FamilyMart is betting it can double its number of convenience stores through a 17% increase in the proportion of franchise-operated stores and its new "lifestyle store concept" over the next five years.
"Ready-to-eat meals is the key focus category that is becoming more important for convenience stores, and it's the centre of our product development. We want to build ready-to-eat into a hero category," said Chiranun Poopat, president of Central FamilyMart.
The Japanese brand has long played second fiddle in Thailand's fiercely competitive convenience store field, but emphasis on affordable franchises and lifestyle stores may allow it to start closing the gap with Charoen Pokphand Group (CP)-owned 7-Eleven, which operates upwards of 10,000 stores.
In terms of the number of convenience stores, 7-Eleven holds a 64% market share, according to the Thai Retailers Association, followed by FamilyMart and Tesco Lotus Express. FamilyMart holds close to a 5% market share, said Ms Chiranun.
FamilyMart has been growing at a constant rate of 50-100 stores a year to 1,136 at present, but going head to head with 7-Eleven is a tall order. CP All, which was established to handle CP's convenience store business, last year opened 710 7-Eleven outlets, in line with its plan to open 700 stores annually.
Revenue for 7-Eleven has grown at a faster clip than its store expansion, partly reflecting the health of the industry. In 2016, CP All's business unit reported a profit of 278 billion baht, an 11% increase over 2015.
Ms Chiranun said the first prong of FamilyMart's strategy to catch up with the market leader may centre on increasing the proportion of stores operated on a franchise model from 13% to 30% over the next five years.
"I could say franchising is the future of FamilyMart, and a critical success factor," said Ms Chiranun.
She said the expansion of FamilyMart is solely being financed with profits from the FamilyMart business unit. Opening new stores through a franchise model is less expensive than opening new corporate-operated stores, and may allow the company to start catching up with 7-Eleven's 700 per year store opening rate, even with a lower budget.
But FamilyMart is not the only one to have shifted gears for its growth strategy.
The number of franchise-owned 7-Eleven stores has been higher than that of its corporate stores since at least 2013. The company added an almost even split of corporate-owned and franchise-operated stores between 2013 and 2015, but has started relying more heavily on franchises. The company added 388 in 2016 (56% of the total, excluding sub-area licensed stores), according to CP All's 2016 report.
Ms Chiranun said FamilyMart's franchise models are quite similar to those of its competitors, but come at more affordable prices. The company offers investors several franchise models that go from 1.2 million baht on the non-investing model.
"We have a slightly better deal," she said.
The other leg of FamilyMart's two-pronged growth strategy centres around their lifestyle stores, which will include seating areas, restrooms and WiFi. FamilyMart already operates similar store models in Taiwan and Japan, and opened one such outlet in Silom earlier this year.
"We want a place where customers can enjoy breakfast before work, meet with friends, do some work and get new ideas, apart from enjoying our products," she said.
Average spending per consumer is 65-70 baht at FamilyMart, which is already on par with 7-Eleven, said Ms Chiranun. FamilyMart expects customers to spend 30% more in the new concept store.
As the convenience store industry in Thailand expanded 25% from 2015 to 2016, growth in the restaurant business has slowed from 10% to 2-3% in recent years.
A "lifestyle" concept with eating spaces and other amenities could be essential to capitalise on the growth of this sector, she said. Hot food currently represents close to 20% of FamilyMart's revenue, and has been growing at a 15-20% rate.
The shift away from chain restaurants has benefited FamilyMart, but also 7-Eleven, which according to its 2016 report is making it a priority to make ready-to-eat food products with freshness, cleanliness and safety, as well as develop new products with business partners to offer products exclusively available in 7-Eleven stores.
A sitting area with WiFi connectivity may also set up convenience stores as cheaper alternatives to coffee shops or co-working spaces.
"Our vision is for these stores to become destinations in their own right," said Ms Chiranun.
She said it is possible that existing stores could be renovated to embody this concept. The percentage of new stores that will fall under the lifestyle category is not fixed, but will depend on the locations available, said Ms Chiranun. Lifestyle stores occupy 150-200% as much space as regular stores do.
The last prong of the FamilyMart strategy is to adopt the one-stop shop concept. As underlined by the growing importance of hot food, convenience stores increasingly aspire to play a more central role in consumers' everyday lives, by offering them a space where they can pick up breakfast, pay bills, and more recently send packages.
"We want to be more than a convenience store," she said.
FamilyMart's alliance with Central Group and Kerry Express, however, may represent a sustainable competitive advantage. In the second quarter, the company penned a deal with Kerry Express, through which customers will be able to send and eventually pick up packages from FamilyMart outlets.
FamilyMart expanded its Kerry Express service from a couple of stores in March to over 100 now.
"By the end of the year we will cover every store in Bangkok, and by next year every store in the network," said Ms Chiranun. "We want coming to our stores to become a habit for consumers, whether they come for Kerry Express or to use our space."
Last month, Central Group, which has a 51% stake in Central FamilyMart, signed a joint venture agreement with JD.com, the second largest e-commerce operator in China. As the market share of the Chinese giant increases its share of Thailand's e-commerce market, positioning itself as the only convenience store where consumers can pick up JD.com packages could translate into an important increase in foot traffic for the Japanese operator.
Asked whether FamilyMart has a similar deal with JD.com on the table, Ms Chiranun said she would leave that for the future.
Aside from its size, FamilyMart's largest stumbling block in its race for market share may be its higher operating costs. While retail prices for the two operators are comparable, the operating costs of 7-Eleven are much lower, because it is vertically integrated and can leverage its size against suppliers.
FamilyMart will not become vertically integrated in the near future, since the company's strategy and value proposition entails "growing with [their] partners in order to provide unique products," she said, adding "margins are not very high at the moment, but we are working on lowering costs."
"Of course I think everyone would like to have that scale, but to us we want to dig into the quality concept. We may be second place, but we want to be first in consumers' minds."
Ms Chiranun shows off FamilyMart's signature "ready-to-eat" Oden offerings.