Winning the Youth Wins the World When working in the internet industry, I learned a saying: winning the youth wins the world. Why do I and capital favor the convenience store format? First, let's look at the age distribution of shoppers in all retail formats today. It's fair to say that convenience stores have the youngest customer base, primarily post-90s, post-95s, or post-85s. Our generation, the post-70s, still doesn't like to walk into convenience stores because convenience comes at a premium, and it should be. Today, internet companies worth hundreds of billions of dollars globally all started with the unremarkable youth of their time. Tencent started with QQ, but we didn't use QQ back then. QQ initially attracted the post-80s and post-85s, and today they are in their 30s and 40s, still using QQ. If you build a good product, you can serve a generation and fully understand them. Facebook also started with young people on campus, and today's Taobao started with the youth of that era. In any business format, winning the youth wins the world. This applies to the internet and the retail industry. In retail, there are many formats, and I often visit stores to observe the age structure of customers. We also need to know what kind of young people our convenience stores face; new convenience first means new demographics. Chinese convenience stores have Chinese characteristics. What is the first major Chinese characteristic? It is that Chinese convenience stores genuinely have the opportunity to serve the new post-90s and post-95s demographic. This group has a significant Chinese characteristic: they are mobile internet natives. No matter the gap between Chinese convenience stores and excellent global counterparts, one thing exists in Chinese convenience stores that is absent in other countries: mobile internet. Whether it's mobile payments or mobile device usage, Chinese convenience stores are already ahead. It's not that our stores are particularly impressive; it's because this generation of post-90s and post-95s are mobile internet natives. What are natives? We all know what immigrants are. When a Chinese person immigrates to the U.S., their English carries a Chinese accent, and they crave Chinese food. Similarly, our generation is internet immigrants; we grew up going to supermarkets and watching TV. The post-80s and post-85s are internet natives and mobile internet immigrants. The post-90s and post-95s are born as mobile internet natives; their phones are almost a new organ. Furthermore, the post-90s and post-95s have no memory of poverty; they won't calculate like us that a can of Coca-Cola is more expensive in a convenience store than in a supermarket. We are the generation of subsistence 1.0; we do the math. They are the generation of moderate prosperity 1.0; they don't do the math and don't need to. We often say that convenience stores are not just a symbol of urban civilization; they are a symbol of whether a region has entered moderate prosperity. To enter moderate prosperity, you need a moderately prosperous population. This population has nothing to do with all of us today. I am certainly moderately prosperous, but I didn't grow up in the era of moderate prosperity. We are the moderate prosperity 2.0 generation, while the post-90s and post-95s are the moderate prosperity 1.0 generation. Third, they are the only-child 2.0 generation. What is only-child 2.0? The post-85s are only children, but their parents are generally not. The only-child 2.0 phenomenon is uniquely Chinese, unprecedented globally and likely never to be repeated. Only-child 1.0, the post-85s, have no brothers, sisters, or siblings in their dictionary. The post-90s and post-95s not only lack siblings but also uncles and aunts, because their parents have no siblings either. What does this mean? How many people took care of the post-90s and post-95s from childhood? The convenience they experienced in family life is unimaginable to us. We used to criticize children with the saying, "clothes to hand, food to mouth." The post-90s and post-95s truly had food brought to their mouths and clothes handed to them at home. What does this describe? Family convenience. They didn't cook or do chores themselves. When they leave home and enter society, they need a convenient environment—what we call a convenience solution—around them. So why do Chinese convenience stores have a bright future? Because of this new demographic, and it's an expanding one. To excel in convenience stores, we must understand the differences between this group and others.
Why Can't the Internet Kill Convenience Stores? Capital favors this format not only because of demographics but also for a second, more daunting reason: Why can't the internet kill convenience stores? The internet isn't unwilling to kill convenience stores; they've been eager and have attempted several times, but ultimately failed. Many retail formats have been decimated by the internet, but convenience stores survive, continue to open new locations, not just survive but thrive, growing 15% to 20% annually. This is why capital is attracted. We say user experience is simple: only four words: more, fast, good, and cheap. As a convenience store, if you compete on product variety or "more," you're picking the wrong opponent. What did Taobao's rise rely on? First, it was "more"—it had everything. When I was in retail, a department store with 10,000 to 20,000 SKUs was impressive, but when I joined Alibaba, Taobao already had 100 million SKUs. So don't compete on "more." Of course, you can't compete on "cheap" either. What we need to compete on is "fast" and "good." What is "fast"? Earlier, I heard President Song mention reducing a transaction from 15 seconds to 5 seconds. Does the internet want to compete on speed? They've tried, focusing on the last 500 meters, leading to a wave of O2O. The most extreme O2O was on campuses, where diligent dorm residents delivered instant noodles to the bedsides of the laziest students. You didn't even need to get out of bed; a hot bowl of noodles was brought to your bedside. That model ended within a year. There were also many micro-fulfillment centers using O2O to deliver goods in 30 minutes or 15 minutes, but they all failed. If people are so lazy that they need capital to solve the last 500 meters, that violates business principles. If you're unwilling to walk, having suppliers walk for you is not sound business. The last 500 meters must be walked by the consumer, not the merchant. The second internet attempt to kill convenience stores was unmanned shelves. They also attracted massive capital but retreated within a year. When they emerged, we were unequivocally opposed to unmanned convenience and unmanned shelves. Currently, our opposition has been effective; most unmanned convenience stores vanished after a year. Why did they fail? Unmanned shelves had limited product selection, couldn't match vending machines, and had huge restocking costs and shrinkage, all violating business fundamentals. So the internet can't kill convenience stores; it can't save consumers that 500-meter walk. Later, I'll discuss how to make that 500-meter walk worthwhile. Delivering goods to the consumer's door is convenient, but it carries enormous costs and violates business principles. Another aspect is "good." Beyond fresh food, standard products in convenience stores can't be highly differentiated. So our "good" must be in convenience, or more simply, in the in-store experience. Product quality isn't differentiated; Coca-Cola is Coca-Cola. The "good" lies in the on-site experience.
How to Make More Money? Convenience stores are great—the internet can't kill them, capital favors them, and they capture the post-90s and post-95s, the moderate prosperity 1.0, only-child 2.0 generation. So why aren't they profitable? Many convenience stores may not yet achieve daily sales of 5,000 yuan, with low sales per square meter and low labor productivity. Despite high foot traffic, it doesn't matter if you can't retain customers. Foot traffic doesn't equal retention; they come and go. Convenience stores are designed for quick visits, but if you always have high traffic but never convert it to loyal customers, you fail. Three years ago, when we began seriously serving the convenience store industry, I had a discussion with Chairman Wei of FamilyMart. At that time, we proposed raising monthly sales from 200,000 to 300,000 yuan. I said if it's just from 200,000 to 300,000, you don't need me; with refined operations and good fresh food, a store can reach 300,000. Daily sales of 10,000 per store is not new retail; it's still a very tough industry. What is new retail? What is the future of convenience stores? At least dare to dream; dreams are essential. Imagine a single store increasing monthly sales from 200,000 to 2 million. If it's just 2 million annually, you don't need me; refined operations suffice. New retail in new convenience: our goal is at least 2 million yuan per store per month. Many say it's impossible. With a 100-square-meter store, that's over 20,000 yuan per square meter per month—impossible to achieve. How many unique customers does an excellent convenience store have in a month? Our statistics show it's not hard to exceed 10,000, meaning 300 unique customers daily. If counting repeat visits, it's more than 10,000. Managing products is important, but not enough; the core is managing people. Is it possible for a store to develop 1,000 or 2,000 members? Absolutely. It's not hard for a convenience store to develop 1,000 to 2,000 members from 10,000 active people. Is it possible for each member to spend 1,000 to 2,000 yuan monthly on food and daily necessities? Absolutely. Let me do simple math: if you have 2,000 members and each spends 1,000 yuan monthly, that's 2 million. Or 1,000 members spending 2,000 yuan each is also 2 million. We need to aim for this: first, do we have 1,000 to 2,000 members? Second, how do we meet their 1,000 to 2,000 yuan spending? In urban life, spending 1,000 to 2,000 is normal. This is called managing people. I come from traditional retail, where sales were built brick by brick. The internet taught me: building people is enough. If a member spends 1,000 yuan monthly, it's possible if they shop in-store, but it's challenging; they'd need to spend 30 yuan daily. But 2,000 yuan monthly in a convenience store is nearly impossible, as it means 70 yuan daily per customer. This forces us to think: can we enable off-premise consumption—where customers make purchases without visiting the store? It's not hard to imagine. We have two key goals: 1. Convert foot traffic into loyal customers, with a target of 1,000 to 2,000 members per store; 2. Set a target for average spending per customer. When both metrics are achieved, the monthly sales target of 1 to 2 million per store should be attainable. So I'm not making this up; exceeding 2 million monthly per store is not a dream but achievable. Once monthly sales reach 2 million, profitability is guaranteed. However, looking at convenience stores nationwide, a single store can't make huge profits. After clarifying this, we need to segment our demographics: residential communities, office communities, transient populations—like near transportation hubs (rail, road, air)—and bustling street areas. Previously, we tailored product mixes for these four types, which is important but insufficient. We need to understand these four groups because their needs differ, and the nature of memberships will differ. Some stores may be for acquiring members, others for managing them. For example, transportation hubs have massive foot traffic but not local residents; they might be good for member acquisition but not for member management. Office and residential communities might be better for member management but not for large-scale acquisition, as the total potential members in a building or community is limited. Of course, if a convenience store hasn't even segmented by region, it should start there. Previously, product structure was adjusted by region. Now, after adjusting product structure, we must also ask: how do we manage people by region?
Four "Ups" and Four "Onlines" The first "up" is to get consumers to walk that last 500 meters to the store. The in-store experience is paramount. Consumers should walk 500 meters, but whether they walk into your store is uncertain. I'm very grateful to Chairman Wei of FamilyMart for telling me, What is the most important in-store experience? The proportion of hot food. We Chinese are a hot-food nation; we prefer hot meals. The heating process is crucial, and it's something e-commerce and the internet can't replicate. So I often say we are strongly opposed to unmanned convenience and unmanned retail, but I encourage unmanned checkout. If a store clerk is just a cashier, their value is low, given mobile payments and other checkout methods. Can our clerks become service staff? First, convenience store clerks aren't salespeople; guiding is wrong. Restocking has some value, but the best role is on-site food preparation. On-site preparation is a high-value task for clerks, providing essential, high-frequency services. So first, consider improving the user experience. As mentioned, fast checkout to five seconds is good, but not enough. Think about hot food proportion: is there on-site preparation? Why sell coffee? Because it involves on-site preparation. Second, the most important tool for "managing people" and converting foot traffic to loyal customers is the electronic membership system. As mentioned, each store must have 1,000 to 2,000 electronic members. What is an electronic membership system? It means abandoning the old phone-number-based membership; that's not electronic membership because you lose contact when they don't visit. Your customers may not visit, but you can still communicate and connect with them; that's electronic membership. Only with electronic members can you attempt off-premise consumption; otherwise, you're limited to in-store sales. A crucial aspect of the membership system: dare to try a paid membership. Ma Yun said: free is the hardest. We often talk about consumer value and user value. If you charge 99 yuan, you must genuinely create more than 99 yuan in value. FamilyMart's system has seen over 5 million 99-yuan members in two years, aiming for 7 million by year-end. With 7 million 99-yuan members, membership fees alone generate 700 million yuan annually. Only then do we respect what member value and customer value mean. How to expand? The core is the motivation to sign up. You need to design why consumers would sign up, why your employees would help sign them up, and ensure strong renewal incentives in the second year. Third, build a virtual big store. Our physical stores are small; it's impossible to achieve 2 million monthly sales with just the physical space—moving goods in and out would be impossible. So we need a virtual store. Simply put, convenience stores compete on "fast" and "good" from the four aspects; the virtual store aims for "cheap." In one sentence: can we add an online Costco to each offline convenience store? Its characteristic is low gross margins. If we can achieve 8%-10% gross margin and still be profitable, we can compete with e-commerce. If e-commerce needs 20%-30% gross margin to survive, they can't compete, but we might. Finally, reduce supply chain costs. We have a possibility: "small items to store, large items to home." Whether it's in-store samples or ordering, we achieve small items to store and large items to home. To store means consumers pick up; large items to home have high order values, and logistics costs are affordable. Let me share the "four onlines": employee online, product online, management online, and customer online. Why do many companies fail? They haven't found the breakthrough point, which is empowering store managers and employees. Employee online is the first step in internet transformation. Today's post-95s and post-90s employees come to work with their phones. Apple stores have already eliminated POS machines; they've achieved employee online. With a phone, everything is there: payments, products, services, management, and CRM. So empowering employees simply means starting with an app for your store managers and sales guides. It's unlikely to create an app for convenience store customers. But every employee is a high-frequency, essential user; we should have our own app on each employee's phone. What's in the app? Your products online, your customers online, and your management online. I believe the biggest characteristic of Chinese convenience stores is our group of post-90s and post-95s new humans, backed by mobile internet and smartphone penetration. The core of Chinese convenience stores is our hot food station, our on-site food processing capability, and the proportion of freshly prepared food in-store. Achieve this, and not only can e-commerce not kill us, but we'll thrive with high profits. Today, I give you a goal: the implementation of new retail in new convenience will be seen in which companies first exceed 1 million monthly per store, and 2 million per store per month. I especially hope to continue walking with retail partners who persist in the convenience industry. The implementation of new retail in new convenience will surely be the first sub-sector to blossom. Thank you.
Source: China Chain Store & Franchise Association