What Bread Means to a Convenience Store, and Why They Work So Hard to Improve It

Like bento boxes and oden, bread is a high-margin product — and it pulls other categories along with it.

In Japan, the "convenience store nation," both 7-Eleven and FamilyMart put out limited-edition cherry-blossom breads every March, when the blossoms come out; FamilyMart once developed a dessert line called "Ore no" ("a man's dessert") aimed specifically at male customers.

In China, the Japanese-style chains — 7-Eleven, FamilyMart and Lawson — have carried on the tradition, rolling out limited-edition strawberry bread in strawberry season, for instance. With Mother's Day coming up, Lawson also released a cake iced with the words "Mom, thank you for all you do."

If you have been into a 7-Eleven in Beijing or Tianjin lately, the new bread is hard to miss: rows of orange banners hanging from the ceiling reading "made with love" and "refined," an X-frame standee of "Cassis, the Bread Girl," and clerks calling out during the rush — "New bread, come try it."

But this continuation of tradition — or rather, the weight these three chains, now the most mainstream convenience stores in China, put on bread — was not there from the start.

Zhang Sheng, general manager of Lawson Shanghai, told QDaily in an interview last December that the chain only began putting real thought into baked goods in 2013: studying which flavors customers liked, when they came in to buy bread, and how to set itself apart from a competitor as strong as the neighborhood bakery.

Wu Meng, head of the administrative division at Beijing 7-Eleven, told QDaily recently that starting on March 15 this year, the chain put out four or five new products every week for more than a month, stocking them in every store in Beijing and Tianjin. Wu called it the biggest bread overhaul in Beijing 7-Eleven's history: the company spent more than six months preparing and put in roughly a million yuan.

Among the many things a convenience store sells, the crudest useful split is between NB (National Brand — things you can buy anywhere) and PB (Private Brand — the store's own products). Coca-Cola and Lay's potato chips belong to the first group; bento boxes, rice balls and oden belong to the store itself.

Own-brand products are where convenience stores differ most from one another, and because the chain sits further up the supply chain, they usually carry higher margins — and often pull other categories along with them.

Take Beijing 7-Eleven: the average gross margin across the store is around 30%. The highest-margin category is hot food cooked on site, which can reach about 40%. Rice balls and bread come next, both above the 30% average.

On sales, 7-Eleven now takes in more than 20,000 yuan a day per store; other convenience stores in Beijing mostly take in under 8,000. One key reason is that small chains generally have no own-brand products to carry high margins. Selling nothing but outside brands leaves thin profits, and the average ticket is hard to lift.

It should be said that Beijing is widely acknowledged in the trade to be poorer ground for convenience stores than Shanghai — the roads are too wide, the winters too cold. Shanghai has more than 6,000 convenience stores; Beijing has only about 1,000.

In Beijing, 7-Eleven, with 200 stores, is the largest foreign-invested chain. FamilyMart and Lawson, the other two Japanese-style chains that have done well in Shanghai, entered Beijing only in the past year or two and are not yet a force in numbers. The three largest convenience store brands in Beijing today are Haolinju, 7-Eleven and Quanshi; the other two are domestic companies. If you shop at convenience stores often, you have probably already felt the difference between the Japanese-style chains and the local ones.

But unlike the range of own-brand goods you see in Japanese convenience stores — 7-Eleven's own cosmetics line ParaDO, or the "Cafe&Meal" drinks FamilyMart makes with Muji — own-brand products at Japanese-style convenience stores in China are still almost entirely fresh food, also known as daily-delivery goods.

As we noted in an earlier piece on convenience stores, daily-delivery and fresh food account for roughly 50% of sales at FamilyMart, Lawson and 7-Eleven alike.

Bread may lack the character of the classic "convenience store foods" — bento boxes, rice balls, oden — but it is an important draw. More to the point, it does not entirely compete with the other fresh food. Some items substitute for one another: buy noodles and you will not also buy a boxed meal. But plenty of people who buy a boxed meal or a rice ball will still add bread to go with it.

Bread has one more advantage among these own-brand categories: it sells at almost any hour, in almost any commercial district. Boxed meals, by contrast, only sell well around mealtimes.

Set aside the people who never buy bread at a convenience store, and two situations are common: buying it as breakfast for the next day, or grabbing it when hunger hits outside mealtimes.

For the first, a remark from Zhang Sheng may capture the trick to competing with bakeries: unwrapped bakery bread tastes wonderful the moment it comes out, but overnight the moisture evaporates. So there is really only one thing we have to do — make our bread taste better than the bakery's does the next morning. A convenience store can hardly compete on bread fresh from the oven, but the next morning, with different storage conditions, we can.

And compared with walking to a bakery to deal with hunger between meals, a convenience store may simply be the easier choice — and you will likely pick up a yogurt or a drink to go with it.

What 7-Eleven sees in its purchase data is that people buy bread in the morning, at midday and at night alike. The demand for bread as a snack and the demand for bread as a meal both exist.

Wu explained that this is because life now runs on a looser schedule. People no longer shuttle between home, work and meals at fixed hours the way they once did, so what customers want has grown more varied. One sign of it: at 10 a.m. on a weekday, the streets are still full of people.

So in this overhaul, 7-Eleven developed products for more occasions. Dessert-like breads, for instance, go well with coffee or black tea, and multi-packs suit sharing over afternoon tea at the office. Lawson's growing line of desserts follows the same logic. 7-Eleven also added staple breads that can be reheated, to fit Chinese customers' preference for warm food.

Beijing 7-Eleven has sold own-brand bread since 2012, supplied by Xiangnaiweisi, a bread factory in Tianjin. Xiangnaiweisi supplies 7-Eleven in Japan as well; it was built with investment from Francois, a company based in Fukuoka, and serves more than 260 7-Eleven stores in Beijing and Tianjin exclusively.

Much as Lawson once used bread as one of its openings into the market, even 7-Eleven — which faces almost no real rival in Beijing and Tianjin — saw bread sales go through a "fairly severe" decline before this overhaul. That is what pushed the company into a full revamp.

"Customers' opinions and needs keep changing, survey samples can't cover everyone, and a survey is itself suggestive — the questions steer the answers. It is very hard to say precisely why sales fell," Wu said.

Still, as 7-Eleven's second-highest-margin category, the decline got attention. They began asking: had the bread's flavor gone wrong, drifting away from what customers liked? Or had the customers themselves changed?

To find out what had gone wrong, 7-Eleven ran a customer survey on bread last year, interviewing 90 working women around 30 — also 7-Eleven's core customers.

You can probably guess the verdict. The most direct thing customers said about 7-Eleven's bread was that it did not taste good and was not fresh. This may be an old problem: what customers compare it against is the bakery. Space, cost and other practical limits mean a convenience store can only prepare a few things on site — usually boxed meals, steamed buns and oden — and cannot bake and sell fresh the way a bakery does. But there was still room to get better, and a convenience store has a convenience the bakery does not.

Since the biggest problem was taste, 7-Eleven started with the process.

In development, 7-Eleven and Xiangnaiweisi lay the variables out in a matrix — flavor (sweet, savory, plain), how the bread is eaten (as a staple or as a side), ingredients and so on — and work through products step by step.

Kawai Takanori, managing director of Xiangnaiweisi, told QDaily that European bread is eaten mostly as a staple and plays up the taste and texture of the wheat itself, while Japanese bread is softer and moister. Chinese customers are more used to bread as a side dish or a snack, and more used to the almost steamed texture of Japanese bread. So the overhaul aimed at three things: softness, moistness, and how readily the bread melts in the mouth, closer to the texture of cake.

To hit those three targets, Xiangnaiweisi first changed the flour. Domestic wheat flour tends to knead unevenly and absorb water poorly, so the dough is less smooth and its inner structure less even. Xiangnaiweisi raised the share of imported wheat flour, which now makes up 70% of the flour in the new bread.

Second, bread loses its moist texture because the starch stales. This overhaul added a measure of tangzhong — a cooked flour-and-water paste. Tangzhong raises the bread's water content, makes the air bubbles inside the dough finer, leaves the bread softer, and keeps it moist longer.

The dry weather in Beijing and Tianjin also makes it hard for finished bread to hold its moisture. To deal with that, Xiangnaiweisi adjusted how long the bread cools after it leaves the oven, and even installed humidifiers in storage areas.

Good packaging draws customers, and appearance shapes their judgment of bread directly. Some bread comes in translucent wrapping, for instance, which hides the state of the loaf inside — you cannot tell whether it looks good, or how long it has been sitting there.

"Because customers feel convenience store bread isn't fresh, and they think bakery bread is good, we brought some bakery elements into the packaging," said Wu Meng, head of the administrative division at Beijing 7-Eleven.

The starting point sounds crude, but you can see how it came out in the photo below. 7-Eleven switched to clear wrapping so the product shows at a glance. For color, it chose warm tones that make you hungrier, and the colored stripes on the package are said to imitate a bakery's awning.

In Shanghai, FamilyMart got to this packaging idea earlier. Its bread brand, Kaozhi Workshop, is likewise an own-brand product made by a dedicated factory.

To create the feeling of "bread fresh out of the bakery oven," 7-Eleven even found its bread a spokes-character: "Cassis, the Bread Girl."

Even if you have never seen Cassis before, the Studio Ghibli look is easy to feel. Anyone who knows Hayao Miyazaki knows his films are full of tempting bread. Cassis was drawn by Yoshiharu Sato, a central figure on Miyazaki's team, who was animation director on My Neighbor Totoro, Kiki's Delivery Service and Porco Rosso, among others.

In Japan, Cassis is the spokes-character for Francois, 7-Eleven's bread supplier. Sato had earlier drawn a series of ad stories for Francois in which the heroine is a 17-year-old girl named Cassis who runs a bakery in a small town in the south of France. So using Cassis for this campaign followed naturally.

An ad in which Cassis is the spokes-character for Francois in Japan

Compared with boxed meals (a few hours) and rice balls (one day), bread has a much longer window in which it can be sold — three to four days. Under 7-Eleven's system, each store estimates its own sales and orders accordingly; anything unsold at the expiry date must come off the shelf and be destroyed. Bread's longer window gives stores more room to work through inventory.

The life of a loaf of bread (using a four-day shelf life as the example):

Day 1: 7pm

Bread baked that day leaves the factory

Day 2: 2am

Shipped to 7-Eleven stores

Day 2: 2-6am

Put on shelves

Day 2, 3

On sale

Day 4: 7am

Two hours before the expiry time, bread about to expire comes off the shelf and is destroyed under supervision

Day 4: 9am

The "best by" time printed on the package arrives

Judging by Lawson and 7-Eleven, the effort put into bread pays off.

Zhang Sheng says bread has become one of Lawson's main growth drivers and has earned a good name among young people. Since the banana milkshake cake launched in 2013, the chain has put out tiramisu Christmas cakes, snow-skin moon cakes and all sorts of other desserts, and now introduces something new most weeks. Beyond holidays and seasons, it also runs points-redemption promotions the rest of the year.

Li Danchen, a product developer at 7-Eleven, told QDaily that customers used to buy bread mainly at breakfast (8 to 10 a.m.) and after work (5 to 8 p.m.). Since the overhaul, midday and late-night sales have risen noticeably. In the two weeks after the new bread went on sale, 7-Eleven's bread sales were up 40% from a year earlier.

"But a convenience store sells so many things that it will take a while longer to observe before we can say what the bread overhaul alone did to overall foot traffic and the average ticket," Wu said.