Click the image for details Open 365 days a year, 24 hours a day, orderly, offering simple, diverse, and steaming hot food. Gradually, convenience stores have become a lifestyle and a spiritual dimension for urbanites. Text by Ding Tian If smoke from chimneys is a symbol of the countryside, then the lights of convenience stores are equivalent to the city, and they are the softest part of the city's ultimate industrialization metaphor. As New World says, a convenience store is a gentle beacon in the deep night of the city. In 1946, 7-Eleven was born in the United States. More than twenty years later, this small grocery store known for standardization came to Japan and spread worldwide. Open 365 days a year, 24 hours a day, orderly, offering simple, diverse, and steaming hot food. Gradually, convenience stores have become a lifestyle and a spiritual dimension for urbanites. The birth of convenience stores was like a miracle, but their current operational difficulties and multi-party battles are not so warm. Since 2018, the development of convenience stores has been somewhat awkward. Linjia and 131 convenience stores have closed down one after another due to capital turnover issues. On February 19, Interface News confirmed from multiple sources that Quanshi's Beijing, Tianjin, and Chengdu companies have indeed been acquired by Tianjin Shanhai Lantu Commercial Co., Ltd. Earlier, media reported that Quanshi convenience stores had packaged and sold all their chain stores in Beijing, Tianjin, and Chengdu to Yinlu Food Group, whose parent company is the global food and beverage giant Nestlé. Nestlé has denied this. With another wave of store closures at Quanshi, the mystery of who would take over Quanshi may have been resolved. According to the "China Convenience Store Prosperity Index" for the third quarter of 2018 released by the China Chain Store & Franchise Association, the convenience store industry has indeed begun to show a "cooling" trend, and problems exposed in the capital market have also sounded an alarm for the industry. Today's convenience stores may need more miracles to survive. Most battles are silent, without the glint of swords, but under the bright 24-hour lights of convenience stores, as automatic doors slowly open, behind the phrase "Welcome," there are undercurrents. 01 Rapid Rise and Fall For local convenience stores, the question is: how to avoid rapid decay after rapid growth. Linjia, a local convenience store that once created a myth, had its main battlefield in Beijing, which is known as the "graveyard of convenience stores." In early April 2015, when the spring chill was still in the air, a management team of more than 30 people from 7-Eleven's Beijing region suddenly submitted their resignations at the same time, including more than 20 regional managers, 2 regional general managers, and several staff from the market development department. These 30-plus people quickly gathered and completed the entire process from team building to company establishment—Linjia Commercial and Trading Co., Ltd., the parent company of Linjia convenience stores, was born. Just two months later, in Beijing's Chaoyang Shoufu commercial area, a place where every inch of land is precious, Linjia convenience store opened. With 168 stores in 3 years, everyone would agree that Linjia's store opening pace was almost crazy. But looking past the surface, it's not hard to see that what was truly crazy was capital. Wang Lei, former CEO of Linjia convenience stores, revealed to the media that investors had asked them to open 20,000 convenience stores in one year. From 2017 to now, there have been more than 70 financing events in the convenience store industry, with at least 10 billion yuan flowing in. Brands such as Xi'an Every Day, Jianfu, 131, Today, and Linjia have all received investment, while Bianlifeng and Haolinju have received additional capital. However, the entry of capital has made the landscape of the domestic convenience store industry increasingly uncertain. With the support of capital, some startup brands are sprinting recklessly. According to a report released by China Commercial Industry Research Institute, convenience stores have developed rapidly in China in recent years, with the number of stores growing exponentially. In 2017, the growth rate of China's branded convenience store industry was 23% year-on-year, with a market size exceeding 190 billion yuan. At the same time, the franchise ratio of domestic convenience stores lags far behind developed markets like Japan. The "2018 China Convenience Store Report" disclosed that nearly 40% of domestic enterprises have not yet launched franchising, and franchise management is relatively loose, while the franchise ratios of Japan's Lawson, FamilyMart, and 7-Eleven are 95%, 97%, and 98%, respectively. In fact, local convenience store brands are not unwilling to develop franchise systems, but because of insufficient supply chain capabilities, headquarters control, and weak operational capabilities, they cannot handle the problems brought by franchising. The gap is that 7-ELEVEn's franchise manual is about 700 pages long and very comprehensive, while local convenience stores are still in the initial stage of pursuing cost reduction and profit improvement. "This is a paradox: domestic convenience stores want to expand rapidly on one hand, but on the other hand, they encounter difficulties in developing franchise models, so they can only expand through direct operation, which actually brings more financial pressure to convenience stores, thereby affecting their development speed," said Gao Yunfei, CEO of Advantage International Consulting Group China. Rapid growth is too easy. But excessive speed means it has not yet formed the ability to generate its own cash flow, relying only on capital to drive forward. Take Linjia as an example. Its investor, Shanlin Finance, is a financial group mainly based on P2P models. It has financial platforms such as Weimei Dai, Yibao Dai, Xinlong Venture Capital, and Shanlin Bao. The P2P industry's requirement for rapid returns conflicts with the slow, refined, and long cultivation cycle of retail. This undoubtedly planted hidden dangers for its own fate. Once the investor makes a mistake, the invested party faces the possibility of collapse at any time. On April 9, 2018, Zhou Boyun, the actual controller of Shanlin Finance, surrendered to the Pudong Branch of the Shanghai Public Security Bureau. Zhou Boyun stated that the company had illegally absorbed more than 60 billion yuan in deposits from the public nationwide, and a huge funding gap had made it impossible to repay investors' principal and interest. In August, Shanlin Finance's capital chain completely broke, and Linjia convenience stores suddenly lost blood, closing 168 stores overnight. Since June 2018, more than 100 P2P platforms have exploded one after another, involving hundreds of thousands of investors. Linjia is just one of the casualties. Linjia is not the only convenience store to be buried. A month later, due to problems with investor Chunxiao Capital, the founder of 131 convenience stores lost contact and was later detained; in mid-November, Quanshi convenience stores, the largest in Beijing, were rumored to be taking stock of assets and seeking sale. Internal materials obtained by 36Kr showed that since November last year, Quanshi had closed about 90 stores in Beijing; as of February 13, Quanshi still had about 320 stores in Beijing. This means the closure rate in this round exceeded 20%. "Both capital and convenience stores are in a phase of being hot-headed, lacking rational judgment, and mutually fueling each other, creating more bubbles." In addition, the profit level of domestic convenience stores lags behind international leading enterprises by more than one notch. According to the 2018 CCFA convenience store survey, the average daily sales per store of sample enterprises was about 5,000 yuan, leaving significant room for improvement. Uchida Shinji, chairman of 7-11 (China) Investment Co., Ltd., revealed in an interview that 7-11's daily sales per store can reach 36,000 yuan. The main reasons for the large gap in profitability between domestic and foreign convenience stores are, first, scale, and second, refined management capabilities. Convenience store retail is an industry that follows economies of scale. Without reaching a certain scale, it is difficult to achieve overall profitability. If you expand recklessly without achieving single-store profitability, the more stores you open, the more blood you lose. Moreover, the convenience store industry has high requirements for managers' refined management capabilities, and foreign convenience stores are relatively mature in this regard. Even after scaling, the requirements for store location, supply chain capabilities, and personnel training are extremely high. According to the "2018 China Convenience Store Report" released by the China Chain Store & Franchise Association, the operating costs of the convenience store industry have been rising rapidly over the past year, with rent costs up 18% and labor costs up 12%. Convenience store companies continue to use technology to improve management efficiency to combat rising costs. Under the environment of rapidly rising rent and labor costs, how to improve efficiency and quickly complete iterative upgrades are urgent issues for local convenience store enterprises. Blindly expanding is not a way to survive in war, but rather a headlong dive into a fate of rapid decay like mayflies. 02 Giants Enter the Arena Last year, Alibaba's Tmall Xiaodian planned to open 10,000 stores, JD.com's convenience stores planned to open 50,000, and Suning Xiaodian's year-end sprint target was 5,000. From online to offline, convenience stores have become a bloody battlefield for e-commerce giants. On July 28, 2018, in Nanjing, Bao Junwei, president of Suning Retail Group's Suning Xiaodian, announced that Suning Xiaodian would establish a fresh food alliance and build five processing centers. In the industry's view, this meant that Suning Xiaodian began to directly compete with Japanese-style convenience stores. In Japanese-style convenience stores, fresh food items such as bento boxes, vegetable salads, and desserts specially customized for office workers are the most popular products and represent their core competitiveness. Now Suning is also cooperating with suppliers to build a fresh food supply chain, and some partners are also suppliers to Japanese-style convenience stores. Suning Xiaodian has become Suning Group's main format in the fresh food and community O2O track. Suning Xiaodian's goal is to solve the last 100 meters of smart retail, with "stores nearby, service at home, instant delivery." This is just the beginning, but Chairman Zhang Jindong still feels it's not enough. To rapidly advance Suning Xiaodian, in April 2018, Suning acquired 100% of Dia China's equity, which had 323 self-operated and franchise stores in Shanghai. In July, these stores completed renovation and were officially branded as "Suning Xiaodian," merging into Suning's Shanghai region, completing an important layout in Shanghai. On the other hand, real estate developers who are close to Zhang Jindong also play an important role in Suning Xiaodian's layout. Close cooperation with real estate developers is another path for Suning Xiaodian's rapid expansion. Last year alone, Suning Xiaodian had more than 300 projects with Country Garden and more than 200 projects with Evergrande. Bao Junwei said, "Previously, there might have been a FamilyMart under Wanda's office building. Sorry, in the future, it will all be Suning." Alibaba and JD.com started earlier on this path. In August 2017, Alibaba's Retail Link announced that the first Tmall Xiaodian officially opened in Hangzhou. Unlike Suning's approach, Tmall Xiaodian uses a brand licensing method. Through the support of Alibaba and Retail Link, it empowers small stores with Alibaba's channels, technology, logistics, and data capabilities, comprehensively upgrading store service capabilities and improving sales per square foot. In 2016, there were about 100,000 stores cooperating with Alibaba's Retail Link. By 2018, this number had risen to 550,000, with over 1 million registered stores. The key supported Tmall Xiaodian stores planned to reach 10,000 by the end of the year. As for JD.com, it's the story of its "million convenience stores." This plan also started early, originating from the New Channel Business Unit in 2015. According to Wang Zheng, general manager of marketing at JD.com's New Channel Business Unit, the original intention of New Channel was for JD.com to expand into offline retail. In April 2016, JD.com's Zhangguibao went online, originally intended to provide better supply services to mom-and-pop stores. But as supply services to small B merchants gradually moved to the forefront, in April 2017, Liu Qiangdong officially announced that in the next five years, JD.com would open more than 1 million JD convenience stores nationwide. To attract more small stores to join the JD convenience store plan, apart from paying a quality deposit, JD.com did not set particularly strict thresholds. The ground promotion team would inspect the store's location and the owner's reputation, with priority given to Zhangguibao users, and there was no clear requirement for the distribution ratio. But as long as you join JD convenience stores, besides changing the storefront, JD.com will provide the owner with a series of supporting facilities such as supply sources, brand, warehousing and distribution, creating the impression among consumers that "everything can be bought from JD.com." However, by the second half of 2018, news of JD convenience store closures had already circulated online. Liu Qiangdong once made bold statements, but now he is silent. For Alibaba, they prefer to turn Tmall Xiaodian into a life service circle, a service terminal that meets immediate consumption needs. In the view of Ge Xin, director of smart stores at Alibaba's Retail Link Business Unit, listing only solves the image problem. Corresponding to Alibaba's Taobao consumption data, Retail Link will give Tmall Xiaodian specific product selection suggestions and optimize inventory structure to more effectively solve consumers' immediate needs. So, unlike Suning's tone of replacing FamilyMart, Alibaba will say, "Alibaba's natural advantages are something our competitors cannot have. We give more." Despite different approaches, the giants know well that the convenience store battle that e-commerce is eyeing will be a long-term war of attrition. No one dares to say their model has been proven; they are all adjusting while running fast, and no one dares to stop. 03 The Lightness of New Retail Whether it's capital moves or giant competition, this "Internet + convenience store" trend is logically driven by technology under the new retail wave. The rapid rise of "Hema Fresh" has clearly depicted the outline of a three-kilometer life circle: users within a three-kilometer radius can enjoy delivery within 30 minutes to an hour after ordering online. But now, technological innovation in convenience stores has narrowed this extreme service competition to a 300-meter radius, and the business at your doorstep is facing a reshuffle. As for why e-commerce values this business so much, Pan Jinju of Chunxiao Capital believes that online traffic is becoming increasingly expensive, and new retail is re-evaluating the value of offline traffic. Convenience stores are a small business district format, and from a purely physical location perspective, they can only radiate about 500 meters. But precisely because of this, after users have frequent contact, the transaction communication behind the convenience store network actually has greater user value. Embracing new retail is a two-way choice for convenience stores and capital. On October 15, Bianlifeng was reported to have received significant investment from Tencent and Hillhouse Capital, with a valuation of $1.6 billion. On November 9, Alibaba completed a strategic investment in C-Store, investing 500 million yuan for a 20%-25% stake. Based on this, C-Store's post-investment valuation is estimated at around 2 to 2.5 billion yuan. AT (Alibaba and Tencent) are competing again. In fact, whether it's new retail or old retail, the essence is transaction. In the retail industry, everyone can see the same endgame: the hope is to parameterize daily operations through technology. Ultimately, any battle in the digital age is about "technology." It's nothing new for traditional retail enterprises like convenience stores to actively embrace new technology. As early as the 1980s and 1990s, 7-11 introduced its own ERP system, regional system, and POS system. Walmart took 50 years to complete technological changes in its supply chain. In 1987, Walmart successfully launched the world's first commercial communication satellite to uniformly manage the inventory information of all products in more than 4,000 stores globally. With the downward penetration of e-commerce and the gradual increase in online-offline integration, many traditional retail players hope to explore e-commerce projects. After that, C-Store chose Tmall, Haolinju chose JD.com, and convenience stores once became pickup points for e-commerce platform parcels. With the development of mobile internet, excellent chain convenience store brands have also improved management efficiency through technology. New retail going offline will inevitably become heavier than online; from model to scale, it cannot be as light as online. Offline retail and online retail can be combined, but their essence will be different. Offline convenience stores cannot be too light; physical stores need to be opened one by one, eventually forming a dense network to achieve economies of scale. 7-11 has always adhered to a regional concentration strategy, which it regards as a secret: new stores should be as close as possible to the radiation range of existing stores, forming a high-density distribution of stores in a certain area. But the empowerment of technology will undoubtedly make everything lighter and more agile. Among them, the "value of data" is the most intuitive. It includes important information such as the consumption behavior of surrounding residents, as well as offline operational efficiency, namely sales per square foot, average transaction value, and inventory turnover, which are traditional retail concerns. After data integration and connection, online and offline achieve dual drive, using the huge flow of people in convenience stores as a digital entry point, easily activating customer resources and connecting with other platforms. This is an important idea for the future development of convenience stores. Retail expert Wen Zhihong believes that new retail brings opportunities for business model innovation to convenience stores. "In fact, there are many types of convenience store innovation, such as Bianlifeng's 'convenience store +' intelligent strategy, or unmanned convenience stores, all of which are closely connected to the internet. The application of smart devices in the new retail era also provides opportunities and conditions for innovation in convenience store development," he said. He added that new retail helps convenience stores extend their value. Under the wave of new retail, even traditional international convenience store giants like 7-11 are making adjustments and changes. In February 2018, 7-11 opened its first unmanned convenience store, X-store, in Taiwan, aiming to continue its innovation through unmanned retail. The essence of retail is transaction, and the essence of transaction is about people. The convenience store business is full of smoke, but the reason convenience stores are contested by all parties is that they have become an indispensable life experience for urbanites, because when you need it, the 24-hour light of the convenience store is always on. "From breakfast to late-night snacks, from chance encounters to heartbreak, even the little yellow duck for points redemption can heal a tired heart." A 7-11 employee once told New World a story about someone who came to their store to buy shoes. It was a young girl whose shoe heel suddenly broke on the road, and she hobbled into the convenience store, barely able to walk. She asked frantically, "My heel fell off. Do you have any shoes here?" The employee said no, and she broke down, saying, "Why don't you have shoes?!" The fact that convenience stores don't sell shoes was hard for the girl to understand. Perhaps in her accustomed life, convenience stores should have everything and solve any problem. At that moment, the employee felt they should sell shoes. Source: Luming Finance (ID: luminglab) New Distribution will hold the 2019 (5th) FMCG + Internet Conference during the Chengdu Spring Sugar and Wine Fair from March 15 to March 18. This conference will focus on the topic of "Breaking the Game" , with in-depth discussions with many brand owners, supply chain service providers, distributors, and retailers. Compared to previous conferences, this summit will be fully upgraded. In addition to the original topics of channel innovation, city distribution logistics, and distributor transformation , it will add multiple parallel forums on new marketing cases, IP + FMCG empowerment, community group buying, and innovative retail . Through three days of ten high-density, high-quality expert sharing sessions, we believe every brand owner and distributor can learn the latest business models, expert opinions, and practical methods, finding new tools and methods to break the game in 2019 and return to the track of rapid growth. Review of Previous Conferences -END-