In the streets and alleys of some second- and third-tier cities in China, if you pay attention, you will often see such grocery stores: the interior is similar to most mom-and-pop stores, but the storefront features a large red background with white bold characters reading—Furong Xingsheng. In the Chinese market, Meiyijia from Dongguan is hailed as the strongest local convenience store chain due to its large number of stores and its "down-to-earth" business model. Now, Furong Xingsheng from Hunan is expected to catch up with Meiyijia and become another local convenience store brand. Behind both is the B2B business targeting the vast number of mom-and-pop stores in China. In November 2016, Furong Xingsheng, a local convenience store brand in Hunan, reached 9,000 stores, matching the scale of the leading local convenience store chain Meiyijia. However, comparing their coverage, Meiyijia is distributed across five provinces: Guangdong, Fujian, Hunan, Hubei, and Jiangxi, while Furong Xingsheng has penetrated 15 provinces and municipalities in the past three years: Hunan, Guangdong, Hubei, Jiangxi, Zhejiang, Jiangsu, Anhui, Chongqing, Sichuan, Beijing, Tianjin, Fujian, Shaanxi, Shanghai, and Guangxi, seemingly with stronger expansion capability. Furong Xingsheng was founded four years later than Meiyijia (established in 1997), and their models are similar: both open franchise opportunities and integrate the vast number of "mom-and-pop stores" with storefront resources, which is a unique expansion model for Chinese-style convenience stores. However, Meiyijia's store distribution is relatively concentrated, and it is known for its operational capabilities among local convenience store brands. Furong Xingsheng, on the other hand, adds about 300 stores per month, focusing more on connecting upstream and downstream for B2B business, mainly profiting from supply price differences and logistics fees. Furong Xingsheng has a characteristic: it almost never followed the "market trends" of the time. Before 2006, the retail format around Nanxian, Hunan, was mainly "small grocery stores," and Furong Xingsheng made its first pot of gold with supermarkets ranging from 200 to 1,800 square meters. Around 2006, when standard supermarkets and hypermarkets were in their "golden age," Furong Xingsheng reduced its store size to between 30 and 80 square meters, cutting opening costs and opening franchises to expand scale. Starting in 2016, the small format of convenience stores became the new favorite in retail, and Furong Xingsheng's intention to transform into B2B became evident. However, unlike typical B2B companies, Furong Xingsheng has over 100 directly operated stores, and 16 years of experience in retail terminals has made its operational capabilities above the local average, achieving a 98% profitability rate for stores in Hunan. From the beginning of opening franchises, Furong Xingsheng implemented a policy of "fully opening store self-procurement rights," introducing market competition to force the headquarters' distribution end to improve procurement capabilities, and established expansion centers and logistics distribution centers in four provinces, fully preparing for the B2B transformation. "Third Eye Retail Observation" believes that in addition to the direct competition between the local model of "integrating mom-and-pop stores" and the Japanese model characterized by "small business district manufacturing retail," Furong Xingsheng's early layout and B2B transformation model may be worth learning from. Encountering "Regular Army" Squeeze, Switching to Convenience Stores for Survival Before 2000, residents in Hunan's villages and towns were accustomed to buying daily necessities from "small grocery stores," but these stores had limited product categories and frequent stockouts due to single procurement channels. Furong Xingsheng's founder, Yue Lihua, saw a business opportunity and set up a wholesale department to serve the owners of these small grocery stores. In 2001, Yue Lihua closed the wholesale department, which was thriving at the time, and opened the first Furong Xingsheng supermarket in Nanxian, Hunan. In hindsight, the retail format proved more viable than the wholesale department in the following decade. Yue Lihua spent nearly five years testing the waters by opening one or two stores in formats ranging from 100 to 1,800 square meters, but due to limited experience, capital, and manpower, the number of Furong Xingsheng stores never exceeded single digits. This constraint became more evident around 2006, when local Hunan supermarket chains like Bubugao and Xin Yi Jia began to rise, and foreign giants Walmart and Carrefour also entered the market, forcing Furong Xingsheng to survive in a narrow space. Yue Lihua's decision at the time was bold. He closed all stores larger than 100 square meters and repositioned Furong Xingsheng as a "convenience supermarket" that combined supermarket genes with convenience store format, very similar to what is now called the convenience store format, while developing directly operated and franchise stores ranging from 30 to 80 square meters. He insisted on using blood and geographical ties (fellow townsmen) as cooperation bonds, which gave Furong Xingsheng a first-mover advantage in the convenience store format in Hunan and also triggered the auxiliary effect of fellow townsmen sticking together. According to feedback from Furong Xingsheng, this advantage has extended to the present: Hunanese people living elsewhere often ask if the staff are fellow townsmen when entering a Furong Xingsheng store. Additionally, switching to the convenience store format meant Furong Xingsheng saved significant labor and capital costs. Yue Lihua once said, "Compared with chain supermarkets like Walmart and Bubugao, I admit we don't have a competitive advantage. After switching to convenience stores, the obvious feeling is reduced capital pressure and easier to open franchises externally." Furong Xingsheng has two expansion paths: in Hunan, it starts from small towns, first gaining a grassroots base, then surrounding the cities from the countryside; but outside the province, Yue Lihua chose to focus on provincial capitals, building brand effect in central markets, then radiating to other prefecture-level cities, counties, and towns. Under this dual-track approach, Furong Xingsheng rapidly expanded to 16 provinces, reaching 9,000 stores. Breaking Through Strategic Pre-Loss, Hunan Stores 98% Profitable The development of Japanese convenience stores in China has made a "prediction" for the convenience store format: profitability only after reaching a certain scale. For example, 7-Eleven lost money in Beijing for 8 years, which the industry calls "strategic pre-loss." But this expansion model is not suitable for local convenience stores. First, local convenience stores do not have the strong financial strength of foreign companies; second, long-term losses would not gain recognition from franchisees. However, this contradiction rarely occurs in Furong Xingsheng. Data shows that from 2006 to 2010, the profitability rate of Furong Xingsheng's franchise stores in Hunan reached 98%, with a closure rate of almost zero. Furong Xingsheng first controls the selection of franchisees. They tend to choose individuals who are relatives or fellow townsmen of existing operators, with a large number from Nanxian, Hunan. In Yue Lihua's view, "blood ties + geographical ties" are an important trust foundation for Chinese people to establish cooperation. People tend to stick together, and similar living environments make it easier to gain value recognition. These people are generally composed of young people returning from working in other places and families operating "mom-and-pop stores." When selecting locations, they tend to cluster in commercial areas. To this end, Furong Xingsheng prepares two methods: "franchisee provides store, headquarters evaluates" and "headquarters assists in site selection," with equally strict reference standards. First, the best locations are "golden corners and silver edges," such as corners at intersections or street-facing stores. Typically, street-facing stores require the road width to be no more than 10 meters to reduce obstacles for customers crossing the street. Second is the lock principle: Furong Xingsheng mostly opens in the first or second store near the entrances and exits of schools, stations, hospitals, etc. Third is the central radiation principle, such as finding store resources in leisure areas at community centers. Additionally, Furong Xingsheng generally advises franchisees to choose stores of about 50 square meters with monthly rent between 2,000 and 3,000 yuan, making it easy to control costs and thus quickly become profitable. Second, Furong Xingsheng classifies stores based on location into high-end community stores, ordinary community stores, commercial area stores, vegetable market stores, campus stores, etc., and designs product structures and business strategies accordingly. For example, campus stores close slightly later than vegetable market stores, and when configuring products, they correspondingly reduce categories such as rice, flour, and seasonings. Different stores also have different display principles. For instance, in high-end community stores, staff place lollipops on the bottom shelf so that toddlers learning to walk can reach them. According to sales data, this results in higher sales than placing them near the cash register. Opening Self-Procurement Rights, No-Account-Period Procurement Lays Foundation for B2B With strong single-store profitability and the scale advantage of 9,000 stores, it is understandable that Furong Xingsheng wants to transform into a "B2B e-commerce platform." In fact, Furong Xingsheng has fully opened self-procurement rights to all franchise stores, introduced market competition to headquarters procurement, and set up a "no-account-period cash direct procurement model" to force procurement staff to face store sales pressure, all of which have laid the foundation for its B2B venture. When opening franchises, Furong Xingsheng decided to fully open self-procurement rights. Even if franchisees do not purchase a single yuan of goods from headquarters, headquarters will not interfere. This shifts pressure to the procurement end of the headquarters distribution center. If the goods distributed by headquarters are less cost-effective than circulating goods in the market, franchisees will inevitably not take goods from headquarters. To this end, Furong Xingsheng uses its scale advantage to obtain the lowest prices from suppliers, and even after adding price differences and logistics fees, the prices are lower than market prices. At the same time, they must be skilled in product selection. In Meiyijia stores, there is usually a customer registration book at the counter. If a customer asks about a product 5 times, the store may consider purchasing it, but if 5 customers ask about a product once, the store must purchase it. Additionally, Furong Xingsheng's procurement model is no-account-period cash direct procurement, meaning procurement does not have the guarantee of "buy more, get more; return unsold goods" from suppliers. On one hand, this prevents procurement from accepting kickbacks and forming gray interest chains; on the other hand, it uses the "survival of the fittest" model to force Furong Xingsheng headquarters to avoid falling into a frog-in-boiling-water situation under the advantage of store scale. Now intending to transform into a "B2B e-commerce platform," Furong Xingsheng is more proficient in retail than typical B2B companies. It has directly operated stores to ensure continuous improvement in operational capabilities and franchise stores as a scale guarantee. If the pilot succeeds, it may become another direction for the development of Chinese-style convenience stores. Source: Third Eye Retail Observation (ID: retailobservation) -END- ****Click the image to read directly FMCG Industry's Most Professional Practical Knowledge Base [ Reply with yellow numbers in the background to view the following keywords ] | 001 Excellent Article Selection | 002 Distributor Market Operations | 003 Terminal Visit Management | 004 Sales Supervisor Skills | 005 Sales Improvement Techniques | 006 Channel Expansion | 007 Managing Distributors | 008 Distributor Development | 009 Distributor Internal Operations Management | 010 Team Management | 011 Efficient Distribution Techniques | 012 Sales Manager's 18 Skills | 013 KA Operation Methods and Strategies | 014 First Lesson for New Salespeople | 015 Internet, Brands | 016 Distributor B2B Transformation |