Convenience stores see growth spike in lower-tier cities

The combined market size of China's convenience stores added 23 percent in the past year to 190 billion yuan but profit margin remains slim.
Jiang Xiaowei / SHINE

The combined market size of China's convenience stores added 23 percent in the past year to 190 billion yuan (US$29.7 billion) while labor cost and rent also climbed higher, according to a joint report released by the China Chain Store & Franchise Association and Boston Consulting Group.

There are currently more than 100,000 convenience store outlets nationwide, adding 13 percent from a year ago, yet nearly 80 percent of convenience stores have less than 4 percent of profit margin, which still lags behind International level, the report says. 

Xi'an, Fuzhou and Nanning are among the fastest growing cities in terms of convenience store development as lower-tier cities catches up with first-tier cities like Shanghai and Beijing.

Increasing rental spending and labor cost are also posing pressure for convenience store operators. 

Although fresh food and house brands are on the rise, they still contribute to a relatively small amount of merchandise available at convenience stores, the report also suggests.

Online retailing is also an inevitable trend and 36 percent of convenience stores have introduced online shopping as an option for shoppers in the past year, although online sales only contribute about 8 percent of their total sales.

Convenience store operators have also been betting on new technologies, with cashier-less shopping and logistics network being the two areas with the most new capital input.

Consumers' embrace of digital trends and mobile payment have been the driving force behind convenience stores' enhancement of digital capabilities and Internet giants are also hoping to help convenience store operators upgrade their business models. Alibaba and have either tied up with existing physical outlets or opened their own cashier-less shops to attract new shoppers through offline retail channels.

Smart convenience store market are also picking up with the annual sales of cashier-less grocery stores expected to hit 3.3 billion yuan by 2020.

Convenience stores shall embrace the digital trend and to leverage latest technologies to upgrade logistics , the report suggests.

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