There are over 11,500 convenience stores in Taiwan. With a population of 23 million,
that is about one store for every 2,000 consumers.
That is denser than Japan and second only to South Korea, which has over
40,000 stores - about one store for every 1,200 people.
Convenience stores are a core part of the Taiwan everyday experience, yet also a relatively
recent addition. But Every day, over half of the island's entire population spends money at one.
In this perhaps silly and unnecessary video,
let us dive into Taiwan's ubiquitous convenience store industry.
## Beginnings
Taiwan's five largest convenience store brands are 7-Eleven, FamilyMart,
Hi-Life and OK Mart. The first and largest of the five is 7-Eleven.
7-Eleven is an American brand. In the 1920s, Claude Dawley purchased eight
ice manufacturing plants and 21 ice retail stores based in Dallas, Texas to found the
Southland Ice Company. Ownership later passed to John Thompson and his family.
At the start, the ice retail stores were called Tote'm. Based on customer feedback, the stores
later added milk, bread, and eggs to their retail lineup alongside the core product of ice.
By 1947, there were about 74 stores in the local Dallas area. Most of them were open-door,
drive-in stores that sold ice, cold drinks, groceries and some over-the-counter drugs.
They opened early in the morning and stayed open until late in the night, 7 days a week.
At the suggestion of the Tracy-Locke ad agency, Southland got the store operators to stay open
from 7 am to 11 pm. They then rebranded the stores to 7-Eleven. They later moved to a 24-hour model.
## Japan
By the 1970s, Southland was a successful retailing company in the United States, seeking global
expansion. The company dipped its international toes with some stores in Canada and Mexico.
However the real international step came in 1973,
when Southland signed a licensing agreement with Japan's Ito-Yokado.
Ito-Yokado also has a long history stretching back to a clothing store in Tokyo in 1920.
They run a series of successful retail chains including superstores,
supermarkets, department stores, and restaurants.
The first store opened in Tokyo in May 1974 - their first sale a pair of sunglasses. By
May 1976, there were 100 such stores in Japan. Today, 7-Eleven is Japan's biggest retail brand.
Having proved the value of the international licensing model, Southland continued striking
agreements with partners in other regions. Next up was Australia in 1976, and then finally Taiwan.
## Taiwan
Uni-President Enterprises (統一企業) began as a small flour mill in the southern city of Tainan.
The company's co-founder - Kao Ching-yuan (高清愿) - belongs to
a clique of southern Taiwanese business tycoons.
This includes Wu Hsiu-chi, the founder of Tainan Spinning Corporation. Wu had
been Kao's manager and helped to get Uni-President off the ground.
Uni-President quickly went from flour mills into the production of instant noodles, cooking oil,
soy sauce, dairy products, and so on en route to becoming a general food company.
The company vigorously competed with some of Taiwan's other major food giants like
condiment maker Wei Chuan Foods Corporation and cooking oil maker Ting Hsin International Group.
As Uni-President continued its growth as a vertically-integrated food company,
management wanted to have more control over how its products were marketed and
retailed. This meant creating a retail subsidiary.
## Convenience Stores in Taiwan
7-Eleven was not Taiwan's first convenience store.
Probably the first was the "Youth Store". This was a government initiative that came about
when officials visited the United States and admired how clean American supermarkets are.
In 1979, Uni-President through its subsidiary President Chain
Store Corporation or PCSC opened a dozen stores across Taipei,
Tainan and Kaohsiung. These stores struggled as the company had little experience in retail.
While traveling in the United States company founder Kao
came across a 7-Eleven store. He felt that the format could help solve their
retail distribution problem so they approached Southland for a license.
In 1978 or 1979, I have multiple sources saying different dates,
Uni-President struck a deal with Southland. Then in 1980,
Taiwan's first 7-Eleven convenience store emerged on Taipei's Chang-an East Road.
## Early Struggles
Along with its license, Southland had transferred operational knowledge. Their
instructions were to create uniform, modern stores open 24 hours a day in
residential areas so to target local housewives.
However, this knowledge did not transfer all that well to the Taiwanese populace.
The average Taiwanese annual income back then was less than $2,500. The 7-Eleven aesthetic required
clean but expensive packaging of things like eggs - making their products less affordable.
Furthermore, most Taiwanese preferred to shop at traditional corner shops,
open-air groceries or traditional markets. They like to haggle,
complaining that this 7-Eleven product sold for 11 NTD but was really worth 7 NTD.
7-Eleven struggled during these early days. Two years after their launch,
Uni-President were still running large operating losses, eating nearly a billion NTD of capital.
## Turning Around
7-Eleven general manager Hsu Chung-jen (徐重仁) struggled to turn the company around.
The stores suffered from the disease of wanting to be everything to everyone, causing chaos. Some
stores were selling fresh fish and meat, while others had seven or eight types of detergent.
Hsu shifted the stores' target audience away from housewives to young and busy working consumers.
He first localized the stores' food offerings,
replacing the Western food options with boxed lunches, meat buns and the now-famous
tea eggs. Management back at Southland objected, but eventually Hsu got his way.
He saw a Slurpee machine in Hong Kong and added what was then called "Slime
Ice" to the product lineup. This product became very popular with young people.
And critically, Hsu closed nearly half of the underperforming stores,
cutting the number down from 75 stores to 30-40. These closures shifted the
company's store mix away from residential communities and towards street intersections.
Slowly, this turnaround worked. In 1983, one 7-Eleven did well enough so to stay
open 24 hours a day. And in 1986 after losing money for six consecutive years,
the convenience store business division finally turned a profit.
At this time, there were about 100 7-Eleven stores throughout Taiwan.
## The Fall of Southland
Around this same time, Southland Corporation ran into difficult straits. In the 1980s, Southland
diversified away from its core businesses. For instance, they purchased Citgo Petroleum in 1983,
thinking that they needed to protect the gasoline supplies for their gas station stores.
The company became big and bloated, struggling against new competition in a
difficult economic environment. Corporate raiders targeted them for a buyout.
In 1987, the owning family - the Thompsons - announced a big leveraged buyout. They issued
billions of dollars of junk bond debt to buy out all the publicly traded shares.
Southland went private but still struggled to turn itself around.
Having lost $1.3 billion in 1989 and with nearly $4 billion of debt in 1990,
the company filed for bankruptcy and was eventually taken over by Ito-Yokado,
its Japanese affiliate. The combined company renamed itself to Seven & I Holdings.
Southland's fall did not much affect the stores in Taiwan, which were still largely run by PCSC.
In fact, the Taiwanese convenience store industry was about to go into overdrive.
## Competition
Throughout the 1980s and 1990s, convenience stores grew to dominate Taiwan's retail
sector. After 7-Eleven proved the model, competitors began to flood into the market.
FamilyMart is a Japanese brand founded back in 1973 by a supermarket retailer
called Seiyu. Today, it is largely owned by the general trading company Itochu.
In 1988, a number of Japanese and Taiwanese companies joined together
to bring FamilyMart to Taiwan. It was the store's first overseas expansion.
FamilyMart also struggled during its early years, turning losses until 1994
when it had hit about 192 stores. After that however, store count grew rapidly.
That same year, Feng Chun Enterprises collaborated
with the American convenience store brand Circle K to create OK Mart.
A year later in 1989, a dairy company called Kuang Chuan Dairy Company set up Hi-Life.
Hi-Life is the third largest convenience store brand after 7-Eleven and FamilyMart.
These smaller convenience store brands banded together to compete with the dominant 7-Eleven,
which had a fairly big head start on everyone.
## Growth
In 1994 there were about 5,411 convenience stores. Four years
later in 1998, that number had grown to 7,533.
Several factors drove this growth. First, Taiwanese incomes were growing rapidly,
surpassing $10,000 per capita in 1993. More people were working and hitting up the convenience store.
And earlier in 1987, the Taiwanese government lifted martial law
after many years - which allowed people to finally go out at night.
They also loosened restrictions on foreign capital investments,
allowing a new class of investors to open up franchised stores in Taiwan.
7-Eleven adopted the franchise model in 1989 and FamilyMart in 1990.
In 1988, the Taiwan government phased out the practice of selling charity lottery
tickets. Many small shops selling these tickets went out of business,
leaving behind empty storefronts in prime places for convenience stores in move in.
Over time, stores gained further value by adding new services like postal delivery,
buying train tickets through the ibon machine, paying utilities bills, and
paying fees. Further deregulations throughout the 1990s made these service partnerships possible.
Several brands found themselves unable to compete during this period and exited
the market. This included Taiwan Big Egg and Weichuan's AMPM convenience stores.
## Saturation
After 2000, the convenience store market started to become especially saturated.
Growth and revenue - at least for 7-Eleven - largely peaked in 2005.
Nowadays, you might see a FamilyMart and a 7-Eleven right next to one other. It
sort of makes sense, since they are competitors.
But you might wonder sometimes why you can find two 7-Elevens or FamilyMarts within close range
to each other - sometimes literally on opposite ends of a traffic intersection.
There is some economic sense behind the madness. Two stores so close to each other
will cannibalize each other. But 7-Eleven wants to place these as close to people as
possible. There are logistics advantages that I’ll mention later but they also believe that
most people have a preferred store that they repeatedly visit even if another is close by.
Regardless of all that, it is true that the convenience store market is very saturated
now. And that means that 7-Eleven, FamilyMart, and the other brands had to get more efficient.
They worked on improving distribution like opening up new warehouses and distribution
centers. Or upgrading the point of sale systems to make processing orders faster.
## How It Works
While a convenience store brand may directly own and run their own stores,
many stores are franchised.
This means another business - the franchisee - gets to use the
7-Eleven or FamilyMart brand and operation network in exchange for a cut of profit.
Taiwanese convenience stores have several types of franchising models. First, there is a mandated
model, where 7-Eleven chooses the location and opens the store and grants a particular franchisee
the right to run the store. Here, 7-Eleven gets to keep the majority of the profits.
Another model is the authorized model. This is when the franchisee owns the space and works
with 7-Eleven to open a shop there. In this case, the franchisee keeps the majority of the profits.
In both cases, the franchisees run the store - i.e. hiring and cleaning
and such. But franchisees are under the convenience store brand's thumb,
with many product decisions made for them by the central office - a source of friction.
Your average 7-Eleven or FamilyMart offers about
2,000 to 3,000 goods in a relatively small area - about 45 to 200 square
meters. Larger stores might offer dining areas, a book shelf, or even a mini-bar.
Product turnover is high, so these stores are regularly replenished
by trucks dispatched from the distribution center - two times a day, six days a week.
Depending on an area's store density, a truck might visit as many as 10 stores in a single
trip. Adding more stores to a truck's route without changing it helps cut the per-store
delivery cost, making supply more affordable. A very significant network scaling advantage.
## Conclusion
In July 2022, PCSC opened its 10,000th 7-Eleven. Each day, 7-Eleven issues 13 million receipts,
implying that half of the island's population spend money there each day.
It is dawning on me right now that I have done a 10+ minute
video about convenience stores. So I feel that I should wrap it up quickly.
The thing that really struck me as I worked on this video was not how great these convenience
stores are, though they are great but just how massive this foods company Uni-President is.
I never heard of the company before I came here. Yet Uni-President not only
runs all of the 7-Elevens here in Taiwan, but also all the Starbucks,
Mister Donuts shops, Cosmed drugstores, and Carrefour hyperstores here too.
And then to boot, they are also one of the world's largest food conglomerates
with a dominant position in instant noodles, cooking oil, tea, packaging materials, and more.
They also own a baseball team and Taiwan's largest shopping mall, Dream Mall in Kaohsiung.
It is kind of freaky how a single company came to
be so deeply involved in Taiwanese daily life. Food for the thought.