The just-food management briefing - convenience stores - part II
Convenience stores are no longer the preserve of cash-rich but time-poor consumers in developed markets. They are increasingly popular in emerging markets too.
Convenience store operators in China, for instance, are now moving beyond major metropolitan centres - where they have long been established - to smaller, lower-tier cities. As with much of China’s booming economy, real change started in the mid-1990s, when the country's first c-store was opened by Bright Food Co. in Shanghai in 1995.
Ministop Co., a member of Japan-based retailer Aeon Co., is the latest example of a c-store chain moving into smaller cities. In July 2009, it opened China's first Ministop in Qingdao, a coastal city north of Shanghai.
A year later, Ministop now has seven stores in Qingdao, and the company is aiming to expand to 20 by the end of 2010, says a Ministop spokesman Kimikazu Sugawara.
To compete against the two local c-store chains – Hao Yi De and You Ke – Ministop is offering a wide range of trendy and convenient foods to attract local young people. "For example, you can get soft serve ice cream, bento and oden (a Japanese hot stew)," Sugawara tells just-food.
Oden is widely popular among young Chinese consumers and that is why Ministop has decided to offer it at its Qingdao locations to meet the needs of the local market, he said. "In Japan, we don’t offer oden," notes Sugawara.
Ministop, insists Sugawara, is confident about the development of the convenience format in China's lower-tier cities. Xi’an City, capital of Shaanxi Province in north-west China and a city currently overcrowded with hypermarkets, is a typical example. Lacking c-stores, consumers have been complaining to local media that they have to go to the supermarket to buy single items such as a bottle of water or other simple goods, and have to wait in long queues for checkouts.
As for more mature markets in major Chinese cities, competition between foreign-owned and local convenience stores is becoming even more intense.
Take Shanghai, where there are already more than 6,000 c-stores, with the largest chains being Alldays and Kedi, both owned by Shanghai-based NGS Supermarket Co. These local champions are facing competition from, for example, 7-Eleven, which will open 50 stores in Shanghai in 2010, and 300 stores by 2015, according to the Taiwan-based President Chain Store Corp, a subsidiary of Uni-President Corp, which is in charge of 7-Eleven operations in mainland China.
British retailer Tesco is also attracted to Shanghai as a location for c-store outlets. To date, all of its eight c-stores in China, called Tesco Express, are in Shanghai; it opened its first China branch in late 2008.
"With the scale of the population, economic growth and demands for better standards, there is still considerable opportunity for growth in China," says a Tesco spokesman.
But before further expansion, a key concern that foreign retailers should keep in mind is China's huge population and continually growing income gap, says Zhou Yong, a professor at Shanghai Business School. Good value items will still need to be offered by retailers because "the income of a vast number of Chinese consumers is still low”, Zhou says. "If all CVSs [convenience stores] are copying 7-Eleven, it will be a problem for them to survive in China."
The convenience store landscape in India is less clear. Big Indian retailers, including Bharti, Reliance Retail and Spencer have made inroads in the sector. With their stores in stark contrast to traditional small stores that have poor shop displays and illiterate young boys as salesmen, organised retailers in India draw customers with an air-conditioned environment, and a much wider array of items including frozen foods.
However, according to Ravi Swamy of the Asian American Convenience Stores Association, Indian convenience stores are only 75% as efficient as stores in the US for display, accessibility of products and service. He tells just-food: "Ill-informed salesmen and long queues at tellers make shopping at [Indian] convenient stores rather inconvenient." These stores can also struggle to compete with traditional small shops regarding home delivery and instant credit.
Kumar Rajagopalan, CEO of Retailers Association of India, says there are only rough estimates of the number of c-stores in India. He estimates the total number of retail stores in India is about 12m. From these, those selling food would number 7.2m and, of the food outlets, modern branded stores comprise only 3 to 4% of the total, or around 200,000 to 250,000 stores.
Moreover, Rajagopalan says that, among the modern retailers, only the large format stores - those of 3,000 square feet and above - are currently growing in numbers, while the number of these stores below 2,000 square feet is stagnating, because in this segment traditional retailers are offering a competitive service.
There is, however, sharp c-store growth in Brazil. The first Brazilian convenience store, called First Express, opened in São Paolo in 1987, as a joint venture between Shell Brasil and the Brazil Distribution Company. By the end of 2009, there were 5,500 c-stores operating in Brazil according to Sindicom, the Brazilian Union of Petroleum Distributors and Convenience Stores. It says the number of Brazil c-stores has grown 40% over a two-year period (2008-09), and 75% over four years (2006-09). By the end of 2010, Sindicom predicts the number of c-stores in Brazil will reach almost 7,000 stores.
The value of Brazil's c-store market did drop 5% in 2009 to US$54.9m, according to market researchers Euromonitor International, mostly due to the effects of the global economic crisis. However, Sindicom and Euromonitor both predict full recovery and further growth over the next five years.
Ipiranga, the second largest oil company in Brazil runs about 1,000 c-stores in Brazil, under the ampm brand, according to Sindicom. Petrobras, the largest oil company in Brazil, operates close to 800 c-stores, followed by Shell Brasil with 330, Esso Brasiliera de Petroleo with 245, and Ale with 160. Approximately 2,400 of the remaining c-stores are unbranded independent operators.
Nearly all convenience stores are associated with fuel distribution locations. The fuel distribution network in Brazil is far more extensive and developed than the stand-alone convenience stores network, and according to Sindicom, only about 15% of the country's 36,000 gas stations have convenience stores, indicating tremendous room for continued growth.
The big challenge that faces the growth of c-stores is bureaucratic red-tape - on average it takes 150 days to open a business in Brazil, with many dozens of licences and documents required. However Sindicom statistics show that gas stations that include convenience stores sell 30% more fuel than petrol stations without them, suggesting it might be well worth the time and effort.
The convenience format's main competitors are small, independent, traditional grocers and bakers, although in effect the distinction between the two categories is blurring. "It is not unusual in Brazil for bakeries to take on the role of convenience stores. In addition to bread products, bakeries usually offer a variety of convenience products such as RTD juices, and ready-made sauces and dressings," according to Euromonitor.
A driving factor in Brazil’s c-store growth is changing demographics. An increase in single-person households, women in the workforce, and older people is altering consumption habits, with many people purchasing frequently but in small volumes. "These groups tend to purchase a low volume of perishable items which requires frequent trips to grocery stores, preferably stores that are located close to home or work, with a mix of time-saving, small-sized, practical products, and which operate suitable opening hours," according to Euromonitor. This has encouraged the growth in sales of smaller sized food products, and ready-made products such as sauces, dressings and soups.
Number of C-stores in China until 2013 (forecast)
Number of stores
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