Algorithm rescues convenience stores?

After the news of listing in the fourth quarter of this year or early next year, Bianlifeng responded to the letter list (ID: wujicaijing) saying, “There is no listing plan at this stage, but the possibility of listing in the future is not ruled out. At present, (the company) mainly The task is to open a store.”

The interesting thing about this is that this convenience store that may be the first to be listed in the industry started in Beijing, and Beijing is recognized as a “convenience store desert.” The contrast is so big that I am inexplicably thinking of the words that debaters often say, “How do good flowers produce evil results?”

When he was still on Qunar.com, Zhuang Chenchao always complained about the poor dining environment in the West District of Zhongguancun where his office is located. He described it as “with the income level of Manhattan, New York, but he can only enjoy the eating conditions of the urban-rural fringe.”

The dining environment is not good. Accordingly, the convenience store environment is even worse. The outside world even calls Beijing the “death place for convenience stores”.

Algorithm rescues convenience stores?

According to the “China City Convenience Store Index” published on the official website of the China Chain Store & Franchise Association, Shenzhen, Dongguan, and Taiyuan were among the top three in the China City Convenience Store Index in 2013, while Beijing, which ranked second in terms of per capita GDP in the country, was ranked second from the bottom.

By 2016, the ranking of the Beijing Convenience Store Index had jumped to fifth. However, the saturation level is still far behind, with an average of 7,185 talents owning a convenience store.

Until 2020, the convenience store in Beijing has a saturation of 8889 people/store, still ranking 26th, and Dongguan, which ranks first in the country, has 1242 people/store.

But from another perspective, the other side of the desert is the blue ocean. Zhuang Chenchao saw the opportunity, and everyone else saw it.

In 2016, Zhuang Chenchao held US$1 billion and chose to enter the convenience store industry in Beijing. At almost the same time, a large number of Chinese apprentices from the three major Japanese convenience stores (7-11, Lawson, Family Mart) emerged again in Beijing.

In the past two years, most of those “apprentices” have failed. The next door closed down, closed all the time, the good neighbor sold himself, and the Suning store opened and closed. “Master” is also far from success. The Japanese convenience store that has been working in China for many years has been difficult to make a profit.

The name of the Beijing convenience store desert has become more and more real.

Unexpectedly, Bianlifeng is expanding against the trend. It took 14 years for 7-11 to open less than 200 stores in Beijing, and Bianlifeng has more than 500 stores in Beijing, which is more than the total number of Japanese convenience stores such as Family Mart, 7-11 and Lawson in Beijing. Even more unexpectedly, Bianlifeng claimed that Beijing stores have achieved “front-end profitability.” According to Bianlifeng executives, 4,000 stores will be opened nationwide by the end of 2021, and 10,000 stores will be opened in 2023.

Assuming that the public information is true and credible, how can Bianlifeng succeed and how do flowers bloom in the desert? After researching the alphabet list, I found that the answer is actually-algorithm.

Hillhouse Capital partner Zhang Lei commented on Zhuang Chenchao in the book “Value”, “When he founded Bianlifeng, Zhuang Chenchao was still looking for answers in the details. He did not look at the wind, but the logic. When he found that the convenience store business model can be Algorithm-driven, and now when no one in China can do it, he started to start a business again.”

One

Around 2016, Beijing began to attach importance to the development of the convenience store industry, and every year it supports enterprises through policies and funds.

From foreign brands such as Lawson, FamilyMart, and 7-11, to local brands such as Good Neighbors and Quanshi, and even so-called new species such as Suning Xiaodian and JD Convenience Store, have entered the market.

The good times didn’t last long. After Bianlifeng just opened more than 200 stores, the convenience store track ushered in a brutal reshuffle.

In 2017, a well-established convenience store that has been deeply involved in the Beijing market for 15 years, a good neighbor, sold for $84 million; in August 2018, the neighboring convenience store was exposed to a broken capital chain, and all 168 stores were closed; founded in August 2016 Convenience store 131 was exposed to a break in the capital chain, and it took two years to finally close the store.

The big shuffle continues. The Suning store that ran into the market suffered heavy losses and was divested by Suning Tesco in 2019; JD.com’s five-year plan to have one million convenience stores also went bankrupt; All-Time Convenience Store announced its closure in May 2020.

Among the three major Japanese convenience stores, only Lawson has announced full profitability. According to the financial report data released by Lawson, fiscal year 2020 (March 2020-February 2021) achieved revenue of 61.3 billion yen (equivalent to RMB 3.649 billion), and the business in China achieved full-year profit for the first time. As of the end of February 2021, Lawson has 3344 stores in China.

Algorithm rescues convenience stores?

The failures of the aforementioned convenience stores were undoubtedly affected by the breaking of the fund chain of the investors or the parent company behind them, but it also exposed the common problem of the convenience store industry: local traditional convenience stores lack their own blood-making ability and can only survive by financing blood transfusions. Blindly pursuing scale expansion will only backfire.

During the same period, Bianlifeng was not spared, and news of layoffs came out at the end of 2018. Some netizens who have been certified as employees of Bianlifeng broke the news in Maimai that Bianlifeng punishes employees and requires employees to voluntarily resign without any compensation.

Just two months before the news of the layoffs came out, the company’s data showed that Bianlifeng had just received a Series B financing from Hillhouse Capital and Tencent Investment, with a post-investment valuation of US$1.6 billion.

Among the many factors affecting the development of convenience stores in Beijing, one that is more recognized is that Beijing convenience stores are doing half-way business.

Netease Digital Reading pointed out in “Why is Beijing a Convenience Store Desert” that the lack of convenience stores in Beijing is related to the large number of Shenzhai courtyards and lack of street culture in Beijing. The absence of commercial streets and open shops near the subway are considered to be a major factor restricting the opening of convenience stores in Beijing.

Algorithm rescues convenience stores?

Small shop in Beijing Hutong

In addition, Beijing’s continuously rising rents and labor costs have put increasing pressure on the operation of convenience stores. According to the “2021 China Convenience Store Development Report”, employee compensation and rent account for more than 60% of the total cost of convenience stores.

two

For Zhuang Chenchao, how to make Bianlifeng continue to make profits and stop repeating the mistakes of the convenience store that fell down before has become a top priority. Accelerating the expansion of stores and forming a scale advantage is a confrontation path that Zhuang Chenchao has found.

However, only the expansion of the store, no profit, and ultimately still can not escape the fate of bankruptcy after the capital break. In 2018, Zhuang Chenchao made a change, switching all Bianlifeng’s underlying ERP system to an algorithm-driven automated operation process.

“This is an extremely difficult decision. I struggled for a whole year in 2018. Do I dare to hand over the life and death of the enterprise to a newly born system. But now I think that if I do it again, I hope this decision can be made? Do it earlier. So far, except for special circumstances, no one can beat the system for Bianlifeng.” In the interview program of Qingteng “One Question”, Zhuang Chenchao described the special feature of Bianlifeng mode.

Algorithm rescues convenience stores?

Zhuang Chenchao

According to 36Kr news, Bianlifeng currently accounts for more than 60% of technical staff. All decisions are determined by data and algorithms. All employees in the business chain only need to follow the strategy prompted by the software.

Including the emergence of algorithm-driven programs such as intelligent ordering systems, big data selection systems, self-service cashier systems, and dynamic pricing systems, directly liberating store employees from trivial tasks such as ordering, product selection, and cash registering. In terms of ordering, it can save about 3 hours of work for the store clerk.

Algorithms have become the core of Bianlifeng, and the algorithm-driven system is the invisible contributor to Bianlifeng’s overall profitability in Beijing in 2020.

Facing the “convenience store desert” and “can only do business for half a year, half a day, half a road, etc.” in the industry, Zhuang Chenchao believes that it is essentially because traditional convenience stores are inefficient in operation, resulting in insufficient revenue coverage. Therefore, in order to control costs, most convenience stores have to shrink the service time and scope of services, which creates a vicious circle.

In addition to the efficiency improvement, a unique set of play at the hardware level also contributes a lot to profitability. From the perspective of regional distribution, Bianlifeng’s stores in Beijing are mainly concentrated in office buildings and business districts, and most of its service targets are white-collar users. These areas are also the stores with the strongest profitability of Bianlifeng.

From the perspective of supply chain, Bianlifeng invested in Beijing 7-11 Fresh Food Cooperative Factory Yamiyami from the beginning in 2017, and then invested in a number of fresh food factories in North and East China, and in Tianjin in February last year. Plan to build a fresh food supply base to connect with 3000 stores in the future.

The traffic and quality behind the golden location, as well as the industry chain resources including suppliers and fresh food factories, have all the convenience bees that these traditional convenience stores should have, coupled with operating efficiency and algorithm-driven automation, 2020 In May, Bianlifeng announced that its stores in Beijing have achieved overall profitability.

For Convenience Bee, algorithm means everything. Backed by this set of algorithms, the experience of the Beijing area can be copied and pasted to other cities.

The relevant person in charge of Bianlifeng said to the letter list that as of April this year, outside Beijing, all cities where Bianlifeng entered before 2018 have also achieved overall profitability, including Shanghai, Tianjin, Langfang, Nanjing, etc.

three

Bianlifeng’s copying style of relying on “algorithms” seems to have been verified, and the Wandian plan is also in full swing.

Convenience store revenue is positively correlated with the income level of the location area. Although Bianlifeng has achieved overall profitability in the Beijing area, not every city has China World Trade Center and Wangjing, and not every city has Zhongguancun and Xi’er. flag.

Take the city of Zhengzhou where Bianlifeng will settle in 2020 as an example. The same product, such as Pumei Duo Spaghetti with Tomato Sauce, is sold at the No. 10 store of Jincheng Times Square in Zhengzhou at a price of 16.8 yuan. The shop in the building, the price is also 16.8 yuan.

In the same period, the per capita disposable income of Beijing was 69,434 yuan, and the per capita disposable income of Zhengzhou was 36,661 yuan. An office worker living in the Jinshui District of Zhengzhou said, “I have occasionally visited Bianlifeng and bought water, but I haven’t bought a quick lunch. The price is still slightly expensive. I often go to Yuelai Yuexi, almost every community downstairs. Both.”

Algorithm rescues convenience stores?

Such second- and third-tier cities will account for more than half of the Wanjia store plan announced by Bianlifeng. Among the profitable cities announced by Bianlifeng, only those cities that settled before 2018 have achieved overall profitability. The profitability of cities settled after 2018 is still a question mark.

Although when announcing the vision of Wandian, Xue Enyuan, executive director of Bianlifeng, said that Bianlifeng “has prepared sufficient funds to support the development of 10,000 stores.”

But the business of Bianlifeng is still inseparable from the essence of “convenience store”: asset-heavy operation.

For Bianlifeng, if the newly opened stores cannot quickly achieve profitability, the operating costs of 10,000 stores in the future will be enough to drag the Bianlifeng.

In addition to the high cost crisis, Convenience Bee, which is going south due to expansion, will also face competition among the original overlords of newly entered regions and cities.

Take Zhengzhou, where Bianlifeng will settle in 2020 as an example. According to a report by Henan Business Daily in October 2020, the local brand “Yuelai Yuexi” had 350 stores and Bianlifeng had 30 stores. Yuelai Yuexi is hailed as “Henan’s 7-11” in the industry.

Further south, Bianlifeng will also face a larger earth-headed snake-Meiyijia.

Founded in 1997, Meiyijia is a giant in the southern retail industry. According to the official website of Meiyijia, as of May 2021, Meiyijia has more than 23,000 chain stores, mainly distributed in Guangdong, Fujian, Hunan, Jiangxi, Hubei and other southern areas. In 2018, it entered the Jiangsu, Zhejiang and Shanghai regions, forming Guangdong and Central China. , East China and North China four major development regions.

Algorithm rescues convenience stores?

The expansion of Meiyijia is to avoid the downtown areas where brands such as 7-11 gather, and choose to open stores in residential areas, industrial areas and even urban-rural areas with low rents.

For Bianlifeng, whose location is similar to that of 7-11, how to open up the sinking market will be an unavoidable big problem.

What’s more, in the sinking market, mom-and-pop stores and small supermarkets have contributed 40% of the domestic FMCG industry’s shipments. According to the analysis data of Alibaba Retail and Ovi, there are currently approximately 6.3 million small stores in offline traditional merchandise retail channels, and more than 75% are concentrated in third-tier cities and below.

How to fight against these 6 million husband-and-wife shops are all questions that Bianlifeng needs to answer before going public.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/algorithm-rescues-convenience-stores/
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