The 3rd "FMCG + Internet Conference" hosted by New Distribution was grandly held at the Yuelai International Convention Center in Chongqing on November 8-9, 2017! It attracted thousands of industry distributors, manufacturers, and internet companies from all over the country, with a full house and an unprecedented scene. The following is the speech delivered by Wang Jun, a new retail industry expert specially invited by New Distribution, at the conference. New Distribution has organized it for the benefit of our readers.
Today, there are many old friends here. In the first half of my talk, I will focus entirely on convenience stores. And this time, I had the honor to meet the chairman of Jianfu face to face. Nice to meet you!
From yesterday to today, we have discussed B2B. I have also been involved in B2B business in three cities across the country, and I am deeply rooted in the chain store field. Perhaps in the past two days, we have heard more negative news about B2B. When everyone focuses on the B2B battlefield, how can we succeed? Three or four years have passed, and there are still many problems, many solutions being discussed, and many confusions. Today, when we talk about convenience stores, we will find many interesting points. Just now, when I observed the friends in the audience with Zhao Bo, I saw that they were listening very carefully and seriously, even recording videos in large sections. This shows that distributor friends are very concerned and interested in this matter.
Today, I bring you good news. Dear distributor friends and bosses, here is good news: Do you still want to bear the heavy burden of advance payment? Do you still want to face the pressure of cross-regional product diversion from peers every day? Do you still want to face the massive burning of money by B2B platforms that constantly disrupt the market? Now there is an opportunity for you to have your own platform, your own channels, and your own full value, removing all the mountains on your back and becoming the regional king. That is to build your own chain convenience store system, a regional chain convenience store system.
Just now, a regional chain brand was acquired. From the financial report, we can see that less than 300 regional chain stores in a single city. We can simply estimate that the actual transaction price per store is between 2.3 million and 3 million yuan. This is an actual transaction in recent years. But unfortunately, the real pain points, problems, and details of this industry—I will try to explain them as clearly as possible in just 20 minutes.
Let's take a closer look at what convenience stores on the road to new retail look like. From the data, in 2016, the overall growth of the chain convenience store industry was 16%. This number is too conservative; it was a statistic from the first half of the year. I believe this year's growth rate should exceed 20%. Why? Let's look at who the players are now.
This track is not enough to write on; we haven't even included real estate developers. Let's look: traditional Japanese chains, mainly 7-Eleven, after nearly 10 years of development in China, have adopted newer methods, especially Lawson's entry into Nanjing with Zhongbai as the main partner. Then there are local chains, which are developing rapidly this year, especially with the expansion of franchising to traditional mom-and-pop stores, including B2B supply. B2B platforms, in fact, several major B2B platforms have all started to try to open their own stores.
Venture capital direct investment is also a very interesting field. Previously, CC tried a very heavy chain convenience store system in Beijing called Bianli Feng. As far as I know, more direct retail investments have emerged in the venture capital model. With the new retail approach, various formats represented by Zhongchao and Hema have also made layouts. I previously favored a startup founded by post-90s entrepreneurs. In the fiercely competitive e-commerce environment two years ago, it stood out and became an excellent and unique small but beautiful vertical brand called "Lishuo". They have now fully transformed into a professional chain store brand for offline gifts. So, the entire track has become very crowded this year, with various people, money, and resources coming in. What phenomenon will this cause? It's a hot talent market, hot money, hot locations, and hot heads.
In 2017, the entire convenience store industry, especially in the second half of the year, saw a huge wave of poaching, especially with high-end talent flowing frequently and intense poaching. This has also led to increased costs for recruiting new talent in the traditional retail industry. This is the obvious talent heat. Before 2016, convenience stores were never a good investment target. From the data, only Hongtou invested in a chain convenience store now rooted in Wuhan. Until this year, all hot money came in, and the money heat truly manifested in the second half of this year. Location heat is a crucial issue we cannot ignore, because as more players and projects participate, the prices of high-quality commercial locations have been driven up again. Overall, I think there is some excessive hype this year, partly because heads are a bit hot.
Let's first look at what kind of stores existed before. On the left, I have organized the most basic points. If you are an investor or operator, how do you evaluate your store? Store count, sales, profitability, and brand are the most basic surface data. After that, we need to look at the true core value. Is more stores always better? For chain enterprises, it must be more, but if we break it down, the core of store count is regional deep cultivation. Location value: foot traffic or immediate consumption relies on people flow. A high-quality location determines the store's profitability. Even with the best enterprise operating the store, daily sales might be 30,000 yuan. Even an individual operator can achieve around 20,000 yuan at the same location. So, the core value of a location is actually there. Therefore, our core evaluation is store count and location count.
We cannot simply look at sales. All stores' average daily sales and sales efficiency help us understand the value of our retail brand. Profitability, as offline profitability, mainly comes from front-end and back-end profits. Brand: for an offline chain retail brand, the number of members, member activity, and e-commerce repurchase rate are core brand values, which affect the consumer side.
What do you, as distributors, think is the essence of chain convenience stores? I will explain it in four words: traditional instant sales. Why do I say it's traditional? This industry is not mysterious at all. It has a very professional and systematic management operation model, represented by 7-Eleven's modern Japanese chain convenience store system. It is already very scientific, detailed, and has a system to follow. The core value of a convenience store is determined by the foot traffic in front of the store. Foot traffic evaluation is the first factor in site selection, highlighting the characteristics of instant retail. Then it is an industry that requires patience and meticulous work. Why do I say that? There is an interesting saying: 7-Eleven now has 70,000 stores globally, with over 90% being franchise chains. There is also a fun saying: it breaks even in the seventh year and becomes profitable in the eleventh year. So, 7-Eleven actually means open from 7 a.m. to 11 p.m. This is a slow and meticulous industry, and it is also the reason why it was not chased by capital before 2017. It is a traditional industry that requires patience. So, everyone must recognize this essence.
Next, let's look at why distributor friends are considering transformation? In Teacher Zhao's research report, I saw that 27% or 40% of distributor friends are considering transformation. Building competitive barriers and having the ability to promote new products are the most core values for distributor friends. Since we are talking about new retail, we must look at unmanned shelves. The essence is that online retail traffic has encountered growth bottlenecks, so it is shifting offline.
Today's core content is that there are many pitfalls in making convenience stores. I will briefly introduce several pitfalls. If you continue down this path, you need to make careful judgments in these areas.
First, the value of rebranded stores. The core value of advertising effect is fine, and user stickiness is our expectation. Under these two appearances, can we achieve them? Yes, but the more core points are the latter two: how to lock data through systems and how to build a true product supply chain system. Note that brand effect is a double-edged sword, especially for systems like JD.com and Alibaba. Their brands bring very good promotion speed, but the problem is that once problems arise, it is a huge damage to the brand.
Second, fresh food and private labels. When we target different Chinese regional markets, especially when transforming mom-and-pop stores, is this proposition simply valid? High gross margins, small stores have demand, consumers have demand, but behind it lies a series of problems. It has loss and must have loss; no one will return goods for you. Whether the small store's location can make consumers recognize the products you sell has a trial-and-error period, so it's hard to say whether the demand is real or fake. At the same time, in light franchise systems, food safety issues are very easy to occur.
Third, O2O omni-channel. In these areas, online malls, whether WeChat or APP, are still in trial and error, and no good path has emerged. Value-added services, especially the Japanese and Taiwanese experience we hope to achieve, cannot actually be applied. After connecting to food delivery platforms, we have very good sales, trading gross margin for increment, which can be seen as a good path.
Fourth, upgrading to unmanned self-service stores. On the left is the vision we hope to present, and on the right is the actual situation. Costs will not decrease because initial costs will be high. Can we expand the business dimension? Yes, especially self-service vending machines that are not suitable for 24-hour operation will continue to provide sales services for you, as well as unmanned shelves, etc. But it cannot become a big business that venture capital can recognize; it is a beneficial supplement for us.
The core issue is how to utilize offline traffic. The ultimate question is why users come to our store to consume. This leads to the core issue: users. Users are the core competitiveness. Consumers enter your store for the following three reasons: first, close distance; second, superior products; third, good service. Offline traffic is nothing more than these three reasons. Looking closely, we see that close distance is just an inherent advantage. Products should be unique and superior, which is the most basic challenge. Good service is about the ultimate user experience.
How do we create the ultimate user experience? The image on the left is from the just-released iPhone X's camera face recognition. Many tests have been done; twins can occasionally pass, but photos and human skin masks cannot pass. It uses an infrared camera with about 30,000 infrared lines scanning the face. This technology, if they dare to use it, is already fully mature. On this basis, the application is next. Whether it's member recognition or big data capture in public places, this technology is already mature. This thing is finally not far from us. There will be many companies building underlying platforms. For us, we can just use it, because we have achieved the ten-year pain point: there is no good user management system.
At this time, we can automatically identify members. On whose system do we build membership? We will explore and try the account system. In short, the next ideal model is private cloud, and in the future, public cloud. We have automated member recognition, and payment is fully using third parties. If we dare to use third-party payment, why can't the member marketing system be shared? Our member points can also be recognized in real-time in another cooperative enterprise. I believe there will be a major breakthrough in the next year or two, as long as we solve the points redemption system.
This poster is not for beautification, but I think the cashiers of future chain stores should be this cool. They should be very fashionable, supported by technology, and have a system with user warmth, rather than a relatively low-level system in society. Through our user recognition, precise profiling, and self-checkout, we improve user experience and ultimately achieve a service system that produces based on demand and sells based on consumer needs.
I have been practicing new retail all along. I hope today I can solve some confusions for everyone, see some directions for you, and also explore the application of technology and information. Thank you!
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