At Your Convenience

The huge market potential for convenience stores has interested companies preparing for battle as the competition gains momentum

By TANG YUANKAI

As Beijing’s retailing market is heating up, both Chinese and foreign chain store giants are accelerating their expansion programs to exploit the lucrative market share—and the focus this time is on convenience stores (CVS).

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CVS, hypermarkets and supermarkets are the three main types of retailing business. CVS, with its small premises, convenience to consumers and wide network, has become the first choice of many vendors. Currently there are over 3,500 CVS located in different communities of Shanghai. In sharp contrast, Beijing has only 1,525, which means one CVS for nearly 10,000 people. Such huge market potential has attracted a large group of retailers vying fiercely with each other for market share.

From January to August last year, the first 10 CVS chain corporations made 1.2 billion yuan ($14.49 million) in retail revenue, a 33.7 percent increase compared to 2002. The revenue of four retail vendors, Wu Mart, Chaoshifa, Jingkelong, and Beatrice, accounts for 80 percent of the total amount in Beijing, with the number of stores belonging to these four making up 60 percent of Beijing’s total.

Hualian, a large supermarket company, has 18 of its CVS in Beijing’s business districts, main streets and byroads. “Our strategy is to focus on hypermarket and CVS, while making the latter a supplement of the former”, said Ma Wei, Executive Deputy General Manager of the company. There are usually about 2,000 kinds of goods in its CVS, which is determined by its small capacity and instant service for customers’ emergency and leisure needs.

In November 2002, the first 14 gas station CVS were opened by Beijing subsidiary of China Petroleum and Chemical Corp. (Sinopec). In only one month, 16 more were opened. Before this, Wu Mart had also signed contracts with China National Petroleum Corp. to put CVS in 6,500 gas stations nationwide. They have all been attracted by the huge and fast growing market of family cars, because to get the 1,000 gas stations in Beijing into their business will definitely bring competitive advantage in this retail battle.

But what pleases Wu Jianzhong, Vice Chairman of Beijing Wu Mart Commercial Corp., is its “metro strategy.” In May 2002, 14 Wu Mart CVS were erected along Beijing metro lines, serving hundreds of thousands of passengers everyday and also, according to Wu, “getting Beijing citizens into the habit of eating breakfast underground.”

The Wu Mart Commercial Corp., founded in 1994, became engaged in CVS business not long after its establishment. Now with more than 200 CVS, the company achieved more than 400 million yuan in sales from January to September 2002.

Currently Wu Mart has three kinds of CVS: 10-square-km underground instant stores in subways, 100-square-km CVS along main streets and 300-500-square-km community CVS. Its CVS revenue has taken more than one third of its total retailing revenue.

On November 21, 2003, Wu Mart was listed on Hong Kong’s GEM Board. The expected investment of HK$400-500 million ($64.43 million) will be used for extending the retail network in Beijing and its surrounding areas.

But its strong competitor, Lianhua Supermarket, had already done so in late June 2003. Insiders believe that the two will meet rising competition in the near future.

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“Lianhua Quick,” the CVS subsidiary of Lianhua Corp., entered Beijing in August 2002. In only one year, it has opened more than 100 outlets, making it the largest CVS chain in Beijing. Huang Tao, General Manager of Beijing Lianhua Quick Convenience Store Co., Ltd., said the company would focus on its main service by offering “an unlimited range of services within the limited space.”

It is known that Lianhua Quick will proceed to join hands with Sinopec to open CVS in all the 400 gas stations in Shanghai, which will probably be followed by a further step to the entire nation.

And Beatrice Good Neighbor, the CVS chain in Beijing, recently announced that it would change its trademark from December 2003. The purpose is to promote its franchise network, revealed Tao Ye, Director of Strategic Development Department of the company.

“We hope that by changing the trademark, we can build up a brand image of fashion, health, friendliness, and convenience. We are dedicated to serving our targeted clients, who are supposed to be 15-30 years old, and make Beatrice the first ‘fashionable’ brand name in Beijing,” he added.

As the only retailing chain in Beijing with its main focus on CVS, Beatrice has opened more than 40 outlets in Beijing since its entry in 2001, when it started to set up its own business on the basis of Good Neighbor establishment, one of the earliest CVS chains in the city.

We are very optimistic about the market prospect, Tao said, and will take dramatic steps in north-China market in the near future, which may involve in operation and management in addition to increased investment.

And there comes the rumor from time to time that U.S.-based 7-Eleven, the world’s largest CVS retailer, is moving into the Chinese market, probably closely followed by its rivals in Spain and France.

The 7-Eleven empire formally announced in 2002 that Taiwan Ton Yi Supermarket and a Japanese company were authorized to open up to 500 outlets in Beijing. The preparation is still currently under way.

As early as in 1992, 7-Eleven entered China, with Shenzhen as its first stop and south China its early focus. Having started some 60 outlets in Guangdong Province, it was allowed to open another 300 in Guangzhou in 2002.

The 7-Eleven, known for its international standards and professional services, presently owns 23,000 stores in 22 countries, with 9,000 in Japan. In 2002, its sales in Japan reached about 147.1 billion yuan ($17.77 billion), equivalent to the total sales of the Beijing retailing industry that year. Abundant capital, excellent service and management put it in a leading position compared with its Chinese counterparts.

But it has a fatal disadvantage in that the Chinese Government will not allow it to develop in its accustomed way of franchising. Meanwhile, domestic retailers are making every effort to set up their own effective marketing system before it enters the Chinese market.

CVS is on the top of the agenda of Beijing Municipal Commerce Committee this year. It is planned that Beijing will speed up the development of CVS by building up famous domestic brands and welcoming international giants. Seminars and discussions of all parties involved will also be held to improve the management skills of domestic vendors.

“In addition to standard supermarkets, we will strive to develop community CVS, and upgrade the existing small retailing stores in particular”, pointed Gong Li, Deputy Director of Beijing Municipal Commerce Committee. By the end of this year, Beijing will have another 400 standard community CVS, making the total number over 1,900.

But there are still all kinds of problems in the development of Beijing CVS. The first one is location selection. Real property is still expensive in top office buildings and business districts, prohibiting many CVS retailers from large investment, but other ordinary communities, though cheaper to rent a site, lack enough rich buyers to boost the business. Experts point out that CVS can survive only in a place where per-capita GDP reaches $6,000, but the current per-capita GDP in Beijing is about $3,000.

Lack of effective government regulations is a second problem. Although a “CVS project” was launched last year in Beijing, relevant policies and coordinated measures still lagging behind.

Services provided by CVS are a third source of worry. The most debated topic is whether emergency medicines and family planning products can be sold in CVS. Sales of books, CDs and newspapers, and photocopying services are also restricted to different extents in current government regulation.

A fourth problem is the far-from-perfect operation, distribution and logistic system of the retailers themselves. The underground outlets of Wu Mart, for example, have been facing difficulties in distribution because lorries are forbidden to park in front of metro entries.

Huang Guoxiong, Professor of Renmin University of China, pointed out that the national conditions have to be taken into account while developing CVS. After all, the existing numerous small retailers will face daunting challenges if the business of CVS expands too quickly, but these small retailers include many laid-off workers who have just set up their own small business.

Huang also thinks that differences in income and consumer habits make a nationwide CVS wave infeasible. “It is actually quite dangerous for companies to merely expand their business without considering these factors,” said Huang.