In 2018, China's convenience store industry continued to boom, with regional brands accelerating expansion and foreign brands speeding up store openings to compete in the increasingly crowded first- and second-tier markets. In Shanghai and East China, a convenience store war is underway, with early entrants upgrading and newcomers entering with more advanced concepts.

Lawson is about to open its 2,000th store, while Meiyijia, which entered East China in October, quickly captured the market within two months, and the new retail representative Bianlifeng has opened over 200 stores in the region.

Across the Chinese market, there are over a hundred convenience store brands, and the following chart shows the top 70 brands in China.

From the chart, we can see that the top two are Sinopec's Easy Joy and PetroChina's uSmile, which are located at gas stations nationwide and target a relatively narrow customer base. Meiyijia, on the other hand, holds the third position with an absolute advantage. This convenience store brand, born in Dongguan, is known as the "King of Convenience Stores." Additionally, 7-Eleven, FamilyMart, Lawson, and others also hold advantages and are favored by consumers.

Many people wonder why China does not have a national convenience store brand. This is because convenience stores are a product of high urbanization. This year marks the 40th anniversary of reform and opening-up, during which China has developed the Cross-Strait Economic Zone, the Yangtze River Delta Economic Zone, the Beijing-Tianjin-Hebei Economic Zone, and the Southwest and Northeast economic circles.

From the chart above, we can see that only Beijing, Shanghai, and Tianjin have urbanization levels exceeding 80%. Guangdong, Jiangsu, Zhejiang, Fujian, Chongqing, Inner Mongolia, and Shandong have urbanization levels between 60% and 70%. Heilongjiang, Hubei, Hainan, Ningxia, Shanxi, Shaanxi, Jilin, Hebei, Hunan, Jiangxi, Anhui, Qinghai, and Sichuan have urbanization levels between 50% and 60%.

Thus, Shanghai and Guangzhou, where convenience stores are thriving, are areas with high urbanization levels, and these regions are also favored by foreign convenience store brands. In Guangdong, Meiyijia is booming, and in Zhejiang, Shizu Convenience Store is also strong, and these areas belong to the Pearl River Delta economic circle and its surrounding radiation zones.

In the Yangtze River Delta economic zone, local convenience store brands such as Shanghai Haode, Lianhua Quick, and Suguo have been incubated. In the Beijing-Tianjin-Hebei region, with the acceleration of integration, Wumart Convenience Store, incubated by Wumart, and Haoneighbor, established in 2000, occupy most of Beijing's convenience store market. Looking further afield, Hebei's 36524 is also moving towards new retail under the coordinated development of Beijing-Tianjin-Hebei.

In the Southwest region, Chongqing Hongqi Chain has already opened 2,800 chain stores, and Yunnan's local convenience store brand "Zhijia Convenience" has extended into convenience store brands focusing on pharmaceuticals and FMCG.

In the Northwest region, Shaanxi's local convenience stores have developed strongly in recent years. In addition to Xi'an Every Day, which has already expanded beyond Shaanxi, brands like Tike Convenience and Songlin are flourishing.

Currently, besides the East China market, convenience stores in other regions of China are also brewing a major battle, and the trigger for this battle is the rise of new retail.

On March 9, 2018, Xi'an Every Day, a Northwest chain convenience store enterprise, announced that it had received 200 million yuan in Series A investment, which will provide more support for Xi'an Every Day in smart logistics, big data platforms, store upgrades, and talent introduction. The effect of the 200 million yuan capital injection appeared months later. In November, the former deputy general manager of 7-Eleven China and his team joined Xi'an Every Day. For Xi'an Every Day, established in 2010, this talent introduction may affect its future development.

Double Growth in Store Numbers and Sales

According to statistics, in 2017, the convenience store industry grew at a rate of 23%, with a market size exceeding 190 billion yuan. In terms of store openings, the growth rate was 13% in 2017, while sales grew at 10%, with the largest contribution still coming from first- and second-tier cities.

As convenience stores in first-tier cities mature, second-tier cities are becoming growth hotspots with huge market potential. In 2018, second-tier cities introduced talent attraction plans, drawing in large numbers of young people, which promoted the development of convenience stores in these cities.

Regional Brands Begin to Expand

In terms of brands, regional convenience store brands still dominate, such as Chengdu's Hongqi, Guangdong's Meiyijia, Shanxi's Tangjiu, Xi'an's Every Day, Zhejiang's Shizu, Shanghai's Haode, and Jiangsu's Suguo. Of course, as regional market layouts are perfected, many powerful convenience store brands are beginning to expand to surrounding areas. Foreign brands are relatively conservative, often laying out in mature cities, and their advantage lies in their comprehensive management systems and advanced product updates.

In China, the average daily sales per convenience store are 5,000 yuan, leaving significant room for improvement, which is closely related to the product structure of convenience stores.

Accelerated Product Structure Upgrades and Rising Store Operating Costs

Before foreign brands entered the Chinese market, most Chinese convenience stores were upgraded from small grocery stores or downsized hypermarkets, merely providing convenient shopping places for consumers. With the entry of foreign brands, fresh management concepts were injected into the convenience store industry.

In recent years, Chinese local convenience store brands have optimized their product structures, selecting categories based on consumer habits. At the same time, the proportion of ready-to-eat food and private labels has increased. In 2017, the proportion of ready-to-eat food in Chinese convenience stores rose to 20%, and private labels accounted for 30%, but there is still significant room for growth compared to Japanese convenience stores.

However, as the Chinese convenience store industry matures, operating costs are rising rapidly, mainly reflected in increased store costs leading to higher rents, and higher labor costs due to high staff turnover.

Increase in Private Label Share

In 2018, the new retail process accelerated, with 38% of convenience stores introducing new retail, and online sales have become one of the incremental channels for convenience stores. The combination of convenience stores and new retail will benefit from the popularity of mobile payments.

In 2018, convenience stores placed greater emphasis on maximizing the efficiency of people, goods, and places. In terms of terminal models, the number of 24-hour convenience stores surged and began to penetrate from first-tier cities to second- and third-tier cities. In terms of product mix, the share of private labels increased. At the same time, convenience stores provide consumers with richer services, from parcel collection and delivery to snack bars, from utility bill payments to home delivery. Convenience stores are no longer just shopping places. Supply chains have become one of the targets for many convenience store brands to compete for. In terms of expansion models, franchising is the main approach, but currently, franchising in Chinese convenience stores is not yet well-developed.

For convenience stores, the keyword for 2018 is digitalization.

Digital Transformation of Convenience Stores

With the popularization of the new retail concept, consumers have begun a comprehensive digital transformation. Coupled with the entry of internet giants, we have seen the emergence of unmanned retail. When Bingo Box appeared on streets and alleys, when Bing Convenience entered countless office spaces, when JD Daojia made convenience accessible, and when Bianlifeng brought us a brand-new shopping experience, traditional convenience stores have entered an era of digital transformation.

From diverse mobile devices to e-commerce, from digital payments to social apps, consumers are armed with digitalization. At the same time, the unmanned convenience store market is rapidly rising. According to statistics, in 2018, the market size of unmanned convenience stores in China reached 2 million yuan, and by 2020, it is expected to exceed 33 million yuan.

Internet giants led by Tencent and Alibaba have intervened in offline retail businesses. For example, Tencent focuses on interconnection and content, creating a new retail closed loop through WeChat, Meituan, its own O2O brand 7FRESH, and its own B2B brand JD New Channel. Alibaba, on the other hand, focuses on e-commerce, mainly through Alipay, combined with its own O2O brands Hema Fresh and Ele.me. Their competition indirectly promotes the development of China's convenience stores.

Under the impact of new retail, traditional convenience stores have also begun digital supply chains. 7-Eleven has built a supply chain information system with a data center as the hub for data exchange and integration, connecting various nodes. Through digital transformation, distribution efficiency has been greatly improved.

FamilyMart has launched customer loyalty management, fan base management, and customer lifetime value to achieve data integration. By creating a digital closed loop, it continuously optimizes marketing plans for store visit frequency and average transaction value, achieving digital marketing.

In the wave of digital transformation, it is important to correctly handle the relationship between digitalization as a tool and the supply chain as the core of retail. For suppliers and distributors, digitalization can accurately determine demand forecasts and optimize distribution, transforming distributors into delivery providers. In-store digitalization effectively controls losses and optimizes store operating processes.

According to the "2017 China Urban Convenience Store Index" data, convenience stores in cities across the country maintain an average double-digit growth rate. Among first-tier cities, the convenience store markets in Shanghai, Guangzhou, and Shenzhen have become mature. In Guangzhou, there is one convenience store for every 3,076 people, ranking fifth in convenience store saturation. In second- and third-tier cities, convenience stores still have great development potential. In the future, China's convenience stores will continue to face both opportunities and challenges.

Source: Foodweek

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