The Rise of New Channels: Convenience Stores, Office Shelves, Vending Machines, Unmanned Retail...

Cultural awareness and lifestyles are constantly changing, and retail channels are continuously iterating, from 'birds of a feather flock together' to 'people of similar interests gather', serving life with newer and more efficient circulation methods. Accompanying channel upgrades will form: new product systems, new consumer groups, new consumption scenarios, new data systems, and new organizational management. First-generation offline retail: department stores, supermarkets, shopping malls, convenience stores, specialty stores, and chain channels. Second-generation online retail: platform e-commerce, vertical e-commerce, O2O platforms, community e-commerce, media e-commerce, and micro-businesses. Emerging new retail: chain convenience stores, unmanned retail, office shelves, vending machines, SPA (private label), and Hema model. Over the past 200 years in the United States, industrialization and informatization have been thorough, and retail informatization and commodity circulation networks are mature and efficient. China has had a short accumulation period; over the past 30 years, limited by informatization, infrastructure, and management methods, the circulation network is not mature enough, and efficiency is still low. First-generation offline retail: gross profit margins are basically 20-30%, with a focus on aggregation and circulation, net profit margins range from 1% to 5%. Due to extensive operations and outdated formats, compared to retail sales per square meter, channel efficiency is much lower than in the US and Japan. Second-generation online retail: relying on internet informatization and the network effect of customer acquisition, forming platform and vertical models, with boundaries becoming increasingly blurred.

• Network effect: The bilateral logic of platforms requires larger traffic, better merchants, better matching, and more efficient conversion. With technical expertise, having traffic and transaction scale provides the foundation for influence and profit expansion.
• Economies of scale: The vertical logic relies on internet products to acquire customers at low cost and scale, breaking the traditional fixed costs of opening stores and linear customer acquisition. Vertical retail aggregates orders online, thereby optimizing the supply chain, selecting products, and selling goods to make money. It seems that traffic competition is becoming increasingly fierce, with online being monopolized by platforms and offline traditional entities having deep accumulation, but in fact, every 7-10 years, the cultural tendencies and lifestyles of a generation change, and people are always seeking novelty and change. The rise of third-generation retail forms: restructuring product structures and purchase scenarios for different groups of people, using new technologies and data to improve channel efficiency. Recently, there are some lively new forms: New convenience stores, vending machines, office shelves, unmanned retail These four new channels target basically the same group of people, similar living and consumption habits, and preferred products, selling goods in different forms in different scenarios of work and life. Below, we analyze some possibilities for their development from several dimensions. Basic factors for the rise of the four new channels:
• Demand side: Existing efficiency is low, but there is room for incremental growth; overall consumer demand is increasing, and demand for certain categories such as snacks is growing.
• Supply side: Products are newer and better, supply chains are optimized, and circulation systems are mature.
• Purchase scenarios: More reasonable and convenient.
• Density: Without density, there is no real industrial upgrading. Density and scale are the core of retail profit and barriers, because density brings: 1. Mature supply chains, improved operational efficiency, and higher gross margins, thereby increasing profits; 2. Formation of channel brand premium, exporting brand, supply chain, and management, opening franchise models for rapid scaling and profitability.
• Final profit sources: 1. Selling goods, 2. Franchising, 3. Advertising, 4. Value-added services. 1 Convenience Stores Two cores: organizing the supply chain through density, and profiting through open franchising. Market space: Japan: 900 billion market, channel penetration ~9% China: 130 billion, 100,000 stores, channel penetration ~0.5%, annual growth rate 11% Domestic ecosystem: The top ten convenience store chains all have more than 1,000 stores, with annual sales mainly between 1-3 billion, and net profit margins below 5%. Foreign convenience stores: In Japan: 7-Eleven, FamilyMart, and Lawson in Japan mainly rely on franchising for profitability, with franchise ratios exceeding 95%. In China: Foreign convenience stores currently have franchise ratios exceeding 60%, mainly in first- and second-tier cities, with a clear trend of national expansion, but they rely on cooperation with regional operators. Domestic convenience stores: Domestic convenience stores have a high proportion of tobacco and alcohol in their product structure (foreign ones have a high proportion of food), and low operational efficiency. Limited by supply chains and expansion costs, they show a pattern of regional fragmentation. Guangdong has Meiyijia, Sichuan has Hongqi Chain, Shanxi has Tangjiu, and Shanghai has Kuai Ke. Traditional listed benchmark: Hongqi Chain, listed for 5 years, concentrated around Chengdu, with over 3,000 stores, had revenue of ~6 billion in 2016 and net profit of ~200 million. The low operational efficiency of domestic convenience stores is reflected in:
• Low sales per square meter: domestic annual sales per square meter are 20,000-30,000, Japan 140,000, Taiwan 90,000.
• Low average transaction value: currently domestic average transaction value is 15-20, half of Japan's.
• Low customer traffic: average daily customer traffic is 400, also half of Japan's.
• Low gross margin: domestic gross margin is around 25%, Japan 30%. Thoughts on convenience store investment: Hongqi Chain, already listed, has been operating for 20 years and is currently valued at a PE of 57 times. Irresponsibly rough calculation: current valuations for convenience stores in the primary market are about 6-8 times PS. If they are not yet profitable at IPO and continue expanding, assuming a Hong Kong listing, a 3-4 times PS valuation basis could be used. Currently, chains with 1,000 stores have generally been operating for over 10 years, but now, combined with industry and internet, convenience stores can develop faster. So suppose:
• At IPO, they need 500 stores or more, contributing around 1 billion in annual revenue, with regional brand and density, and can open franchise expansion.
• 0-30 stores takes at least 1-2 years; expansion from 30-500 stores, if done well, can be completed through 2-3 years of expansion or partial mergers and acquisitions. Currently, a 4-5 year cycle is normal; if a solid IT data system, food factory, and distribution system are needed, funding of over $100 million is necessary. According to the current market structure, different camps have different resources, and they will have different growth and expansion strategies. But in any case, the core of value enhancement is:
• Improve gross margin space: Restructure product mix, increase fresh food ratio + private label products.
• Increase average transaction value: Locations with high traffic efficiency, environment, and more thoughtful product selection.
• Increase traffic: Online platform traffic operations.
• Barriers: Supply chain completeness, density, operations, personnel management, brand, and possibility of opening franchising.
• Be careful: Rent increases at the peak; management of loose personnel; cash handling risks. 2 Vending Machines Overseas benchmarks: Japan: Vending machines have ~6,000 SKUs, 5 million units, one per 23 people, with per capita annual consumption of 3,000. US: One per 35 people on average, total 6.5 million units. China: Currently 230,000 vending machines, one per 6,500 people, about 90% are beverage machines, with potential market space of 10 million units. Benchmark enterprise: Ubox Founded in 2010, according to 2016 financial reports, it currently has about 60,000 self-operated (35,000) + franchised (25,000) vending machines. Total revenue is about 1.6 billion, of which selling goods is 1.1 billion, advertising revenue is 280 million, and machine sales and leasing revenue is 130 million. Net profit is only 70 million, proving that selling goods operations are still loss-making, with a PE valuation of 20-30 times. Covering 33 provinces and 70 cities, each machine sells about 100 yuan per day. Frontline operations personnel are about 1,133, more than half of total employees, each operating 30 machines. In 2017, Ubox's KTV business aims to deploy 40,000 units, with 700 million revenue and 100 million net profit. The vending machine market has incremental space, but from Ubox's development, it can be seen that the difficulty of large-scale operations and profitability is also very high. 3 Office Shelves From the demand side, I would be a typical high-ticket repeat customer. Snacks often replace my regular meals. Looking at US data, 48% of Americans skip regular meals at least three times a week, and 56% consume snacks at least three times a day (source: FreeS Huang Hai's research PPT). The challenge is that I have no loyalty to shelves, nor do I care about the brand. I simply want to scan and buy food, but the frequency is high enough and the demand is rigid enough. If this channel is operated well, it will replace part of my demand for takeout supermarkets, snack e-commerce, and convenience stores. Looking at market space, there are 50 million domestic enterprises, and in first- and second-tier cities, there are about 100 million targetable users. The most suitable core office buildings in the early stage have 2,000-3,000, with enterprise terminal shelf capacity of 100,000-200,000, daily revenue of 50-80, and an early market space of 1-3 billion. Current leading players have thousands of shelves; when they reach tens of thousands, it becomes competition within this track, and further expansion cuts into other new retail channels. From the supply side, expansion possibilities: Easy to start, rigid demand scenarios, perhaps it currently does not need site rent, and may not be charged in the future; but ultimately, a mature backend supply and distribution system is needed. Once a certain scale is reached, competition becomes with other new channels, involving supply chain, product selection, data system capabilities, user ID trust systems, product operation levels, repurchase, financing, and intense competition. Investment value: Financing ability, frontline execution speed, product operation strategy, site selection logic, and understanding of user psychology are all important. Perhaps investing early or with large capital and backend resources is worth participating. 4 Unmanned Retail Market space: At this stage, first- and second-tier city traffic is more suitable, can create some incremental market, and in the future will become a new supplementary retail channel, but currently has no significant advantage over traditional channels. Demand side: I wonder what factors would attract me to frequently buy from an unmanned convenience store: 1. Products that are both essential and popular, as well as new upgrades, with substitutes for daily necessities in convenience stores, such as imported snacks and Japanese personal care; 2. Paying and buying goods is convenient enough; 3. Within my daily activity range where sudden needs arise. Supply side: The operating model in a certain region is relatively standardized, easy to quickly franchise and expand; more scenarios can be entered, bringing new traffic; daily revenue of 2,500-3,000, investment of 100,000-200,000 per unit, gross margin of 35%. Unmanned convenience stores and other new channel forms compete for the same batch of traffic and consumer demand at the front end, and at the back end, they need to build the same supply management system, just with a low-barrier way to start quickly. The life scenarios of a generation will not change much within 5 years, and the positions that can be laid out are limited and have no obvious advantage over traditional competition. Repurchase places high demands on location and product operation, and many suitable scenarios still have rent and entry fees as costs. Convenience stores, vending machines, office shelves, and unmanned retail: to build a company worth over $1 billion, the front-end competes for the same group of users, and the back-end competes for unavoidable supply chains, systems, and operational capabilities. During development, they face the same competition for resources, personnel, and capital. Strategy, speed, and management capabilities comprehensively determine success or failure. At the same time, they must face the competitive and cooperative relationships with traditional retail giants and internet giants, such as Starbucks, Alibaba, JD.com, Meituan... New ways to acquire traffic are emerging endlessly, and new channels always have opportunities. People seeking novelty and change, evolving culture, and incremental lifestyle innovations, look forward to continuously seizing several opportunities, breaking through the resource barriers of giants, and growing retail stars. Source: Xiaolu Ji (ID: xiaoluji2017) The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology", inviting 1,000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to jointly explore a new chapter of cross-border integration! Core topics of this conference:

• How can the FMCG industry leverage B2B to achieve new growth opportunities

• How to build the new supply chain behind new retail

• How can intra-city logistics help B2B achieve leapfrog development

Highlights of this conference:

• The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"

• Case sharing of excellent transforming and upgrading distributors

• Conference + exhibition upgrade, Hall 6 Internet Technology Exhibition strengthens docking

• Alibaba Retail Link, GL Capital, Eternal Asia Supply Chain, Best Store Plus, Yijiupi, Haiding, and other well-known enterprise leaders in various fields will deliver speeches and share pioneering views.

Registration is now open. Long press the QR code below or click "Read Original" to register. Add friend and note "Conference Registration" Click the link below to review the first and second FMCG + Internet conferences: 2016 "FMCG + Internet" Summit Forum -END-