"On a sunny Monday morning, the convenience store near the office building is bustling. Office workers line up neatly, holding breakfast items waiting to be checked out, while the cashiers are sweating from the busy work." Is this a typical scene at convenience stores near office buildings? Does it look like a money-making business? Yes, this is a daily scene at some chain convenience stores in office areas, but whether they are actually making money is still up for debate.

In November 2018, Quanshi was affected by the P2P business scandal of its former parent company, Beijing Fu Hua Excellence Business Management Co., Ltd., leading to a capital chain rupture and making it difficult to sustain development. In February 2019, Quanshi was forced to dismantle and sell off its stores, selling its stores in East China and Chongqing, as well as Beijing, Tianjin, and Chengdu, to Lawson China, Beijing Shanhai Lantu, and other companies.

On May 12, 2020, Beijing Shanhai Lantu Commercial Co., Ltd. issued a notice announcing that due to the company's strategic adjustment, all Quanshi convenience store locations in Beijing would undergo operational adjustments starting from 24:00 on May 20. Over two consecutive months, Quanshi's operations in two cities changed, causing ripples in the industry.

The news of Quanshi's "second death"—once Beijing's largest convenience store brand—quickly dominated the hot search. It makes one wonder: is the question of whether standardized chain convenience stores can make money a false proposition?

******-****01-******Convenience stores are a good business From the perspective of national economic development and people's needs, the development of convenience stores is indeed a good business.

1. National and local government policy support. In the development of the convenience store industry, the national and local governments have issued numerous development suggestions and support policies.

On January 20, 2020, the Ministry of Commerce's official website released the "Guiding Opinions on Promoting the Accelerated Development of Brand Chain Convenience Stores" (hereinafter referred to as the "Opinions"). The Opinions proposed to improve the construction of urban public service infrastructure, densify the convenience consumption grid, optimize the business environment for convenience stores, promote the branding, chain operation, and intelligent development of convenience stores, and better leverage the important role of convenience stores in serving people's livelihoods and promoting consumption.

In addition, some local governments have also introduced a series of related policies. For example, Beijing recently issued the "Provisions on the Management of Fixed Asset Investment Support for Convenience Commercial Facilities Projects (Trial)", which includes convenience store commercial service complexes, with relatively strong support, with project subsidies ranging from 30% to 50% of total investment.

2. The domestic market is not yet saturated, with huge room for development. According to relevant data, as of the end of 2016, the number of convenience stores in South Korea reached 34,376, with one store per 1,491 people on average. In Japan, there is one convenience store per 2,226 people on average.

In China, as of this year, relevant data shows that there are only 130,000 chain convenience stores nationwide. Compared with China's huge population base, the number is still far from sufficient to meet the needs of people's lives. The convenience store industry still has huge room for development.

3. Economic development and increased demand for convenience stores. On the morning of April 7, 2020, the National Bureau of Statistics released the national economic performance data for the first quarter of 2020. According to preliminary calculations, the GDP in the first quarter was 20.6504 trillion yuan, a year-on-year decrease of 6.8% at comparable prices. Against the backdrop of the epidemic, it is not easy to maintain such a level, so overall, the trend of China's economy improving has not changed.

In addition, data from January 2020 shows that although the overall annual economic data has not yet been released, China's GDP exceeded $10,000 for the first time. Residents' consumption capacity has reached a certain height. With economic development, consumer demand for convenience stores is also constantly increasing.

******-****02-******The convenience store business in China is not easy to do However, ideals are full, but reality is skinny. Because from the current point of view, the development of the domestic convenience store industry is not satisfactory.

1. The three major foreign enterprises have been in China for more than ten years, but their development speed is slow. Since 1992, when 7-ELEVEn, the king of global convenience stores, first entered the Chinese market, Lawson and FamilyMart followed in 1996 and 2004 respectively, entering the mainland Chinese market.

Now, the three major foreign enterprises have been in China for more than ten years, but their development speed is not satisfactory.

According to the "2018 China Convenience Store TOP100" released by the China Chain Store & Franchise Association, FamilyMart, which has been deeply cultivating China for many years, has 2,571 stores in China, Lawson has 1,973 stores in China, and 7-11 has only 1,882 stores.

Compared with the development of foreign convenience store enterprises, the domestic convenience store brand Meiyijia, founded in 1997, has now exceeded 20,000 stores in China. In addition, with continuous development, foreign enterprises have also experienced waves of store closures. In 2013, Lawson chose to close 100 stores due to overly rapid development, prominent cost and management issues, and the inability to keep up with the pace of development.

2. Domestic convenience stores have frequently collapsed. In addition to the slow development of foreign enterprises, domestic convenience store enterprises have also experienced frequent collapses.

1) Linjia Convenience Store; On August 1, 2018, Linjia (Beijing) Commercial Co., Ltd. issued a notice stating that the company would suspend all headquarters business from August 1 and gradually stop store operations. It is understood that the reason for the suspension was that the company's sole investor was investigated by Shanghai police, resulting in the freezing of the company's bank accounts. The company was still in the development stage and had not truly achieved profitability, still requiring capital injection from investors. The store's own sales revenue was insufficient to cover expenses, and the company's accounts were frozen due to a lawsuit filed by suppliers, leaving no disposable funds in the accounts.

Overnight, 168 Linjia stores, once called "the most like 7-11 convenience stores," collapsed and became history.

2) 131 Convenience Store; On September 18 of the same year, Beijing 131 Convenience Store issued a notice stating that due to capital turnover problems, it could not operate normally and would check accounts with partner merchants from September 20 to September 25. After the reconciliation, it would issue remittance commitment letters to suppliers. According to relevant sources, the capital turnover problem of 131 Convenience Store may be related to the involvement of some investors in P2P. However, this has not been confirmed so far.

3) Today Convenience Store. Today, also a local brand, has experienced similar events. It once had the glory of receiving two rounds of financing in just three months, opening 30 stores in less than a year, but the stores could not sustain themselves, the capital chain was on the verge of breaking, and daily losses once reached as high as 100,000 yuan.

4) Bianlifeng Bianlifeng opened its first store in February 2017. As of 2020, it has more than 500 stores in Beijing and over 1,500 stores nationwide. After more than three years of development in China, only some stores in Beijing have achieved profitability so far.

Therefore, whether it is local convenience store enterprises or foreign convenience store enterprises, their development in China is not optimistic. Behind the development of the convenience store industry, there seem to be many hidden crises.

******-****03-******Why is the convenience store business so difficult? Returning to the initial question: is the question of whether standardized chain convenience stores can make money a false proposition? The editor believes it is, because from the current point of view, the development of standard convenience stores still has many urgent problems.

1. The domestic environment is complex. The convenience store business is essentially a retail business, and in China, the retail environment is complex. In addition to the numerous small stores deeply rooted in various parts of China, there are also major retail enterprises and e-commerce platforms. Moreover, new retail channels are constantly emerging, such as community group buying and new retail. So overall, although China has a large consumer base and strong consumer demand, the competitive environment is relatively complex and changeable.

2. Supply chain. The backend supply chain is a strong guarantee for front-end convenience store sales, but currently, many enterprises still have problems such as incomplete supply chains, low supply and picking efficiency, and low logistics and distribution efficiency.

3. Service. Convenience stores are a service-oriented industry, so service is the key to improving customer satisfaction and gaining a good reputation. However, currently, many convenience stores find it difficult to form a training mechanism for business personnel. Even if a training mechanism is formed, it is difficult to achieve unified management in franchise stores and other stores. Problems such as not guiding customers after they enter the store, not enthusiastically answering customers' questions during selection, treating customers with a smile when they buy but coldly when they don't, and after-sales service issues are all prominent service problems in convenience stores.

4. Capital catalysis and short-sightedness. If a convenience store enterprise wants to develop, without financial support, it is like a car without wheels. However, with the support of capital, convenience store enterprises are often under pressure from investors to develop. Under the catalysis of capital, they become short-sighted, blindly expand without laying a solid foundation, and the final outcome is bankruptcy and closure.

5. Operational capability. In the process of development and expansion of convenience store enterprises, more people see that the convenience store model can be quickly replicated, quickly open stores, and quickly achieve scale, but few people care whether the store's operation can form a reasonable and continuously developing model. As a result, they burn money to open stores and eventually die from poor management.

6. Cost issues are prominent. During operation, convenience stores also face system maintenance, labor costs (depending on the size of the store and business hours, there may be 4-8 shift staff), rent (with a certain annual increase depending on the location), goods costs, product loss (ice cream and fresh products are prone to loss during transportation; in the event of a power outage, products like ice cream are also prone to loss), fines for irregular operations (food safety issues such as three-no products and expired products), decoration, equipment depreciation, and other related costs.

Relevant surveys show that in first- and second-tier cities, the monthly rent for a store ranging from tens of square meters to 100 square meters is about 15,000 to 30,000 yuan or more, and rent for better locations may be even higher. In addition, depending on the store size and business hours, 4 employees are needed (some convenience stores have 6). Based on an average monthly salary of 5,000-6,000 yuan, the minimum monthly labor cost is 20,000 yuan.

In addition, there are losses from products nearing expiration, expiration, and transportation. Some convenience stores even have monthly losses as high as 10,000 yuan. Monthly utility costs are also significant, and many people ignore decoration and equipment depreciation costs. At the end of the month, the costs are high. Currently, the industry average is that daily sales of 5,000-6,000 yuan are needed to break even, but many industry practitioners say it is not easy to achieve daily sales of 5,000-6,000 yuan. Cost issues have become a limiting factor in the development of the convenience store industry.

7. Others (such as the epidemic). Whether it is a small store or a chain convenience store, there will be some irreversible factors during operation that affect business. For example, with the sudden outbreak of the epidemic this year, many office workers worked from home or were on standby, and there was no foot traffic in business districts, but the rent and labor costs of convenience stores did not decrease at all. Therefore, this epidemic became the last straw for many convenience stores, and news of convenience store closures was frequent.

Many convenience store enterprises in China excessively pursue scale in order to achieve profitability as soon as possible, but behind the excessive pursuit of scale, the foundation may not be solid, and short-sightedness may lead to collapse. Therefore, the seemingly prosperous and upward industry actually hides many development problems. There is still a long way to go for convenience stores to achieve profitability.

Source: Innovation Retail Society (ID: dnwlkjyxgs) Author: Chang Xiu