FamilyMart, Japan's largest convenience store chain, has closed dozens of stores in China, and 7-Eleven plans to close 20 stores in eastern China as the market gets increasingly competitive and expenses keep rising, Yicai.com reported.

FamilyMart currently operates around 1,000 stores in China, most of them in Shanghai. It is expanding to other regional centers with 200 to 300 net openings nationwide per year.

Lawson, Japan's second largest convenience store chain, has closed 30 stores in China so far this year, resulting in almost zero net openings. Kedi and alldays, two convenience store brands owned by Shanghai-based supermarket operator NGS Group, are experiencing a similar situation with their total number of stores staying flat at around 2,000.

All the brands attributed operating losses to the closures, Yicai.com said.

A NGS Group manager told Yicai.com that a Kedi or alldays convenience store has to generate ¥5,000 in revenues per day to break even. "We will close stores unable to make ¥5,000 per day unless one is strategically significant."

A source from FamilyMart said the company could tolerate an unprofitable store for two to three years but no more.

Lawson and 7-Eleven are more decisive in shutting down loss-making stores, Yicai.com reported.

"Convenience stores emerge in a city when its per capita GDP reaches $3,000; convenience stores thrive when per capita GDP hits $5,000 and competition becomes fierce when per capita GDP cracks the $10,000 mark," said Zhou Yong, a professor with Shanghai Business School. "So here is a sharp contrast: the Shanghai market has gotten saturated while most other Chinese cities are just not ready to house a large amount of convenience stores."

In Shanghai, convenience stores stand just 100 meters apart, and two to three stores at a downtown crossroad is not unusual.

Jockeying for prime locations and a bigger market share, convenience store operators have expanded haphazardly, even if a store cannot generate ¥3,000 in revenues per day against burgeoning rents and labor costs, according to Zhou, the Shanghai Business School professor.

More than 51% of those going to convenience stores in Shanghai prefer foreign brands like FamilyMart and 7-Eleven, and close to 70% of convenience store-goers are aged 16 to 35, a report recently released by Shanghai Business School has found.

Foreign brands, particularly FamilyMart, are leading the way because they have something special, like the goods only available in their stores and ready-to-serve snacks and meals.

This is a cause for concern for domestic Kedi and alldays, which operate with lifeless Chinese corporate culture and older, poorly trained employees from NGS Group, the report suggests.

$1 = ¥6.23

 

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