“Convenience+Fresh” store, is it a good business?

By orchioo Apr19,2023

Around 2017, brands such as 7-Eleven, Good Neighbor, and Family tried the water. At that time, they respectively reached cooperation with Shuhai Supply Chain and Yiguo Fresh Food to introduce fresh products. At this stage, there are also many convenience store enterprises that have initiated projects. For example, Zhongbai Rosen opened its first “fresh convenience store” in Wuhan in December 2022; The “Convenience+Fresh” store is launched under the brand “Convenience · Home Village”.
The above “convenience+fresh” experiment has undergone two changes. First, enterprises have gained a new understanding of the positioning and differentiation of customers selling fresh food in convenience stores. For example, in the Zhongbai Rosen Plan, fresh convenience stores are conducive to exploring community store types. By highlighting the characteristics of “high-quality, independently packaged, and easy to handle” products, they attract solitary young people and middle class families aged 25-40 who pursue a quality life. This is also the difference between Zhongbai Luosen Fresh Food Convenience Store and traditional community fresh food stores.
Secondly, compared to the previous model of introducing third-party supply chains and selling fresh food in pre packaging, most enterprises are now trying to sell it in bulk, with a richer variety of fresh products. For example, “Shifu · Home Village” has introduced various commodities such as vegetables and fruits, fresh food ingredients, refrigerated fresh food, frozen food ingredients, cooked food, organic crops, and so on.
Convenience store operators hope to expand convenience store adaptation scenarios and attract fresh consumer groups through the introduction of fresh products. Just from the perspective of actual effects, there is no enterprise run through mode for the time being.
“Retail with the Third Eye” believes that unclear positioning is the main issue.
For example, whether the focus of the “convenience+fresh” model is a convenience store or a fresh food store. These are two different logics, involving multiple dimensions such as customer group positioning, adaptive business district, and power generation direction. For example, after the introduction of Yonghui Fresh Food Supply Chain, Hongqi Chain is a typical enterprise in the industry trying to operate “convenience+fresh food”. However, it is fundamentally different from standard convenience stores such as Zhongbai Rosen and 7-Eleven.
In addition, due to the large initial investment and high operational barriers in the fresh food supply chain, most enterprises operate in a joint venture mode, but it is still difficult to overcome the problems of high store attrition rates and weak competitiveness of fresh products. This also means that it is difficult for convenience store customers to develop fresh food consumption habits in the store. Instead, community fresh food stores, snack stores, and other businesses continue to divert convenience store customers in categories such as beverages, leisure snacks, and so on.
1、 Whose business is it
“Convenience+Fresh” stores want to do whose business, which is the first question operators need to answer.
Taken apart, convenience store customers are mainly single young customers, and meeting their instant shopping needs for breakfast and lunch is the main function of convenience stores. Fresh food stores target family based customers and provide fresh ingredients around their three meals a day. There are significant differences between the two customer groups, and the main business districts are CBD office areas and surrounding communities.
Promoting the combination of the advantages of the two formats is the main reason for most convenience store enterprises to try “convenience+fresh” stores. However, the industry has different views on the target audience and consumption scenario setting.
A large number of experimenters believe that, ””Convenience store+fresh food” can cover two consumption scenarios for the same population. For example, a person in charge of a Beijing convenience store told “Retail with the Third Eye”, “In first-tier cities such as Beijing, Shanghai, and Guangzhou, the post-80s and post-90s customers targeted by convenience stores are a generation that has grown with the growth of convenience stores. If convenience stores can meet their fresh food consumption needs, while eliminating the process of selecting, negotiating prices, and cleaning at home, these consumers may not necessarily not come. At the same time, we have found that some post-50s and post-60s consumers will also come to the store to purchase fresh food products. Fresh food may become a convenience for middle-aged and elderly customers.” “A bridge to the consumption scenario of the store.”
This view has also influenced such operators’ belief that adding fresh food to convenience stores should be dominated by convenience stores, and fresh food can be made where convenience stores can be opened.
“In the vicinity of the community, we may increase the proportion of semi-finished vegetables to cater to customers’ growing consumption habits of light meals such as salads and healthy fruits and vegetables. In the vicinity of the office area, fruit will be the main focus, filling the afternoon tea shopping scene of young white-collar workers.” The person in charge added.
A few other enterprises believe that the “convenience+fresh” store belongs to a new type of business, with differences in its target audience compared to traditional convenience stores and fresh food stores. This is also the basis for the survival of “convenience+fresh” stores.
For example, Zhongbai Rosen plans to open a community store type around solitary youth and middle class families, which is different from traditional community fresh food stores and other stores in Wuhan and Changsha markets. The area of this store type will be expanded to around hundreds of square meters compared to the traditional Zhongbai Luosen store. The product structure of the store is mainly based on conventional goods in convenience stores plus pre packaged fresh food, prefabricated dishes, private brand food, and other categories. Making it easier for young and middle class families to purchase is the innovative direction of Zhongbai Rosen.
Convenience store traders who share the same view as Zhongbai Rosen also tend to strengthen the freshness attribute in business district selection. For example, the person in charge of Taiwan’s family products has publicly stated, “The location of convenience stores for fresh food is very important, such as closely surrounding the community. The closer they are to the community, the greater the demand for fresh food.”
In addition, there are also convenience store practitioners who say that “convenience store+fresh food” is a false proposition. Among them, it is difficult to guide consumers to establish fresh consumption habits in convenience stores.
To form a shopping habit, it is required that fresh products from convenience stores have a higher cost performance ratio than those from community fresh stores, making them easier to purchase. This is actually inconsistent with the nature of the convenience store business. Because immediacy is actually the core attraction of convenience stores, consumers who pursue cost performance often choose other shopping channels. Moreover, compared to community fresh food stores, most convenience stores currently introduce fewer SKUs for the fresh food category and are not highly competitive.https://store.stoneitech.com/
2、 Where to make a profit
The reason for the low cost performance of introducing fresh products into convenience stores is ostensibly due to the fact that most of them are cooperating with third-party supply chain companies and have not yet formed a scale. However, by analyzing the underlying reasons, it can be found that it is even more crucial to not clarify the “convenience store+fresh food” profit model and then choose an operating mode.
Currently, community fresh food stores typically have two profit centers: front desk gross profit and supply chain gross profit. Among them, direct community fresh food stores value gross profit at the front desk, such as Fresh Legend. Franchise community fresh food stores like Qian Dama actually earn supply chain revenue. There is no distinction between the high and low levels of these two models, the difference being that their respective operational logic is divided accordingly.
For convenience store enterprises, in order to reduce investment costs and operational barriers in the early stage, they mostly introduce third-party supply chain companies. For example, the entire family reached a cooperation with Yiguo Fresh Food, which was connected to the Yiguo Fresh Food cloud business. The person in charge of Yiguo Fresh Food at the time said, “Any convenience store interested in participating in the fresh food business can access the Yiguo Fresh Food Cloud and, after three weeks of preliminary preparation, gain the capabilities accumulated by Yiguo in the fresh food field for 12 years.”
When supply chain profits are earned by suppliers, convenience store companies can only increase revenue in two ways. One is to play the role of fresh food drainage to drive related purchases, thereby improving overall sales. The other is to expand the sales scale and earn gross profit at the front desk.
However, from the perspective of actual operating results, the above methods have had little effect. Convenience stores do not master the fresh food supply chain, resulting in making wedding clothes for others. Moreover, in order to reduce the difficulty of store operation, most convenience store enterprises use the pre packaging mode to sell fresh food. But even in the fresh food market, pre packaged fresh food has not accounted for the main sales.
In other words, convenience stores should not only guide consumers to establish fresh consumption habits, but also make them accustomed to buying pre packaged fresh food.
“The last possible scenario is that the fresh food supply chain enterprises that supply convenience stores have broadened their sales channels and increased their revenue. However, convenience store enterprises have allocated a small display area, which means mixing a variety of categories.” A person in charge of convenience stores commented on this.
So, can convenience store enterprises adopt a self-supporting model to introduce fresh products? “Retail with the Third Eye” believes that at present, it is extremely difficult.
A typical case that has been tried before is Yonghui Life (store). It is expanding in a “convenience store+fresh food” model, with over 100 square meters of stores accommodating pre packaged fruits and vegetables and regular convenience store categories. In order to cooperate with online business, Yonghui Life has established large-scale outlets and also established a home-based service team to provide home service.
This positioning poses two problems for Yonghui Life.
Firstly, due to its broad positioning, its competitors include both traditional convenience stores, community fresh food stores, and fruit franchised stores. However, compared to the latter, Yonghui does not have an advantage in living in comparable categories.
“Compared to the richness and convenience of commodities, it cannot compare to the whole family, 7-11, and Rosen; compared to the professionalism of fruits, it cannot compare to the variety of orchards and Xianfeng; compared to the cost performance of vegetables, it cannot compare to the neighborhood fresh food stores. In summary, Yonghui Life lacks its own expertise,” said a retail practitioner.
Second, in terms of scale profitability, Yonghui Life’s integrated online and offline operation configuration is costly for physical stores. Especially before the number of regional stores fails to dilute the cost of the back office supply chain, its expansion pressure and back office costs will bring pressure on the enterprise to make losses.
3、 Heavy convenience store or fresh food
“Third Eye Retail” believes that the innovation of “convenience+fresh food” has emerged in two directions: focusing on convenience stores and fresh food.
Heavy convenience stores refer to a series of “convenience stores+fresh food” innovations mentioned above, such as Zhongbai Rosen, Quanjia, and other enterprises. “The essence of its stores is still convenience stores, and”+Fresh “actually prefers a variety of categories. In the short term, this operation can provide consumers with more choices, but it is difficult to become a new profit point.”.
“Rebirth Fresh” is an innovation that distinguishes it from traditional convenience stores. The business type under this positioning is also more like a “fresh food store” that overlaps the product structure of convenience stores.
There are two main differences. Firstly, the site selection is based on the standard of community fresh food stores, targeting the people’s shopping needs around the community. For example, the first store of Shifu · Bencun is located in Lijing Huayuan Community, Shifu Road, Lucheng District, Wenzhou City. It radiates across multiple residential communities and is a typical community type store.
For some Japanese standardized convenience stores, if they want to add fresh products, they need to focus on opening new stores. The obstacles to the transformation of old stores lie, on the one hand, in the limitations of business districts, such as CBD stores and school stores, which are not suitable for strengthening the freshness attribute; On the other hand, the degree of recognition and cooperation of the franchisee for the introduction of fresh products will also become a limiting factor.
The second is to adopt the operation logic of fresh food stores to strengthen the fresh food category. For example, Hongqi Chain previously introduced Yonghui fresh food supply chain, which belongs to this category. Entering its renovated back door store, you can see that the fresh food area is located in the center of the store, mainly including scattered vegetables, fruits, and other categories. A refrigerator is arranged on one side of the store, displaying pre packaged meat and dishes supplied by Caishixian; On the other side are nuts, aquatic products, and other categories. In order to facilitate the early, middle, and late price adjustment of fresh goods and inventory management, Red Flag Chain has also used electronic price tags in its stores.
Based on this, after transforming nearly 400 fresh food stores, with fresh food stores accounting for 13%, Red Flag Chain still stated that although both revenue and gross profit have increased, due to the lower profit margin of fresh food than that of food and groceries, the average gross profit margin of its fresh food stores is close to that of hypermarkets.
It can be seen that convenience store enterprises need to introduce specialized fresh food operation teams, build supply chains, and sort out business models in order to achieve the expected goals. On this basis, convenience store enterprises also need to be prepared to spend a short training period.

By orchioo

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