China’s Convenience Store Industry in the New Retail Era

The convenience store industry is developing rapidly in China. According to the 2019 China Convenience Store Development Report, the number of convenience stores in China reached 122,000 in 2018, an increase of 15.1% over 2017, far outpacing the growth of large supermarkets (3.6%) and department stores (3.9%) in the same period. With the rapid expansion, the market size of the convenience store industry reached 226.4 billion yuan for the first time in 2018, an increase of 18.9% over 2017. Especially from 2016 to 2018, the average annual growth rate of convenience store sales in China reached 24.32%.

The services offered by convenience stores have also expanded. Leveraging the new retail concept, convenience stores have transformed into a comprehensive outlet integrating the sale of fresh food, snacks, convenience food, and daily chemical products supported by a comprehensive digital ecosystem and delivery services. 

The developmental history of the convenience store in China

The convenience store industry in China has gone through several stages of development.

• In 1992, 7-Eleven, the global chain convenience store giant entered the Chinese market for the first time, and other foreign brands, including Family Mart and Lawson, followed suit.

• Starting from 1995, China’s domestic convenience store chains such as Wu Mart convenience store in Beijing underwent strong growth.

• Around 2010, squeezed by the emerging large-scale chain stores and shopping centers, the convenience store experienced relatively slow development.

• Since 2010, with the development of information technology and digitalization, new modes such as mobile payment, face recognition, and unmanned stores have been introduced to the convenience store industry.

Source: Desk Research & KPMG Research

Policy support has propelled the development of the convenience store industry. In 2015, the General Office of the State Council issued the first policy document on comprehensively and systemically promoting the development of the consumer service industry—the “Guidelines on Accelerating the Development of the Consumer Service Industry and Promoting the Upgrading of the Consumption Structure” ^[1]. After this a lot of national and local supporting policies were issued.

For example, In December 2019, the “Guidance on Promoting the Accelerated Development of Brand Chain Convenience Stores” was issued. During the COVID-19 epidemic, the importance of the convenience store in supporting local communities was highlighted. Based on this, The Ministry of Commerce included policies designed to stimulate further development in the convenience store sector detailed within Notice on Stabilizing Foreign Trade and Foreign Investment and Promoting Consumption in Response to the Outbreak of the COVID-19.

The landscape of the convenience store in the China market

By the end of 2019, there were 22 convenience store brands that have more than 1,000 stores in Chinese mainland. Among them, 19 are local brands, and 3 are foreign ^[2]. The top 3 convenience stores by outlet number are Easy Joy (28000+), uSmile (20000+), and Meiyijia (19000+), with the top 2 belonging to China’s two largest state-owned oil enterprises Sinopec and CNPC.

In terms of market share, Easy Joy, uSmile, and Meiyijia ranked the top 3 with 21.2%, 15.1%, and 14.4%, respectively. By contrast, three foreign brands, including Family, Lawson, and 7-Eleven, account for less than 2% of the market.

Advantages of the convenience store

The convenience store is a retail channel that fits particularly well with China’s urban development characteristics, in which gated apartment complexes comprised of large numbers of multi-story high rise buildings are the norm. The era of “New Retail” has transformed the services and augmented the convenience of convenience stores, which has seen these stores become an integral part of local communities. 

Source: Datagoo

The advantages of convenience stores have been highlighted during China’s battle with COVID-19. The epidemic interrupted urban transportation, logistics, communications, and other aspects of the city infrastructure. In this environment, convenience stores became a tool in China’s ability to ensure stable food supply to all communities. For example, Wuhan’s local convenience store brands Today and Zhongbai Lawson guaranteed that more than 100 of its outlets ^[3] would stay open during the epidemic.

Convenience store in the new retail era

New retail exists in the intersection between bricks and mortar retail, e-commerce and associated supply chain services such as logistics and delivery, cashless payments, and the wider digital ecosystem. It integrates all these elements into an engaging consumer experience. 

Convenience store + E-commerce

Leading e-commerce companies such as Alibaba, Jingdong, and Suning have opened their offline convenience stores to reach more consumers.

Source: Qianzhan Industry Research Institute

Convenience + Takeaway platforms

Many convenience stores have chosen to cooperate with takeaway platforms to accelerate the integration of online and offline channels. For example, In March 2018, Family Mart officially launched takeaway services on Ele.me in nine of China’s major cities. Within two months after its launch, the online order volume and transaction volume both doubled ^[4]. During the COVID-19 crisis, the rate of collaboration between convenience stores and e-commerce platforms has accelerated. Both Meituan and Ele.me are now heavily involved in the supply of foods from convenience stores, and usually operate via contactless collection and delivery.

Convenience store + Fresh food

Convenience stores selling fresh food like vegetables have been trending in China. Convenience store brands, including Easy Joy, Lawson, Suning Small Store, Bianlifeng, and Hi-24, have started this business to attract community-based consumers.

Suning Small Store and Bianlifeng use online booking and offline self-pickup and sell a small number of vegetables and fruits in some outlets. Bianlifeng also supports door-to-door delivery. Hi-24 opened green label stores to mainly sell fresh food and some prepared food.

Sinopec also introduced the "vegetable buying" business in its Easy Joy convenience stores. Its Beijing subsidiary has begun to sell vegetables at 340 petrol stations. Consumers can place an order through Easy Joy APP to choose vegetable packages, and the goods will be delivered to the trunk by operators at the same time as the consumer is filling their car with gas. With more than 28000 outlets, Easy Joy is a strong player in this sector.