Will unmanned convenience stores thrive in China?

TalkingData, a mobile big data platform based in China, recently released a white paper on the industry of unmanned shelves in 2017. The paper indicates that the overall financing secured by all unmanned convenience stores has exceeded RMB 3 billion (USD 470 million). The report sparked a hot discussion around unmanned retail because a statistic of such a magnitude surely implies a promising future for the industry.

In line with the rapid rise of the newly-formed market, some unmanned retail startups reportedly expanded too quickly to sustain business development. As a result, employees have been laid off. Can a market worth USD 470 million enable unmanned retail startups to fly — or might some startups be knocked out in this highly competitive retail area?

A battle for white-collar consumers

This is a battle for white-collar consumers, for this type of staff-less store is often situated in office buildings where white-collar consumers can easily make a purchase. The self-service shelves allow users to quickly and conveniently pick up goods, scan RFID tags, and pay via mobile payment applications such as WeChat Pay or Alipay.

At least 30 startups including BingoBox, Tao Café, F5 Future Store, Xingbianli, and JD Daojia have tapped into the fierce competition. Based on considerable financing, unmanned retail has expanded beyond Chinese first-tier cities into the country’s second-tier and third-tier cities rapidly.

According to the report mentioned above, these companies can be categorized into three rankings: Meiriyouxian (in English, Miss Fresh) ranks first with financing of more than USD 156.2 million; Xingbianli (Walkable Convenience), and Guoxiaomei (Fresh Fruit) rank within the second group each with financing between USD 15.6 million and USD 156.2 million. Each startup in the third group secured financing of less than USD 15.6 million.

In fact, many unmanned retail startups have the backing of big tech companies. Edianbianli, for example, is supported by ele.me, the largest online-to-offline food delivery service in China; Meiriyouxian is backed up by tech giants Lenovo China and Tencent; Suning.com, whose second shareholder is e-commerce giant Alibaba, also announced that it would launch 50,000 unmanned retail locations in 2018.

Unmanned retail startups are appealing to investors and businesses alike thanks to their low cost of operation and relatively short period of return on investment. According to Yanli Min, founder of Guoxiaomei, the initial cost of an unmanned shelf unit may normally be around USD 156, a figure that includes the cost of a shelf, consumer goods to stock it, and associated promotion fees. However, it is estimated that the cost of a traditional convenience store of 40 square meters is nearly USD 5779 in first-tier cities after rent, electricity, and labour costs are included.  Compared to traditional stores, the advantages of unmanned shelves appeal to Chinese investors a great deal.

Photo from Baidu Images.

The Online and Offline merge

We’ve arrived at an age of merging, in which online business will merge with offline ones. The combination of the historically separate markets may come to generate a single massive one. This partly explains why unmanned shelves have become an investment hot spot.

However, occupying office buildings is one thing; operating the unmanned shelves successfully is quite another thing. For instance, it was reported that Xingbianli has laid off many employees; its shelves are not restocked immediately and often remain empty after goods are sold out. Xingbianli was founded in June 2017, and it secured USD 15.62 million in its first round of financing. Another company Qizhikaola was also reported to have laid off its employees even though the company operates 5000 unmanned shelves situated around Beijing.

To achieve a high market share, every startup operating in the unmanned stores industry needs to increase its number of unmanned shelves across China soon, at the outset of this competition. It means that companies ought to recruit as many employees as possible to help expand its shelves as well as its brand. When a growing number of startups tap into this market, some startups may lose market share and the employees will have to face failure.

Why are some unmanned stores already failing in this sunrise industry? Some say that the lack of monitoring is a big reason. Unmanned shelves startups assumed that unmanned stores laid out in office buildings in which qualities of white-collar workers would be safe from shoplifting and other problems. In reality, consumer goods go missing without payment in some unmanned stores. Without tracing systems, some companies don’t even know how much in goods is lost from their shelves. Considering the current situation, some companies have begun creating intelligent unmanned stores in which face recognition and gravity sensor technologies are applied.

The competition among unmanned shelves startups is not only determined by the expansion speed of unmanned stores but is also related to the average rate of loss and frequency of replenishment. In order to survive in this battle, some unmanned retailers have tried to innovate upon the staff-less service model. Meiriyouxian uses a front-loading storage mode by which storage units are extensively located throughout a city. In shortening transporting distances, efficiency is improved. There is no doubt that the real operation process will test the comprehensive capability of unmanned stores. It will shake up the market and ultimately create unmanned retail giants.

(Top photo from 699pic.com)

Lena Zhang

Lena is our columnist. Previously working as a finance reporter, she is passionate about social sciences and curious about how technology impacts our lives. She holds a master's degree in Social Anthropology from London School of Economics and Political Science.

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