with other companies, possibly seeking to sell or transfer part of its equity. As a convenience store known as "the closest to foreign convenience stores," Quanshi's sudden difficulties also made more people start to think and understand the value and development laws of traditional chain retail convenience stores. Driven by capital, convenience stores had to enter the fast lane of store expansion, but correspondingly, the operating costs brought by opening a large number of stores did not decrease but increased. High costs, high investment, and high profits: many entrepreneurs only saw the high profits of the convenience store format but ignored the high costs and high investment behind it. At the same time, the lack of capital at the capital level also became an important driver accelerating the demise of some chain convenience store brands.
3 Three Major Foreign Brands and Domestic Convenience Store Pioneers When it comes to the convenience store format, one must mention the three major foreign convenience stores: 7-Eleven, FamilyMart, and Lawson. As models for domestic convenience store brands to imitate, the three major foreign convenience store brands have not expanded their stores very quickly in the domestic market, but they have been continuously testing and developing. 1. The Trial and Innovation of the Japanese Giants in the Chinese Market 7-Eleven, FamilyMart, and Lawson entered the Chinese market very early, representing the most advanced model and productivity in the industry. However, except for FamilyMart, which is operated by Taiwan's Ting Hsin Group, 7-Eleven and Lawson's development speed in the early years was not particularly ideal. Due to their foreign nature, it was only through regional joint venture models that they opened up a new world, with Lawson's development data being the most eye-catching recently. Lawson's total number of stores nationwide exceeded 1,598, entering 12 cities, including county-level cities such as Jiangyin and Zhangjiagang. In East China, it led with over 1,000 stores. Lawson also opened 216 stores in Wuhan, 173 in Chongqing, 130 in Dalian, and 79 in Beijing. Except for Shanghai and Hangzhou, other cities chose the local large franchisee model, such as Nanjing Central Group and Wuhan Zhongbai Group. In 2017, Lawson's Nanjing Danfeng Street store achieved daily sales of 118,000 yuan, setting a record for daily sales in China. Golden Eagle 7-Eleven opening scene In 2018, Nanjing Golden Eagle Commercial won the 20-year operation rights for 7-Eleven in Jiangsu Province, and the first store opened in Golden Eagle Shopping Center, with daily sales reportedly reaching 350,000 yuan. At this time, 7-Eleven, which had been in China for more than 10 years, had laid out nearly 1,700 stores nationwide, but had not yet achieved overall profitability. Its Beijing stores had an average daily sales of over 20,000 yuan, four times the national average. The central kitchen factory invested in and supervised around Beijing also drove a group of enterprises, becoming one of the earliest talent incubation bases for fresh food factories in China. The strong private brand product development of Japanese convenience stores has always been far ahead. FamilyMart, operated by Ting Hsin Group and in China for 14 years, is said to have achieved overall profitability in 2012. While deeply cultivating the East China market, it has expanded to more than 2,000 stores nationwide, and its stores have been upgraded to the fourth generation. Its unique paid membership model has been recognized by consumers. However, Japanese convenience stores have a high starting point, and they have always strictly controlled both store investment and franchisee selection. On the one hand, this ensures the store's operating level and daily sales; on the other hand, it also limits early business scope to economically developed first-tier cities, resulting in a relatively slow overall development speed in China, giving local convenience stores a considerable period to learn and catch up. At the same time, it has also cultivated and provided a large number of frontline talents for the domestic convenience store industry, especially the Beijing market directly managed by 7-Eleven headquarters, which has become a training base for many domestic enterprises to recruit talents.
2. Review of the 20-Year Development Path of Local Chain Convenience Stores After nearly 20 years of development, most local chain convenience stores are regional kings, with high-density store openings in cities (single brand, single city over 100 stores) as the core model, gradually expanding to surrounding cities. In terms of business model, they have fully utilized the idea of adapting to local conditions, not completely continuing the Japanese chain model, and have developed different forms of chain store operations. From store management and investment, we can temporarily distinguish four typical forms: franchise stores, light franchise chains, standard chains, and heavy franchise chains. In fact, the ultimate model of convenience stores is "thousand stores, thousand faces," and the business model is constantly updated and iterated. Every local brand that can stand out has unique development ideas and experiences. The above distinction is more of a review. As enterprises develop to today, they present a very diversified operation without a fixed formula. Overall, the domestic convenience chain retail enterprises are still in the early stage of development, vibrant, and constantly expanding and innovating. In 2018, Meiyijia, with its light chain model, opened the latest version of its direct-operated stores nationwide. Xi'an's Every Day also opened a 4th-generation store with fresh food counters benchmarking the Japanese model, and started the construction of a fresh food factory. On the one hand, it is rooted in the local market; on the other hand, it learns from the advanced experience of Japanese stores.
4 Have Chain Convenience Stores Ushered in the Wind Vane of Development? Has the chain convenience store in the small-format retail industry stood at the wind vane? My personal view is yes, mainly based on the following three aspects. First, look at the industry's development data. Now, convenience stores are experiencing sustained high growth, which belongs to the industry's self-drive. We can see that the entire chain convenience store format continues to develop rapidly. While supermarkets remain stable, the entire hypermarket is in a slow development rhythm, even slowing down, with a decrease in overall numbers. According to the latest statistics report released by the China Chain Store & Franchise Association in 2018, more than 70 enterprises have a scale of over 100 stores. The first-tier companies such as Yijie Convenience, Kunlun Haoke, and Meiyijia have already broken through the threshold of 10,000 stores. Note: The above data are from the self-reported data of member enterprises. Non-member enterprises such as Furong Xingsheng and C-Store are not included. The entire industry's development data is growing rapidly, and it has been growing continuously for many years. But in fact, despite the rapid growth, there is also obvious room for improvement compared with international large chain brands. That is, the average sales per store is still low. Third, there is huge room for improvement in product structure and service quality. But it is precisely these three points that show that our domestic chain convenience store brands have very good growth expectations and a lot of room for improvement. Second, the combination of online and offline promoted by e-commerce, "new retail," has directly and indirectly promoted the accelerated development of the entire small-format retail, which is the general trend. In fact, whether it is called "new retail" or "borderless retail," the essence is that online retail is cutting into the cake of offline retail, while traditional offline retail is also actively learning and embracing the Internet. This is exactly what Alibaba and Tencent hope to see—to lay their underlying infrastructure, which they have cultivated for many years, more deeply. Whether it is the payment system, the membership account system, or the user visual recognition system, etc. And the huge offline traditional retail scene is like a blue ocean, and in the process of transformation, it will stimulate huge commercial demand. In this tide, traditional wholesale markets have begun to decline, and the mom-and-pop stores that occupy 50% of the existing market are too scattered. Therefore, the chain format, which accounts for nearly half of the total shipment value in the retail market, has become the first battleground! So we saw the acquisition war between Tencent and Alibaba in 2018. Whether it is centralized mergers and acquisitions or decentralized investment empowerment, from another level, it is the struggle for discourse power in different links of the supply chain. Once the channel is controlled, the core discourse power is in hand! The competition for discourse power in online retail has been completed, and the head giants are unshakable. On the other hand, the offline cake is huge and the discourse power is scattered. When e-commerce has become a hard task, traditional offline retail has gradually become attractive in the eyes of e-commerce platforms and investors! It is full of huge imagination. Therefore, the small format, which is the most difficult in retail, has naturally become a moat and a piece of the huge cake, at least it looks delicious. Take the FMCG B2B platform as an example. Either cut into the offline existing market, or find ways to strongly control channel terminals. In this battle for discourse power, after 5 years of exploration, B2B platforms have unanimously chosen to try to control stores, that is, to establish their own chain store systems. Franchise stores, franchise stores, direct-operated chain stores and other models have blossomed across the country. The third point is also very important: the development of China's overall economic form. That is, China's urbanization and consumption upgrade demand have promoted the rapid development of the convenience store small format. On the one hand, the process of township urbanization has accelerated. The countryside surrounds the city, and now the urban population is increasingly concentrated in cities at all levels, the pace of life is faster, and 24-hour convenience stores have become the demand of residents in these emerging cities. On the other hand, super-first-tier cities represented by Beijing have entered a stage of in-depth adjustment of urban functions. In 2018, the relocation project, including the improvement of the city appearance, accelerated the demise of traditional mom-and-pop stores, so that citizens even had difficulty with breakfast. At the same time, food safety has also been put on a very important agenda. The food safety management and regulations at the retail end, as well as the fast-food trend of young people in cities, together constitute fertile soil suitable for the development of chain convenience stores. Therefore, based on the above three points, I believe that the chain convenience store format has stood at the wind vane, and it also includes more subdivided related formats, such as the recent community group buying and unmanned intelligent retail, which have entered a truly capital-driven high-speed development period. In 2018, I believe many industry colleagues often encountered friends of investors who came to consult on the price of investment targets, which made many industry insiders sigh: It's time to estimate a good price and sell quickly.
5 Development Changes and Trends of China's Chain Convenience Stores First, let's see which parts have not changed. First, the business essence of chain convenience stores has not changed yet. The entire business model has not undergone significant iteration. The core feature is still a small format of proximity and instant consumption. And because the main business logic is "proximity and instant consumption," the decisive factors for chain convenience stores are still store location and foot traffic, which means that site selection is still the core basic competitiveness. Second, the national retail landscape has not changed significantly. From the changes in the TOP 70 ranking, except for the special petroleum system and light chain model with relatively large numbers, and the three major Japanese brands, most domestic brands are still mainly regional and overall scattered. Third, the category structure of national chain convenience stores has not changed significantly, and it is still mainly traditional FMCG. The overall proportion of meals and fresh food is still low from a global perspective. Now many stores have expanded some fresh produce categories, but the overall proportion is still not high, including the proportion of value-added services in revenue is also relatively low. Fourth: The operating difficulties have not changed, basically three highs and three lows, and overall profitability is still relatively difficult. The three highs are: high store rental costs, especially in first-tier cities; second, high talent costs; third, due to fierce competition, high-end talents have become scarce resources, and labor costs have risen rapidly. There are also three lows: the proportion of fresh produce and private brands is relatively low; at the same time, the degree of chain and direct control is relatively low, and the proportion of member consumption is also low; at the same time, the overall operating level is relatively low. The overall business operation has not changed significantly. What has changed is the consumption concept and business methods:
1. The internetization of the new generation's consumption behavior, the dataization of products, and the personalization of product demand, coupled with the improvement of health needs.
2. Changes in entrepreneurs or participating enterprises in convenience stores. Previously, store owners were relatively traditional, and most had retail or supply chain genes. Now it has fully blossomed, such as B2B e-commerce, and even more so, Tmall stores under Retail Link, JD convenience stores, and Suning stores expanding rapidly nationwide. New forces with B2B supply chains are coming fiercely. In addition, real estate developers with their own properties, new Internet entrepreneurs, and brands incubated by large Internet companies have all joined the battle. The players are changing.
3. Changes in investors' views. Before 2016, venture capital almost did not look at the chain convenience store format, with very few individual attempts and small amounts. This year, both venture capital and strategic investment have frequently made moves, rapidly raising the valuation of chain convenience store brands.
4. Changes in information technology. As the basic membership system and payment system are continuously popularized, especially after the popularization of WeChat Pay and Alipay payment systems, the support and changes to the entire information system have been rapidly promoted.
5. Changes in online business models. Including food delivery, O2O, and value-added services; as well as B2B business based on stores as front warehouses and the supply chain at the back end of stores; and multi-format combinations including fresh produce and baking, are all continuously superimposed and iterated in small convenience stores, trying to combine new sparks.
6. The supply chain of chain convenience enterprises is upgraded to B2B and opened to the outside. The supply chain was previously all the cost center of the enterprise, but a current trend is to open it up and become a profit center. For example, recently, Dingshi Group is planning to open part of FamilyMart's supply chain to social small stores. The current situation is: people inside want to go out, and people outside want to come in. B2B is working hard to open stores, while retail enterprises are beginning to open their supply chains to traditional channels. And both sides believe that this is the future. In this way, channels and store control eventually converge. Chain store enterprises naturally have B2B genes, especially the light chain with franchise as the main model, which has limited control over a large number of franchise stores. Meiyijia's Caihua Trading, Xi'an Every Day's Bangbianli, and in the supermarket field, Wumart, RT-Mart, etc., had already established a complete supply chain warehousing and distribution system before entering B2B business, which has also become the basis for these retail B2B platforms to quickly achieve profitability. Take RT-Mart's e-Lufa as an example. After one year of operation, with costs basically breaking even, it may have achieved overall profitability this year. For domestic chain convenience store enterprises, the traditional mom-and-pop stores scattered across the country are undoubtedly a fertile soil for development. The transformation and upgrade of these traditional mom-and-pop stores is undoubtedly a huge development opportunity. The more mainstream domestic model is light chain franchising. In addition, the FMCG B2B platform has also begun to extend upstream and downstream. Extending upstream is to build a stronger supply chain system, while downstream directly connects to mom-and-pop stores through brand manufacturers. In summary, the upgrade and transformation of 6 million small stores is a major trend. Whether it is the Japanese heavy franchise model or the franchise store model based on 6 million mom-and-pop stores, each enterprise is choosing the most suitable development path. And this path can be seen through the core of convenience store operations, with several keywords: 1. Instant proximity consumption
2. Regional density. We see that whenever regional density is achieved, whether it is supply chain capability, brand influence, or store valuation, it will be greatly amplified.
3. Store efficiency per square meter, reflecting the core competitiveness of the store. The purpose of analyzing the past is to find the inevitable factors in the historical path and combine current trends to find future breakthroughs. The above analyzed the changes and invariants in the development of domestic chain convenience stores. So the 2.0 era of chain convenience stores has arrived. Which links deserve our attention and consideration? 1. Technology-driven. Technology will have a huge promotion and change on the chain convenience store format. Artificial intelligence will penetrate infinitely, with cashier and night services gradually becoming unmanned.
2. Point value. We all know that convenience stores are generally divided into several categories, such as community stores, supermarket stores, special zone stores, etc. Among them, community stores have been relatively chicken ribs before. I believe that in the next step, community stores can tap out a lot of value, and the entire community store will shine, becoming a shared distribution and service point for O2O and social e-commerce.
3. Store product category transformation. In the future development process, fresh food factories will develop rapidly, and the catering attribute of convenience stores themselves will be further strengthened.
4. Further decentralization of large chain brand systems
5. The existing mom-and-pop stores will become the focus of the entire competition, which has become our current situation.
6. Consumption upgrade in lower-tier markets. Under the new retail boom, small-format retail has been pushed into a period of rapid development, getting closer and closer to consumers, becoming more and more convenient, and ultimately becoming the comprehensive core point of community life services. This is the future. , a chain convenience store and supply chain operation expert, with many years of experience in chain convenience store operations and FMCG B2B supply chain construction, focusing on the commercial combination of retail industry technology innovation and new FMCG marketing. He has served as Vice President of Business Operations at Zhanghe Cloud Warehouse, Vice President of Quanshihui, Marketing Director of Quanshi Group, Vice President of Qingdao Guangdian Animation Company, and a special industry analysis expert for Huatai Securities and Northeast Securities. Click here to register in one click