Reporter | Liu Yujing
Edit | Ya Han Xiang
In the competition at convenience stores, the whole family seems to have slowed down.
In the list of the top 100 convenience stores in China in 2021 disclosed by the CCFA (China Chain Store and Franchise Association) in April this year, FamilyMart was surpassed by Lawson for the first time, with Lawson ranking fifth with a scale of 3256, and Chinese mainland FamilyMart ranked sixth with 2967 stores, opening a gap of nearly 300 in terms of number.
There was also personnel turmoil within the family. At the end of June this year, Lin Jianhong, CEO of Familymart Chinese mainland, reported his departure, and the industry believed that Lin Jianhong's departure was related to the weakening of the familymart's brand advantage and fierce market competition; before Lin Jianhong, Zhu Hongtao, the former general manager of the China FamilyMart Headquarters, also left the family in October 2020.
Compared with the whole family, Lawson's expansion in the Chinese market has accelerated significantly this year.
In rosen's 2020 fiscal year financial report, it is mentioned that it plans to open more than 10,000 stores in China by 2025, and Lawson's China business will also achieve profitability for the first time in 2020. Zhang Sheng, vice president of Lawson China, said in an interview that Lawson plans to maintain a growth rate of 30% to 40% in 2021, open about 1,100 new stores, and expand the market in one or two new provinces.
Also a Japanese convenience store, FamilyMart's store growth rate in the past two years has been significantly lower than that of Lawson and 7-Eleven.
According to CCFA past data, FamilyMart's store statistics from 2019 to 2021 are 2571, 2856 and 2967, with a growth rate of 15.4%; Rosen is 1973, 2707 and 3256, an increase of 65%,; and 7-Eleven is 1882, 2147 and 2387, with a growth rate of 26.8%.
Family Was Once the Leader of Japanese Convenience Stores in Chinese mainland. In 2004, FamilyMart officially entered the Chinese mainland through the establishment of a Sino-foreign joint venture company "Shanghai Fumanjia Convenience Co., Ltd.", and then opened its first store in Shanghai in July.
In fact, before 2019, Family Has maintained a fairly high speed of regional expansion, its stores in the East China market with Shanghai as the core and various first-tier cities quickly opened stores, in 2008 the Shanghai store achieved full profitability, in 2012 to achieve headquarters profitability, is the fastest profit rate of all foreign-funded attribute convenience stores; and Lawson until last year, that is, the 25th year of entering China to achieve full profitability.
But since then, the family has gradually fallen into a dilemma.
In 2019, FamilyMart Japan confronted FamilyMart China (its Chinese partner Dingxin Group), which became the fuse for the emergence of familymart licensing and sharing issues; and Familymart's franchise and expansion model in Chinese mainland also became a restriction on its expansion.
FamilyMart's operations in China are effectively licensed to Dingxin Group. In the cooperation between Dingxin and Nippon Family, to open a store in China, Tingxin needs to pay two fees to Nippon Family: the brand royalties to be paid regardless of whether it is profitable or not, and the profit share distributed according to the proportion of equity.
Interface News inquiries found that Dingxin Group's wholly-owned subsidiary, Dingquan (Cayman Island) Holdings Co., Ltd., holds 59.65% of the equity of Chinese mainland FamilyMart, Taiwan Familymart holds 18.3% of the equity of Chinese mainland FamilyMart, while Japan's FamilyMart only holds about 22% of the equity of Chinese mainland Familymart as a joint venture party of the other shareholder, FMCH.
In 2019, Japan's FamilyMart took Dingxin Group to court, the reason for the lawsuit was that Dingxin tried to reduce the brand royalty from 1% to 0.3%, and Dingxin had not paid the brand licensing fee to the whole family for 7 months.
The lawsuit ended with the Defeat of the Japanese Family, but the contradiction between the two sides on the distribution of benefits was not resolved, which was the real reason for the deterioration of the relationship between the two parties - the Japanese side believed that the financial opacity of the Chinese family was unable to understand the real business situation of the whole family in the Chinese mainland, and the profit distribution was uneven; while the Chinese family said that it had paid the brand license fee and was not in arrears.
The deterioration of relations between the two parties caused by the profit distribution dispute directly restricts the development of the family.
There is a time limit for the authorization of convenience store brands, and the authorization time of Japanese convenience stores is regularly 20 years, and the contract between the two parties is facing expiration. At present, it is still unknown whether Dingxin can renew the contract with the Japanese family, in this context, Chinese mainland the family choose whether to enter the new city and whether to accelerate regional expansion will face more restrictions.
In addition, according to multiple media reports, there are certain strategic differences between Dingxin and Japanese Family in the operation of Chinese mainland stores. The Japanese side has doubts about the strategy of Chinese mainland family to enter second- and third-tier cities; in terms of joining form, it cannot join in a large area like Rosen and other brands. So the whole family is slow to sink on the area.
The form of joining the whole family has indeed begun to be questioned in recent years. As mentioned earlier, the whole family does not open large areas to join, and must take Dingxin as the main body of operation. When entering a new city, it is usually Dingxin who first opens a store and then opens up individual franchises. When convenience store brands enter new cities, the first thing they do is to establish a local supply chain and logistics system, and then open stores according to the distribution scope of the supply chain - which means that entering the new area has higher capital and resource requirements for Dingxin itself, and the risk is relatively greater.
In contrast, the other two Japanese convenience stores have taken the form of finding regional partners. Lawson has always been a large regional franchise model, finding large regional partners in new cities and establishing joint ventures with each other; and 7-Eleven's model is similar, 7-Eleven is operated by Taiwan unified enterprises in Shanghai and Zhejiang, South China belongs to Guangdong Saiyi Convenience Store Co., Ltd., the partner in Chongqing is New Hope, and the partner in Henan is Sanquan Food.
On the other hand, the excessively high proportion of franchises in the whole family also brings problems such as quality control. At present, FamilyMart has the highest proportion of franchises in Japanese convenience stores, reaching 80%, while Rosen and 7-Eleven have joined the proportion below 50%. In the franchise clause, personnel costs, scrap costs and taxes are borne by the franchisee, and some franchisees may reduce scrap in order to control costs. Food safety problems of the whole family occur from time to time, Wuxi and Shanghai stores have been punished by the Market Supervision Administration, and independent evaluation agencies have pointed out that some stores of the whole family have the problem of food being unavailed during the temporary period.
Despite the crisis, at present, FamilyMart still has considerable brand recognition and store scale in Chinese mainland, and in the fierce competition for points, FamilyMart's brand advantages and capital scale can still allow them to get stores in the hottest business districts and points with large traffic in first-tier cities.
In addition, FamilyMart's own brand goods accounted for 40% of the overall products, which brought good profits while improving the brand differentiation of convenience stores and enhancing consumer stickiness.
Earlier, Zhang Lei, the founder of a convenience, said in an interview that the gross profit margin of traditional goods is about 30%, while the gross profit margin of private label goods can reach 50%. According to KPMG's 2020 China Convenience Store Development Report, the proportion of private labels in China's convenience stores is only 5%, far lower than the proportion of convenience store countries Japan and Japan with more than 30%.
The proportion of private brands in Japanese convenience stores such as FamilyMart is relatively high, and the gross profit is quite considerable.
Yi Zhenrong, director of Mintel Technology, Retail and Media Category, told Interface News that convenience stores are smaller in size and have a lot fewer SKUs than hypermarkets, so convenience stores have a higher chance of being noticed by consumers in stores. At present, the proportion of domestic convenience stores' own brand goods is still at a low level, with the convenience store brand in the development and production of their own brand continues to increase investment, the future convenience store own brand will have a very large space for development.