This file photo taken on August 2022 shows a Lawson convenience store at a subway station in Shanghai. (FAN JIANLEI /  FOR CHINA DAILY)

Advertising to influence consumers' shopping decisions at convenience stores can be challenging, especially when targeting Gen Z and younger shoppers.

However, one convenience store chain operator based in Fujian province, East China, believes it has found a better approach.

"When customers purchase a toothbrush, a recommendation for toothpaste appears on the screen near the counter. If they buy a piece of bread, they are shown suggestions for jams," said Zhang Li, chairman of Fook Convenience Store, a regional player that operates about 2,200 stores.

"Younger consumers in China have a strong sense of self-belief. They don't want to see another toothbrush recommendation. They prefer not to be told what to buy but appreciate gentle reminders of complementary products."

We are not dictating what they should buy, which can be off-putting for young consumers. Instead, we aim to enhance their shopping experience by offering tailored recommendations. We simply awaken their hidden needs and remind them of what they may have wanted but forgotten in that moment.

Zhang Li, chairman of Fook Convenience Store

These advertisements, crafted to evoke demand and address overlooked needs, play a significant role in influencing buying behavior, Zhang said.

His convenience store chain, Fook — a privately owned company — operates across three provinces, namely Fujian, Jiangxi and Sichuan.

In collaboration with technology firm Zkdigimax, Fook has developed an algorithm based on facial recognition technology and previous shopping records to predict customers' potential requirements.

Recommendations for personalized items are then displayed on the screen near the counter to align closely with customers' anticipated purchases.

"The impact of associative advertising has been remarkable," Zhang said. "It represents a major breakthrough in the convenience store industry, positioning us at the forefront."

Zhang said that younger consumers in China gravitate toward emotional and individualistic consumption, placing a premium on convenience.

Understanding their shopping behaviors and managing their expectations are critical for the future viability of convenience stores, he added.

"We are not dictating what they should buy, which can be off-putting for young consumers. Instead, we aim to enhance their shopping experience by offering tailored recommendations. We simply awaken their hidden needs and remind them of what they may have wanted but forgotten in that moment," Zhang said.

The technology currently relies on data from Fook's stores and is still in development to improve the accuracy of estimations and advertising, he said.

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Despite stagnant expansion in scale, the company in fiscal year 2023 achieved a 10 percent growth in revenue compared to the previous year. Profits have seen a slight increase, thanks to intense competition that has driven aggressive price promotions.

Zhang said that the decline of hypermarkets nationwide has bolstered the performance of community convenience stores, which, compared to their advanced counterparts in Japan, still hold significant potential.

Fook was among the sector's outperformers last year. Compared to the prior year, 2023 witnessed an overall upswing in sector sales, with 81.4 percent of convenience store enterprises reporting year-on-year growth in total sales, while 16.9 percent experienced declines, according to a survey conducted by the China Chain Store & Franchise Association.

The survey was based on the performance of 59 convenience store enterprises in 2023, spanning 110,638 venues.

Moreover, the industry saw a steady expansion in store numbers, with 13,148 new stores opening, offsetting the closure of 4,076 outlets and resulting in a net increase of 9,072 stores, the survey showed.

The highlight of the survey is the accelerated pace at which top enterprises, boasting over 1,500 stores, expanded their footprint, accounting for nearly 80 percent of the net increase.

For example, the Lawson convenience store chain is expanding into Shandong province, with plans to open about 1,000 stores in the area this year.

Over the next few years, Lawson is expected to join forces with local powerhouse brand Ykym Mart, leveraging the latter's local market experience to unleash the potential of Lawson's brand and supply chain advantages, thus jointly propelling Lawson's rapid development in the region.

In 2023, Lawson China's operating income increased 11.9 percent year-on-year and net profit surged 94.2 percent.

In this file photo dated June 2022, a consumer shops at an automated self-service FamilyMart store in Shanghai. (PROVIDED TO CHINA DAILY)

Meanwhile, convenience chain giant FamilyMart announced a significant expansion in the country by further collaborating with its Chinese partner, Ting Hsin International Group.

The two sides will establish a new joint venture to oversee operations in East China, while Ting Hsin will take charge of Family-Mart stores in other regions, reaffirming Tokyo-based FamilyMart's ownership of the brand. The move is to foster continued collaboration and actively propel FamilyMart's growth across the Chinese mainland.

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The number of FamilyMart stores on the mainland surged 15.4 percent from 2019 to 2021, reaching 2,967 outlets, according to the China Chain Store & Franchise Association. Shanghai alone hosted nearly half of these stores, boasting 1,400 outlets.

Furthermore, the industry survey shows that there's an enhancement in store quality, reflected in 61 percent of enterprises observing a year-on-year increase in comparable store sales. A significant proportion of companies achieving total sales growth also saw a corresponding rise in comparable store sales, underscoring a qualitative improvement.

In terms of 2023 profitability, 52.5 percent of surveyed enterprises reported a year-on-year growth in net profit, 32.2 percent experienced a decrease, with 15.3 percent maintaining stability.

Looking ahead to 2024, convenience store enterprises are prioritizing standardization, digitization and online expansion. A total of 71 percent of surveyed companies are opting for expansion strategies, with a focus on deepening existing market penetration, according to a survey conducted by the China Chain Store & Franchise Association

Despite an overall improvement compared to 2022, companies grappling with declining profits face notable challenges, particularly those witnessing declines in visitor numbers and comparable store sales.

The data signal a positive trajectory in 2023, with a gradual uptick in visitor numbers witnessed by 55.9 percent of surveyed enterprises. However, 37.3 percent still experienced a decline, with decreases in comparable store sales and net profit.

To gain profitability over the long term, Fook Convenience Store has placed a priority on product development and memberships to build its core strengths.

Zhang said that products in the store must offer unique value, and strategies like copying from suppliers and engaging in price wars are not sustainable methods for growth. The company has initiated efforts to work from the very source of each value chain to ensure the safety and value of its privately branded products. Thanks to industry-leading warehousing and supply chain capabilities, the company has established its own self-built fresh food factories and logistics centers.

For instance, Fook's zero-antibiotic eggs — amid concerns over antibiotic usage in some market eggs — have become a top-selling item for many consumers.

He said integrating consumers' lives into lifestyles and positioning convenience stores as hubs for all aspects of daily life within 15 minutes of their homes are key objectives.

Looking ahead to 2024, convenience store enterprises are prioritizing standardization, digitization and online expansion. A total of 71 percent of surveyed companies are opting for expansion strategies, with a focus on deepening existing market penetration, according to the survey.

Additionally, they're exploring new store formats to adapt to evolving consumer preferences.

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For Fook, the catering category of the convenience store is poised to be the next growth driver for their business, currently comprising 30 percent of their product offerings, which is 10 percent higher than the industry average, but still 20 percent lower than that in Japan's convenience store sector, Zhang said.

"Our policy this year is steady growth and avoiding reckless expansion. Survival is our primary objective," Zhang added.