5 Nov 2015
Success of Mainland Convenience Stores Attracts New Entrants
While e-commerce has had a negative impact on supermarkets and hypermarkets, convenience outlets are thriving.
The rise of online shopping has transformed the retail sector, freeing vendors from the traditional constraints of space and location. There are many, however, who believe that this revolution is still in its early days, while its impact is not being felt equally across all conventional retail channels.
While hypermarkets, supermarkets, shopping malls and department stores are all losing sales to their digital counterparts, the convenience store sector is enjoying something of a resurgence. According to the 2014 survey of the Top 100 Retail Chain Operators in China, the country's leading 55 convenience stores grew their number of outlets by an average of around 7.8%. Across the same period, the sales volume in the sector rose by 17.7%, the highest growth rate of any conventional retail channel.
These seemingly impressive figures, however, are not necessarily reflected in terms of profitability. In fact, a number of such operators have posted losses, a development driven by rising rentals and the failure of many franchised outlets to hit pre-agreed sales targets. Even 7-Eleven, the mainland's leading chain store brand, has not been immune to such problems, with the company struggling to maintain profitability, while continuing to expand.
The problems facing traditional convenience store companies have been compounded by a number of supermarket and hypermarket operators moving into the sector. Wumart Stores, for instance, has looked to reinvent its convenience store offering with a particular emphasis on "personal instant spending".
Carrefour, too, has demonstrated an increased commitment to the sector with the launch of its Easy Carrefour brand. This was initially introduced in Shanghai, before being rolled out to the mainland's other tier one cities. It will now be offered on a nationwide basis. Better Life Commercial Chain Share also has plans to have some 10,000 convenience stores operating across China by the end of 2015, while hoping to have 100,000 outlets by 2020.
According to Wang Hongtao, Director of the China Chain Store and Franchise Association's Convenience Store Committee, "expansion under deficit" seems to be the guiding principle for many such retail operators. As convenience stores operate under small outlet business format, it is difficult for a single store to survive, especially in light of the high rental costs involved. Costs can only be substantially reduced when the operation reaches a certain scale, hence the continuous drive to expand into profitability.
In addition to their bid to reach a critical mass, convenience stores are also looking to diversify their services in order to become profitable. These add-on services now include the sale of train and movie tickets, as well as offering the facility to pay water, electricity and gas bills.
Wang sees this diversification as an inevitable part of the growth of the convenience store offering. In particular, he sees it as essential that such stores continue to offer services that cannot be delivered online.
Kelly Dai, Shanghai Office