Click to read the original article for details Bianlifeng, which once expanded rapidly, is now perhaps on the path of closing stores everywhere. Ran Ciyuan noticed that since March this year, netizens have frequently posted online that the Bianlifeng stores near their homes have shortened business hours or have already closed. On Xiaohongshu, a netizen with the ID "23:08" wrote that the originally 24-hour Bianlifeng now locks its doors shortly after 8 p.m., and the staff changes every day. "This morning I chatted with a staff member, who said this store is already a 'dead store.' The store manager has gone to another store, and every day the system schedules people from elsewhere. Taking leave at night deducts 24 hours of work time." A netizen living on Tianjin's Jinbin Avenue also said that recently, the Bianlifeng delivery service near their home has been shut down, the mini-program has stopped, and some stores have even closed. Image source: Xiaohongshu, screenshot by Ran Ciyuan This situation has also appeared in first-tier cities such as Beijing and Shanghai. Multiple consumers living in Haidian District, Chaoyang District in Beijing, and Jing'an District in Shanghai told Ran Ciyuan that the Bianlifeng stores near their homes have experienced "shortened business hours" and "store closures." In May this year, media reported that Bianlifeng had closed around 700 stores. Ran Ciyuan sought confirmation from Bianlifeng's relevant person in charge, who responded, "Earlier, due to the pandemic, Bianlifeng encountered difficulties in logistics and transportation, and temporarily closed some stores. However, as the pandemic gradually subsides and the support system matures, many of Bianlifeng's 'hibernating' stores have gradually resumed operations." However, the person did not give an accurate answer regarding the store closure data, saying, "There is no officially confirmed specific store closure data yet." Beyond store closures, Bianlifeng's insistence on a self-operated model has significantly slowed the growth of its nationwide store expansion. Compared with Lawson, which has been rooted in the Chinese market for many years, and the local brand FamilyMart, it still lags in total store count. The challenges encountered in exploring lower-tier markets also add difficulty to its goal of "10,000 stores nationwide." Zhuang Shuai, an expert in the retail e-commerce industry and founder of Bailian Consulting, said that at the end of 2021, Bianlifeng had 2,800 stores nationwide. If the media-reported 700 store closures are accurate, Bianlifeng's current store closure rate is about 25%. "For the retail industry, a 30% closure rate is a threshold. Exceeding 30% indicates that the company's operations have released an extremely dangerous signal. Bianlifeng's closure rate is relatively high but still below the safety margin." Zhuang Shuai further stated that China's complex population structure and cultural diversity make it difficult for convenience stores to become a nationwide popular format. In fact, it is not just Bianlifeng; any chain convenience store faces significant difficulty in forming a certain scale nationwide. Yuan Laiyang, a member of the expert committee of the China General Chamber of Commerce, said that due to the significant differences across provinces, cities, and regional markets, it is very difficult for convenience stores to develop rapidly and on a large scale nationwide. As the experts mentioned above, chain convenience stores, including Bianlifeng, must continuously seek competitive advantages to achieve nationwide expansion. 01: Store closures, shortages, and no staff: What's wrong with Bianlifeng? "Sometimes during work breaks, I want to go to the convenience store downstairs to buy some yogurt or chocolate, but I find that the Bianlifeng downstairs is often unmanned." Wenwen, who works near Jing'an District in Shanghai, told Ran Ciyuan that a Bianlifeng located on the ground floor of an office building near Jing'an Temple often has its lights on but the door locked with no one inside, and this has become the norm. "The office building is clearly in a relatively bustling area with a steady flow of people. I don't understand why Bianlifeng often locks its doors," Wenwen said in confusion. Feifei, who works near CBD in Chaoyang District, Beijing, said that the Bianlifeng in her office building has not closed or locked its doors, but it often runs out of stock. "At least twice when I went to buy breakfast, I found the fresh food shelves empty. When I asked the staff, they said, 'The regional warehouse has no stock, so we can't do anything.'" Feifei recalled that once at 9 a.m., there was no food on the shelves, and the queue was blocked at the ordering counter. It wasn't just breakfast that was out of stock. Feifei said that one afternoon during a work break, she went to Bianlifeng and found large areas of the snack shelves empty. Image: Empty shelves at Bianlifeng, source: provided by Feifei What is even more "tragic" than shortages is store closures. "The Bianlifeng near my home was originally open 24 hours, then changed to non-24-hour, and recently closed completely." Jiajia, who lives near Nanjing West Road in Shanghai, told Ran Ciyuan. Jiajia works at a financial consulting company in Shanghai and often leaves early and returns late. Therefore, buying breakfast and late-night snacks at a 24-hour Bianlifeng on the way to and from work became a habit. However, since the Spring Festival this year, Jiajia has been forced to change this habit. Jiajia said that around the Spring Festival, the Bianlifeng, which originally operated on weekends and holidays, began to rest on holidays, and later the closing time was advanced to around 8 or 9 p.m. "Occasionally, when I come back from overtime and want to buy some snacks, I find they have already closed. The '24-hour' sign on the door seems ironic," Jiajia said. Opposite this Bianlifeng are 7-Eleven and FamilyMart, both of which are almost always open 24 hours. "At the time, I thought, isn't Bianlifeng so 'not competitive'?" Due to the change in closing time, Jiajia gradually stopped shopping at this Bianlifeng and switched to the FamilyMart across the street. "The most I buy at convenience stores is breakfast buns. There isn't much difference between convenience stores, so it doesn't matter which one I go to." But to Jiajia's surprise, last month, when she wanted to visit the Bianlifeng again, she found that it had completely closed. Tingting, who lives near Beijing Jiaotong University in Haidian District, Beijing, also noticed the closure of Bianlifeng stores near her home. "Because I live near the university campus, there are rows of convenience stores at my doorstep, with 7-Eleven and Bianlifeng being the most common." But from May this year to last month, Tingting observed that two Bianlifeng stores near her home had closed. "Since my job doesn't require me to be in the office every day, I basically buy groceries through same-city fresh food channels and rarely go to convenience stores. If I do, it's because I suddenly crave snacks. I noticed the Bianlifeng closures because two closed within two months, which I think is a bit frequent," Tingting said bluntly. According to Tingting, the two closed Bianlifeng stores now have "For Lease" signs on their doors, and people have come to view the properties. "The area is small and has many students, making it suitable for snack shops or convenience stores." Public information shows that Bianlifeng established the label of "systematized" and "data-driven management" at its inception. Now, do the occurrences of store closures, unmanned management, and shortages mean that its algorithms have "failed"? In this regard, Zhuang Shuai said that the phenomenon of Bianlifeng store closures cannot be uniformly attributed to algorithm "failure." "Whether it's Bianlifeng or other chain retail businesses, there are many reasons for closing stores nationwide, such as lease expiration without renewal, unaffordable high rents, and low single-store profits—these are operational and cost issues." However, regarding personnel and merchandise management issues, Zhuang Shuai bluntly stated that this might be caused by algorithmic misjudgment. "As far as I know, Bianlifeng uses surveillance systems to collect image data of store personnel and merchandise, and then uses the data to determine the dispatch of personnel and goods. If consumers can see large-scale shortages and lack of maintenance, it's hard for cameras to miss it," Zhuang Shuai further analyzed. "One possibility is that the algorithm has a deviation in the timing of goods and personnel scheduling, or the system may not report in a timely manner." Li Yingtao, a senior analyst in the brand retail industry at Analysys, expressed the same view. However, Li Yingtao also pointed out that any algorithm has flaws, and it is normal for Bianlifeng's algorithm to have deviations in accuracy and timeliness at present. "But I still believe that investing in algorithm research and collecting large amounts of data is the right move. Having this data is always better than not having it. Bianlifeng is collecting data now, and whether this data can improve operational efficiency through more effective algorithms will require time to test." 02: The "10,000 stores nationwide" goal is difficult Operational instability may have directly affected the progress of Bianlifeng's "10,000 stores nationwide" plan. In 2020, The Beijing News reported that "Bianlifeng's national store count exceeded 1,000, and it raised its store opening target to 10,000 within the next three years." However, according to the "2021 China Convenience Store Top 100" released by the China Chain Store & Franchise Association, by the end of 2021, Bianlifeng had 2,800 stores nationwide, having been "squeezed" out of the national convenience store Top 10. At the same time, the pace of Bianlifeng's store openings has significantly slowed. According to data compiled from KPMG reports and multiple media public data, by the end of 2020, Bianlifeng had 2,000 stores nationwide, a 100% increase from 1,000 at the end of 2019. By the end of 2021, the number was 2,800, only a 40% increase from 2,000 at the end of 2020. In contrast, Lawson, which also aims for 10,000 stores nationwide, had 4,466 stores by the end of 2021, and according to a report by Jiemian News on August 1, Lawson's national store count has now exceeded 5,000. Regarding the slowdown in Bianlifeng's store expansion, Wen Zhihong, a chain industry expert and general manager of Hehong Consulting, said that Lawson has been developing in the Chinese market for many years, and to accelerate store expansion, Lawson has adopted franchising, licensing, and joint venture models. Bianlifeng, on the other hand, has always adhered to a self-operated model, so it has no obvious advantage in terms of channels and time for store expansion. Regarding whether Bianlifeng will open franchising in the future to accelerate store expansion, a Bianlifeng representative said, "Currently, Bianlifeng is a self-operated model." However, several consumer industry analysts contacted by Ran Ciyuan predicted that Bianlifeng might open franchising in the future. Zhuang Shuai believes that Bianlifeng's insistence on self-operation has its reasons. "For any convenience store, the most scarce human resource for expanding stores is the store manager," Zhuang Shuai said. Convenience store management is complex and trivial, from whether there are water stains on the floor to whether restocking is timely, and how to select products, price, and promote based on consumer needs—all require the store manager to decide. Therefore, most successful convenience stores have mature store manager training systems. But training store managers is time-consuming and labor-intensive, and due to China's vast territory, regional cultural differences further increase management difficulty. "Therefore, I think Bianlifeng's algorithmic management system is using algorithms to hand over standardizable and quantifiable management tasks to the system, allowing one store manager to manage multiple stores to reduce labor costs. This may be an important reason why Bianlifeng insists on self-operation." As for whether the self-operated model will succeed, Zhuang Shuai said it is too early to judge. "From the successful convenience stores nationwide, franchising is indeed a common way to rapidly expand. But that doesn't mean self-operation won't succeed. Bianlifeng has not been established for long. To judge whether its self-operated model will succeed, we need to observe for at least another five years." In addition to the operating model, Li Yingtao added that Bianlifeng's self-owned coffee brand, "Bumianhai Coffee," will increase its raw material costs and marketing expenses to a certain extent, which will divert some cash funds originally used for store expansion. At the same time, Bianlifeng faces challenges when moving out of first-tier cities and expanding into second- and third-tier cities for a national layout. Ouyang, a continuous entrepreneur in the retail industry, told Ran Ciyuan that "premium convenience stores" represented by Bianlifeng need to overcome "three mountains" when exploring lower-tier markets: local leading convenience store brands, local mom-and-pop stores, and online stores. "Don't underestimate the power of mom-and-pop stores. In lower-tier markets, the product selection of mom-and-pop stores has been沉淀 through long-term consumer screening and is the 'correct answer,'" Ouyang explained. In many lower-tier markets, supply chain distributors will visit mom-and-pop convenience store owners to negotiate purchase quantities. If there is a large surplus of goods within a certain period, the owner can return them, and the trial-and-error cost of product selection is usually borne by the supplier. "In contrast, premium convenience stores led by Bianlifeng are different," Ouyang said. "As far as I know, most chain premium convenience stores have requirements for SKUs, such as a minimum number of product types per store. But whether these individual products are truly needed by the local market requires a certain amount of trial-and-error time." "In addition, many retail suppliers have minimum purchase quantity requirements. Can the local market demand for goods cover the minimum cost of purchase? If not, the costs of centralized dispatch of goods to other regions, as well as expired and damaged goods, must be borne by the chain convenience store," Ouyang added. In terms of cost and supplier management alone, Bianlifeng already faces the phenomenon of "losing" to lower-cost, more flexible local mom-and-pop stores in lower-tier markets. Moreover, the development of internet consumption and local leading convenience stores are even more "troublesome" competitors. Ouyang said that consumers in lower-tier markets are more price-sensitive, and interest-based e-commerce platforms like Douyin and Kuaishou, as well as community apps, have higher coverage of users in lower-tier markets. Therefore, they are more inclined to choose online shopping over convenience stores. Even if they choose convenience stores, consumer mindset determines that they will prioritize local chain convenience stores over out-of-town brands. 03: How can premium convenience stores expand beyond first-tier cities? It is not difficult to see that whether in terms of business model or market competition, Bianlifeng's expansion plan is full of challenges. In fact, it is not just Bianlifeng; the problem of convenience stores being "trapped" in first-tier cities for years seems to have become a "chronic disease." In this regard, Li Yingtao said that the low cost-performance ratio of chain convenience stores is one of the factors that puts them at a disadvantage in lower-tier markets. "Take a bottle of cola as an example. Cola sells for about 2.5 yuan per bottle in a hypermarket, but in a convenience store, it may sell for 3-5 yuan per bottle," Li Yingtao analyzed. This is because while convenience stores provide the added value of "convenience and immediacy," their product cost-performance ratio decreases. Consumers in first-tier cities have strong purchasing power and high time costs, making them relatively more willing to pay for "convenience." However, the pace of life in lower-tier markets is slower, and consumers are more price-sensitive, resulting in convenience stores naturally being "not suited to local conditions" in lower-tier markets. Zhuang Shuai believes that population structure is closely related to the development of retail formats. "Japan is one of the countries with the most developed convenience store formats in the world because of its small land area and high population density. In contrast, the United States, with its vast land and sparse population, has a less developed convenience store format, but large supermarkets are very developed. Similarly, in the Chinese market, Shanghai, with its high population density, has a relatively mature convenience store format. In contrast, Beijing's regional structure and residential patterns are more complex, and there are more restrictions on site selection in commercial areas due to its administrative nature. Therefore, Bianlifeng, which started in Beijing, has natural limitations in site selection and expansion." Zhuang Shuai further added that from a national layout perspective, first-tier cities and lower-tier markets differ significantly in population structure and residential patterns, and there are also large differences in each region. Therefore, chain convenience stores will encounter many regional challenges in exploring lower-tier markets. In addition, Zhuang Shuai pointed out that dietary cultural differences are another challenge that chain convenience stores must face in their national layout. According to the "2021-2022 China Convenience Store Industry Development Status and Consumer Behavior Monitoring Report" released by iiMedia Research, 71.1% of consumers purchase leisure snacks at convenience stores, and 54.7% purchase freshly prepared food. "Obviously, food is a high-frequency consumer item at convenience stores, and tastes and dietary cultures vary greatly across China. Therefore, how to formulate product selection strategies in different regions is also a major challenge," Zhuang Shuai analyzed. Image source: iiMedia Research, screenshot by Ran Ciyuan Ouyang bluntly stated that what exactly is "premium" about premium convenience stores? This is a question that all chain convenience stores must consider if they want to successfully expand nationwide. "Now many chain convenience stores are only 'premium' in price, but in product selection, they are 'many products' rather than 'premium products.' In various regional lower-tier markets, how to effectively conduct product selection trial-and-error to find products that are different from existing stock and also in demand is the true 'premium.'" Ouyang also said that compared with starting from scratch, localized acquisitions may be more conducive for chain convenience stores to expand beyond first-tier cities and go nationwide. "As far as I know, to accelerate the layout of the Shenyang market, Lawson cooperated with the local 'Meidang' convenience store in Shenyang, and to encourage more franchisees to join, Lawson Shenyang also provides certain subsidies." Ouyang said that local convenience stores have already spent a lot of time and energy on personnel management, supplier management, product selection, and consumer mindset research. A single regional market may take 3-5 years or even longer. If chain convenience stores do everything themselves, it may consume huge energy and slow down the development process. Regarding how chain convenience stores can accelerate their national layout, Zhuang Shuai said, "China's complex population structure makes it very difficult for a single convenience store brand to successfully expand nationwide, but it is not impossible. The most important competitive point is how to achieve 'thousand stores, thousand faces.'" "How to flexibly adjust decisions based on subtle consumer differences in different regions and even communities, such as in product placement, product selection, promotional pricing, and value-added services, so that each store has subtle differences, is an important topic for whether chain convenience stores can become 'national' convenience stores," Zhuang Shuai added. To achieve this, mature automatic replenishment systems and settlement systems are essential. "Machines need to take over most repetitive and simple tasks to free up human resources for higher-dimensional thinking." Zhuang Shuai further explained that, for example, machines can analyze whether a product's slow-moving rate is high or low, while the store manager needs to think about why a product doesn't sell well in a certain store and make decisions such as finding alternatives or using promotions to increase product circulation. "Developing functional systems such as product analysis and settlement to be more timely, accurate, and agile, and training personnel to better use system data for analysis, judgment, and decision-making, achieving a full integration of technology and individuality, may be the core competitive point for future chain convenience stores," Zhuang Shuai said. References: "Bianlifeng Starts High-Speed Expansion Mode, Stores to Reach 10,000 in 3 Years," source: The Beijing News; "Lawson China Stores Exceed 5,000, Crushing FamilyMart and 7-Eleven," source: Jiemian News; "Store Closures and Layoffs: Has Bianlifeng's Algorithm 'Faith' Failed?" source: Titanium Media; "Bianlifeng Rapidly Expands in Shandong, Opening Nearly 50 Stores in Jinan and Qingdao This Year," source: Shandong Finance Report; "First Disclosure of 3-Year Plan: Bianlifeng to Open Over 4,000 Stores Next Year, Reaching 10,000 in 3 Years," source: Wenhui Client. *The title image and some in-text images are from Visual China. *Jiajia, Wenwen, Feifei, Tingting, and Ouyang in the article are pseudonyms. *Disclaimer: Under no circumstances does the information or opinions expressed in this article constitute investment advice to anyone. Text source: Ran Ciyuan (ID: chaintruth) Author: Lü Jingzhi [Wangwang Group Marketing Director Huang Yongsong] Pay tribute to channel partners, meet in Chengdu, August 31-September 2, 2022 (7th) China FMCG Channel Innovation Conference. -END-