“Eat, drink, man, woman. Basic human desires. Can’t avoid them. All my life, that’s all I’ve ever done. It pisses me off. Is that all there is to life?” Senior Master Chef Chu, Eat Drink Man Woman
Eat Drink Man Woman, or 飲食男女, is one of Taiwan’s masterpiece movie directed in 1994 by Ang Lee. He is better known for his later films such as Crouching Tiger, Hidden Dragon and Lust, Caution. This is a heartwarming comedy involved with eat, drink and love, however, Ang Lee seemingly omitted another passion of people — shopping. When Taiwan’s President Group brought 7-Eleven to Taiwan for the first time in 1978, the concept was too new for many shoppers, who appreciated value over convenience. However, as Taiwan’s tech-driven economy took off through 90s, Taiwanese people adapted the concept of convenience stores.
Taiwan-Go-Around by Bicycle
This summer, Shinya made a reckless and courageous decision to take a bicycle ride around the whole island of Taiwan by himself. The whole journey was 1,000 km (approximately, 600 miles) over 10 days. The last time he rode a bicycle more than 20km a day was his high school days… roughly 20 years ago. Led by the world’s largest bicycle maker, Giant, Taiwan set up a biker-friendly environment by creating side lanes across the country’s major non-highway streets so that the bikers can safely enjoy the speed and breeze. This bicycle journey is now called 還島, or Go Around the Island.
Taiwan-go-Around by Bicycle
While the government set up rest station for every 60–80 km, it was almost unnecessary as Shinya found 7-Eleven convenience stores literally every corner of little towns he was passing by. They are always open (24 hours) and welcoming. It was literally the modern day’s oasis where Shinya bought water bottles (it was over 35 degrees with 120% humidity everyday), energy bars and bananas. He occasionally ate 7-Eleven’s famous tea eggs (茶葉蛋). In Taiwan today, there are more than 5,000 7-Elevens for 24 million population, making Taiwan one of the highest density country for the convenience stores in the world.
Asians Love Convenience Store
Taiwanese love convenience stores, so do other Asians — the prevalence of convenience stores in Asia is far higher than in the rest of the world. These types of stores are the preferred retail channel over traditional retail stores and hypermarkets and their share in modern retail is 20%, more than 2x of the world’s average (9%). And, even within Asia, Southeast Asia is seeing substantially faster pace of growth of the convenience stores.
In Southeast Asia, the growth projection for convenience stores is approximately 4–5% faster than for traditional retailers and hypermarkets in the region. Southeast Asian economies are experiencing substantial growth in the retail sector, and while the growth has not been as spectacular as that of China and India, the sheer size of Southeast Asia’s retail market is approaching the size of Japan’s. In fact, from 2015 to 2018, Southeast Asia’s retail growth rate is expected to accelerate at a faster pace than China’s. Given Southeast Asia’s 4% share of global GDP is small relative to its 10% share of the world’s population, there is a lot of potential for further growth.
Size of Total Retail Markets
Both in the US and Japan, the concept of convenience stores was introduced when the country’s GDP per capita reached $3,000–5,000. This is not coincidental as shoppers must be affluent enough to choose convenience over value (i.e. paying a higher price). Thus, Southeast Asia is approaching a pivotal inflection point as many of its economies have reached or are going to reach this mark very soon.
Interestingly, although China’s GDP per capita is now higher than that of many Southeast Asian countries, the convenience store is not as preferred within non-traditional retail in China. China is not yet as urbanized as Southeast Asia (as measured by the population concentration in the top 10 cities), contributing to its relatively low convenience store penetration. An equally important factor is the much higher adoption rate of ecommerce by consumers in China (now the world’s largest ecommerce economy).
China is not as Urbanized as Southeast Asia
Annual Growth Rate of Retail Sales
Japan, however, is well known for its convenience stores. While the first convenience store was born in the US over 60 years ago, Japanese operators actually perfected the business model. Today, Japanese convenience stores dominate 39% of the global market and 62% of the Asian market. 7-Eleven is the world’s largest operator of convenience stores.
In Asia, there are 9 major franchisees, 6 of which are currently publicly listed. After Japan, Thailand and Taiwan are the most successful markets where 7-Eleven stores dominate. While the markets in Thailand and Taiwan mature, the Philippines and Indonesia are emerging as new frontiers as their economies approach the “inflection point” based on GDP per capita.
Over the last 10 years, Uni-President and CP All (7-Eleven operators in Taiwan and Thailand) have created significant shareholder value (c. $20 billion). The combined market capitalization of Uni-President and CP All is now almost equivalent of Japan’s 7&I, which exceeds the percentage of 7-Eleven stores the two firms operate (54%) as compared to Japan’s 7&I.
Many Southeast Asian economies have passed or are going to pass the critical “inflection point” set by GDP per capita ($3,000 — $5,000), above which consumers can afford “convenience” over “value” (price). The growth potential for the convenience store businesses in the Philippines, in particular, is quite interesting since the country had one of the lowest penetration rate of convenience store in 2012.
The operator of 7-Elevens in the Philippines is called Philippine Seven Corporation. This company was set up in 1982, but the concept of the convenience stores was too early for Filipinos as the average GDP per capita was only $600–700. However, the under the current CEO, Victor Paterno (owns 7%), with the supports from other franchisees (Uni-President, which now owns 52% of Philippine Seven), the company’s growth took off. Paterno family is one of three co-founders of Philippine Seven and Victor became CEO of the company in 2005 at the age of 35, (by the way, he is a very serious biker, not like Shinya) however, it was not an easy job as the auditors raised solvency concerns for the first time in 20 years shortly after he took the job. In 2007, the company operated only 307 stores. As of June 2017, they operate 2087 stores. Over the course of this 10 years, Philippine Seven’s share price rose 7800%. Although the share price is no longer cheap, there is still significant expansion potential in the Philippines. While it is much larger country than Taiwan (104 mm vs 24 mmm in population), the Philippines has less than half of stores (2,000 vs. 5,000). Philippine Seven is also trying to be more than just convenient stores. With 2,000 stores, they cover much wider areas of Filipino archipelago and these stores are becoming the country’s life line as well as “banking” branches (7-Eleven is the №1 e-money channel in the Philippines). It may take a few years to catch-up with Taiwan and Thailand, Philippine Seven’s growth projection is still quite appealing. Eat, drink, man, woman — although that’s all you do for your life, with 7-Eleven, it may not be that bad.