Gong Yi operates for over 20 hours a day, yet daily revenue may be less than 1,000 yuan, barely covering costs—this is a true reflection of the situation for many convenience stores in lower-tier markets today. CCFA data shows that in 2023, 13,148 new convenience stores opened, with a net increase of 9,072. On the surface, the number of convenience stores is increasing, but behind this is the fact that convenience stores, facing pressure and encirclement from discount formats such as warehouse clubs and snack discount stores, have to expand downward to find new growth outlets. Struggling to survive or even holding on at a loss may be more in line with the actual feelings of convenience store practitioners today. In fact, as early as six or seven years ago, the convenience store industry experienced a wave of financing and transformation, but to this day, there has been little substantial progress. In contrast, in Japan, during the "lost three decades," traditional supermarkets and hypermarkets declined, while convenience stores and drugstores experienced rapid growth, with industry leaders like 7-Eleven, Lawson, and FamilyMart leading globally. From the previous stage to now, what substantive problems do domestic convenience stores still face? Facing competition from multiple discount formats, what adjustments and operational thinking changes should convenience stores make? How should we understand the future collaboration model between retail and supply chain? Recently, I had an in-depth conversation with Zhang Sheng, a veteran in the retail industry and Vice Chairman of Lawson China. He participated in promoting the rise of Lawson's stores in China from fewer than 500 to over 5,000, and has long-term practice and deep thinking on private brands, buyer systems, and extreme supply chain management.
Zhang Sheng, Vice Chairman of Lawson China
In Zhang Sheng's view, the future of convenience stores lies in cross-industry operation. The "convenience + other" model is feasible; you should be good at taking business from others. As long as it is truly convenient for the store's customer base and there is profit margin, it is a direction worth trying. But why have many leading convenience stores explored innovative methods and still been at a loss? Zhang Sheng believes the core lies in retailers' cognition of talent management and industry ecology. First, don't be confined to past successful experiences and do everything yourself; be good at tolerating and motivating talent, boldly delegating authority, and strengthening your own learning ability. Second, don't misallocate funds; be good at mastering R&D barriers, forming equal and mutually beneficial deep trust relationships with franchisees and the supply chain, and relying on the ecosystem to solve problems. Today, when retail has entered a state of intense involution, everyone wants to control the entire chain, and zero-sum games are endless. The underlying thinking in this interview, I believe, can provide very unique and long-term value inspiration for convenience stores and different retail industries.
Hidden Concerns Behind Growth
How to understand the current state of convenience and its upgrade direction?
New Wave New Consumption: CCFA data shows that in 2023, convenience stores saw a net increase of 9,072 stores. While quantity grows, they also face pressure from warehouse clubs like Sam's Club and Aldi, as well as competition from discount formats like snack discount stores and food drugstores. In the current environment, what competitive situation do convenience stores face? Are there any new directions worth trying?
Zhang Sheng: Two years ago, I mentioned that the future of convenience stores lies in cross-industry operation. Since snack stores can take market share from convenience stores, convenience stores can also take business from other industries. Don't just look at your own small plot. Whether domestic convenience stores focus on tobacco or foreign ones focus on fresh food, both are one-sided. In North America and Japan, beverages, snacks, and fresh food are enough to support a convenience store, but it's difficult in China because, apart from tobacco, fresh food is taken by street vendors, and snacks are taken by other competitors. So in the future, learning to take business from others is key. Many traditional hypermarkets have not done well in converting to discount formats because the two are completely different in procurement, products, stocking, and checkout models. This transformation must be seriously studied, or it won't be done well. Operators need to understand that there is no boundary that cannot be crossed; the key lies in your own vision, awareness, and courage.
New Wave New Consumption: If convenience stores want to operate across industries and take business from others in the future, which businesses should they prioritize? Previously, this format was oriented toward "convenience." How will its core value and role change in the future?
Zhang Sheng: The English for convenience store is "convenience store," and in the future it should become "convenience station," that is, a convenience station. As long as consumers find it convenient and there is profit to be made, you should do it. Because "Internet + convenience" has been proven not to work, but the convenience + other model is feasible. For example, combining your own advantages to sell coffee, beverages, lottery tickets, or express delivery—as long as it is a service that the store's customer base finds truly convenient and there is profit margin, it is worth trying.
In the past, paying utility bills was one of the services of convenience stores. Now mobile phones have made these things easily accessible, but in fact, there are still many inconveniences in life. You just need to patiently find services that can be combined with your own and provide solutions. Take two scenarios when ordering takeout as examples: First, takeout naturally has difficulty delivering food between 0 and 10 degrees Celsius. Imagine ordering a case of drinks on a 38-degree summer day, and they arrive hot—clearly not the experience consumers want. Second, certain specific foods are not tasty once the lid is closed, which is also a difficult problem for takeout. When doing any business, don't look for answers on the extension line of the past. Therefore, convenience stores should provide solutions when customers encounter inconvenience or hesitation.
New Wave New Consumption: But as the market becomes saturated, convenience stores' foot traffic and sales are affected, rent and labor costs rise, and they also face the impact of instant retail. For most traditional convenience stores that want to break through, what are the deep-seated problems at present? How should they complete the transition to the next stage?
Zhang Sheng: The problem that needs to be changed at this stage is the operator's mindset. "When three people walk together, there must be one who can be my teacher." We must learn to discover our own shortcomings and learn from others' strengths. In the convenience store industry, no matter how well you think you are doing, your peers and even non-peers can be your teachers. So for convenience stores to transition to the next stage, the key lies in the operator's learning ability and discernment. Because learning is not blind imitation; you must absorb selectively. You can't learn randomly; you must do some things and not others. Today, many retail people have forgotten humility. Even an inconspicuous small grocery store that can survive must have its strengths. Their flexibility often exceeds that of large chains. For example, if a customer asks if a certain drink is available today, the next day they can go to the wholesale market to stock it. Can a chain store do that? So every surviving format has value, just like dinosaurs became extinct, but many small animals survived because they could adapt to changes.
New Wave New Consumption: Among foreign convenience stores, FamilyMart fell out of the top ten in scale in 2023, while Lawson ranked fifth. How do you view the differentiation in competitiveness of foreign convenience stores in the Chinese market?
Zhang Sheng: Each company has its uniqueness, and you can't generalize. For example, strategy and shareholder issues can affect a company's development. But besides that, should foreign convenience stores reflect on why some local enterprises like Meiyijia can develop rapidly?
New Wave New Consumption: In April this year, Meiyijia had over 35,000 stores nationwide. Compared to Japanese convenience stores, what different path might it take? What does it need to pay attention to for better development in the future?
Zhang Sheng: Meiyijia and Japanese-funded convenience stores are not comparable in model or business thinking, so they are actually two different species. The best situation is that neither imitates the other. As for how far Meiyijia can go in the future, on one hand, it depends on market changes and its ability to respond; on the other hand, it also depends on whether franchisees can make money. As long as franchisees can make money, they will naturally come to join you.
What Will Leading Convenience Stores Rely on to Break Through Next?
New Wave New Consumption: We have previously interviewed some leading chain convenience stores. Although they all went through one or two rounds of financing and were determined to reform at the time, we found that most have stagnated in the past two years. The entire format lacks new growth or bright changes, and the strategic ideas proposed a few years ago have not truly landed. In your view, what are the constraints of the current domestic leading convenience stores, and how should they break through?
Zhang Sheng: The biggest pain for convenience stores at present is first insufficient funds. Many convenience stores that have survived are regional leading brands. They often feel conflicted about system R&D and supply chain construction because these investments are huge, but if you only have three to five hundred stores, such investment may not be worth it. Second, even if some convenience stores accept external investment, they don't know where to invest the money. China is a manufacturing powerhouse, and building a factory is not as difficult as imagined. The real difficulty lies in two points: First, building a factory means that once you operate across regions, the flexibility of the system and the adaptability of franchisees will be challenged because you need to change the existing working models of many franchisees. If you just copy mechanically, the final result will definitely be compromised. At the same time, after building a factory, the effective working limit of the supply chain is 300 kilometers. Beyond this distance, logistics costs become uneconomical. Therefore, if you only build a factory without enough stores, or only have stores without a factory, it will be painful. Why haven't these problems been solved? Because many convenience stores haven't figured out that what they should master is R&D. Why must they also hold production in their hands? By mastering R&D and outsourcing production, and relying on the ecosystem for everything that can be ecological, a virtuous cycle can be formed. China lacks neither equipment nor factories. Convenience stores should use this advantage to keep the core R&D team internal and hand production to external manufacturers. But currently, everyone is taking another path, which is building their own factories, but the formulas are in others' hands. Why does this happen? It's also a problem of thinking. Since you can do franchising and allow others to integrate into your system, why must production be direct-operated? It's the same principle. The same problem often occurs when you can think of it when doing one thing but not when doing another. That's the crux.
New Wave New Consumption: Many convenience store executives come from traditional retail. Their past experience may provide some advantages, but at a time when change is necessary, what specific transformations are needed in management, mindset, etc.?
Zhang Sheng: Actually, it's simple. The key lies in tolerance and humility. First, you must be able to accommodate talent; second, you must be willing to humbly seek advice and recruit talents. Since you can invest tens of millions or over a hundred million elsewhere, why not invest more in talent and incentives? Furthermore, boldly delegating authority is also important. There is a historical reason: many people did everything themselves at the beginning and didn't establish a good mechanism. But no one is omnipotent. When a company develops to a certain stage, one person can't know everything. Therefore, managers must learn to discover everyone's strengths and give them space to leverage their strengths.
New Wave New Consumption: But won't this cycle be relatively long, and can the enterprise bear it?
Zhang Sheng: At this time, operators need to have enough trust and give employees more room for error.
New Wave New Consumption: This will also cause problems like low efficiency in the interim. How do you think we should face this wear-and-tear stage?
Zhang Sheng: Today's domestic management problems are multifaceted, but they often manifest in a lack of trust and learning ability. To improve through management and organizational optimization, the most needed thing is to improve discernment and go out for more on-site learning. I rarely attend various activities of peers; instead, I go to observe consumers more. The reason is that peers' stores may inspire you, but you can't imitate them because they have their soil, and you have yours. Each enterprise has its uniqueness. As long as you have a learning heart, even latecomers can succeed. My personal experience is the best example. I didn't understand retail at first, but I understood consumption. After I moved from manufacturing to retail, my first thought was to focus on consumers, employee morale, and suppliers, and to understand what manufacturers want. I graduated from university and entered a daily necessities manufacturing company. Since a latecomer like me could do well, why can't pioneers make changes? The key is still to dare to let go of past experience.
New Wave New Consumption: For these people, they may feel that they succeeded and survived because of this experience. If they are asked to give up experience and re-accumulate, they may lose confidence.
Zhang Sheng: This matter is indeed contradictory. Operators need enough courage, but before courage, they must have enough discernment. But if you are at the point of drowning, relying on your past experience to "flounder" will definitely not work. At that time, you can only listen to the advice of the person saving you.
New Wave New Consumption: A few years ago, the industry had high expectations for convenience stores, and some enterprises obtained many resources through financing and other means. But in the past two years, there seem to be no new highlights. How do you view the industry's trend in recent years?
Zhang Sheng: First, although the industry has raised a lot of money in recent years, it hasn't been used in the right places. Second, today's retail industry is facing a talent gap. Part of the reason is that young people think the industry's salaries are not high and prefer to pursue those glamorous industries, making it difficult to retain excellent talent. But places where talent is scarce often hide real opportunities. In these industries, there are more opportunities for young people. In industries with abundant talent, growth space is limited. When I entered the retail industry, my friends advised me many times, but I believed in a principle: doing an easy thing well is natural, but if you succeed in doing a difficult thing, others will think you are remarkable; even if you fail, it's easier to be forgiven and get a chance to turn around. For example, the founding team of HotMaxx is very young and doesn't have much retail experience, but they are doing well now. Of course, although they don't have traditional retail thinking, retail has its uniqueness and cannot be completely denied. Internet thinking emphasizes rapid iteration and trial and error, which is not wrong in itself, but in retail, especially under the franchise model, you cannot let franchisees become "martyrs" for your trial and error. Any iteration must be well thought out. Franchisees cannot accompany you in trial and error. Therefore, when launching new projects, systems, or content, you must consider everything as thoroughly as possible and prepare strategies to deal with problems. It can be said that the Internet is more aggressive, while traditional retail is more moderate. But today's retail cannot remain unchanged; it's just that before changing, you must think clearly and not easily touch others' cheese. A counterexample is that many people want to do "naked price" on a whim, but they haven't thought about whether their suppliers can accept it.
When the Focus Falls on Private Brands
How Can Retailers and Supply Chains Co-create Long-term?
New Wave New Consumption: Today, many retail enterprises are expanding upstream and developing private brands. Compared to previous procurement models, what aspects should be focused on to do private brands well? How can long-term benefit maximization be achieved?
Zhang Sheng: First, establish a private brand R&D and planning organization independent of existing institutions. The new organization's evaluation mechanism, thinking mode, financial processes, and transaction methods all need thorough innovation. The purpose of setting up a new evaluation mechanism is to stimulate employees' enthusiasm and also to have enough room for error. At the same time, the core team of private brands must break away from traditional thinking and ultimately solve the trust problem with suppliers. Such mechanism adjustments may be opposed by the HR department, but as the boss, you must have enough determination and confidence to push these changes forward. But one thing must be clear: private brands are not a panacea because pursuing extreme private brands means sacrificing scale. Today, the ultimate goal of private brands is differentiation. To use an analogy, private brands can be MSG, not salt. They won't bring huge increments, but they can enhance the stickiness between consumers and you. So doing private brand differentiation well is key, but when doing differentiation, you must also think about why big brands don't do this. Because big brands face national or even global markets, while you may only target a specific region. When you want to expand to the national market, is your understanding of other markets as deep as that of big brands? If you cater to other markets, your products will be no different from big brands. So the final strategy is a combination of private brands, big-brand customization, and big-brand circulation goods.
New Wave New Consumption: Besides expanding private brands, many retail enterprises are also building their own factories. Currently, the relationships among retailers, supply chains, and brands may overlap somewhat. How do you think their value division will be in the future?
Zhang Sheng: From the manufacturer's perspective, global food processing technology is developing rapidly. If you have your own factory, once the technology falls behind, it's troublesome. I used to work in manufacturing, and my boss at the time told me that to surpass competitors in manufacturing, you can't just make small repairs; you must have core technology that competitors can't surpass within three to five years to maintain long-term profits and development. Because once new equipment and technology are made, competitors often don't want to give up old equipment. This hesitation leads to falling behind and eventually being eliminated. Just as you don't need to raise a cow to drink milk, retailers don't necessarily need to build their own factories. As long as you hold the core R&D in your hands, it's enough. But why do many enterprises still want to build their own factories? The core reason is that they can't manage suppliers. They can't make suppliers trust them, nor can they provide corresponding guidance capabilities. So today's retailers should focus on doing core capabilities like R&D well and invest money and energy in software and talent, not hardware.
New Wave New Consumption: With these soft conditions, what kind of long-term relationship should an excellent retailer ultimately form with the supply chain? Previously, there may have been distrust between the two. How should this problem be corrected?
Zhang Sheng: First is equality, because you are cooperative partners, not a simple supply-demand relationship. Second is trust, and it must be mutual. In addition, both parties should respect each other's intellectual property, and in the transaction process, fair prices and payment terms should be set. Finally, this cooperative relationship must be long-term. Without long-term cooperation, trust and supply stability cannot be discussed. In a book I wrote before, I mentioned a fact: many Japanese enterprises didn't do well after coming to China because they had a mindset of trying rather than deep cultivation. Successful enterprises often need a long-term rooted mindset. In the future, retailers and supply chains should have more in-depth communication and act after reaching consensus. If both parties just sit together and make decisions on a whim, it definitely won't work. Only by establishing long-term trust can cooperation succeed.