01 "Currently, we're just trying to cope; surviving is already a win," a convenience store industry insider in Beijing told Lingshou. This is in stark contrast to the considerable growth convenience stores have seen in some second- and third-tier cities. The insider said that many convenience stores in first-tier cities are now in a stage of suffering and barely holding on, especially in the Beijing area. For convenience store companies in Beijing, the past three years have brought two major impacts that have put pressure on their operations. On one hand, there's the direct impact of the pandemic; on the other, the impact of the broader environment. First, looking at the direct impact of the pandemic: over the past three years, the pandemic has hit convenience store operations in first-tier cities hard. Beijing and Shanghai go without saying, and Shenzhen hasn't been good either, especially with this year's wave of infections. In the Beijing area, the pandemic's impact is a common challenge for the industry. From the first year, when the first wave hit, Beijing was also a heavily affected region. During the pandemic, some convenience stores collectively closed. On May 11, 2020, Beijing's Quanshi Convenience Store announced via its official WeChat account that all its stores in Beijing would cease operations at 24:00 on May 20. Earlier, Quanshi had already closed many stores in Tianjin. Founded in 2011, Quanshi was once the convenience store with the most locations in Beijing. At the time, Quanshi responded that due to the severe impact of the pandemic, they were making strategic adjustments, first contracting the convenience store business, and after closure, there would be other collaborations. Lingshou learned that in 2015, Quanshi had 150 stores and announced a plan for "10,000 stores in five years, 1,000 stores within the year." In November 2017, Quanshi also launched the "100 Cities, 1 Million" plan, investing 10 billion yuan to enter 100 cities in five years, covering 1 million terminals. Unfortunately, it didn't survive the first wave of the pandemic. Beijing's second wave, caused by the Xinfadi outbreak, was another heavy blow to the convenience store format—the entire logistics and supply chain in the industry was reorganized. In the Beijing area, many convenience store companies had their fresh food processing centers in Xinfadi, and the lockdown during this wave basically cut off their supply chains. Some partner small factories, after being repeatedly shut down, couldn't sustain and chose to close. Convenience store companies had to find new locations, but recovery wasn't easy. So for some convenience store companies in Beijing, the supply chain impact from this wave was the most "fatal." The industry insider told Lingshou that after the Xinfadi wave, Beijing "hasn't been doing well ever since."
02 Under the influence of the broader environment, the entire industry atmosphere has also changed. In recent years, many important meetings and events have been held in Beijing, which has also affected the overall industry environment and comprehensive business atmosphere. From the decline of the real estate industry, to the fall of the education and training industry, to layoffs at major internet companies, these have all led to the flow of young employed people, the disappearance of white-collar workers, and all of this affects convenience store foot traffic. For example, since last year, the stagnation of major internet companies has led to many advertising and software companies that served them losing opportunities; the decline of real estate has deeply affected real estate agents and salespeople. Many factors have caused young people to continuously disappear from Beijing. This quickly showed up in the convenience store industry, which is a barometer of the urban economy. From the end of 2021 to before April this year, Bianlifeng closed nearly 700 stores nationwide. In response, Bianlifeng said that due to difficulties in logistics and transportation caused by the pandemic, they had to temporarily close a small number of stores. Regarding how many stores Bianlifeng temporarily or permanently closed, the company had not previously disclosed specific numbers, but Bianlifeng said that this year, the number of temporarily and permanently closed stores was "about 700." In February 2017, Bianlifeng was founded, with its base in Beijing. In Beijing, known as the "convenience store desert," Bianlifeng grew rapidly, surpassing 100 stores in just one year, and in less than four years, its Beijing stores surpassed the three major Japanese convenience store chains and local brand Haolinju. Bianlifeng has been accelerating rapidly. In December 2020, Bianlifeng executive director Xue Enyuan revealed at a supplier conference that according to the plan, Bianlifeng's store count would exceed 4,000 in 2021, with half in China's second- and third-tier cities. By 2023, Bianlifeng would reach 10,000 stores, ranking among the top five in China's convenience store industry. Unfortunately, Bianlifeng didn't achieve its goal. According to the "2021 China Convenience Store TOP100" released by the China Chain Store & Franchise Association, as of the end of 2021, Bianlifeng had 2,800 stores, far short of the planned 4,000. Meanwhile, among the TOP100 convenience stores, Bianlifeng ranked tenth in 2020 but fell out of the top 10 in 2021, ranking eleventh. The pandemic caused difficulties in logistics and transportation, forcing many companies to press the pause button. In this regard, Chen Yuefeng, founder of Lingshou Media, said that the pandemic has had a huge impact on convenience stores, and in fact, on the entire retail industry, especially on the convenience store format in first- and second-tier cities. Because in first- and second-tier cities, convenience stores are mostly located in business districts and office buildings. Due to pandemic prevention and control measures, plus reduced foot traffic, the impact on first-tier city convenience stores is relatively large. Many companies are just barely holding on. He said that online sales cannot compensate for the losses of any offline convenience store. In other words, digitalization cannot effectively make up for the slowdown or negative growth in revenue that the pandemic has brought to retail enterprises over the past few years. "But we also need to look at it by region. The Chinese market is too large, and the north and south are different, so we can't generalize. It's also different for each company." In addition, the most noteworthy thing in the Beijing convenience store industry over the past three years is the operation of stores in subway stations starting last July.
03 The convenience store format is a standard feature in subways in places like Shanghai, Guangzhou, and even Japan, where there can be up to three convenience stores in one subway station. After many years, Beijing subway stations once again saw convenience stores. Starting in July 2021, three convenience store brands—Lawson, Duodian, and Jingqing—began trial operations in subway stations. However, industry insiders told Lingshou that developing convenience stores in subways is very difficult. Beijing subway convenience stores do not have fresh food categories. Due to limitations such as small store areas, no water supply or drainage, and no odors allowed, they cannot sell fresh food. This highlights the operational difficulties of Beijing subway convenience stores: First, product selection. Merchants in Beijing subway convenience stores need to research and select categories, varieties, brands, and ratios based on consumer needs. Although subway convenience stores in Shanghai and Shenzhen are mature, Beijing has just resumed, and precise positioning and analysis of consumers and products still need practice. Additionally, due to policy restrictions, subway convenience stores are definitely not simply a copy of ground-level convenience stores. Second, cost pressure. An industry insider told Lingshou that the monthly rent for Beijing subway convenience stores is 4,000-5,000 yuan per square meter, and most stores are 20-25 square meters, so a Beijing subway convenience store's monthly rent is nearly 100,000 yuan. Currently, the average daily sales of convenience stores in China are 8,000-15,000 yuan, and rent alone accounts for 30% of profits. By this calculation, subway convenience stores not only lose the support of high-profit fresh food but also need higher sales to break even. Third, balancing convenience and safety in the subway. Due to Beijing's special status as the capital, safety requirements are more emphasized, so the specific locations of convenience stores in the subway are not entirely based on merchant and consumer needs; there must be a balance between foot traffic and safety. As early as 2003, there were over 21 convenience stores in Beijing's subway, with areas around 15 square meters and 200-300 SKUs. But then an international news event in 2003 cut short the two-year "life" of Beijing subway convenience stores. That year, the Daegu subway fire occurred in South Korea, and the Beijing municipal government terminated all commercial activities in the subway for safety reasons. It wasn't until August 15, 2019, when the Beijing Municipal Commerce Bureau issued the "Three-Year Action Plan for Opening Up Key Areas in the Service Industry," which mentioned "allowing the establishment of commercial facilities in new subway stations and other transportation hubs," that convenience stores could resume operations in Beijing's subway. Even so, under the test of policy factors and refined operations, it's not easy for convenience store companies to maintain stable overall operations in Beijing's subway. Despite this, Chen Yuefeng, founder of Lingshou Media, said that the convenience store format is currently in a state of multi-level differentiation, with different performance in different regions.
04 According to a report by Xiamen Daily, in the past year, Xiamen opened 2,264 new convenience stores, more than one-third of the total opened in the past five years. In this coastal tourist city with an area of over 1,700 square kilometers and a resident population of 5.28 million, many well-known domestic and foreign convenience store chains have been attracted, including 7-Eleven, LAWSON, Jianfu, Meiyijia, Linji, Shifen, Liuyi, and Wanjia. According to the "2021 China Urban Convenience Store Index" released by CCFA, among 39 key cities nationwide, Xiamen ranked first in the convenience store development index; Xiamen's convenience store growth rate reached 7.1%, the highest among all cities. Among them, the most noteworthy company is Meiyijia, a convenience store brand that quietly rose from Dongguan. Whether in terms of city coverage, store count, or performance growth brought by its digital transformation, it has attracted industry attention. According to data released by the China Chain Store & Franchise Association, as of the end of 2021, Meiyijia had 26,168 stores, ranking second in China, second only to Sinopec's Yijie with 28,249 stores, and 6,000 more than the third-place PetroChina's Kunlun Haoke. The fourth-place chain had fewer than 7,000 stores. As of June 18 this year, Meiyijia's effective store count nationwide exceeded 28,000, and its stores have spread across more than 200 cities in 20 provinces, achieving nationwide coverage. In addition, in terms of expansion speed, Meiyijia went from 10,000 stores to 28,000 stores in less than five years. From a regional convenience store brand to a national brand, Meiyijia is called the "invisible champion of convenience stores" in the industry. Another company that has attracted industry attention is Jianfu Convenience Store. From 5 stores 15 years ago to over 2,000 stores now, despite the joy of scale growth, its chairman Zhang Li said, "The biggest confusion is how Chinese convenience stores should develop. They need to have their own characteristics, but the underlying logic of a standard convenience store must also be sound. We won't jump out of the underlying business logic of convenience stores, but the way we present ourselves and the era we're in are different. Completely copying others' models definitely won't surpass them." He said that finding a unique survival method for Chinese convenience stores is Jianfu's current goal. "For example, Japanese convenience stores don't tend to go the community store route, and their business is already good. But in China, the most common location for convenience stores is in communities. So how to open community stores might have different logic." Zhang Li believes that compared with Japanese convenience stores, Chinese convenience stores have different foundations and genes, and copying won't yield the same results. In his view, it's important to recognize the gap between oneself and excellent convenience store brands. "Japan's 7-Eleven has been around for 50 years, while Jianfu is only 15 years old. How can we dare to say we know convenience stores better? Everyone in the industry talks about having a complete product structure, but even if we all know the form of the product structure, there's a lot of know-how in achieving a complete product structure within a 100-square-meter space." Similarly, although some regional convenience store companies have achieved good growth, not all cities are suitable for convenience store development. He said that currently, in third- and fourth-tier cities, there are some opportunities in certain regions.
05 "During the pandemic in 2020, convenience store sales in Beijing and Shanghai were relatively low, but prefecture-level cities and second- and third-tier cities recovered faster and performed well," said Tao Ye. He said this is closely related to local population, urbanization, and changes in consumer habits, mainly for the following reasons: First, due to the pandemic, populations in prefecture-level cities are returning. These returning people have worked in first- and second-tier cities and have a good understanding of convenience stores. They have retained the habit of shopping at convenience stores from urban life. Second, the customer base is getting younger, and taste demands are rising. Unlike the vegetable-buying crowd, which is mostly middle-aged women or elderly people, convenience store customers are getting younger. They care more about quality and are less price-sensitive. In Beijing and Shanghai convenience stores, consumers have a high demand for lunch, and it's common to see people queuing to buy lunch, but this phenomenon doesn't exist in prefecture-level city convenience stores. Third, the pandemic has led to the closure of many small restaurants, giving convenience stores more supply of quality locations, making site selection relatively easier. "Not only is it easier to get good locations, but rents have also dropped a lot," Tao Ye said. Fourth, in third-, fourth-, and fifth-tier cities, the dining industry is still in the process of upgrading, and convenience stores are participating and taking a share of the market. "In the past, there were many small eateries in third- and fourth-tier cities, mostly mom-and-pop shops with low costs and limited variety. But with the acceleration of urbanization, these cities' restaurants are also facing upgrades. Because the environment is dirty and shabby, and hygiene standards aren't met, young people rarely go to these places now," Tao Ye said. For example, before 2008, Beijing had many small eateries and home-style restaurants that were cheap but had poor decor, heavy smoke, and average taste. With the Olympics, Beijing underwent massive urban renewal, and many young white-collar workers stopped going to these places, preferring convenience stores instead. It was during that time that 7-Eleven truly developed in Beijing. Its industrially standardized boxed lunches were the biggest difference from past restaurant boxed lunches, making young people feel more dignified when eating. Now, the dining industry in third- and fourth-tier cities is undergoing the same upgrade Beijing experienced, and convenience stores are gradually replacing and taking over the functions of past small eateries. In Tao Ye's view, the two most important trends in the future development of retail are convenience and discount. These two trends are gradually being verified. Tao Ye believes that retail has two future trends: First, consumers' pursuit of convenience is irreversible. Whether it's delivery services, community supermarkets, convenience stores, or community fresh food stores, they all provide and satisfy consumers' need for convenience. "As time goes on, consumers will know better what they need. They'll have needs for one-stop shopping and also for convenience, but the latter is more frequent." Tao Ye said that now hypermarkets and supermarkets are focusing more on improving front-end display efficiency, managing products, and even doing direct sourcing from origins and private labels. This is very different from before. Second, the discount trend. Tao Ye said that discount doesn't mean low price, but "value for money." This value mainly comes from high supply chain efficiency. Whether it's private labels or direct sourcing, it's all about making the supply chain more efficient. Consumers' pursuit of quality of life won't change either. Tao Ye believes that the development trend of convenience stores is irreversible. In the past few years from 2016 to 2018, many convenience store brands received financing, but this was just capital's enlightenment of convenience stores. "After getting the money, everyone found that capital had too high expectations for the convenience store format, and at the same time, convenience store teams were learning and growing. When the market squeezed out the bubble and became calm, the advantages of convenience stores truly came into play." Tao Ye said that the convenience store format will see significant development, especially in third- and fourth-tier cities and even lower-tier cities. Meanwhile, Chen Yuefeng, founder of Lingshou Media, said that not all cities are suitable for large-scale convenience store development. China is so big; there is space for convenience store development and cities suitable for it, but definitely not all cities. Moreover, in Beijing, the convenience store market prospects are becoming more challenging as other business formats continue to innovate and iterate.
Source: Lingshou (lingshouke) Author: Qingshan