---
title: "The Fatal Allure of Convenience Stores"
description: "Capital's pursuit of profit has led to a wave of convenience store failures in Beijing, as companies like Quanshi, 131, and Linjia collapse due to funding issues. The article argues that convenience stores are a high-risk, low-return business, and many are unsustainable without continuous capital injection."
author: "李又寻欢"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2018-09-29"
language: "en"
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---

# The Fatal Allure of Convenience Stores

> Capital's pursuit of profit has led to a wave of convenience store failures in Beijing, as companies like Quanshi, 131, and Linjia collapse due to funding issues. The article argues that convenience stores are a high-risk, low-return business, and many are unsustainable without continuous capital injection.

Click 'Read Original' for details.
Source: Lingshou (lingshouke)
This article is republished with authorization. For reprint requests, please contact the original author.

"Once there is an appropriate profit, capital becomes bold. With 10% profit, it is guaranteed to be used everywhere; with 20% profit, it becomes active; with 50% profit, it takes risks; for 100% profit, it dares to trample all human laws; with 300% profit, it dares to commit any crime, even at the risk of hanging." — T.J. Dunning

1
Isn't it fair to say that the terror of capital is also evident in China's retail convenience store sector?

Quanshi Convenience is not unfamiliar, but it wasn't until it finally couldn't hold on just before National Day in 2018 that we noticed the community fresh food small-format brand called Quanshi Life in the Beijing market. According to Beijing Business Today, Quanshi Life stores in Tiantongyuan, Songjiazhuang, Baiziwan, and other locations that had recently opened were either closed or undergoing adjustments, all in abnormal operating states. As a brand under the same Fuhua Commercial as Quanshi Convenience, Quanshi Life targeted office scenarios and had planned to open 30 stores in Beijing in 2018.

This was already the third retail company in the Beijing market to "have problems" within two months.

On September 18, Beijing 131 Convenience Store issued a notice stating that due to capital turnover issues, it could not operate normally and would reconcile accounts with partners between September 20-25, promising to issue payment commitment letters to suppliers after reconciliation.

This convenience store brand, which had just received 40 million yuan in angel funding from Chunxiao Capital in April, had already opened more than 30 stores in Beijing and originally planned to expand to 100 this year.

Looking back a month and a half earlier, the same scene unfolded: On August 1, Linjia Convenience announced a break in its capital chain, and 168 stores ceased operations. This convenience store, often described as the most similar to 7-Eleven, went from birth to collapse in just three years.

Although the convenience store sector hasn't collapsed as spectacularly as P2P companies, it has frequently hit the rocks.

However, as Lingshou emphasized in multiple articles in 2017, convenience stores are not a new trend; they are a high-risk, low-return business that has existed in the Chinese market for over 20 years with few companies achieving profitability.

But all this seems powerless in the face of capital's push.

2
Yes, it all stems from capital's scramble for this "big pit."

In a June article, we pointed out that convenience stores, once seen as a traditional retail format of "bending down to pick up coins," had become a new investment hotspot:

- June 1: Today announced completion of a 300 million yuan Series B+ financing, with a valuation exceeding 3 billion yuan.
- End of April: Jianfu Convenience received 240 million yuan from Sequoia Capital, with Sequoia taking a 20% stake; 131 Convenience Store Chain received 40 million yuan in angel funding from Chunxiao Capital.
- March 9: Xi'an Every Day, a northwestern chain convenience store company, received 200 million yuan in Series A investment led by Chunxiao Capital.

According to incomplete media statistics, about 3 billion yuan has flowed into the convenience store industry since February last year.

Some even lamented: This is the best of times for convenience stores.

Now, can we say this is the worst of times for convenience stores?

If you had said this six months ago, you would have been met with disdainful laughter—look, we've been shouting for a year, and those who aren't afraid of death still rush forward. By the way, we also shouted about the unmanned retail pit for a year.

If given the chance, wouldn't companies, capital... and everyone else want to go back to the past?

131 Convenience Store founder Chen Dengwang. Image source: Internet

"Before starting the convenience store, I didn't expect to hit the trend." Four months ago, Chen Dengwang, founder of 131 Convenience Store, told the media that with capital support, he was ambitious. Some media described him as "truly dedicating the rest of his life to 131 Convenience Store."

But that media outlet probably didn't think much at the time, such as the fact that the rest of his life is still long. And this trend only lasted about 120 days before mercilessly blowing him back to square one.

A retail company executive also told reporters that for convenience stores to be profitable in the Chinese market, at least three conditions must be met: 1) Scale (more than 1,000 stores, or even 3,000-5,000, to truly see economies of scale; don't talk about 100 or a few hundred stores, it's meaningless); 2) On the basis of scale, highly refined management capabilities; 3) Strong supply chain integration or even control capabilities, and strong product capabilities. Currently, only a handful of companies in the Chinese market meet these three conditions.

If this is the case, it basically sentences most convenience store companies in China to death.

3
When times are good, heaven and earth work together; when fortune turns, heroes are not free. But no one expected that the shift in circumstances could happen in the blink of an eye.

But can we blame it all on the times?

Three months after Shanlin Finance's incident (on April 24, the Shanghai Public Security Bureau's official Weibo account "Police-Citizen Express - Shanghai" announced that Zhou Boyun, legal representative of Shanlin Finance, and eight others were arrested for suspected illegal absorption of public deposits), Linjia Convenience, which was losing over 5 million yuan per month, exited the stage overnight.

History always repeats itself. Moreover, this is not history; it is happening now.

131 Convenience Store, because its investor Chunxiao Capital had problems (its invested P2P exploded), went from announcing financing to announcing a broken capital chain in less than five months.

Industry insiders told us that Quanshi Life's store closures were also due to funding issues. A Baidu search shows that Quanshi Life employees and media had previously reported that Quanshi Convenience, under the Fuhua Group, also faced capital chain problems. Of course, Quanshi Life is not a pure convenience store—some stores are over 500 square meters, offering fresh food, groceries, and also dining options like Ailu Hotpot and D5 Steak.

Gee, I don't know what logic this is. With over 500 square meters, are they trying to do dining or convenience stores? The fresh food small-format business is even harder to do well—so far, among the players in this segment, we haven't seen many truly profitable ones.

Convenience stores are actually a tough business. In other words, it's definitely not an easy profit-making or high-margin industry. Yet some people refuse to believe this and want to try their luck.

On the other hand, no matter how unpopular this format is, it's still a retail business with ample cash flow. But if they can't survive even half a year without external capital injection, what made these companies dive into this field in the first place?

Was it passion? Or sentiment?

Linjia Convenience store at Beijing Jiayue Plaza, decorated but never opened. Image source: Lingshou Media

4
Convenience stores certainly have a market; any format has a market, and any format has profitable companies. The pity is that it's not you.

Its market space is large enough. But while the fragrance is charming, the trap is also deadly.

But you must be clear: not all cities are suitable for large-scale convenience store development. China is vast, with space for convenience stores and cities suitable for them, but definitely not all cities. Moreover, the prospects for convenience stores are becoming increasingly uncertain as other business formats continue to innovate and iterate.

So, don't be fooled by appearances. Let's casually sort out how big a pit convenience stores really are.

**1) Competitors are not peers**

Many people think the biggest competitors of convenience stores are other convenience store brands, such as 7-Eleven vs. Lawson and FamilyMart, or Wuhan Zhongbai Lawson vs. Today. Yes, these are competitors. Under our office building, within a 50-meter radius, there are four or five convenience stores like Haoneighbor, Quanshi, Bianlifeng, and Zhongshang Huimin, plus unmanned convenience stores downstairs. Such fierce competition makes me curious how they survive.

But that's not all. Because there's an even bigger competitor—mom-and-pop shops. There are nearly 6 million such small stores nationwide. While convenience stores compete with peer brands, these mom-and-pop shops are also one of the biggest competitors. Moreover, you must be standardized, while they are fragmented, casual, relationship-based, and community-oriented—completely different approaches, not even on the same competitive dimension or fair market environment.

In other words, once a convenience store opens, it's plunged into a vast people's war.

So, at least you need to figure out: how to win a people's war?

**2) High rent and labor costs**

Convenience stores are characterized by small size but prime location. This means rent is inevitably high—in first-tier cities, rent and labor costs alone can make an average-performing store work for nothing all day. I believe convenience store companies know this well: "The baby is bitter, but the baby doesn't say."

The China Chain Store & Franchise Association's "2018 China Convenience Store Report" shows that operating costs in the convenience store industry have been rising rapidly over the past year, with rent costs up 18%, utilities up 6.9%, and labor costs up 12%.

Well, in second- and third-tier cities, good small shops won't have low costs either, right? Do you really think you can sell 10,000, 20,000, or 30,000 yuan a day from day one?

The truth is, among nearly 100,000 convenience stores in China, selling 1,000-2,000 yuan a day is the most common—honestly, seeing many companies brag, I'm embarrassed to call them out.

Quanshi Life's in-store dining area. Image source: Internet

**3) Food delivery platforms grabbing sales**

A report from Qianzhan Industry Research Institute shows that in 2017, the proportion of convenience stores in China with ready-to-eat food sales below 10% dropped to 41%, while the proportion with ready-to-eat food sales between 10-20% and 20-40% increased to 24% and 20%, respectively, showing a significant increase in ready-to-eat food sales. But compared to Japanese convenience stores, where fresh and semi-finished products typically account for 30%-40%, China's ready-to-eat food sales ratio is still insufficient.

Not just insufficient—it's practically impossible to reach.

One of the core products and main profit sources for convenience stores is "naka-shoku" (ready-to-eat food). But in most parts of China, or in most areas of a city, this simply doesn't hold.

The reason is that China has the world's most developed dining industry, penetrating every street, alley, residential community, and even every building. Chinese people are not short of places for quick meals, and most of them offer experiences no worse than convenience stores.

More importantly, China also has the world's most developed food delivery platforms, with highly developed and ubiquitous platforms like Meituan and Ele.me. While they bring some orders to convenience stores' online businesses, they also steal a large amount of business that should have gone to convenience stores, such as ready-to-eat food.

So, convenience store companies, how do you win a vast war against food delivery platforms?

**4) The tough night-time consumption**

A significant portion of convenience store revenue comes from night-time consumption, roughly between 23:00 and 7:00, accounting for about 30%.

But for most of the Chinese market, especially the northern market, this is another false demand—except for southern cities like Shenzhen, Guangzhou, Changsha, and Wuhan, and Shanghai in the east is passable.

In China, the proportion for most convenience stores is probably only around 10%.

So, convenience store companies, how do you make up for this unattainable performance?

**5) The incomprehensible Chinese-style direct operation**

Looking at the development path of the international convenience store industry, especially Japan's, whether it's 7-Eleven, FamilyMart, or Lawson, they all eventually achieved profitability through franchising.

This is what Lingshou finds most incomprehensible: in China, most convenience store companies are unwaveringly pursuing direct operation. I understand it's due to insufficient supply chain capabilities, headquarters control, and operational capabilities, but can insufficiency make direct operation profitable?

What makes you think you can create a miracle with direct operation?

**6) Stop learning from 7-Eleven; you can't learn it**

Why is 7-Eleven, the godfather of convenience stores, also a pit?

1. You can't learn 7-Eleven, and you can't even try, because it's a systematic project. Learning only the surface will backfire, and you'll fall into a deep pit from which you can't climb out—among the few convenience store companies in China that are surviving, none learned from 7-Eleven; they survived by constantly adjusting and changing based on their specific business districts.

2. Most importantly, 7-Eleven is inherently unsuitable for most of the Chinese market. How many years has 7-Eleven been in Beijing, and how many stores does it have now? Don't you convenience store companies learning from 7-Eleven have any idea? In South China and East China, 7-Eleven is operated by authorized Taiwanese companies. How many stores do they have? Have they become an indispensable force in Chinese retail? Haven't you noticed all these years?

Moreover, many community fresh food formats and specialty stores are encroaching on the already insufficient performance for convenience stores. And there's the new retail companies' carefully constructed three-kilometer living circle grabbing business. And... I won't go on.

5
This is not something to celebrate. Because if the industry had been more rational, it could have been avoided.

In the convenience store sector alone, you should expect to see more companies fall into capital chain difficulties. To put it bluntly, companies that were blown up by capital and entered because they thought it was a trend will have to rely on themselves for a long time, as capital is pulling away.

For convenience store companies that can only continue operations or expansion with capital transfusions, Lingshou sincerely says: Please take care.

Well, it's not easy for anyone, so I won't name names.

Lingshou also knows that even so, many companies will still take the risk, believing that if others can't do it, they certainly can.

Risk-taking is commendable, but "forcing yourself to hold on when you know it's impossible" can only lead to what the song says:

**The more you hold on, the more depressed you get
The more depressed, the colder your heart**

This coldness is not winter, but a polar night where the sun never shines again.

**October 23-24, during the Autumn Sugar & Wine Fair, New Distribution will host the "2018 FMCG City Distribution Logistics Conference"** . We will invite industry experts, FMCG warehousing and distribution specialists, and distributors who have transformed to unified warehousing and distribution platforms to discuss and answer questions about future trends in FMCG city distribution logistics and practical cases of distributor transformation to unified warehousing and distribution, under the theme "New Distribution, New City Distribution." We hope to bring you different inspiration and insights!

**Conference Time**
October 23-24, 2018

**Conference Venue**
Hunan · Changsha Gaoqiao International Commodity Exhibition and Trade Center

**Conference Content**
**October 21, Day 1 (Sub-venue):**
"2018 Changsha Regional King Development Alliance Conference"
8:00-17:00 Focus on regional major distributor resource sharing, leading the S2B2C new business era

**October 21, Evening 18:30-21:00**
Private board closed-door exchange dinner (VIP)

**October 22, Day 2 Morning (Main venue):**
"2018 China FMCG City Distribution Logistics Conference"
9:00-9:20 Ren Xiaodong, Secretary-General of FMCG Association and Partner of New Distribution: Launch and address of China FMCG City Distribution Alliance Project
9:30-9:50 Zhao Bo, Founder of New Distribution: Same-city logistics: The most effective transformation and upgrade path for distributors
9:55-10:15 Wang Qi, CEO of Weijie City Distribution: "Following the Rhythm of Commercial Flow, Seizing Platform Construction"
10:20-10:40 Chen Siting, CEO of Wanchaobang: "New City Distribution is a Key Link in Supply-Side Reform"
10:45-11:05 Xu Yonggang, CEO of Maideline: "Differences Between Traditional Warehousing and Digital Warehousing"
11:10-11:30 Mu Weiwei, CTO of Zhoupu Software: "Technology-Driven Efficiency Improvement in Unified Warehousing and Distribution"
11:35-12:05 Roundtable Forum: City Distribution, What Exactly Should We Profit From? (Yishang Logistics, Gongwu Logistics, Kaidongyuan, Yun Cang Pei, Chengpu Logistics)

**October 22, Day 2 Afternoon (Main venue):**
14:00-14:20 Sheng Yan, Yijia Logistics
14:25-14:45 Wang Jianjiang, CEO of Hailian Tianxia
14:50-15:10 He Yan, Fengwang
15:15-15:35 Zhong Shuo, CEO of Wangcang
15:40-16:00 Rong Jun, Jiangsu Huashang City Distribution
16:05-16:25 Lu Lixin, Gongwu Logistics
16:30-16:50 Roundtable Forum: If Distributor Peers Don't Enter the Warehouse, How to Break Through?
Distributor transformation representatives: Yunbang Logistics, Jingmen Pengdun Meiyitian, San Sheng Lian Gou, Jiangsu Huashang City Distribution, Jingwei Logistics

**List of Participating Companies**
In no particular order
Hunan Zonglan Diandan Network Technology Co., Ltd.
Jingbang (Wuhan) International Freight Forwarding Co., Ltd.
Mengniu Dairy
Qinghai Hanxiang E-commerce Co., Ltd.
Unilever Services (Hefei) Co., Ltd. Shanghai Branch
Huicong
Hunan Xuan'ang Food Co., Ltd.
Guangzhou Tongdaoren Information Technology Co., Ltd.
Qingdao 888 Trading Co., Ltd.
Uni-President Enterprises (China) Investment Co., Ltd.
Hunan Province Zhongxiang Gongpei Logistics Co., Ltd.
Shenglong Ingredients
COSCO Shipping Logistics Warehousing and Distribution Co., Ltd.
Guangxi Yongpai Liquor Co., Ltd.
Shangqiu Kangrong Trading Co., Ltd.
Jinan Dingzhong Economic and Trade Co., Ltd.
Liaoning Bimai Agricultural Technology Co., Ltd.
Kunming Xiongjia Trading Co., Ltd.
Shaanxi Houheng Trading Co., Ltd.
Guangzhou Dingwo Enterprise Information Consulting Co., Ltd.
Shaodong Jiajiale Commercial Firm
Boda Trading
Industrial Bank Changsha Branch
Wuhan Muchen Convenience Store Chain Co., Ltd.
Fujian Fuxing Yun Warehouse Logistics Co., Ltd.
Guizhou Yilimi E-commerce Co., Ltd.
Jiangxi Xiao Laoer E-commerce Co., Ltd.
Jinshankoufu
Shanxi Taihang Yuanjing Supply Chain Management Co., Ltd.
Shanxi Dezhun Supply Chain Management Co., Ltd.
Shaoyang Tongdeli Trading (Xiangbang Logistics)
Huanfu
Tongda Express City Distribution
Beijing Xinjingxiang Food Co., Ltd.
Wuhan Huizhong Tianhong Liquor Co., Ltd.
Changsha Paide Biotechnology Co., Ltd.
Chao'an Tuqiang
Guizhou Yihe Bopin Supply Chain Management Co., Ltd.
Jiangxi Kang'en Industrial Development Co., Ltd.
Xiangtan County Yisuhe Town Yuhua Paper Store
Luoyang Yuanlang Trading Co., Ltd.
Tongchuan Yaozhou District Huayuan Supermarket Co., Ltd.
Hunan Yongfu Jiujiu Trading Co., Ltd.
Zhejiang Chengchengtong Logistics Co., Ltd.
Chongqing Kaiguo Materials Trading Co., Ltd.
Beijing Xianmaixianmai Data Technology Co., Ltd.
Hanchuan Qixing Trading Co., Ltd.
Tongxin Jiuzhiru Trading Co., Ltd.
Guizhou Meiguo Guoguo Network Technology Co., Ltd.
......

**Distributor Transformation Representatives (Proposed)**
In no particular order
Rong Jun, Chairman of Jiangsu Huashang City Distribution Network Co., Ltd.
Wang Bo, Chairman of Hubei Yijiaren Logistics Co., Ltd.
Jiang Shuming, General Manager of Sichuan Chengdu Xingrenxing Trading Co., Ltd.
Liu Jichen, Chairman of Shandong Yunbang Warehousing and Logistics Co., Ltd.
Tu Mingyu, Chairman of Chongqing Lingyu Consumer Goods Supply Chain Management Co., Ltd.
Yang Su, Chairman of Guangzhou Zhongshan Wanrong Marketing Co., Ltd.
Yuan Xia, Chairman of Sichuan Bajie Supply Chain Management Co., Ltd.
Li Qiangyun, Co-founder of Hubei Pengdun Meiyitian Supply Chain Management Co., Ltd.
Zhang Jianyong, Chairman of Henan Xuchang Jiulegou E-commerce Co., Ltd.
Ma Haichao, Founder of Hebei Changyi Logistics Co., Ltd.
Meng Yucun, General Manager of Hebei (Chengde) Wulian Yun Warehouse Co., Ltd.
Zhang Xun, Chairman of Xinjiang Urumqi Su'an Jinchi Logistics Co., Ltd.
Zhang Hailing, Chairman of Jilin Sansheng Lianguo
Qiang Huitao, Founder of Hebei Dunjie Supply Chain Management Co., Ltd.
Liao Lei, General Manager of Hunan Damei Supply Chain Management Co., Ltd.
......

**Registration Method**
Registration is now open. Long press the QR code below or click 'Read Original' to register. Early bird tickets are available for the last 2 days, super value pre-sale, while supplies last!

**Registration Consultation**
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