Convenience store franchisees can't survive anymore

The convenience store industry is still growing rapidly, but joining a convenience store is no longer a good business

Text: Contributing Writer Hu Miao

Editor|Yu Le

Chen Yun (pseudonym), the owner of Jinan's 711 convenience store, was put on a "fire rack". She was faced with two choices: not only would she not make a profit if she continued to open the store, but she would also have to pay a small loss every month, but if she closed the store, she would not be able to get back the 200,000 yuan deposit she paid when signing the contract.

She chose to stay up, stay up until the end of the five-year period, get back the deposit, and not open more than a day.

In contrast, Xiao Luo's (pseudonym) former boss is very decisive. When he discovered that two new convenience stores had opened on the same street, he immediately shut down his Rosen on that street. 20-year-old Xiao Luo also ushered in the first unemployment in his life.

In the past few years, with the blessing of capital, China's convenience store industry has ushered in rapid expansion. According to the 2023 China Convenience Store Development Report jointly released by CCFA (China Chain Store & Franchise Association) and KPMG, the total number of convenience stores in China has increased from 132,000 in 2019 to 300,000 in 2022.

The industry is still developing rapidly, but the business of individual franchisees is not easy to do. In the case of intensified competition, both the average single-store sales and the average single-store population have declined to a certain extent.

Not only that, but the various discount stores that are menacing are also teaching convenience stores a lesson in the higher price of goods. Wang Hui (pseudonym), a convenience store owner in Hangzhou, said that a bottle of Nongfu Spring mineral water sells for 2 yuan in her store, 1.1 yuan in a discount store, and 1.5 yuan in the supermarket next to it, but later reduced it to 1.3 yuan. Goods that were supposed to be unsellable gradually began to be unsalable.

The risk of loss is increasing. More and more franchisees are saying on social networks that convenience stores are no longer a good business.

It's just that it's not so easy to escape from this industry.

The Great Leap Forward for Convenience Stores

The streets of Hefei in April 2017 were full of construction sites. Office buildings and residential buildings have risen from the ground, building the urban forest of the future.

Pan Jinju, the founder of Kuanzhai Ventures, is visiting a startup team in Hefei with his team that intends to create a convenience store brand.

"We were frightened, there were only more than 50 stores in Hefei at that time, and we were a little worried that the market would not be able to get up. Pan Jinju told us.

"I think the core growth point of convenience stores comes from the development of business districts and communities in the process of urbanization, and the coverage of convenience stores to them. "They chose to invest.

In May of that year, the team established a convenience store brand, Linji. By February 2023, there will be more than 1,000 stores in Linji, making it one of the largest convenience store chains in Anhui.

Image source: Xiaohongshu blogger

Not only Pan Jinju saw the potential of convenience stores in the Chinese market, but countless capitals were also flocking to it.

Since 2016, the convenience store industry has poured nearly 10 billion yuan of capital in the past few years, and many investment institutions such as Sequoia, Junlian, Yueyue, IDG, and Huaxing have entered the market to invest in many convenience store brands such as Orangutan Convenience, Good Neighbor, Today, China Business Convenience, and Jianfu. One of the most eye-catching is undoubtedly the convenience bee. In 2020, Convenience Bee announced that it had raised a total of $1.5 billion in the past few years.

Not only in neighboring countries, but also in many provinces and regions, regional leading convenience store brands have emerged. For example, it is very strong in Jiangsu and Zhejiang, Tang Jiu in Shanxi, and Red Flag in Sichuan... According to CCFA statistics, in 2022, a total of 31 domestic convenience store companies will be among the "Thousand Store Club".

Competition in the industry is intensifying at a rapid pace. In addition to the new brands supported by capital, the old convenience stores have also started a cross-regional market rush journey in the form of franchises.

Chen Yun was one of the first franchisees to open a store when 711 convenience stores entered the Jinan market.

At that time, 711 vigorously laid out the national market, and from 2019 to 2020, it had its first stores in Zhengzhou, Fuzhou, Xi'an, Wuhan and other cities, and settled in Jinan in April 2021. At that time, the plan was to open 100 stores in the Jinan area within two years, and gradually expand to the surrounding areas.

Before deciding to join, Chen Yun inspected the performance of 711 in other cities in Shandong. According to news reports, on December 25, 2020, the first three stores of 711 opened in Yantai, with a total performance of more than 920,000 yuan on the opening day, and the highest single store reached 750,000 yuan, setting a record high for 711's global single store sales.

In April 2021, when 711's first store in Jinan opened, it also recorded a turnover of 340,000 yuan. At that time, there was a long queue at the entrance of the store, and the citizens wanted to see what was so special about this Japanese convenience store.

Chen Yun also asked some practitioners and 711 operators, and the information he got was that the monthly profit was about 50,000 yuan, and it would be able to return to the cost in half a year at most.

This made Chen Yun move his heart all of a sudden. She found a shop in an office business district in Jinan, spent a total of 600,000 yuan, and opened her first 711 convenience store in August 2021.

Not only 711, but Lawson is also expanding in a variety of franchise combinations. According to the list of "2022 China Top 100 Convenience Stores" published by the China Chain Store & Franchise Association, Lawson China ranked fifth with 5,641 stores in 2022, ranking first among foreign-funded convenience stores. In 2017, it had fewer than 1,000 stores in China. This means that in five years, Lawson has added more than 4,600 stores.

According to Xiao Luo, his former boss was originally a clerk of Lawson, and became the manager of a store through the form of "direct sales and subcommission". Then it grew bigger and bigger, and by 2022, it already has four Lawson franchised convenience stores.

The tide rose, and the convenience store employees at that time were generally doing well.

Xiao Luo started out as an ordinary clerk, responsible for cleaning and changing items in the snack area, and later in charge of cashiering. In that year, Xiao Luo's boss opened two new stores, and Xiao Luo was promoted to a new store as a store manager. From an ordinary employee to a store manager, Xiao Luo only took eight months, with a basic salary plus commission, and a monthly income of more than 10,000 yuan, which is not a low income for a young man who is less than 20 years old.

It's getting harder and harder to do business

After the store opened, Chen Yun gradually discovered that convenience stores were not an easy business.

Chen Yun's convenience store in the office building, if it is not during the epidemic, the average daily turnover is about 4,000 yuan, and it is more than 120,000 yuan a month. All turnover is assigned to the 711's master account, from which it is settled every month and profits are shared.

When he joined, Chen Yun learned that after deducting the costs of employees' wages, water and electricity, rent, etc., he could get 25% of the profits, which was estimated to be about 10,000 yuan.

However, actual expenditures exceeded expectations, partly due to overbudgeted salaries for personnel and depreciation of goods, on the other.

In terms of labor, since 711 is required to be open 24 hours a day, employees must be arranged to guard the store at night, but there is almost no traffic near the office building at night. "A night shift worker earns about 7,000 yuan a month, but he basically doesn't generate any workload. Chen Yun said.

Impairment refers to the cost of expired and damaged goods, which need to be borne by the franchisee himself.

A set of experience that Japanese convenience stores have explored for a long time shows that the richness and fullness of goods on the shelves are higher, and consumers can make them want to buy. The most hungry bread fills the shelves near the door to lure customers in. However, the bread that cannot be sold expires the next day, and this part of the loss can only be borne by the owner.

"I only sell 10 loaves a day, but they ask me to order 15. Chen Yun said.

Shanghai FamilyMart franchisee Jing Yu (pseudonym) also revealed that FamilyMart also asked franchisees to place additional orders on some short-term products, "The daily order volume will be 130% of my sales." ”

In Chen Yun's store, there is a loss of expired products worth 5,000 yuan to 6,000 yuan every month. Jing Yu is the same, he set a KPI for his store manager: the loss cannot exceed 7,000 yuan. He believes that as long as it is less than 7,000 yuan, he can still afford it.

After a month, Chen Yun not only can't make money, but also loses 5,000-7,000 yuan every month. This is completely inconsistent with the "50,000 yuan profit a month" she heard before opening the store.

Jing Yu's store has a good income, which has a lot to do with his store opening near the hospital. There is only one convenience store within a kilometer of this hospital. This is also one of the reasons why the daily sales of Jing Yu's store can reach 30,000 yuan. Jing Yu estimates that he will be able to recover 1 million in the cost of opening a store in a year.

He also bluntly said that if it is a street store, a community store, and an office business district store, it will face a lot of pressure. What everyone fears the most is that new convenience stores will appear nearby.

However, what convenience store owners fear is inevitably happening. According to the 2023 China Convenience Store Development Report, between 2019 and 2022, the number of convenience stores in China increased from 132,000 to 300,000, and the average daily revenue per store fell from 5,297 yuan to 4,794 yuan.

Image source: "2022 China Convenience Store Development Report"

In terms of penetration rate, the single-store coverage population rate in Chinese mainland in 2022 will be 4,751 people per store, which is still far behind mature markets such as the United States, the United Kingdom, South Korea, and Japan. However, compared with 7,033 people per store in 2021, there has been a significant increase.

Image source: "2022 China Convenience Store Development Report"

Under this trend, the return cycle of convenience store franchisees is becoming longer and longer, and some convenience stores with poor locations and poor management are also experiencing an increasing risk of loss.

Increasing competition

Only one year after becoming the store manager, Xiao Luo ushered in the first unemployment in his life.

In 2021, the daily sales of Xiao Luo's stores reached a maximum of 20,000 yuan, and an average of 13,000 yuan per day. However, in 2022, the store's sales plummeted, often less than 6,000 yuan. "If you can't reach 6,000 yuan, you're a loss. Xiao Luo said.

On the one hand, this is due to the epidemic, and on the other hand, it is also due to the intensification of competition. Within a kilometer or so of the street where the store is located, there are two more convenience stores in a year.

Xiao Luo's boss first chose to lay off employees, and for a long time, Xiao Luo's store only had one regular employee and one or two interns. Xiao Luo's workload has suddenly increased, but his income has shrunk a lot compared to 2021.

In June 2022, Xiao Luo's boss judged that the store's performance was unlikely to return to 2021, so he chose to close the store. Three months later, Luo became a driving school instructor.

Pan Jinju observed that starting from 2022, many leading regional convenience store brands have begun to compete across regions after there is no room for store expansion in China.

Started in Wenzhou, the network has spread throughout East China, Taiyuan's Tang Jiu has crossed to Zhengzhou, and neighbors have also gone to Fujian... Pan Jinju believes that this trend will become more and more intense in the future.

But on the other hand, cross-regional is not easy for convenience store companies, which means rebuilding the team, doing the market, competing with local convenience store brands, and adapting to the local environment. Location is very important to convenience stores, and the city's business districts and communities are limited, which makes the first-mover advantage in the competition of the convenience store industry more and more obvious.

According to Chen Yun, when 711 entered the Jinan market, Jinan already had a local brand of orange convenience, as well as convenience bees, which were in the limelight at that time.

711 doesn't have many advantages over local convenience stores. This is mainly reflected in the product. Chen Yun compared the same products in his store with other convenience stores and found that the pricing of the 711 was significantly more expensive. In terms of some self-operated products, the acceptance of sandwiches and rice balls produced by 711 in Jinan is not very high. Jinan still prefers to eat hot food, including noodles, dumplings, etc., while 711 does not have these specialized products.

In August 2022, the first store of 711, which had a turnover of 340,000 yuan when it opened, was revealed by local media in Jinan to be empty. Convenience Bee has also closed a number of stores in Jinan.

Wang Hui, who lives in Hangzhou, also joined a cross-regional convenience store brand - Ligou Lianhua. According to public information, the operator of Ligou Lianhua is Nanjing Yuze Enterprise Management Co., Ltd., which also appeared in the primary market in 2021 and received a 60 million A round of financing funded by Junxing Capital.

Wang Hui and his wife were stopped by a Japanese convenience store with a franchise fee of more than 600,000 yuan. The total cost of opening a store is only 250,000 yuan, which makes the two very excited.

But what Wang Hui didn't expect was that from the moment they signed the franchise agreement, they fell into the dilemma of constantly wrestling with this company:

"The store address they chose, within a kilometer of the neighborhood, there are two convenience stores of the same brand. Wang Hui said. Before joining, the company promised to assist in applying for a "tobacco and alcohol license", but in the end, because the store area was less than 1.5 square meters, it could not get the certificate, and there was no professional staff to remind and assist in the whole process.

What made Wang Hui even more angry was that the brand quoted 18,000 yuan for refrigerators and radios, and the market price was actually only 6,000 yuan. She held her baby and argued with the project manager for a week before she was allowed to buy the equipment on her own.

After the opening, the purchase price given by the brand was on average 5 cents higher than the wholesale price on the market, and there were a large number of candies that could not be sold in the goods. When joining, the company's promise of "after-sales service" and "allowing return and exchange" were all ineffective at this time. Wang Hui and the company had to fight for another two weeks before they were allowed to return a small part of the goods.

For this store, Wang Hui calculated that the daily turnover needs 1,200 yuan to be able to protect the capital, but since the opening, the best day is only 800 yuan, and the worst day is only a few dozen yuan.

Between two fires

What prompted Wang Hui to finally make up her mind to quit was the newly opened retail discount store next door. From the perspective of the market, the average price of her store's goods is five dimes higher than that of the discount store, so naturally she can't compete with the other party.

"This year's market is in a mess. She sighed.

At the beginning of September, she posted the news of the transfer of the store on social platforms. She conservatively calculated that from the time she contacted this convenience store brand in May and opened the store quickly, to now, she will lose at least 100,000 yuan.

Transferring a store is also not an easy thing to do, because there are too many shopkeepers who want to transfer. Wang Hui joined a group of owners of supermarkets and convenience stores in Hangzhou, and every day people are posting information about store transfers, the price is not high, but few are successful.

Not only her, but Chen Yun also fell into the dilemma of wanting to close the store but couldn't. She paid a deposit of 200,000 when she signed the contract. The contract stipulates that if it has not been in operation for five years, the deposit cannot be recovered.

She also thought about transferring, and in the 711 convenience store franchisee group in Jinan, there are also other store owners who have released information about the transfer of stores. She saw a store owner who opened a store in March this year who had been seeking a store transfer for several months, but had not been able to transfer it out, and finally chose to close the store, losing more than 500,000 yuan. She no longer expects the transfer.

Chen Yun also reflected on whether it was because of the poor location of his store, after all, the key factor that determines the survival status of a convenience store is location. She negotiated with 711's agent in Jinan to relocate the store, and got permission. Subsequently, she found a community-based store to renovate, but after the renovation of the new store was completed, she received a notice that the old store could not be closed.

This made Chen Yun in a dilemma, and in desperation, he could only open two stores together. Fortunately, the second store is located near the community, and the location is better than the first store, and the flow of people is greater. After running down, there are still some profit margins.

At present, Chen Yun has handed over the store in the office building to a partner in the form of semi-entrustment and semi-transfer, and he is in charge of the new store. Her plan now is to survive five years and get her deposit back, "I really don't want to do it for a day." ”

Not only do franchisees want to quit, but in the face of increasingly fierce competition in the industry, many entrepreneurs and convenience store owners are also thinking about the possibility of exiting. According to industry sources, this year, more and more convenience store business owners have revealed their plans to sell assets and withdraw from the convenience store industry.

The consolidation of the convenience store industry is already quietly underway, which also makes her see new opportunities. Recently, she came up with the idea of setting up an M&A fund to acquire premium convenience store brands.

"Convenience stores are a large-scale business, and the top one or two convenience stores in the area, as long as it has more than 400 effective stores, can go upstream to make customized products. Pan Jinju said. This also provides a foundation for them to develop fresh food, "The gross profit space of fresh food is basically more than 40%, which is the most profitable." ”

Through the advantage of scale, many convenience store companies can obtain high gross profit margins, and at the same time, convenience stores have also become a good entry point for integrating upstream and downstream supply chains.

For capital, convenience stores are still a "good" business, a stable and strong channel, and an opportunity to integrate the upstream and downstream industrial chains. However, this has nothing to do with individual franchisees, they care about the daily turnover, the real profit received each month.

Chen Yun spends a lot of time in convenience stores, and she always looks nervous about patrolling to beware of employees stealing. This has happened several times. She blamed it on the lack of staff training on 711, which exacerbated the pressure on franchisees.

Jing Yu was tormented by the "change of account" demanded by the whole family. The so-called change of ledger is to change the shelf position of the goods, in the requirements of the whole family, the store needs a small change in half a month, a big change in a month, and the first quarter is to change the whole field. Each position must be carded according to the requirements of the whole family, otherwise points will be deducted.

However, Jing Yu is still full of enthusiasm for this business, and his goal is to achieve a daily turnover of 40,000 yuan.

Individuals can't influence the ever-changing industry and environment, but there is no shortage of lucky people in the times. It's just that Wang Hui, Chen Yun, and Xiao Luo are not the lucky ones who were selected by the convenience store.

Editor-in-charge: Tian Jie