Source: Retail Business Review
The retail sector is continuing to pick up.
A few days ago, the China General Chamber of Commerce released data that in May, the mainland's retail prosperity index was 50.9%, an increase of 0.5 percentage points from the previous month, and continued to maintain a steady upward trend.
Leading indicators such as the logistics industry prosperity index and the retail industry prosperity index performed better than expected, indicating that market confidence and consumption expectations have strengthened.
As the capillary of the retail industry, convenience stores are in a period of continuous evolution of chain branding. Whether in terms of market size or store size, there is still a lot of room for growth. From the perspective of model, it is also rapidly iterating, and instant retail, community group buying, and live streaming have also brought new business models to convenience stores. The development of convenience stores is on the fast track.
We have observed that convenience stores are not only a leap forward in the number of chain stores, but also face the challenges of new business formats such as homogenization and various discount stores.
Convenience stores are "leaping forward", but challenges still exist
The scale of convenience store chains in mainland China is growing.
According to the "2023 China Convenience Store TOP100" public list released by the China Chain Store & Franchise Association, Meiyijia, Sinopec Yijie, and PetroChina Kunlun Hospitality are among the top three, Tianfu Convenience and Lawson are ranked fourth and fifth with 7,208 and 6,330 respectively, followed by Furong Xingsheng, 7-Eleven, Shizu, Hongqi Chain, Shenzhen Yizhan, etc.
Top 40 convenience stores. (Image source: China Chain Store & Franchise Association)
Judging from the results, many domestic chain brands have rushed out, and convenience store companies will show a warming trend in 2023, and enterprises will be more optimistic.
According to the China Chain Store & Franchise Association, in 2023, 81.4% of convenience store enterprises will achieve year-on-year growth in total sales, and 16.9% will have a year-on-year decline. Compared with 2022, the overall sales of the convenience store industry are improving. Among the companies with a year-on-year decline in sales, 9 percent of the company's comparable store sales fell year-on-year, including many leading enterprises.
And in 2024, the expansion of convenience store chains will accelerate. Taking Meiyijia as an example, the latest data shows that the number of Meiyijia chain stores in the country has exceeded 35,000, with a net increase of 3,000-4,000 stores every year, and an average of more than 200 million customers per month; Meiyijia has topped the list for two consecutive years, becoming the convenience store brand with the largest number of stores in China.
Compared with 2023, 2024 is more optimistic, with 71.2% of the sample convenience store companies choosing an expansion strategy.
According to our insights, in the long run, the convenience store market is still a hot market. In the past three years, convenience stores have been one of the fastest growing retail formats in China, with an average annual sales growth rate of about 20% and an average annual store growth rate of nearly 10%.
"Branding and chaining are the main development trends of convenience stores. This is especially true in first- and second-tier cities. The momentum of brand chains is accelerating the expansion of stores. As the size of the convenience store chain reaches the order of magnitude, the advantages of the density effect (especially the profitability of a single store) will also appear. A chain retail consultant told us.
From the perspective of consumption, "younger" has become the label of high-frequency consumer groups in convenience stores, and it is necessary to meet their needs for multiple time periods and scenarios to a certain extent. According to iiMedia Research, the average amount of Chinese consumers spending at convenience stores in 2023 will be 44.8 yuan.
"The brand convenience stores are highly standardized, and the product categories are more complete. I usually choose convenience stores for daily use and fresh food. Some popular products will also be more readily available at convenience stores. "As the name suggests, convenience stores value their convenience. Now you can buy items from nearby convenience stores at home and have them delivered to your doorstep. Some consumers said.
It can also be seen from the consumer market that the demand-side young consumption is pushing back the iterative upgrading of supply-side brand merchants. Convenience store branding is a mainstream trend.
According to the data, the number of chain brand convenience stores has reached nearly 300,000 by the end of 2022, from 62,147 in 2013.
But even so, in fact, there are nearly 6 million mom-and-pop convenience stores in the country. If calculated by proportion, the number of chain brand convenience stores is less than 5%. But it also confirms the inevitability of the transformation and upgrading of this market from the side.
According to the Retail Business Review, although the growth of convenience store chains has maintained a certain growth rate in recent years, it will take a long time for China to reach a relatively high saturation level in the long run.
Compared with the mature markets of convenience stores in the world, there are only a few cities in mainland China with a convenience store saturation of less than 2,500 people/store, and most cities have a convenience store saturation of 3,000 people/store to 9,000 people/store. The incremental space of the market is also obvious.
Convenience stores are still "changing"
China's convenience store industry is developing well, and the market size is expected to reach 503.3 billion yuan in 2025.
As for market development, competition is also intensifying, and leading brands are increasing their scale. First of all, chain brand convenience stores are aiming at the sinking market.
At present, convenience stores in the sinking market are dominated by traditional mom-and-pop stores, which do not have supply chain advantages and have relatively low relative efficiency. At present, both foreign and local chain convenience store brands in China are accelerating their tentacles to the sinking market.
According to the China Urban Convenience Store Development Index, Xiamen, Taiyuan, Dongguan, Changsha and Guangzhou are among the top five in the convenience store development index. In 2023, 64.1% of the cities surveyed will achieve positive growth in the number of urban convenience stores, and convenience stores in most cities will maintain stable development. The trend of convenience stores sinking into the market is still continuing, and it has sunk to the fourth and fifth tier cities and county-level markets. At the same time, convenience stores in various cities are still mainly engaged in the regional market.
For example, 7-Eleven has already extended its strategy to the sinking market in the mainland, and has expanded to Jiangsu, Shaanxi, Hubei, Henan, Hunan, Fujian and other provinces and regions. And Lawson is not to be outdone. In the past seven years, Zhongbai Lawson convenience store stores have covered Hubei, Hunan, etc., opening up the situation in the sinking market.
Some local brands are moving faster. For example, Tianfu convenience store focuses on second-, third- and fourth-tier cities, and even villages, towns, and remote towns, which need to be vigorously expanded. Meiyijia has already started the national pace mode, going to first-tier cities and sinking to lower-tier cities. One of Meiyijia's development strategies is to develop the whole market from the first line to the fifth line. Then there are Taiyuan's local brands Tang Jiu and Jinhu, Wuhan's local brand Today, etc., and their strategic goals have begun to target the sinking county market.
"Retail Business Review" believes that there is still a lot of room for incremental growth in the sinking market, and both foreign brands and domestic local brands are rushing to the beach. However, it is not to blindly compete with regional brands for the market, but to tap more of the increment of the market. How the current 6 million mom-and-pop stores can catch the fast train of convenience store chains is the key.
At the same time, some convenience stores have begun to test the waters in multiple formats, such as exploring discount stores.
For example, Tianfu, a local convenience store brand in Guangdong, has recently quietly opened two discount stores in Dongguan. According to the official website of Tianfu convenience store, the two stores focus on hard discounts, and on the basis of their "price year" strategy, they have launched a new retail format of discount stores, with an operating area of about 80 square meters and locations around the community. At present, the goods sold in the discount store are "much lower" than other Tianfu stores.
In our opinion, discount stores have indeed had a certain impact on convenience stores in the past two years, especially the emergence of various snack discount stores. However, there are still great differences in the overall business model. Therefore, brand convenience stores should explore the possibility of more new formats by pushing discount stores. After all, convenience store chains have natural advantages in terms of supply chain and logistics.
Another point is that just-in-time retail brings increments. Many small and medium-sized supermarkets, convenience store chains, and mom-and-pop stores have also accelerated their integration into the instant retail army. Just-in-time retail brings more incremental space to convenience stores. "Not only do they bring traffic online, but they tend to have a higher unit value per customer."
The Retail Business Review observed that real-time retail is deeply integrated with online and offline, which increases revenue for offline entities. For small community shops, the "business economy" has changed.
For example, the sales radius extends from 1 km to 5 km, and the operating hours become all-weather. Convenience stores rely on the riders of the retail platform to meet the consumer needs of the community within 30 minutes. The service radius has also been extended from 1-2 km to 5-6 km.
In terms of traffic, we should no longer only focus on the natural traffic of stores, but also stabilize online traffic. In the past, for offline stores, the most important thing was in-store traffic. Through real-time retail, more attention is paid to stable online customer flow. There are also more and more retail entities such as convenience stores and warehouses that focus on online takeaways.
We have observed that, in fact, convenience stores such as Meiyijia, 7-Eleven, and FamilyMart have been connected to online layouts such as instant retail. Instant retail will become one of the normalized modes of convenience stores, and the delivery efficiency of instant retail will move towards 15 minutes in the future.
For example, Meiyijia, which has more than 35,000 stores, strengthened online marketing during the "May Day" period, expanding revenue through real-time retail, live streaming and other models.
Meituan data shows that from May 1 to 5, Meiyijia's instant retail orders reached nearly one million, and Meituan's live broadcast became a new growth point, with orders in the live broadcast room increasing by 36% compared with the end of April. On May 1, the order conversion rate in the live broadcast room was as high as 45%, which is equivalent to one person placing an order for every two people entering the live broadcast room. Throughout April, the average order conversion rate in Meiyijia's live broadcast room was 38%. Through live streaming + instant retail, a complete and efficient link has been completed.
There is also a very core point, thousands of stores, thousands of faces, one city, one policy will be the key point of convenience store expansion.
There are great differences in the consumer and commodity structure in different provinces, and when it comes to the commodity structure, the same category also has different product portfolio performance in different cities. According to NielsenIQ's cross-analysis of the changes in the importance of convenience store sales in cities and the opening rate of stores in 2022, several cities in Guangdong Province have high sales importance, but the store change rate is low, so it is necessary to intensively cultivate the layout and identify urban people, goods and yards for efficient store expansion.
"At present, among the types of chain convenience stores, community-based stores account for the largest proportion, and they are still the main store types, as well as business stores, specific business districts, etc. At present, convenience stores no longer only rely on offline in-store traffic, online and offline home-to-home, community group buying, live broadcasting, etc., and various types of stores combine various scenarios, and then match the corresponding marketing, and have digital insight into single-store consumers, so as to achieve one city, one policy, and thousands of stores. Industry insiders said.
There are also differentiated new formats of the "convenience store +" model, such as + fruit, baking, coffee, and so on. and more cross-border combinations, such as Lawson will do co-branded theme stores with IPs such as Bilibili to attract young consumers to participate. "Convenience Store +" has also become a new attempt to combine cross-border with other business formats.
"Retail Business Review" believes that convenience stores still have great potential for explosion, and there are development opportunities in the sinking market and emerging model convenience stores, and in the future, convenience stores will take digitalization as the core base to carry out more social and scenario-based penetration, which is the real goal of convenience to meet the "15-minute life circle".