IN retailing, it seems that small is indeed beautiful. Convenience stores have been a rare bright spot in a sector where foot-traffic is slowly being eroded by online shopping.

Small, ubiquitous convenience shops are so popular with urbanites on the go that Maggie Wang, who works in downtown Shanghai, said she sometimes has to wait five minutes at the FamilyMart store near her office. That’s especially true during peak hours like breakfast time or lunch break.

“It’s convenient to grab a yogurt for my breakfast or an ice cream for a quick afternoon snack,” she said.

In the first two months of this year, convenience stores in Shanghai reported a 20 percent surge in sales. While their business was booming, hypermarket revenue fell 12.2 percent and supermarkets declined 4.4 percent, Xiang Xin, commissioner for the Ministry of Commerce in Shanghai, told a Business Observer forum last week.

The State Council, China’s cabinet, said in a blueprint issued last November that offline retailers need to adapt to changing consumer habits and diversify how they do business. It urged retail chains to expand into local neighborhoods in order to compete with e-commerce and get closer to the needs of consumers.

Last year, convenience stores nationwide chalked up an 11 percent increase in sales to 73.8 billion yuan (US$10.7 billion), according to market researcher Euromonitor International. The firm is forecasting annual growth rates of 10.5 percent through 2020.

Convenience stores are aptly named. They offer a speedy, spur-of-the-moment option for consumers wanting to buy small items. The particular service they provide can’t be duplicated easily by online vendors.

Lunch meal boxes, beverages, snacks and ice cream are among the most popular items sold. It’s a quick bite for students and office workers who can’t be bothered going to a supermarket or eatery.

Large retailers are getting the message.

Olivier Tollet, new format director for Carrefour China, said the number of the company’s Easy Carrefour convenience stores is expected to reach 30 in Shanghai by the end of May.

“We're targeting consumers who make a quick shopping excursion during office hours or stop to pick up something on the way home after work,” he said.

It’s part of Carrefour’s multi-format global retail strategy. Tollet said the convenience stores will focus more on ready-to-eat food in small and handy packages, compared with the bulk packaging sold at its hypermarkets.

Competition is intense in Shanghai, with strong players like Japanese-owned FamilyMart and Lawson, and local retailers such as Bailian’s Quik and Nonggongshang Group’s Kedi and Alldays.

It took nearly two years for Carrefour Easy to open 27 stores in Shanghai, and the French-based parent has yet to find an efficient way to expand to markets outside the city.

Lawson, which operates on a franchise model, has doubled the number of its stores in China since 2014. It now operates 1,030 shops in Dalian, Beijing, Chongqing, Wuhan and Shanghai. More than 600 of its outlets are in Shanghai.

By the end of 2025, the company said it hopes to have 10,000 convenience stores in China, according to Zhang Sheng, executive vice-president of Lawson (China) Holdings Inc.

The top five convenience chains in terms of sales are regional players. Guangdong Province-based Dongguan Sugar & Wine Group has a 10.4 percent market share, followed by Shanghai-based Bright Foods at 8.8 percent. FamilyMart Uny Holdings is the best-performing foreign-owned chain, with 6.9 percent of the market, edging out Japanese-owned Seven & I Holdings at 6.1 percent, according to Euromonitor.

Fickle consumers

To keep up with the rapid changes in consumer tastes and shopping habits, an increasing number of convenience stores favor small shop areas of 200-400 square meters and fewer items in stock for more rapid turnover.

“Convenience stores have already become an integral part of local neighborhoods, and both online and offline retailers are trying to figure out how they can tap into that model,” said Mintel’s Asia-Pacific research director Matthew Crabbe.

The future of convenience stores may well depend on how willing they are to adapt to changing consumer trends. For example, customers may want a place to sit down and eat that ice cream bar they just bought. Or they may need to use a restroom. Self-service checkout may also loom.

FamilyMart earlier this month launched a new store format in an outlet near Tongji University in the Hongkou District. It includes about 50 square meters of seating area and freshly brewed coffee, while normally a convenience store only has about 20 square meters of seating space.

Yan Juyang, executive editor at Business Observer, which tracks the domestic retail industry, said FamilyMart’s new store format caters to a younger generation of customers seeking a relaxed shopping environment. Featuring fresh coffee and dim sum makes sense because both have higher gross margins than pre-packaged snacks or beverages, he added.

Online retail giants are not standing by idly. JD.com, whose delivery network covers 92 percent of urban and rural regions, said earlier this month that it hopes to team up with as many as 1 million grocery and convenience stores in the next five years.

Besides supplying these stores with merchandise, JD will use its data-analysis system to help convenience store franchisees better target consumers.

E-commerce group Alibaba is also in the process of refining a marketing model with Shanghai-based Bailian Group after the two companies announced a tie-up in February.

“Convenience stores will be looking to redefine their development model to either include more services such as laundry drop off or picking up, self check-out or to strengthen partnership with online retailers to serve as a distribution platform for consumers’ online purchases, with the ultimate purpose of maximizing business turnover,” Crabbe added.

The need to adapt and increase profitability is crucial as convenience stores face higher rents, mounting labor costs and rising operational expenses.