With over half of urban Chinese convenience customers saying that product quality is their main concern when deciding on a store, followed by local proximity and in-shop services—cited by almost a third and a quarter of respondents respectively—brand owners are being forced to innovate, accordant to Mintel, the global market intelligence agency, in a new report on the segment.
Payment options and customer service, both picked by 24% of the survey’s respondents, are other major factors, though appealing promotions and loyalty schemes lag behind in consumer importance, at 20% and 12% respectively.
According to Mintel data, total convenience store retail sales have performed well in the past five years, at an annual growth rate of 13.6% between 2011 and 2016—ahead of the fortunes of supermarkets and hypermarkets.
Currently, supermarkets and hypermarkets have been dominating China’s grocery market in all major cities, while their ongoing expansion to smaller cities is expected to further enhance competition in the market.
Among all the sale channels over the next few years, analysts believe that hypermarkets will achieve the highest growth rate, followed by convenience stores. When it comes to product type, packaged food, and products that address other consumer concerns, such as health and food safety, are expected to be more popular in China’s grocery market.
Mintel predicts continued annual growth in convenience stores along the lines of a more moderate 9.0% from 2016 to 2021. It also found that there has been a 10.2% increase in outlet numbers over the last five years.
“While recent growth in the convenience store market has been strong, convenience store chains must start to innovate as today’s consumers are seeking wider product and service ranges,” said Matthew Crabbe, Mintel’s regional director of research.
“They also want a more localised and individualised service, and for store chains to respond quickly to their changing needs.
“Putting things into perspective, there is a demand for convenience stores to fulfil a growing list of local community needs in order to differentiate, and improve customer retention,” he added.
Salty snacks, bakery products and confectionery have seen the biggest growth in store purchases among urban Chinese customers.
Today, 70% of shoppers in tiers 1-3 cities say they buy salty snacks from convenience stores—up from 58% who said the same in 2015. Meanwhile, 63% say they buy bakery products, up from 56% in the same time frame, and 62% say they buy confectionery, which is an increase of 7 percentage-points over 2015.
While these products have seen an uptick in sales over the past two years, currently the most commonly bought items are dairy products (75%), soft drinks (72%) and salty snacks (70%).
“Urban Chinese consumers are now enjoying more fast-paced lifestyles, creating an obvious rise in demand for convenience. Choosing more ready-to-eat foods from convenience stores, especially snacks, indicates these stores fulfil a role in satisfying consumers’ immediate and discretionary needs,” said Crabbe.
As a community-based store and service provider, ease of use is key for convenience retailing. The research shows that 49% of urban Chinese consumers prefer being able to visit a convenience store any time, day or night, while 64% are drawn more by the budget-priced, basic products available in this format. A significant 59% would also be prepared to try using automated check-outs, if available.
Meanwhile, building loyalty and rapport with local customers may help retailers better adapt their stores to suit local consumers’ needs and habits, the figures suggest. Three in four urban Chinese consumers think convenience stores should be bigger, while two-thirds would like to see more new overseas products offered by retailers.
A further 66% agree that shopping online for home delivery is as convenient as visiting a convenience store, while 46% say they prefer being able to order online for delivery from a convenience store any time.
Another study suggests that 10-30% of imported food and drink products are sold through E-commerce channels, and almost all major online retailers and platforms such as Amazon, JD, Tmall, Womai and YHD, sell food and beverage.
“Set within local communities, convenience stores really need to understand their customers’ preferences. The business models for store chains have been rapidly shifting towards the ‘new retail’ mode, in response to changing consumer behaviour,” said Crabbe.
“Stores should raise their ‘convenience factor’ in the future, both to improve consumer enjoyment, and to counter—or integrate—the rising demand among consumers for online shopping and delivery services.”
Cashless and checkout-free stores, meanwhile, could be an increasingly significant service trend for convenience stores to introduce, he added.
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Shanghai commences amnesty for unlicensed food businesses
China’s commercial capital has offered an amnesty to unlicensed food operators that will allow them to operate legally if they register their businesses with local authorities over the next month.
So far, nearly 200 small operations across the city have signed up for a trial registration scheme, which started in May. The new licences now require businesses to meet standards in food safety, hygiene, fire safety and the environment.
Those who are unable to reach these standards will not be allowed to register for a licence, according to Xu Jin, deputy director of the Shanghai Food and Drug Administration.
“The regulation is issued to serve the demand of the public for delicious and safe food with local specialties,” said Xu.
The temporary registration will be valid for three years.
Food businesses inside residential complexes will only be permitted to serve steamed and boiled products to “minimise the impact” of smoke in cooking, Shanghai Daily has reported.
Neighbourhood governments must seek the opinions of nearby residents and property management companies before they can approve small food businesses, the SFDA has ruled.
Caterers will also be shut down if they are the subject of frequent complaints by nearby residents, or if they are involved in food safety incidents.