How can one word 'dismal' suffice?

"I'm planning to close the store this year," said Wang Hua, who runs a tobacco and alcohol specialty store in Qingdao. "Today's revenue was only 453 yuan, while rent, utilities, and labor costs are 300 yuan. I need to sell about 1,000 yuan more to break even." Wang said, "Now when peers communicate, it's all about comparing miseries; there's no worst, only worse. It feels like the situation is similar across the country; everyone is struggling to get by." Wang Hua opened his store in 2008 and has been in the tobacco and alcohol retail industry for nearly 16 years, but this year's dismal business has confirmed again that running a tobacco and alcohol store is no longer a good business. "Among my peers, some have closed, some frequently post transfer notices in peer groups, and many are planning to transform their businesses," Wang said. Last year, business was already poor; high-end cigarettes were sold at reduced prices but still didn't move, and low-priced cigarettes were hard to stock due to policy restrictions. Previously, the markup on low-priced cigarettes maintained profits, but now it's too difficult to get them. "Coupled with stricter tobacco control policies in recent years, which have reduced the number of smokers, and the substitution of e-cigarettes, I feel this business has no room to survive. The more I do it, the less confident I become," Wang said. In the past two years, when business was bad, the Spring Festival would rescue sales, but this year's Spring Festival was exceptionally bleak. High-end cigarettes were stocked but just sat there, so he had to lower prices, not even considering profit; breaking even was good enough. Wang's store is located in a community commercial space, near a large shopping mall and office buildings, with considerable foot traffic, but within a one-kilometer radius there are dozens of tobacco and alcohol stores. Wang said competition is fierce, and his peers' businesses aren't much better than his. He noted that even with such poor business, new stores are opening nearby. "Across the street, a small to medium-sized tobacco and alcohol store opened the year before last, reportedly with an investment of several hundred thousand yuan, but its business isn't good either." "Having operated for many years, I've built a base of regular customers, but in the past two years, their spending has noticeably declined. For example, some regulars have dropped from spending 400-500 yuan to 200-300 yuan, and some from 200-300 yuan to under 100 yuan," Wang said. Now, even fewer customers buy alcohol. A few years ago, alcohol had high profit margins, but now the industry is more transparent, and alcohol is harder to sell. Wang said that most offline tobacco and alcohol stores in China are not doing well, especially those opened during the pandemic, with the majority suffering losses. Many small and medium stores have closed, while new competitors have entered. "The cost of famous cigarettes and liquors keeps rising, but the overall profit in the industry hasn't increased. With rising rents and labor costs, the gross margin for the entire tobacco and alcohol store channel is below 10%. " "In the years before the pandemic, when business was good, I could net 100,000 to 200,000 yuan a year. Back then, cigarettes and alcohol had higher profits, and during holidays, I could earn in one month what I'd normally earn in several months," Wang recalled. Tobacco and alcohol stores rely on repeat customers. "Previously, many peers did well mainly by selling in bulk to companies, restaurants, and KTVs during holidays. Also, weddings, funerals, and banquets drove higher consumption," Wang said. "But after the pandemic, there are hardly any KTVs on the streets, and the few remaining have few customers. They're struggling too, so how can they boost our business?" Wang lamented, The overall environment is bad, everyone's business is poor, and many are closing or transforming. How can one word 'dismal' suffice?

The Shakeout Moment for Traditional Tobacco and Alcohol Stores

Many tobacco and alcohol stores are facing unprecedented challenges.

Wang said that in recent years, business has been tough, and many community-based traditional stores that were barely surviving have had to close. "Some community stores were once prosperous, but as the market changes, some peers are adjusting their product selections, but it doesn't necessarily yield results. Intensified competition and severely declining profits have pushed many to the point of closure," Wang said. In previous years, too many new stores opened; within a one-kilometer radius, there were over a dozen tobacco and alcohol stores or grocery stores selling tobacco and alcohol, greatly diluting individual store profits. With declining profits in both tobacco and alcohol, after deducting costs, there's little profit left. Without group-buying resources, business will only get worse. "According to the delivery distributor, offline tobacco and alcohol stores have seen a 20%-30% decline in sales this year, with even larger declines in output and profit," Wang said. In this regard, an industry insider analyzed that "overcapacity" is making it hard for all physical stores, and with many consumers now buying alcohol online or from more 'reliable' membership stores for peace of mind, fewer consumers visit tobacco and alcohol stores. Additionally, some store owners are aging, and the new generation lacks motivation. "Their traffic has been taken by others, and online low prices further compress their profit margins. Without group-buying capabilities, survival is basically impossible. Moreover, tobacco and alcohol stores have high costs and low efficiency, making profitability increasingly difficult. Looking at the overall trend, the likelihood of closures will increase," the insider said. Some stores exiting is an inevitable result of market shakeout. Additionally, Wang summarized the main reasons for many old stores closing from his perspective: First, under the influence of policies and taxes, peers face significant operational challenges. In recent years, new tobacco policies have directly increased operating costs and restricted sales channels. Increased taxes have particularly pressured small stores and directly impacted profit margins, making operations even more difficult. "For stores relying on high volume and low profit, increased taxes mean they must raise sales to maintain profits, but low-priced cigarettes, which could boost profit margins, are not easy to stock. This is clearly a huge challenge," Wang said. Second, consumer habits have changed. Once, tobacco and alcohol stores were an integral part of communities, meeting daily needs and social activities. But now, health awareness has led many to move away from tobacco and alcohol, seeking healthier lifestyles. This shift is not just individual but a social trend. Third, industry involution has intensified. Tobacco and alcohol stores now face competition not only from peers but also from large supermarket chains, convenience stores, and online shopping. Large chains, with their scale advantages, offer more diverse products and better prices, attracting many consumers. Convenience stores, with their convenient locations and 24-hour operation, have become the first choice for many buying cigarettes daily. Additionally, the rise of online shopping is another major factor; online alcohol prices are often more competitive. Consumers can easily compare prices and services across merchants and choose the best value. This convenience is particularly appealing to younger consumers accustomed to digital platforms.

The Evolution of Tobacco and Alcohol Stores

Tobacco and alcohol stores have undergone a long evolution to become what we see today.

During the planned economy period, there were no formal tobacco and alcohol stores in China. All liquor produced by distilleries had to be purchased by the local sugar, tobacco, and alcohol company, and people bought with ration coupons. It wasn't until 1988 that the state opened up liquor monopoly rights, giving dealers a legal basis. With the rise of China's market economy, the first batch of tobacco and alcohol stores emerged. Many store owners came from Xuchang, Shangqiu, Xiayi in Henan, becoming the first to venture into this field. In the late 1980s, the state opened liquor monopoly rights, and formal stores gradually increased. After 2003, with rapid economic growth, demand for tobacco and alcohol in government and business activities rose steadily, further amplifying demand for mid-to-high-end liquor. According to the National Bureau of Statistics, in 2008, the transaction volume of China's tobacco and alcohol retail market approached 4 billion yuan, comparable to the annual transaction volume of the national grain and oil retail market. Soaring demand drove tobacco and alcohol stores into a phase of frenzied development. Not only did the number of stores increase significantly, but they also became the main channel for liquor retail, accounting for 70% of the market. While demand rose, e-commerce also developed rapidly, leading some to believe offline stores would eventually be eliminated. In 2009, China's first liquor vertical e-commerce platform, Jiuxian.com, was born, attracting capital attention. However, despite the onslaught of online shopping, tobacco and alcohol stores retained significant survival space, especially those familiar with local markets and with supply channels and sales networks, which had long-term competitiveness. For tobacco and alcohol categories, they heavily rely on traditional offline channels. For example, cigarettes cannot be sold online due to policy restrictions, so they must be purchased offline, making them a steady revenue source and traffic driver for stores. As for alcohol, despite rapid online growth, offline channels still accounted for the majority. It wasn't until 2012, when the Eight Regulations were introduced, that various regions formulated implementation plans, significantly reducing official consumption, which had a huge impact on industries like tobacco, alcohol, tourism, and catering. At that time, there was also a wave of store closures and industry reshuffling, but it gradually recovered later. As time passed, the pandemic struck, and the industry fell into trouble again. In the post-pandemic era, facing increasingly bleak conditions, most tobacco and alcohol stores find that core products have no profit, profitable products have no sales, most customers lack loyalty, and many group-buying regulars have been taken away by instant retail and other online channels. "Many traditional tobacco and alcohol stores have reached a life-or-death decision point," Wang said helplessly. In the face of difficulties, many are actively responding to survive. Some have joined national liquor chain stores, some have intensified group-buying business development, some are expanding channels by using community group buying and instant retail platforms to increase sales, and some are building communities to enhance customer loyalty. At the same time, some larger famous-brand stores are aligning with distillery channel reforms, renovating stores into brand experience centers that integrate product display, brand culture, tasting, and retail. "For now, those peers who still have motivation can only seek transformation to avoid this life-or-death turning point. But the final outcome is unknown," Wang lamented. Click Read Original to view more highlights from the 9th China FMCG Innovation Conference and the 2nd China FMCG Hard Discount Conference & the 2nd China FMCG Distributor Conference...