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policies superimposed on the market, with two big hands waving, the pace of convenience stores “going up the mountain to the countryside” began to become hasty. Facing the future, what kind of road will this be?
Late at night, the city hasn’t fallen asleep.
At the 24-hour convenience store in front of home, eat a Kanto cooked food to fully satisfy the taste buds, which is the daily life of many young people in first tier cities.
It’s hard for young people in the countryside to have the experience of selling Wuhuan supermarket early. It’s hard for them to sell it early. However, things are changing now.
On May 5, Sichuan Province issued a plan, proposing that by 2025, each administrative village will have one rural convenience store in principle. Other provinces, such as Jiangsu, have also proposed to build convenience stores in rural areas this year.
Many provinces have begun to vigorously develop rural convenience stores. One of the reasons is that convenience stores are particularly tough in the offline retail market impacted by the epidemic.
According to Bain’s report, the overall growth rate of China’s FMCG fell by 0.8% year-on-year in the third quarter of last year. Except for convenience stores, the sales of all offline channels showed a downward trend.
Action is also taking place at the national level. Previously, the Ministry of Commerce issued the notice on three-year action to promote the branding and chaining of convenience stores, which proposed to strive to reach 300000 stores in the national brand chain convenience stores by 2022, compared with 193000 in 2020.
In addition to policy guidance, in the main body of the market, many convenience store brands have actually taken the initiative to open the road of sinking. Rosen, 7-11, family, convenience bee and other convenience store brands have stepped out of the Fifth Ring Road and moved towards third and fourth tier cities and even counties to find new increments.
Policies superimposed on the market, two big hands waved, and the pace of “going up the mountain and down the countryside” of convenience stores began to become hasty.
What kind of road will this be?
Convenience store sinking tide
In the domestic convenience store market, there are roughly three factions: Japanese department, local department and Internet department.
According to the top 100 list of convenience stores in China in 2021 (hereinafter referred to as the “top 100 list”) released by China chain operation association, in terms of the number of stores, Yijie (27600), Meiyijia (22400) and Kunlun Hospitality (20300) in the local department are in the top three respectively.
Relying on the gas stations of PetroChina and Sinopec, Yijie and Kunlun are hospitable in large and small cities in China. You can see them in gas stations in downtown Shanghai and mountainous Guizhou. Sinking is of little significance to both.
On the contrary, Japanese and some local convenience store brands are particularly urgent to go to low-line cities.
The list shows that the number of stores of the “Japanese big three” – Rosen, the whole family and 7-11 are 3256, 2967 and 2387 respectively. Since entering China, the three companies have basically landed around the first or second tier cities.
In the past two years, they have intensively sounded the charge to the sinking market.
Rosen has more stores in China than the whole family for the first time in 2020. It plans to lay out 6000 stores this year and reach more than 10000 by 2025. New stores began to appear frequently in the sinking market. For example, in March this year, China business Rosen opened the first five stores in Huainan, a fourth tier city.
The effect of sinking the market is also very obvious. Zhang Sheng, vice president of Rosen China, once said: “during the epidemic period, Rosen’s store performance in East China achieved a month on month growth of 30%, of which the growth rate of the third and fourth tier cities was much greater than that of the first and second tier cities.”
Take Zhangjiagang, a county-level city under Suzhou as an 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 10% ~ 20%.
Like Rosen, the whole family and 7-11 also entered the sinking market one after another. 7-11 has opened its first store in Dezhou, Shandong and other places, and the whole family has settled in Jiangyin and other places.
For Japanese convenience stores stationed in first tier cities all year round, going to low tier cities is not only excavating new increment, but also forced by the situation.
The first thing they face is profit pressure.
Rosen won’t be fully profitable until 2020 after 25 years in China, while the whole family and 7-11 are only profitable in some regions, while other regions are still in a state of loss.
Profit pressure is great, and the operating pressure is also increasing day by day.
In the first and second tier cities, rent and labor costs are rising, and the performance ceiling is being kept down. According to the data of prospective industry research institute, the employee salary and rent of convenience stores account for more than 60% of the total expenses, and the net profit of enterprises is only 2.4%.
Even if it has withstood the pressure of profitability and operation, under the fierce competition, the market incremental space has been continuously compressed.
In the first tier cities, the convenience store markets in Shanghai, Guangzhou and Shenzhen have been basically mature, and the competition among convenience store brands is becoming increasingly fierce. According to the 2020 China convenience store development report, there are 6430 convenience stores in Shanghai alone.
In the program “talk show conference”, actor Doudou said a passage:
Every time I call to ask where my girlfriend is, she says I’m in the family. There’s a Starbucks next to me and a subway station behind me. In Shanghai, what you said is the same as what you didn’t say.
Under the situation of market saturation, intensified competition and rising costs, expanding downward to find new increments has become an inevitable choice for Japanese convenience stores.
Among the local departments, convenience bee and Meiyijia are also opening a larger “sinking pace”.
Five years ago, the convenience bee broke through the siege and became a dark horse from the “convenience store desert” Beijing area. According to its official disclosure, tens of thousands of stores will be opened in 2023, and the increment will be concentrated in the second and third tier cities.
Throughout last year, convenience bees have been sinking the market. From the public information of convenient bee app, Langfang, Taizhou, Zhenjiang, Huai’an, Suqian and other third tier cities. In general, convenience bees prefer low-level cities in North China, East China and South China.
Meiyijia started in Dongguan, a new first tier city, which has the largest number of convenience stores per capita in China. According to the data of China Chain Operation Association (CCFA), as early as 2019, every 1242 Dongguan people owned a convenience store, and the numbers of Beishang Guangshen were 8889, 3769, 2803 and 1731 respectively.
Based in Dongguan, Meiyijia has already started the pace of nationalization. It has gone from first tier cities to low tier cities. Zhang Guoheng, its chairman, mentioned that one of Meiyijia’s development strategies in 2022 is to develop the whole market from the first line to the fifth line.
Other local convenience bag brands are also moving to low-level cities. For example, there are more than 30 stores in Shanxi Province, such as Shuozhou and Datong, and there are no longer more local brands in Taiyuan.
Today, a local brand in Wuhan, has been stationed in 37 cities in Hunan, Henan, Guangxi and Hainan in recent years. At the end of January this year, today entered Xiantao, a county-level city directly under the central government of Hubei Province, opened its first store and began to go to the county market.
Those convenience store brands that have been stationed in the first and second tier cities for many years are going to the low tier cities and opening the road of “going up the mountain to the countryside”.
In front of us is a vast world.
Sinking increment and convenience store advantage
This vast world is imaginative enough for major convenience store brands.
According to Alibaba retail and Aowei analysis data, at present, there are about 6.3 million small stores in offline traditional commodity retail channels, more than 75% of which are concentrated in third tier and below cities, contributing nearly 40% of the shipments of the domestic FMCG industry.
In this huge market, the consumption power is still improving, and the gap with the first tier cities is narrowing.
According to the 2021 China Urban convenience store index released by China chain operation association, corresponding to first tier cities, young consumers in second tier and below cities account for 25%, but the contribution to consumption growth reaches 60%. In addition, in the first quarter of this year, the ratio of per capita disposable income of urban and rural residents was 2.62, a year-on-year decrease of 0.05, and the income gap between urban and rural residents was decreasing.
In other words, the consumption increment that convenience stores can tap in low-line cities is no less than that in high-line cities.
More importantly, consumers in low-level cities welcome convenience stores and have strong consumer demand.
The social survey center of China Youth Daily once conducted a survey. 51.0% of the respondents expected chain convenience stores to enter the countryside. Now more and more young people, unable to accept the high pressure life in the first and second tier cities, have chosen to return to their hometown. At the same time, they also want to enjoy the same convenient life as the first and second tier cities.
Of course, the large market space in low-level cities does not mean that convenience stores can rush into any horse racing enclosure. They are faced with a common “enemy”:
According to the B2B2C Research Report of small retail stores of FMCG 2020-2021, the mom and pop stores sinking the market account for 75% of the total number of mom and pop stores in China.
It refers to the neighborhood retail store, which is generally a small neighborhood store. The area is small and there are not many goods. Generally, there are only two employees. You may not have been to Rosen, 7-11, but you must have bought cigarettes, alcohol, snacks and soda in this kind of couple store.
Convenience stores must compete with mom and pop stores if they want to enter the sinking market. Yidiancaijing believes that convenience stores have three advantages in this competition:
Brand power, digitization, supply chain.
On August 8, 2020, Rosen opened six stores in Wuhu. This is the first time that the three Japanese giants have entered the third tier cities.
At that time, there were red carpets and flower balloons outside the store. Customers lined up excitedly to enter. They looked like a wedding scene. On the first day of opening, the container was swept away early. It was so popular that the couple’s shop next door was greedy.
In some low-level cities, Japanese convenience stores, like McDonald’s and Starbucks, are still a new species. With its brand appeal, it can attract many consumers, which is beyond the reach of mom and pop stores.
Moreover, in the joining process of Rosen, the whole family and 7-11, the headquarters will support the franchisees in terms of commodity operation, store construction and development, which weakens the impact of the joining mode on the brand image.
The second advantage of convenience stores over mom and pop stores is digitization, such as convenience bees.
Convenient bee has built a complete set of digital system internally. This system can understand the needs of customers in a specific time and space, timely adjust the goods on the shelf, and supply the most right products to consumers.
This intelligent and convenient experience is attractive to many young people, which cannot be provided by mom and pop stores.
In addition, digitalization can hand over daily operation decisions to the system, and employees only need to act according to the system prompts, which greatly shortens the employee training cycle, improves operation efficiency, and can support their rapid replication in the sinking market.
The supply chain is also a point that convenience stores are stronger than Mom and pop stores.
Compared with many mom and pop stores, convenience stores with scale effect have the bargaining power of high-quality goods. Finally, there will be some quality differences between the two in goods, such as high-quality fresh food and dessert, selected imported goods and so on.
In addition, the supply chain of convenience stores is relatively complete and developed, which can provide fresh goods with high requirements for distribution cycle. In contrast, the supply chain of mom and pop stores is weak, so it is difficult to complete the goods.
From a large perspective, convenience stores have absolute advantages over mom and pop stores. However, from a detailed perspective, mom and pop stores also have their own strengths.
A bit of Finance and economics talked to a husband and wife store owner in the county. There is no convenience store there for the time being. The boss is not worried that the convenience store will impact his business in the future.
According to him, “I’m not afraid that customers will be robbed by convenience stores, because I know them and what they want to eat and what they want”.
The boss’s confident words actually reflect that in the sinking market, small retail stores are a business form with strong regional attributes, and also rely on acquaintances.
From this perspective, in terms of products and services, mom and pop stores have more grounded “customer sentiment” than convenience stores.
In the first tier cities, when many people mention convenience stores, they first think of Bento, Kanto cooking and other fresh foods. Because of the fast pace of the city, many young people go to work in the morning or late at night and choose to have a meal in a convenience store. Zhang Sheng, vice president of Rosen (China), once revealed that fresh food is Rosen’s best-selling commodity, accounting for about 40% in stores.
However, for most young people in small towns outside the Fifth Ring Road, the pace of life is relatively slow. It is common to go home for dinner, so the fresh food in the convenience store is naturally unattractive. They prefer to eat foods with local characteristics or familiar taste buds, such as steamed stuffed buns and stewed pork that have been sold in the couple’s store for many years.
Today’s convenience store experienced a large number of withdrawals shortly after entering the Hunan market. One of the reasons is that there are too many small shops specializing in specialty snacks in Hunan. These snack shops are highly competitive, and the turnover of four or five convenience stores can’t match it.
Convenience store brands can compete with mom and pop stores in different cities only if they adapt their products to local conditions.
Zhang Sheng, vice president of Rosen China, once said, “the post-60s and Post-70s have become stores, the post-80s have become Taobao, and the post-90s have become hungry, meituan and Jingdong. What kind of business will be achieved after 00 needs the efforts of our people here. Each generation is different, and our products will not do well if they are not subdivided.”
Convenience bees have done more prominent in “localization”. Since starting in Beijing, convenience bee has successively launched many regional specialty foods such as overheated dry noodles and saozi noodles in stores in other cities.
In addition to hard products, mom and pop stores also have unique advantages in soft services.
From the perspective of site selection, there are great differences between mom and pop stores and convenience stores. The former is usually close to residential areas full of fireworks and rely on the flow of acquaintances to survive, while the latter is usually opened in places with dense flow of people and haunted by young people, such as business districts and subway stations.
In order to attract neighbors to consume, the mom and pop store has expanded more convenience services, including receiving express, printing fax, and opening a mahjong restaurant to gather popularity on a larger scale. This is similar to the convenience stores in Japan, which will provide ATM, toilet, printing, express delivery, water, electricity and gas payment and other services.
In other words, mom and pop stores are sinking the market, not only selling goods, but also sometimes undertaking broader needs such as local social networking and convenient services.
With these services, mom and pop stores have understood the consumption habits of surrounding customers and integrated them into their lifestyle. Acquaintances will help each other in business. This stable network of relationships is difficult for foreign convenience stores to break through.
So you will see that even though many chain convenience stores are opened in the community, most of them are patronized by young people and rarely attract middle-aged and elderly people. In addition to the price factor, there is also a considerable part of the face.
For an inappropriate analogy, if the convenience store is compared to a “strong dragon”, then the mom and pop store is a “local snake”. Whether the strong dragon can overcome the local snake depends on whether it integrates into local life with its products and services
In 1968, China’s first 24-hour “convenience store” – spark day and night store opened in Shanghai. Since then, this small retail format has spread like a spark in China.
Over the past 50 years, convenience stores have almost always bloomed everywhere in high-line cities and rarely set foot in low-line cities. Nowadays, sinking the market has become the consensus of most convenience store brands, where there is new incremental space.
The vast world has great prospects, but they are facing competition from a large number of mom and pop stores and competition from peers. How can the road of “going up the mountain to the countryside” go smoothly? Yidiancaijing believes that the words of 7-11 founder Suzuki minwen can be used as the answer:
The real competitor is not the convenience stores of other brands, but the changing needs of customers.
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