Click to read the original article for details Source: 36Kr - Future Consumption (WeChat ID: lslb168) "Shanxi convenience stores" have become a recent internet buzzword due to their density comparable to Japan's and their industry-leading development. In Shanxi, the convenience store brand with the widest regional coverage is Jinhu Bianli (Jinhu Convenience). Jinhu operates over 1,100 convenience stores, with a total of more than 1,500 stores across various formats. These stores are not only densely located in Taiyuan but also penetrate into 7 other cities and over 30 county-level markets in Shanxi Province. Shanxi itself is not a province with a high GDP, and the cities and towns where Jinhu expands do not have the same consumption power as Beijing, Shanghai, Guangzhou, Shenzhen, or Hangzhou. It can be said that Jinhu Bianli has gone down to a market that is demanding for convenience stores nationwide, with a depth of penetration similar to Meiyijia (both reaching county-level areas). Like Meiyijia, Jinhu Bianli does not follow the standard "Japanese-style convenience store" model; in its community stores, which account for more than half, household consumer goods take up a significant proportion. However, unlike Meiyijia, Jinhu Bianli entered the hot meal and bakery categories early on and thoroughly localized and differentiated them. Local regional convenience store brands commonly face a problem: when making high-margin fresh food categories, if they use independent suppliers, new product development is not flexible enough and it's hard to get competitive prices; if they build their own fresh food factory, then when the number of convenience stores is small, it's difficult to support the factory's operation. Jinhu Bianli uses a set of business format "combination punches" to provide a solution to this problem. In addition to the single convenience store format, the Jinhu Bianli Group also includes category-specific store formats such as Zaozao Fast Food and Jindu Bakery. These high-margin fast food and bakery stores not only support the convenience stores on the supply chain side but also reduce rent costs through combined store formats and attract more customers. By connecting these various store formats with digital tools, they create a "living water effect" in the user pool. For example, after consumers spend at Jinhu Bianli, they can receive discount coupons for Jindu Bakery on Alipay, and vice versa, achieving two-way traffic diversion. Currently, Jinhu Bianli has over 2 million members in its Alipay mini-program, with most of Taiyuan being Jinhu members. During Alipay's "Cool Summer Red Envelope Festival," the coupon redemption rate for Jinhu Bianli ranked first among convenience stores in Shanxi. The innovations Jinhu Bianli has made both offline and online are worth learning from for local convenience stores.
Multi-format Combination to Reduce Costs and Increase Revenue
Under the Jinhu Bianli Group, in addition to more than 1,150 convenience stores, there are also over 150 bakery stores under "Jindu Bakery," as well as fast food restaurants and other store types. The original intention for developing these formats originated from Jinhu's thinking about grafting Chinese fast food onto convenience stores. In 2006, Jinhu Bianli acquired the fast food brand "Zaozao Fast Food" from Meitehao, along with its central kitchen and fresh food R&D capabilities. Back in 2006, people in Shanxi could buy daily hot foods such as buns, hot porridge, tea eggs, and grilled sausages at Jinhu Bianli, all self-developed by Zaozao's central kitchen. For example, the black pepper grilled sausage was already a trendy food at that time. Not only these grab-and-go hot foods, but some Jinhu Bianli store formats also integrate the convenience store with Zaozao Fast Food, allowing customers to even dine in. The specific form is that one store has two signs, highlighting both the convenience store and fast food attributes, attracting two groups of customers. The two formats also reduce costs through subletting. For example, if you rent the storefront and then rent the upstairs commercial space, sometimes the rent can be reduced to less than half the original price. In addition, in Jinhu Bianli and fast food stores, the store manager and staff can be the same people, further reducing labor costs. Compared to convenience stores, fast food has higher gross margins. After about one year of operation, this combined store format can achieve an average gross margin of over 30%, close to 7-ELEVEn. Coupled with reduced rent and labor costs, it's conceivable that the net profit margin of convenience store + fast food stores is quite considerable. This phenomenon of convenience stores becoming dining scenarios, not just purchase scenarios, is becoming increasingly common. In addition to Bianlifeng and 7-ELEVEn in first- and second-tier cities, Jiangxi Ledoujia and Tangjiu's third-generation stores also have relatively large dining areas. Consumers in second- and third-tier cities have a slower pace of life and have more time to sit down and eat slowly. In Jinhu stores, besides regular foods like buns, porridge, and rice bowls, there are also daily foods like youtiao (fried dough sticks), old tofu (soft tofu), and hand-grabbed pancakes. But at this point, the bigger problem convenience stores face is that their competitors in the dining sector have become the small restaurants next door. In response, Jinhu Bianli has further standardized and branded regional specialty foods. Currently, Jinhu Bianli is also developing Shanxi specialty noodle products. By standardizing the production process of these noodles, residents everywhere can enjoy authentic and delicious specialty noodles. For example, besides knife-cut noodles, Shanxi people also enjoy a type called "tijian noodles," but there is actually no chain store in Shanxi that makes this noodle. Jinhu Bianli is currently standardizing the production process of "tijian noodles" so that residents everywhere can eat authentic and delicious "tijian noodles." The logic behind Jinhu's bakery stores is similar. In 2010, Jinhu created the "Jindu Bakery" brand (formerly Jindu e-No.1). On one hand, Jindu Bakery can increase the competitiveness of bread, cakes, and other desserts in Jinhu Bianli; on the other hand, when the two brands jointly lease stores, their rent bargaining power is significantly enhanced. But if relying solely on the number of Jinhu Bianli stores at that time, it was not enough to support the daily operation of a fresh food factory. Therefore, Jinhu created an independent bakery brand to share supply with the convenience stores. Through this set of business format "combination punches," Jinhu can minimize costs and increase profit margins in lower-tier markets, thereby enabling franchisees to achieve profitability.
Differentiated Competition
Currently, among all Jinhu Bianli stores, community stores account for over 60%. On one hand, Taiyuan, Jinhu's main market, doesn't have many business districts; on the other hand, Jinhu Bianli's Chairman Assistant Xu Meng believes that in the future, local convenience store brands will have more community stores. As competition intensifies in first- and second-tier cities, the downward penetration of convenience stores has become a trend. Even Japanese-funded convenience stores, led by Lawson, have already gone down to "fourth-tier cities." Xu Meng believes that business district stores and office building stores are what Japanese-funded convenience stores are good at. Even if local convenience stores occupy advantageous locations in advance, when Japanese-funded convenience stores enter the city with almost the same site selection, it will inevitably cause a decline in sales for local convenience store brands. Instead of confronting them head-on, it's better to compete with differentiation. Jinhu Bianli's store positioning is quite different from Japanese-funded convenience stores. If Japanese-funded convenience stores enter the market, not only will their site selection not conflict, but they can also drive the entire convenience store market, which is actually beneficial to local convenience stores. In addition, community stores and markets in third- and fourth-tier cities are also more friendly to franchisees in terms of capital investment. According to the public information on Jinhu Bianli's franchise page, the initial start-up capital for franchising a Jinhu Bianli store is 200,000 to 250,000 yuan in total, which is relatively low compared to other convenience store brands that often require over 600,000 yuan. Jinhu Bianli's franchise is relatively flexible in all aspects except for high requirements on site selection. For example, store size: "Ideally 60-80 square meters, but there are also small stores of over ten square meters and large stores of over 100 square meters," Xu Meng said. Jinhu Bianli has over 3,000 SKUs, of which 90% of product categories and display methods are guided by the headquarters, and the remaining 10% can be freely selected by the store manager from the headquarters' product library. In this way, on one hand, the headquarters' big data and analysis capabilities guide stores to ensure basic revenue; on the other hand, store managers' understanding of local consumers can create more personalized stores. Depending on store size, shape, and business district, Jinhu has different operating templates. There are dozens of templates in total, each matching different decoration plans and product structures. Currently, Jinhu Bianli has only 9 directly operated stores, with the rest being franchises. Xu Meng revealed that the payback period for franchise stores is generally 1.5 to 3 years. After basically completing penetration of the Taiyuan market, Jinhu has also gone down to 7 cities in Shanxi Province centered on Taiyuan, including Yangquan, Jinzhong, Changzhi, Linfen, Xinzhou, and more than 30 county-level markets. Currently, each city has about 30-50 stores. Xu Meng told 36Kr - Future Consumption that Jinhu's short-term goal is to fully penetrate the entire Shanxi Province, and next they will open stores in cities like Yuncheng.
Digital "Living Water"
As a representative of an old convenience store brand, Jinhu Bianli's digitalization process is relatively fast. Coincidentally, the two main pain points that digitalization empowers are very representative in the entire retail industry. First, there is the issue of improving efficiency across multiple formats. Since Jinhu has many formats and brands, data from various businesses and regions needs to be effectively integrated. This problem is a common challenge for many brands. For example, some Japanese-funded convenience stores have different registered companies in different regions, so online points and coupons cannot be used universally; similarly, some local convenience stores have created different brands for different markets, and membership integration is also needed. Jinhu Bianli, through cooperation with Alibaba Cloud and Alipay service providers, jointly developed "three platforms": the data middle platform, business middle platform, and membership middle platform. Specifically, the data middle platform can unify and standardize data from independent business systems within the company, and combine with big data from various business systems to form valuable data assets. It pools users and members from different independent businesses into one pool and integrates them. The business middle platform mainly improves efficiency for Jinhu employees. Employees can use DingTalk to visually count store operations, and through Alibaba Cloud's big data mining algorithms, they can obtain professional business analysis guidance such as precise member marketing analysis, product association analysis, store performance analysis, promotion effectiveness analysis, and inventory turnover analysis. Xu Meng said that through the business middle platform, everyone can save 2 to 3 hours every day. The membership middle platform, after combining the data and analysis from the above two, can push one-click promotional activities to members. In this way, Jinhu can connect consumers across all formats through tools like the Alipay mini-program. For example, Jinhu sometimes runs activities where purchasing goods at Jinhu Bianli earns discount coupons for Jindu Bakery. The second pain point solved is the issue of brand aging. Even a brand as widespread as Jinhu needs to continuously attract post-00s and even post-10s to shop in stores. In recent years, Jinhu has also been increasing the proportion of trendy foods and imported goods. The most direct method is to push trendy foods and imported goods that young people like through tools like the Alipay mini-program, using coupons to attract them to the store. Another method is to attract the younger customer base from Jindu Bakery into convenience stores by issuing coupons. Data provided by Jinhu shows that digitalization has helped Jinhu accumulate more young users; previously, the main user profile was over 35 years old, but now the largest group is 25-35 years old. The "combination punch" of business formats and digital operations keep Jinhu Bianli continuously vibrant. Flexibility and digitalization are the advantages that local convenience store brands have compared to Japanese-funded convenience stores, and they are also the general trend of the industry.
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