As a retail format, convenience stores originated in the United States, were transplanted to Japan in the late 1960s and developed rapidly, and were later promoted in Taiwan and Thailand. In 1992, foreign convenience store 7-11 opened in Shenzhen, pioneering convenience stores in mainland China. Since then, local convenience stores have gradually developed. In 2022, local chain brand Meiyijia became the largest branded convenience store chain in China with 30,008 stores. The market landscape of domestic convenience stores is changing. Meiyijia's breakthrough is not an isolated phenomenon, but is closely related to the development of the entire domestic convenience store industry. As consumer shopping habits and needs change, physical retail stores are expanding into community and near-field shopping scenarios, and convenience stores are also exploring new possibilities under this development trend. What is the current development status of domestic convenience stores? How did the current situation come about? Where are the future development opportunities? Understanding the changing trends of convenience store channels also helps brand owners formulate relevant strategies. Unaffected by the epidemic Convenience stores are booming The development trend of domestic convenience stores is positive. Relevant data shows that the sales of China's convenience store industry increased from 118.1 billion yuan in 2015 to 349.2 billion yuan in 2021, with an average annual compound growth rate of 20%. In recent years, the industry's growth rate has been significantly higher than the overall level of the offline retail market. From 2019 to 2021, the sales of China's convenience store industry maintained a high growth rate of over 10% for three consecutive years. In 2021, the national convenience store sales reached 349.2 billion yuan, a year-on-year increase of 17.7%, of which branded chain convenience store sales reached 305 billion yuan, a year-on-year increase of 12.3%. In terms of scale, in 2022, the total number of stores of the TOP 100 convenience store enterprises was 171,340, an increase of 6.59% from 160,744 in 2021. Among them, local chain brand Meiyijia surpassed Sinopec Easy Joy with 30,008 stores, becoming the largest branded chain convenience store in China. Source: Meiyijia official website In addition, the total number of stores of the three major Japanese convenience store brands Lawson, 7-11, and FamilyMart in China reached 11,626, a net increase of 1,365 from the previous year. Among them, Lawson opened its 5,000th store in Chengdu in July last year. Small and medium-sized convenience store enterprises with 1,000 to 10,000 stores also showed a good development momentum. The total number of enterprises increased by 5 to 29, and the proportion of stores also increased from 35.13% last year to 38.43%. Regional brands are still the majority of convenience store brands. Compared with the development of foreign convenience stores that developed earlier, the Chinese convenience store market still has great development space. It is generally believed that the higher the per capita GDP and the greater the population density, the more conducive to the development of convenience stores. At present, China's per capita GDP has exceeded 10,000 US dollars, and the continuous improvement of urbanization rate provides a good development soil for Chinese convenience stores. During 2020-2021 alone, 120,000 convenience stores were added in China. In 2021, the total number of convenience stores in mainland China reached 253,000, about 1.7 times that of the United States and 4.5 times that of Japan. But in terms of sales, the United States is about 5.1 times that of mainland China. In terms of penetration rate, mainland China is also far lower than the United States, Japan, and South Korea. In the 1990s, the penetration rate of convenience stores in the United States and Japan reached a density of 3,000 people per store. By 2021, the penetration rate of convenience stores in South Korea was 1,059 people per store, Japan's was 2,218 people per store, the United States was similar to Japan, and mainland China's was only 7,033 people per store. If the saturation level of the Japanese convenience store industry is reached, the total store scale of Chinese convenience stores could roughly triple. Of course, this depends on factors such as the continuous improvement of China's economic environment, government policy support, and the construction of the industry's own supply chain systems such as cold chain logistics. Under scale expansion, the advantages of branded chain convenience stores will become more obvious. The number of stores of domestic chain brand convenience stores is increasing day by day. Convenience stores have low gross margins. Through scale expansion to reduce costs, they can better improve profitability and market competitiveness. In addition, in the process of brand chainization, convenience stores can form a more unified management and operation model, further enhancing brand image and product quality. At present, the chain brand convenience stores in the domestic market are mainly divided into three categories: one is local convenience stores, the second is Japanese convenience stores, and the third is state-owned convenience stores with Sinopec as the background. Now unmanned convenience stores are also emerging. Local convenience stores, represented by Meiyijia, use the strategy of "rural encircling the cities" to enter the sinking market and gain scale advantages. Japanese convenience stores previously focused more on operational efficiency than scale expansion, but in the past two years, Lawson has been expanding its stores through acquisitions and other means. Easy Joy and Kunlun Haoke are located at gas stations, making it difficult to expand outward. It is conceivable that there will be a battle between local convenience stores and Japanese convenience stores. Why are convenience stores becoming more and more popular? Since the beginning of 2020, the physical retail industry, especially large supermarkets, has been greatly impacted by the epidemic, while convenience stores have become one of the few retail formats that maintained growth during the epidemic. Data from the China Chain Store & Franchise Association shows that in 2021, the overall operating performance of the top 100 supermarket companies in China was not optimistic, with sales scale showing a downward trend, of which 62 companies saw sales decline. From 2019 to 2020, the sales growth rate of the convenience store industry increased from 13% to 16%, and further rose to 17.7% in 2021, far higher than large supermarkets, small supermarkets, department stores and other formats. The reasons why convenience stores can grow against the trend and surpass other retail formats are: First, the acceleration of domestic urbanization provides a good macro environment for convenience stores; second, during the epidemic, as an industry ensuring supply and people's livelihood, convenience stores received government policy support; third, compared with supermarkets and department stores, convenience stores are more suitable for the objective needs of the current consumer market. At present, physical retail is showing such a development trend: small stores "defeat" large stores, and community stores "defeat" regional center stores. In such an environment, convenience stores have natural advantages. Specifically, this can be reflected in the following points: 1) Relatively small management and operation costs Convenience stores usually have a small operating scale, relatively low costs, and are relatively simple to manage. In addition, convenience stores usually adopt a streamlined management model, reducing unnecessary manpower and material investment, and lowering operating costs. During the epidemic, due to reduced personnel mobility and increased logistics costs, the operating costs of large supermarkets increased, leading to a decline in profits. In contrast, convenience stores have more advantages in operating costs. 2) Flexible site selection The single-store area of convenience stores is relatively small, generally 50-200 square meters, and site selection is relatively more flexible. Convenience stores are usually located in densely populated cities or communities, closer to consumers. In order to meet people's immediate consumption needs, convenience stores are increasingly moving closer to community business circles. According to survey data from the China Chain Store & Franchise Association, from 2019 to 2020, among the surveyed chain convenience store brands, the proportion of community-based stores increased from 30.4% to 52.7%, already occupying "half of the country." 3) Changes in consumer demand For domestic consumers, shopping in large hypermarkets used to be a pleasure, gaining spiritual pleasure from the dazzling array of goods, and also satisfying the joy of family outings. But now, with higher urbanization, higher consumption levels, and more entertainment options, the appeal of hypermarkets has naturally declined. Moreover, shopping channels were not as extensive as they are today, and people could buy everything they wanted in one trip to the hypermarket. With the rise of online e-commerce and community group buying, the relationship between people, goods, and places has changed, from people finding goods to goods finding people. Consumers can compare across multiple channels and place orders for different products on different channels. The need for one-stop shopping has decreased, replaced by the demand for immediate consumption. In addition, the younger generation of consumers is gradually becoming the "consumption backbone." They are more receptive to new things and pay more attention to the convenience and speed of shopping. Convenience stores themselves emphasize immediacy, small capacity, and urgency. Although the SKU is not very large, the categories are complete and the display is simple, which can meet people's needs for quick shopping. On average, it takes only about 3 minutes from entering the store to completing payment. Although the physical retail industry has experienced wave after wave of impact, convenience stores have become one of the first choices for consumers due to their small but beautiful characteristics and flexible adaptability. But in this rapidly changing era, operators need to further innovate service models and provide better services to consumers in order to stand firm. The beautiful new world of "Convenience Store +" Community and near-field shopping scenarios, because they are closer to consumers, have become key areas for convenience stores to expand. How to provide residents with more convenient lifestyles on this basis, and how to differentiate themselves in competition with peers, is particularly important for the future development of convenience stores. Take foreign convenience stores as an example. They have many explorations in life scenarios, such as 24-hour operation, photocopying and printing services, ATM deposit and withdrawal, utility bill payment, photo printing, etc. In contrast, domestic convenience stores are closer to small supermarkets. Whether it is exploring new scenarios or building models adapted to local customer conditions, there is room for development. Obviously, domestic convenience stores have realized these problems, focusing on the creation of community and near-field shopping scenarios, exploring multi-channel consumer contact such as online and offline, and building and upgrading new category capabilities around fresh food, private brands, etc., which has become the general direction of domestic convenience store development in recent years. Some convenience stores have made different changes in scenarios around consumer experience. For example, in 2018, Xianfeng Fruit and Lawson opened a convenience store in Hangzhou, adding fruit sales. Source: Zhongbai Lawson In January 2021, Bianlifeng officially launched "Emotional Radio" in more than 1,800 stores nationwide, becoming the first "convenience store radio" in China, aiming to let consumers hear healing broadcasts while shopping in stores. The audio medium with "convenience store radio" as the carrier creates a more comfortable and relaxed shopping and resting environment for consumers. In 2022, a subsidiary of Meiyijia obtained the first Class B OTC convenience store sales license in Guangdong Province, opening a new retail model of "convenience store + pharmacy." In addition, according to media reports, many convenience stores carry life functions such as laundry. At present, innovative scenarios such as convenience store + new-style tea drinks and convenience store + bookstore have also emerged. The innovation of convenience stores in scenarios may continue to deepen, gradually blurring retail boundaries and expanding to multifunctional boundaries. This can not only meet the needs of different consumers, but also expand the business scope of convenience stores. Domestic convenience stores are in a state of blooming. To meet the diverse needs of consumers, it is expected that there will be many possibilities in the entire industry. Final words: Under market competition, the number of branded chain convenience stores will increase. Therefore, how to provide customers with a good experience and how to develop their own characteristics on the standard model requires further in-depth development. For FMCG enterprises (brand owners/distributors), the growth market is still offline. As a rising channel, how should FMCG enterprises take advantage of its development trend to achieve better cooperation between the two parties, or create new cooperation models to achieve product exposure and improve sales efficiency, is also worth thinking about.