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Small in size, big in business

By Wang Ying in Shanghai | China Daily USA | Updated: 2017-03-31 10:40

In an age where many brick and mortar retailers have shuttered due to the impact of e-commerce, convenience stores have been firmly holding their ground and experiencing healthy growth in the Chinese market

There is a common saying among young people in China that goes: "Convenience stores are more reliable than a boyfriend, and more considerate than a good female friend."

Gu Si, who recently started her internship in Shanghai, said she completely agrees with this statement. After all, the convenience store is the place where she buys most of her breakfast meals, in addition to the occasional fast food and snacks.

"Whenever I need to restore my energy in the late afternoon, the convenience store is a good choice for me," said the native of Xiamen, Fujian province.

Small in size, big in business

Wang Hongtao, deputy secretary-general of the China Chain Store and Franchise Association, said that there are about 80,000 branded convenience stores across China and their revenue growth over the past few years has been an average of about 15 percent year-on-year. He added that convenience stores are typically smaller operations compared to large supermarkets, and this affords them a flexibility when it comes to tailoring their product offerings according to customer demands and trends.

Qi Xiaozhai, director of the Shanghai Commercial Economic Research Center, said that nearly all the goods supplied at convenience stores are daily necessities so the demand is hardly affected by other modes of shopping.

Ben Cavender, principal of China Market Research Group, echoed this point.

"Convenience stores continue to see strong growth in China because consumers need fast access to pre-prepared meals, snacks and beverages. When they cannot find affordable restaurants or supermarkets, the convenience store is a natural choice," said Cavender.

"Department stores haven't done well because they are not really providing a unique, compelling product or experience to consumers, so consumers have no reason to go. But convenience stores right now are often the only choice to buy cheap food that consumers are familiar with, such as mantou, or baozi (steamed buns), especially as a lot of street food sellers are no longer operating."

According to Wang, who is also the chief of the convenience store committee in China, there are more convenience stores in East China and South China than other regions due to the warmer weather and stronger mom-and-pop shop business culture in these areas.

Small in size, big in business

Based on the latest convenience store index report from the China Chain Store and Franchise Association, there are nearly 7,000 convenience stores in Shanghai, with an average of 3,466 people per store.

The density of stores in Shanghai, which is home to more than 10 convenience store brands, is ranked sixth among all major cities across the nation, higher than Beijing's 7,185 people per store. Dongguan of Guangdong province was ranked first with 1,096 people per store.

"A distinctive characteristic of Shanghai's convenience store scene is that it has been more stable than other cities in the past two years, partly due to the maturity of the market after nearly two decades of development," said Wang.

Qi said he has noticed that multinational brands that have more international experience are beginning to overtake local brands in Shanghai.

The king of convenience

Originating from the United States but currently owned by Japanese Seven & i Holdings Co, 7-Eleven is the world's largest international convenience store chain that can be found in most major cities around the world.

According to Wang, 7-Eleven has more than 60,000 outlets globally, even more than fast food chain McDonald's. He also pointed out that the success of the brand might have to do with the Japanese work style that focuses on precision and productivity.

The first 7-Eleven outlet was opened in Guangzhou of Guangdong province in December 1996. As of the end of 2016, the brand has 2,375 branches in the Chinese mainland - 219 in Beijing, 102 in Shanghai, 82 in Tianjin and 67 in Chengdu of Sichuan province.

Shinji Uchida, chairman and president of Seven-Eleven China Investment Co Ltd, said that a standard 7-Eleven offers more than 3,000 products, and its product categories increase on a yearly basis.

"Presently, 7-Eleven's Chinese outlets account for 3.86 percent of our total 61,554 stores, and I see great potential for our business to expand in China," said Uchida.

"Apart from oden and steamed buns with different fillings, we have seen quick sales growth for our rice rolls, sushi, sandwiches and breads in recent years. We will diversify our products according to customers' demand and sales."

Oden is a Japanese-style snack that comprises fishcake, meatballs, tofu or kelp skewered and boiled in broth.

Local contenders

Despite being a latecomer to the local scene, Shanghai FamilyMart Co Ltd has been stealing the spotlight from the competition. FamilyMart is a Japanese brand and is operated by Ting Hsin International Group, a company that is no stranger to running food labels, such as the well-known instant noodle and drinks brand Master Kong, also known as Kangshifu. The first FamilyMart store in China was opened in Shanghai in 2004.

Based on Dianping.com, the country's leading local life information and trading platform, there are 1,067 FamilyMart outlets in Shanghai. As of the end of 2016, the company has 1,800 FamilyMart outlets in nine Chinese cities.

According to FamilyMart, their stores in China stock between 2,000 and 3,000 daily necessities and more than half of their products will be swapped on a yearly basis.

Shanghai's older convenience stores include All Days (Haode), Kedi, Quik (Kuaike), Buddys and Lawson. Quik, which is owned by Shanghai-based Lianhua Supermarket Holdings Co Ltd, used to be the city's biggest convenience store brand with 1,300 outlets that accounted for about 25 percent of total sales in Shanghai, said Qiu Yujun, a retail analyst at Planet Retail, in a report published by Wharton University of Pennsylvania. A search on Dianping reveals that there are 956 Quik outlets in Shanghai.

Key to success

On the other hand, Lawson, which opened its first store in China in July 1996, has been one of the better performers because its products are tailored for the young and trendy, said Qi.

"In every city we go to, we research and develop unique snacks, set lunches or even desserts according to the unique characteristics of the local market," said Zhang Sheng, executive vice-president of Lawson (China) Holdings Inc, and president of Shanghai Lawson Inc.

"In Beijing, we offer set lunches that are freshly made. In Chongqing, we provide noodles in local flavors. In Shanghai, our largest market in China, we have special offerings every year such as desserts, 24-hour bakeries, ramen, barbecued items, exclusive toys and daily necessities."

According to Zhang, it took Lawson China 18 years to grow from zero to 500, but just two years to snowball that figure to 1,000. As of the end of January, there are 659 outlets in the Yangtze River Delta region, 134 in Chongqing, 81 in Dalian of Liaoning province, 59 in Wuhan of Hubei province and 48 in Beijing.

He pointed out that Lawson even has a special research and development division under each regional office that performs a series of tests to guarantee the quality of newly developed products before the green light is given for mass production.

Zhang believes that sticking to its self-developed products will be pivotal to unlocking more growth in the future. Up to 40 percent of the products sold in Lawson stores today are made by the brand.

"Lawson has developed a successful supply chain and has spent more than two decades understanding the Chinese market. It is now time for us to take off and accelerate the expansion," said Zhang, revealing that the brand aims to own 10,000 stores in China by 2025.

Qi believes that convenience stores should embrace the e-commerce trend as part of their efforts to innovate while Wang noted that the fast expansion of foreign convenience store brands actually provides a great opportunity for local companies to learn.

"Considering how the smaller Chinese brands understand the local market better and have more flexible business models, I believe these local convenience stores have great potential to grow further in the future. The market is huge enough for players from home and abroad," said Wang.

wang_ying@chinadaily.com.cn

Small in size, big in business

(China Daily USA 03/31/2017 page8)

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