(Chinese Version)

Shortly after a new convenience store brand was established, it was linked with labels such as “high-end”, “magnificent” and “classy”. However, for insiders in the traditional retailing industry who’ve paid a visit to its spacious outlets, they would wonder: can this kind of store really be profitable?

Empty second-floor, clean and tidy, no cashier, wide passage… these new convenience stores are indeed quite different from traditional ones. For customers, these convenience stores do provide a better shopping experience; for insiders, however, this is a total waste of money.

At the beginning of 2017, Bianlifeng, a new convenience store brand, began to appear in some media reports. Its founders include former executives from 7-11 and Lin+, its investors include Zhuang Chenchao, founder of Qunar.com and founding partner of Zebra Capital. It is reported that Zhuang planned to invest RMB 3 billion into Bianlifeng, so that it could open as many as 10,000 outlets.

Coincidentally, the popularity of Bianlifeng also drew much attention to the traditional retailing industry. As a surprisingly promising business, it certainly won’t be left alone by internet thinking.

As a matter of fact, a new force is indeed quietly rising since last year. A new type of automatic vending machines, selling orange juice, snacks, facemask, etc., has emerged in subway and shopping malls. Other gadgets, such as mini KTV and mini fitness center, would sell services.

As online traffic has already reached a bottleneck, people have begun to re-focus their attention on offline traffic. However, rising lease has always been an obstacle for offline stores. At this point, how to modify the original product structure, service structure and lower lease have become important questions to solve in order to survive in offline channels.

By dividing products and services into smaller units, automatic vending machines managed to cover more customers and scenarios with lower cost. However, late entrants such as “Bianlifeng” also attempted to upgrade convenience stores through internet thinking.

Recently, TMTPost journalists paid a visit to several Bianlifeng’s outlets to find the underneath business logic and truth behind Bianlifeng.

What’s different?

By integrating internet elements to offline stores and recruiting both traditional convenience stores and internet practitioners, Bianlifeng seems to coincide with the latest concept “new retailing” from many aspects.

As is mentioned in Bianlifeng’s corporate vision, “Bianlifeng is dedicated to improving existing retailing model through internet thinking, improving shopping experience through big data as well as smart hardware and software and bringing concrete convenience to customers by centering around customers’ specific needs.”

So what exact internet thinking did Bianliefeng adopt? The most obvious difference is that Bianlifeng has an APP.

To promote this APP, posters promoting 15 to 25 per cent discount in the APP could be seen everywhere in Bianlifeng’s offline outlets.

At present, Bianlifeng’s APP has four major functions: online payment, offline self-shopping service, online shopping and home delivery service.

To pay bills through the APP, you have to register and shake your smartphone to get the VIP codes. After the shop assistants scan your VIP codes, you can go to third-party payment tools and pay bills. However, you can also directly pay bills through third-party payment tools. In other words, this APP makes the entire process more complicated for customers.

Offline self-shopping service is often compared to Amazon Go. However, Bianlifeng actually didn't improve problems such as queuing in rush hours.

Suppose when you go to a Bianlifeng’s outlet, you have to hold the goods in one hand and use your smartphones to scan bar codes, though you might still hold a bag in your hand. Besides, you have to queue in front of the cashier and have the shop assistants check the billing and goods information. In case the shop assistants have to waste too much time in checking information, customers can purchase at most nine goods.

Outlet pick-up service, however, is more like a complement to home delivery service. After research, we find that customers also need to have shop assistants check necessary information even if they use pick-up service. For Bianlifeng’s outlets, if they have designated personnel to handle pick-up service, they have to afford higher personnel cost.

From this aspect, home delivery service should be very handy. However, with only a few shop assistants in the store, how can you expect a high delivery efficiency? In a short time, it’s no easy job to build its own delivery team. That’s why many Bianlifeng’s outlets have opened online stores on online takeaway delivery platforms, which is certainly a more cost-efficient way in the short term.

Generally speaking, Bianlifeng didn’t form core competence via the APP compared with traditional convenience stores. The most urgent problem for Bianlifeng for now, however, is how to keep users in the APP after subsidy drops.

Supermarkets, or convenience stores?

The reason why Bianlifeng is unlike traditional convenience stores is that it adopts some distinctly different operation logics, which puzzled many insiders in the traditional retailing industry. “This is exactly something disruptive talents would do. This could transform the business nature of convenience stores. It’s so great,” an insider commented.

At present, Bianlifeng has five outlets in total, all located in Zhongguancun, Beijing. Three of them are business shops, which often require high lease, while two are residential shops in residential communities with low lease.

An insider revealed to TMTPost that a residential shop’s lease is often 8 yuan per square meter per day, a business shop’s lease is at least 12 yuan per square meter per day.

Therefore, it must be very expensive to open three business shops in a short time, let alone leaving large space un-used. Indeed, Bianlifeng doesn’t lack money.

In general, a convenience store often covers less than 100 square meters. Since gross profit per good is often low, it’s critical to choose the proper location and make full use of every square meter.

However, Bianlifeng’s convenience stores are more like “luxury stores”. Take the Angle Building outlet for an example, it covers 200 square meters and the entry corridor is so wide that it’s unlike a corridor. In fact, a couple more shelves could have been added.

As for the two-storey Yinke Building outlet, it covers 400 square meters in total. Outside, you may expect it is quite small. However, when you enter the store, you may find that it’s far more spacious than you expected. In a thirty-square-meter room at the corner you can only see two shelves.

A thirty-square-meter space at the corner

However, when you go upstairs, you may find it’s even more spacious than downstairs. One third of the second-floor is assigned a few tables where customers could stand and have lunch, another one third is assigned cooked food, beverage and refrigerators, something already assigned downstairs, while the rest one third is empty. The second-floor is more like a utility room with new practical functions.

The “empty” second floor

Besides, there aren’t any goods at the cashier. However, cashier display should have a very important component for convenience stores. Whether for supermarkets or convenience stores, customers would be encouraged to buy these small goods such as chewing gums at the cashier to save changes.

Besides, the distance between the cashier and the shelf behind shop assistants is unusually longer than traditionally. Over time, customers will have to wait for longer time in the queue.

For one thing, such design meets Bianlifeng’s positioning: “high-end”, “magnificent” and “classy”; for another, however, this has to do with the pick-up service. TMTPost noticed that shop assistants have to pack up goods customers ordered through Bianlifeng’s APP at the cashier.

The pick-up area near the cashier

Since both customers from the pick-up service and on-site customers have to wait in queue in front of the cashier, customers will have to wait for extra time. However, if Bianlifeng assigns a specific shop assistant to customers from pick-up service, it has to afford higher cost.

However, it seems cost is never something Bianlifeng really cares about. While 7-11 only uses some food holding cabinets to keep cooked food warm, Bianlifeng makes room for a special glass room to keep cooked food.

What are the risks?

However, why exactly did Bianlifeng use a space for a typical supermarket to open a convenience store?

An insider revealed to TMTPost that as long as a convenience store was located in the right place, it could be profitable. Still, why is it hard to open convenience store chains in Beijing?

This is partly because it’s too difficult to find the right place for convenience stores. On the one hand, good places have already been occupied; on the other hand, lease in these places are often too high for convenience stores.

7-11 entered Beijing in 2004, but it only opened less than 200 outlets up till now. Lawson entered Beijing in 2013, but it has opened only fifty outlets in Beijing so far.

To make breakthrough and expand rapidly in a region, Bianlifeng has to compete with restaurants for best store fronts, regardless of the cost. In fact, Bianlifeng’s outlets at the Angle Building and Yinke Building used to be a bake shop and a fast food shop. However, every insider in the retailing industry should know that it’s quite expensive to compete for store fronts with restaurants.

“It’s most difficult to run a mid-sized retailing store, since it makes no sense,” Xu Zheng, CEO of Miss Fresh, told TMTPsot in an interview.

Bianlifeng might didn’t expect to rent this two-storey store either, but it didn’t seem to have much choice. Suppose this two-storey store covers 400 square meters, Bianlifeng has to afford a daily lease of RMB 4,800, let alone other necessary costs.

In fact, if we compare Bianlifeng’s outlets with its predecessors, we may understand the problem in Bianlifeng’s business model.

A supplier for 7-11 and Lawson revealed to TMTPost that 7-11’s daily turnover (around RMB 20,000) is highest among all convenience stores, Lawson ranks the second with RMB 16,000, Full Time ranks the third with RMB 10,000, while Lin+ ranks the fourth with RMB 8,000. Suppose convenience stores’ gross profit rate is around 30 per cent, then their gross profits are RMB 6,000, RMB 4,800, RMB 3,000 and RMB 2,400, respectively. That is to say, Bianlifeng Yinke Building outlet’s daily lease equals to Full Time’s gross profit per day.

As a matter of fact, Bianlifeng’s gross profit rate might be below the average. The supplier revealed to TMTPost that 7-11, Lawson and Bianlifeng all relied on the same suppliers.

Take bread for an example, most Bianlifeng’s bread is customized-made by its contractors. Return rate and damage rate are the key to controlling cost in convenience stores, while these rates of bread are often the highest.

Warranty of Bianlifeng’s bread often lasts four to seven days. Considering the racking time, effective vending time for bread is often very limited.

Bianlifeng chose customized-made bread from contractors to create differentiation, but it had to afford higher supply chain cost.

Moreover, most contractors would make customized bread for convenience stores only when there is a certain scale of demand. The larger the demand, the lower the average price per unit.

However, for small-sized chain convenience stores, it has to afford higher cost to sell customized-made bread.

“Chain convenience stores such as 7-11 decide if it chose customized goods based on various factors, such as the consumption habit of customers nearby the distribution pattern of its outlets. This often takes a long period of time to tell,” the insider revealed to TMTPost.

Based on our observation, Bianlifeng’s return rate is not low. It is worth mentioning that racking time of Bianlifeng’s bread is quite unregular.

Different from traditional convenience stores, which put bread on racks before 07:30 AM, Bianlifeng put bread on racks near 2:00 to 3:00 PM, which puzzled us a lot. After all, when you put bread on racks in the afternoon, you’ve already missed the golden selling time for bread.

When we paid special attention to the goods Bianlifeng returned to suppliers, there’s a certain amount of bread. The insider above also confirmed TMTPost’s observation. In fact, Bianlifeng’s return rate has always been quite high.

The only way to solve this problem, however, is to open more outlets in a short time. As a matter of fact, this is also Bianlifeng’s current goal. However, no retailer can make profit simply by opening more outlets. An insider with years of offline convenience store management experience told TMTPost that cross-region, cross-city operation is often the biggest headache for chain convenience store brands.

“From 20 outlets to 50 outlets, from 50 outlets to 100 outlets… Every new stage means increased difficulty. Oftentimes, it takes a long period of time to coordinate with different outlets and manage the supply chain. This is also why many business owners dare not to conduct convenience store business,” the insider explained.

Fundamentally, convenience store business belongs to offline retailing business. Therefore, it has to face all kinds of problems offline retailers have to deal with. In this case, internet thinking is more like an icing on the cake than fuel in a snowy winter. After all, offline store management and supply chain management aren’t something could be accomplished at one stroke. This is also why it took Toshifumi Suzuki two decades to completely transform and re-build 7-11.

For sure, there’s going to be a protracted war in the offline retailing sector. However, before we jumped to new ideas such as “new retailing”, we might as well get familiar with business logics in the traditional retailing industry first.

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[The article is published and edited with authorization from the author @Xie Kangyu, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.