Click to read the original article for details Source: Finance and Economics Without Taboo (ID: caijwj) Author: Xiao Tian However, due to its proximity to the Olympic Village, convenience stores, which are ubiquitous on Japanese streets, have tantalized the taste buds and emotions of Olympic athletes, reaping a 'windfall dividend'. Devin Heroux, a sports reporter for the Canadian Broadcasting Corporation, is a loyal fan of Japanese convenience stores. On social media, he made no mention of Olympic events but recommended 25 convenience store foods in one go, from tempura to miso soup. Andrew Keh, a reporter for The New York Times, described the wide variety of food items in convenience stores as a 'culinary world'. Sky Brown, Britain's youngest Olympic medalist at 13, shared her love for convenience store foods like pickled plums, perilla, and sesame rice balls on social media... In fact, the appeal of Japanese convenience stores to athletes goes beyond the food itself; it also stems from their appreciation for this multifunctional business model, because 'this place is full of everything you want.' As a unique retail format, the retail industries in the United States and Japan have respectively gone through the eras of chain stores, department stores, shopping centers, and convenience stores. Now, China's retail industry is also evolving according to this pattern. Currently, capital is surging, startups are emerging one after another, and online and e-commerce giants are expanding offline. Convenience stores, riding the wave of retail, are rapidly occupying streets and alleys. Under this 'rampage', will China also enter the era of convenience stores? Where does the future of China's convenience stores lie? The 'Upstart' of Western Retail There used to be a saying in the retail industry: 'There are only two kinds of convenience stores in the world: 7-Eleven and all others.' When discussing the history of convenience stores, 7-Eleven is always an unavoidable topic. With 70,000 stores across 17 countries and regions, 7-Eleven is backed by Seven & i Holdings, Japan's retail group, which is the fourth-largest retail kingdom in Asia and the world. In fiscal year 2019, its total sales reached 12,018 billion yen (approximately $109.4 billion), accounting for about 2% of Japan's total GDP that year. However, it is not widely known that 7-Eleven, famous for its Japanese-style management, was originally an American company. In the mid-1920s, after the Industrial Revolution, productivity in the United States greatly increased, and people's lifestyles underwent dramatic changes. The Ford production line made significant progress, making cars a daily necessity; the first household refrigerators were produced, truly becoming civilian goods; televisions also began to spread... New lifestyles and fresh business models were being born. In May 1927, on Edgefield Street in Texas, USA, Jeffson Golin, a salesman for the Southland Ice Company, carefully observed the needs of local residents and proposed to the company that his store should also provide daily consumer goods such as milk, eggs, and bread. Thus, the Southland Ice Company added a business of selling convenience goods in addition to ice. This was the prototype of the convenience store. As business grew, the reputation of the Southland Ice Company spread. In 1946, Southland Company borrowed Golin's store hours—from 7 a.m. to 11 p.m.—and the convenience store named 7-Eleven was born. At that time, large supermarkets in the United States were moving towards larger sizes and suburban locations, highlighting inconveniences in distance, time, goods, and services. Moreover, with huge sales floors and a wide variety of items, shoppers had to spend a lot of time and energy selecting goods and endure the pain of waiting in long lines at checkout. As a new retail format, the advantages of the 'convenience store' were obvious. Its emergence met people's needs for purchasing small quantities and immediate shopping, making it a 'darling of the era'. In the 1960s, convenience stores developed rapidly across the United States. The headquarters-led franchise system became the driving force behind the development of convenience stores. In 1957, there were only 500 convenience stores in the U.S., but by 1990, there were over 84,500, with a network density of one store per 2,940 people, and sales approaching $100 billion. Therefore, some consider convenience stores the 'upstart' of Western retail. In the 1980s, the United States entered a golden decade for the modern consumer industry, but Southland Company made multiple strategic errors and missed opportunities, leading to the closure of many 7-Eleven stores and eventually filing for bankruptcy in 1990. As the 7-Eleven empire was collapsing, in 1974, Suzuki Toshifumi, an employee of Ito-Yokado on a business trip to the U.S., introduced it to Japan, obtaining the Japanese franchise rights for 7-Eleven and ultimately changing the entire history of 7-Eleven. Tempered in the 'Great Melee' In the latter half of the 1960s, Japan's economy began to revive. With accelerated urbanization and improved living standards, the consumption center shifted from producers to consumers, leading to a change in production concepts—from necessity to diversity and uniqueness of products. At the same time, with an increase in working hours and dual-income households, consumption patterns began to shift towards smaller quantities, fragmentation, randomness, and convenience. Additionally, Japan's retail industry was undergoing unprecedented major changes: On one hand, the continuous expansion of large general merchandise stores severely squeezed small retail stores around them, prompting Japan to enact regulations restricting the opening rate, area, and business hours of large general merchandise stores. On the other hand, small and medium-sized retailers, with weaker scale and capital, began to 'huddle together for warmth' to cope with modernization. Furthermore, as large retailers led by general merchandise stores strengthened their sales, manufacturers' pricing power weakened, and they hoped to maintain their pricing power and expand local brands through stable sales networks. All these factors provided fertile soil for the birth of convenience stores. Since their introduction to Japan in 1966, convenience stores sprang up like bamboo shoots after rain. 7-Eleven, Lawson, and FamilyMart, which later became the 'Big Three' of Japan's convenience store industry, were also established under this background. It is worth mentioning that during the continuous development of the convenience store industry, two main types of convenience store operations emerged: One is the regional franchise chain system convenience stores, and the other is companies that independently accumulated convenience store technology. The former received support and help from the already mature American convenience store industry, such as the 'Big Three'. These franchised convenience stores could adapt to new consumer markets and make adjustments, making them very suitable for Japanese society at the time; the latter were mainly concentrated among small and medium-sized convenience store companies, most of which became victims of competition. From 1980 onwards, as large convenience store companies matured in management, they gradually established reliable business models. The gap between the two widened, especially as large chains expanded nationwide, making weak convenience store companies almost 'vulnerable to a single blow'. For example, local convenience stores in Sendai were almost wiped out, and Miyagi MyShop (headquartered in Sendai) went bankrupt; in the Fukuoka area, 'Yours' and 'ohlu' went bankrupt; in the Kanto region, B Stores were forced to transfer. After industry reshuffling, Japan's convenience store industry entered an era of oligopolistic competition, with 7-Eleven, Lawson, and FamilyMart gradually monopolizing the market. By February 1990, within Tokyo alone, 7-Eleven had 670 stores, FamilyMart 650, and Lawson 607, with no clear winner. Under intense competition, convenience store companies began to focus on time convenience, food freshness, product fashionability, and immediacy to improve competitiveness, and gradually built large-scale, technologically advanced logistics and information systems according to industry development needs. This was also applied to warehouse management and product production, pursuing operational efficiency through precise ordering, thus forming the 'Japanese-style convenience store system'. For example, services such as fast food, magazines, photo printing, and ATMs were introduced into convenience stores, creating the concept of 24-hour, year-round operation, and developing original products like 'New Lawson Milk' and 'Sandwich Rice Balls'. After a series of adjustments, convenience stores evolved from initially aiming to build a business system where customers could immediately buy necessary items when needed, into comprehensive facilities integrating various retail, food, and public services. In Japan, convenience stores are no longer ordinary shops but special bases for daily life, connecting all aspects of life. As a result, Japanese convenience stores developed into a business format that could compete with department stores and supermarkets. By 2009, the turnover of Japan's convenience store industry exceeded that of department stores, reaching 7.3 trillion yen (approximately 175 billion RMB), and five years later reached 10 trillion yen (approximately 500 billion RMB). With Japan's declining birthrate, aging population, and informatization, convenience stores, after running for 60 years, eventually reached saturation and entered a 'low-growth era'. In June 2017, the number of convenience stores in Japan exceeded 55,000, with each store serving 3,000 people in its trade area. By the end of 2020, the number of stores was 55,924, with each store serving only 2,211 people. Against this backdrop, Japanese convenience store giants began to actively seek incremental markets, flocking to the next promising market—China. The Shell and Soul of Business Compared with the U.S. and Japan, China's convenience stores started later. Taiwan was the first stop for convenience stores entering China. In 1949, Taiwan introduced its first 7-Eleven store. At that time, convenience stores were still upscale places with relatively high prices. The early path of convenience stores was not smooth; they even sold brooms and buckets to 'survive'. By 1979, Uni-President Enterprises raised NT$190 million to establish 'President Chain Store Corporation', but the model of operating convenience stores alone failed to activate the market. In 1987, convenience stores began to expand on a large scale. Operators gradually placed ready-to-eat foods in prominent positions, shifting product organization from family-oriented to individual-oriented, ultimately achieving great success. Subsequently, chain convenience stores such as 7-Eleven, FamilyMart, Hi-Life, and OK Mart gradually occupied the streets and alleys of Taiwan, with even a 7-Eleven store on the top of Alishan. In 2014, local media conducted a survey: every 2,500 Taiwanese people could be allocated one convenience store, and on average, one in three Taiwanese visited a convenience store daily. Mainland convenience stores started late, but competition is beyond imagination. In October 1992, Shenzhen opened the first 7-Eleven store in mainland China, kicking off the development of convenience stores in the mainland. A year later, Hong Kong-funded 'Best Convenience Store' opened its doors in a remote residential area on Changyang Road in Shanghai, marking the start of the convenience store war in China. Subsequently, the Huangpu District Grain Bureau took the lead in piloting four chain convenience stores on Hankou Road and other locations. To increase outlets and achieve economies of scale, the district grain bureau, Dafeng Specialty Products Corporation, Guanshengyuan Corporation, and Wangbaohe Corporation successively renovated 22 small commercial outlets, including grain shops, oil and sauce shops, and grocery and tobacco shops. In 1995, the national grain system launched a wave of converting grain shops into convenience stores, with various traditional small shops renaming themselves as convenience stores. Over two years, about 2 billion yuan was invested, and the grain system renovated over 20,000 stores. State-owned enterprises took the lead, and foreign investment and private enterprises participated in the development of the convenience store industry, rapidly heating up the market. By 1997, Shanghai Hualian Group and Japan's Daiei Group jointly established Shanghai Hualian Lawson Co., Ltd. (author's note: renamed Shanghai Lawson Convenience Store Co., Ltd. in 2017). At that time, Shanghai had about 1,000 convenience stores, with nearly 600 converted from grain shops, accounting for half of Shanghai's convenience stores. This chain operation of convenience stores driven by administrative orders, which ignored market laws, eventually fizzled out after a brief and lively development. At the time, Xinmin Evening News commented: 'After Shanghai's grain shops were converted into convenience stores, they only had the shell of modern commerce, but not the soul of modern commerce.' After the reshuffle in 2000, Shanghai's convenience store companies were consolidated from 20 to 5, resulting in a 'Five Tigers' competition among Lianhua Convenience, Liangyou, Kedi, Meilin Zhengguanghe, and Hualian Lawson. In 2002, to avoid vicious competition of door-to-door and shoulder-to-shoulder, the Shanghai Chain Business Association initiated a 'Convenience Store Site Selection Convention'. While Lianhua Convenience, Kedi, Liangyou, and other established Shanghai convenience store companies signed the agreement, brands like C-store, Haode, and Lawson refused to join and launched 'surprise attacks'. This 'site selection war' among Shanghai convenience stores was even filmed by Japan's NHK as a documentary titled 'Shanghai Convenience Store War'. A Golden Opportunity to Overtake on the Curve Japanese convenience stores have gone through almost a complete cycle. From a business reference perspective, Japanese convenience stores have much for Chinese convenience stores to learn from. However, in terms of path selection, Chinese convenience stores, rooted in localization, have gradually branched out. For example, highway convenience stores like Sinopec Easy Joy and PetroChina Good; Meiyijia, which uses a franchise model and targets lower-tier markets; JD and Tmall convenience stores aimed at acquiring traffic; and tech-driven convenience stores like Bianlifeng, Xi'an Every Day, and Linji, which use internet thinking to transform. In 2017, the spring breeze of convenience stores blew, and capital rushed to stake claims. But in reality, convenience stores are not an easy business. On one hand, although China's convenience stores started late, online shopping, express delivery, and the fast-food industry are relatively prosperous, meaning the focus of retail has increasingly shifted to e-commerce distribution. On the other hand, convenience stores are a business that heavily tests the supply chain, requiring dense regional store openings and joint distribution, reducing operating costs through planning and centralization, and fully leveraging network and scale effects. This is why China's convenience stores are regionalized and fragmented, with almost no national chain brand. When 'profitability' becomes the primary goal, players who ride the wave, especially those lacking deep understanding of convenience stores, will ultimately face mergers, bankruptcies, and exits. In terms of numbers, the biggest threat to 7-Eleven and others is Meiyijia, which uses a franchise model and mainly opens stores in residential areas, industrial zones, and towns with low rents. With the establishment of systems for store expansion and operation, procurement and supply chain, human resources and finance, Meiyijia is trying to expand from regional to national. However, unlike Meiyijia, which deliberately avoids competition in first-tier cities, tech-driven Bianlifeng has introduced China's unique internet tactics into the convenience store industry and is expected to become the biggest competitor to 7-Eleven and others in the future. In this year's China Convenience Store TOP100, the new face Bianlifeng in the top ten attracted widespread attention: it took four years, used a direct-operated model, and has over 2,000 stores. This impressive data took Meiyijia a full 10 years to achieve, and even then, it was through franchising. As a representative of local upstart convenience store brands, Bianlifeng has vigorously developed private brands and fresh food in product selection, and from the beginning invested in Yami Yami, a fresh food partner factory of Beijing 7-Eleven. Now, its fresh food and private brand proportion is basically on par with the three major Japanese convenience stores. Founded in 2017, Bianlifeng strives to present itself as a tech company rather than a continuation of a small grocery store. In China's FMCG retail industry, there are almost no precedents for direct-operated systems achieving rapid large-scale success in a short period. 'Don't go direct-operated for small stores' is a default rule in the chain industry. Clearly, Bianlifeng, using its tech genes to run traditional store businesses, has grasped the most powerful weapon to challenge 7-Eleven and others. From the experience of developed countries, when per capita GDP exceeds $10,000, convenience stores enter a period of explosive growth, reaching a density of one store per 3,000 people on average. China's per capita GDP reached $10,000 in 2020, and the convenience store density is still far from this number, indicating huge future space for China's convenience stores. Clearly, the development of China's convenience stores is more 'brain-burning', which is precisely a golden opportunity for Chinese convenience store brands to 'overtake on the curve'. PS: From September 23-25, 2021, the 2021 (4th) China FMCG Conference, hosted by New Distribution, will kick off in Shanghai. Focusing on industry trends + practical cases + growth through connections, 3,000 FMCG practitioners will gather. 10 themed forums cover new retail O2O, community group buying, short video and live e-commerce, distributor transformation, rise of new consumer brands, new alcoholic beverage interpretation, distribution B2B supply chain, omnichannel marketing, B2B2C new technology applications, etc., with operators from various segments bringing the latest case studies. Confirmed heavyweight guests so far include: 1. Tao Shiquan, founder of Jiangxiaobai; 2. Yao Xuhong, general manager of Meiyijia Holdings Co., Ltd.; 3. Lu Xiuqiong, global expert partner at Bain & Company and former vice president of marketing for Coca-Cola China; 4. Chen Xiaodong, senior vice president of Nestlé Greater China; 5. Zhang Fujun, president of Lee Kum Kee Sauce Group China; 6. Bi Chaojiao, general manager of China Resources Snow Breweries (China) Marketing Center; 7. Yang Hongbin, vice president of Junlebao Dairy Group; 8. Yang Shun, COO of Lipton Greater China; 9. Zhang Yipeng, general manager of Kuaishou E-commerce SKA Brand Operations Center; 10. Li De, general manager of e-commerce at Gold Hong Ye Paper Group... A grand gathering for FMCG practitioners, you must be there! Are you 'watching' me?