Wen | Chen Chang
Editor| Yang Jie
"Unexpectedly, I also have a Lawson convenience store in Baoding!" Not long ago, Zhang Qiao, who returned to his hometown in Baoding, Hebei Province, from Beijing, said excitedly.
After staying in a first-tier city for a long time, Zhang Qiao has become accustomed to coming to the Lawson convenience store downstairs of the company late at night after overtime, buying an oden and treating himself. Convenience stores in the corners of big cities that are not closed for 24 hours have become the silent companions of many young people like Zhang Qiao who are alone in a foreign country. So many young people can't help but feel a little sad when they return to their hometowns during the holidays and search all the small supermarkets and retail stores in the county and city and don't find a familiar feeling.
But now, the chain convenience store chains are collectively "sinking".
With the increasingly fierce competition in the first- and second-tier cities, starting from 2020, many chain convenience store brands have chosen the road of external expansion, stepping out of the north, Shanghai and Guangzhou, and stepping forward into third- and fourth-tier cities and even counties. Lawson convenience stores have opened stores in Baoding, Langfang, Cangzhou and other places in Hebei, as well as in Wuhu, Anhui, Nantong, Jiangsu and other prefecture-level cities; 7-Eleven also opened its first stores in Dezhou, Shandong and other places. Local convenience stores such as convenience bees have also begun to settle in the sinking market and open up new battlefields.
The "imported products" convenience stores also want to conquer the "small town youth". But here, they not only have to overcome the problem of "water and soil", but also have to connect with the local traditional mom-and-pop shops.
A number of industry insiders also told Caijing Tianxia Weekly that there is a fundamental difference between japanese and local big-name convenience store chains and the model of traditional retail stores in the county. Their expansion may not have gone as smoothly as expected.
Chain convenience store collective "going to the countryside"
"Rosen moved into Baoding in December 2020 and currently has about 11 stores." Zhang Qiao learned from the local convenience store owner.
Prior to this, Shijiazhuang, Tangshan, Langfang, Cangzhou and other places in Hebei Province already had the figure of Lawson convenience stores. In August 2020, Lawson convenience store entered Wuhu, Anhui for the first time; on the same day, it opened five stores in Nantong, Jiangsu Province.
(Rosen convenience store opened in Baoding, Hebei Province, source: courtesy of the interviewee)
According to Lawson's 2020 financial report, as of September 2021, it has 4,000 stores in the Chinese market; and plans to deploy 6,000 stores in China by 2022 and more than 10,000 stores by 2025.
Zhang Sheng, vice president of Lawson China, once said: "During the epidemic period, the performance of Lawson's stores in East China achieved a 30% month-on-month growth, of which the growth rate of third- and fourth-tier cities was much greater than that of first- and second-tier cities. In Zhangjiagang, a county-level city under the jurisdiction of Suzhou, for example, the sales volume of rosen community convenience stores increased by nearly 80% year-on-year, while the year-on-year growth rate of Shanghai stores was only about 10% to 20%. ”
Obviously, "sinking" has become the main theme of Rosen in the domestic market at present.
Also thinking the same way about Rosen are 7-Eleven and FamilyMart, which are also Japanese convenience store brands, as well as local convenience stores such as Meiyijia, Golden Tiger and Convenience Bee.
Among them, 7-Eleven has opened its first stores in Dezhou, Shandong, Kunming, Yunnan and other places, and FamilyMart has settled in Jiaxing, Jiangyin and Wujiang, Suzhou, Zhejiang.
In Hunan alone, Meiyijia has opened the markets of Hengyang, Loudi, Xiangtan, Yiyang, Yueyang, Zhuzhou and other cities; with Taiyuan as the center, Golden Tiger has settled in 7 cities in Shanxi, including Yangquan, Jinzhong, Changzhi, Linfen, xinzhou; convenient bees have been laid out in Zibo, Shandong, Foshan, Guangdong, and Xuzhou, Yancheng, Lianyungang and other places in Jiangsu, and its executives have announced to the outside world that they will open "ten thousand stores" by 2023.
(Source: Visual China)
Zhao Rong, a former 7-Eleven executive and training expert on chain convenience stores, analyzed to Caijing Tianxia Weekly that the "sinking" of chain convenience store brands and the occurrence of cross-regional phenomena are brought about by a variety of factors, including the improvement of the consumption ability and consumption awareness of people in small and medium-sized cities in China, and the stronger willingness of "singles" in convenience stores brought about by changes in family structure.
For these convenience store brands themselves, in first- and second-tier cities, with the continuous rise in rent and labor costs, their operating performance is gradually approaching the bottleneck. Taking the Japanese convenience store brand "Big Three" as an example, Lawson Convenience Store took the lead in achieving full profitability in the Chinese market in 2020 after 25 years of entering China, while FamilyMart and 7-Eleven are only profitable in some parts of the country, and are still in a state of loss in other regions.
In first- and second-tier cities, competition between convenience store brands is also becoming increasingly fierce, and the previously released "2020 China Convenience Store Development Report" shows that there are 6430 convenience stores in Shanghai alone, and the number of people covered by a single store is 3769 people. In the 2021 talk show conference, the actor Doudou told the passage: In Shanghai, FamilyMart, Starbucks and subway stations, mention these three places, are "invalid location tips".
"Downward expansion" has become an inevitable choice for convenience stores.
After the "sinking", some convenience stores received fairly good consumer feedback. It is understood that in the first month of the opening of the Lawson convenience store in Baoding, the daily passenger flow reached about 400 people. Previously, 7-Eleven opened its first stores in Xi'an, Fuzhou, Changsha and other places, and also achieved sales revenue of 390,000 yuan, 420,000 yuan and 500,000 yuan on the opening day, respectively.
In these areas, many young consumers also told Caijing Weekly that they are welcome to such convenience stores. Zhao Yu, a Texas girl, believes that this means that her hometown is becoming more and more "fashionable" and "modern". She said that with the rise of social software such as Douyin and Xiaohongshu, young people around them have more and more understanding of the various businesses popular in big cities, and there is also a yearning in their hearts, and the sinking of the head convenience store brand has met everyone's needs to a certain extent.
Zhao Yu said for example, in the past, once she saw a new Nestlé ice cream product endorsed by star Meng Meiqi in a video advertisement, and she wanted to buy it to taste it, but she searched for local supermarkets and stores, and there was no sale at all, so she had to give up. But soon after, she found the ice cream in the new local 7-Eleven. What makes her even happier is that in convenience stores, she found a lot of online celebrity snacks, cosmetics and daily necessities that she had seen on social platforms and advertisements before. It was also through this type of convenience store that she ate the self-hi pot for the first time.
Third- and fourth-tier cities still have great purchasing power, especially the spending power of young people, which cannot be ignored. According to the "2021 China City Convenience Store Index" released by the China Chain Store and Franchise Association, corresponding to first-tier cities, young consumers in second-tier cities and below account for 25%, but the contribution of consumption growth has reached 60%.
This is a market that convenience store brands don't want to miss. However, it is not as easy as they think to develop smoothly here.
The aforementioned report also shows that in some third- and fourth-tier cities, such as Huizhou in Guangdong and Putian in Fujian, the development of local convenience store formats is very close to the level of mature markets, and the fierce competition is no less than that of first- and second-tier cities.
This is not a completely blank "pure land" waiting for the head chain convenience store brands to discover. Here, they have to face completely different opponents from first- and second-tier cities.
Competition with "mom-and-pop shops" and local brands
The most expensive unit price of a bottle of pure water is more than 10 yuan, and the unit price of a bottle of imported makeup remover milk can reach hundreds of yuan, which is the norm in first-tier city chain convenience stores. According to the aforementioned young consumers told Caijing Tianxia Weekly, in their hometowns, the pricing in these stores has basically not changed compared with first- and second-tier cities.
For "small-town youth", in the face of the high pricing of big-name convenience store chains, how long can their consumption enthusiasm last after the initial freshness? In the view of Liu Kun, a franchise chain consultant and douyin anchor, this is one of the problems that convenience stores have to face, but more critically, for young people, spending in convenience stores is not their "just need".
According to relevant sources, the Lawson convenience store that entered Zhangjiagang in the past few years is not as good as takeaway in terms of fresh food, and the current winter night sales are not high, and its 24-hour business model has brought higher labor cost input.
Liu Kun also said that in his view, convenience stores "sink", but also face more fundamental problems, including different regional store product structure, profit model is different, localization problems, supply chain problems need to be solved urgently. In addition, they also have a question to ponder: convenience stores are difficult to enter the community, and how to compete with the traditional retail stores that are everywhere in the sinking market?
In the county, retail stores, especially the ubiquitous mom-and-pop shops, basically play the role of small local "department stores". In this type of store, the sales are more local specialty goods, even vegetables, grain and oil. For example, in Hunan, betel nut accounts for about 60%-70% of the daily turnover of the entire retail store.
Compared with ordinary mom-and-pop stores, the supply chain of convenience stores is more perfect, and they can be equipped with fresh food products and have a richer variety of goods. However, this can also be "unsatisfactory".
In first-tier cities, many people mention convenience stores, and their first reaction is the box lunch bento and oden sold inside. Convenience stores are mostly located in the supermarkets and office buildings around popular business districts, mainly for young white-collar workers, selling fresh food and private label products, accompanied by drinks, snacks and other daily necessities. Zhang Sheng, vice president of Lawson (China), once revealed that fresh food is lawson's best-selling commodity, accounting for about 40% of stores.
"The gross profit margin of snack products is about 30%, while the gross profit margin of some fresh foods can reach 70%, so fresh food has always been the largest contributor to the profit of convenience stores." Liu Kun told Caijing Tianxia Weekly, "But when they enter the county, they will find that high-margin fresh food is basically difficult to sell." ”
This is not difficult to understand. You can imagine a white-collar worker in Beijing going to a convenience store to buy a box lunch for lunch, but for most "small-town youth", it is very convenient to go home for a meal, so naturally they will not often solve work meals at convenience stores. The shelf life of fresh food is generally only three days, which is extremely demanding for the supply chain; for convenience stores, it is obviously not cost-effective to do fresh food factories and build supply chains in the local area before sales cannot run out.
(Box lunches sold at FamilyMart, Source: Visual China)
Another fact that cannot be ignored is that under the rapid development of convenience store formats, many areas have occupied the "power" of local convenience stores. In Anhui, there are neighbors; Dongguan has Meiyijia; Sichuan has red flags; in Taiyuan, it is also a three-step Tangjiu, a five-step golden tiger... It is not easy for foreign brands to find opportunities in it.
A Kantar convenience store demand questionnaire shows that compared with first- and second-tier consumers, in terms of the influencing factors of choosing convenience stores, consumers in the sinking market will go shopping because it is "acquaintances to open stores, kind", they generally prefer "fruits and vegetables" and "personal beauty" products, and also like to "try new products" in convenience stores.
Convenience stores in the sinking market undertake a wider range of needs such as local social networking, home shopping, and convenient services.
Local convenience stores and retailers, mom-and-pop stores, whether in the selection, service methods, customer acquisition methods, have adapted to the lives and consumption habits of locals. In order to attract the surrounding crowd to consume, they have also expanded to more "convenience services", including making breakfast, receiving couriers, printing faxes, weighing, and even walking dogs instead of surrounding residents.
(Functional differences between upper-tier cities and convenience stores in the sinking market, Source: Kantar Report)
The business model of chain convenience stores such as Lawson does not seem to meet the needs of third- and fourth-tier cities at present. However, as a chain brand, it has a unified standard, how can it be localized according to local conditions? Liu Kun said.
Even domestic convenience store brands are inevitably planted when operating across regions. Liu Kun said that the Wuhan convenience store brand Today experienced a large number of store withdrawals shortly after entering the Hunan market. This is because there are already too many snack shops in Hunan, "these snack shops are extremely lethal, and the turnover of four or five convenience stores can't match it."
Sinking market expectations
In order to gain a foothold in the sinking market, convenience stores have also begun to innovate.
A convenience store brand, only by adapting to local conditions, can it achieve large-scale development in different cities.
Like the convenience bee that originally started from Beijing and brought "Beijing flavor", in stores in other cities, it has also launched many regional specialties such as yellow stewed chicken, camphor tea duck, hot dry noodles, and zhenzi noodles.
Lawson has cooperated with Wuhan Zhongbai and Hebei Jindian Shopping Mall to build a supply chain and reduce its own business risks. Zhang Sheng once mentioned that in the future, Lawson will also exert efforts in the community market, including achieving breakthroughs in store layout, commodity categories and services. At present, in some areas of lawson convenience stores, consumers can already provide home services, gas recharge, etc., and can also buy lottery tickets.
In the final analysis, if any sinking convenience store wants to improve its gross profit margin, it must work products and services to find differentiation. Zhao Rong said.
"Convenience stores don't have a fixed model of 'what to sell, what not to sell'. Many local convenience stores are also imitating foreign brands, such as selling Oden, sandwiches, rice balls, etc., but do they understand how many local consumers like to eat these things? Zhao Rong believes that "if you have time to study other people's models, it is better to spend time and energy to study the needs of your own customers, develop products suitable for local characteristics, and combine local eating habits with foreign convenience stores to form a differentiation." ”
Zhao Rong said that for example, in the "Small Second Street Convenience Store" in Jiangmen, Guangdong Province, according to regional characteristics, a new format of "convenience store + bar" has been opened, and many young people come to the convenience store at night, and groups of three or five gather together to drink and chat.
In addition, she also believes that "convenience stores in third- and fourth-tier cities often do not have a clear focus on business categories, want to sell everything, and the homogenization of goods is serious; but customers who come to the store cannot find the goods they want." Convenience stores should do more simple products, find products that meet the needs of customers in the business district, and increase their shopping frequency and unit price. ”
"In the process of sinking, the standardization, refinement and personalization of convenience stores have become inevitable. But the hardest thing is not how to do it, but how to change the way you think about it. Zhao Rong said.
At present, the overall competitive landscape of China's convenience stores is still in a relatively decentralized state, and there is still a lot of room for improvement in industry concentration.
QuestMobile's "Sinking Market Report (2019)" shows that the number of users in China's sinking market exceeds 600 million, and the potential of this market has not been fully tapped in many areas.
The Ministry of Commerce has issued the "Notice on Promoting the Branding and Chaining of Convenience Stores for Three Years", proposing to strive to reach a total of 300,000 stores in the national brand chain convenience store by 2022. In 2019, the number was only 132,000.
Recently, the Ministry of Housing and Urban-Rural Development issued the "Notice on Printing and Distributing guidelines for the construction of complete residential communities", which clearly stipulates the relevant indicators and requirements for the construction of complete residential communities; among them, in terms of the scale of complete residential communities, it is required to establish a 15-minute living circle, that is, within 15 minutes, it is possible to walk to various living service facilities, with a service radius of 800 to 1000 meters, which is connected with the management and service scope of blocks and streets.
This also means that in the sinking market, convenience stores have great room for development.
"On the other hand, the giants' fate will also bring a sense of crisis to local convenience store brands and drive them out of their comfort zone." After all, there is no development without competition. Zhao Rong said.
(At the request of the interviewees, Zhang Qiao and Zhao Yu are pseudonyms)
This article is originally produced by AI Finance and Economics, an account of Caijing Tianxia Weekly, without permission, please do not reprint it on any channel or platform. Violators will be prosecuted.