Unmanned Markets Fold as Industry Consolidation Kicks Out Dreamers

Small players’ dreams are nothing compared to the strategic needs of giants: the fiercely competitive market has no tolerance. It’s only a matter of time before those players will be driven out.

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Last September, TMTPost predicted the end of competition in the unmanned convenience stores – a process mirroring the group-buying phenomenon of a decade prior. With the competition growing more intense and infrastructure improving, the end of this market’s competition will arrive swifter than it did in group-buying.

Internet giants and unicorns have all entered the industry. Many small companies have merged or been acquired. Major companies also had a tough time. It is reported Xingbianli contracted out its business in first- and second-tier cities and withdrew from third- and fourth-tier cities.

Players relying on their dreams will be wiped out.

The technology-based shop model was pervasive in 2017. Many start-ups that TMTPOST contacted gave rosy predictions about their future. They said they might operate group-buying in offices, and could offer goods according to the needs of different consumers once the business achieved scale.

Their dreams depended on scale, so, all the unmanned store businesses competed to expand fast and attract financing. The number of shelves in such stores became the primary metric of the industry.

Stores only needed a shelf, goods and scannable QR codes. The low threshold drew in many players, and fierce competition raised the cost and twisted the business.

In order to occupy a good position, many business owners give a kickback to enterprises to squeeze out their opponent’s shelves. One company offers hundreds of yuan, and another offers 1,000 yuan, which causes the cost to increase from 1,000 yuan to 5,000 or even 6,000 yuan.

In order to cover the rising costs, the only path is to get financing through rapid expansion. Media reported Xingbianli bought numerous unprofitable positions to facilitate rapid expansion and receive financing. When others raised their threshold to company with more than 50 employees, Xingbianli was still willing to approach to companies with only 30 employees. Xingbianli even entered positions that did not meet the risk control standards of other shelves.

In addition to the growing position costs, the expanding scale has placed even higher requirements on the operation of unattended shelves and the efficiency of the supply chain. Since each enterprise has a different focus on commodities, managing the complex supply chain management is a tough problem.

Unmanned markets spread among companies are like black box data. Stocking and replenishment depend on manual operation. With the increasing number of unattended shelves and expanding coverage, the pressure to replenish goods is growing. How to put the right goods at the right place at the right time is the biggest obstacle to large-scale unmanned markets.

As for delivery, some companies decided to use a central warehouse and truck. However, the efficiency is too low. Other companies built their own warehouses, but warehouses require construction time and their costs are difficult to recover.

In order to make up for poor delivery capacity, many unattended shelves have attempted to crowdsource their logistics. This has other disadvantages. Personnel flows make capacity management more difficult, and there is a higher rate of lost or stolen goods. In fact, a large number of goods are lost during restocking. It is an open secret in the industry that employees are stealing.

lThe entry of mature logistics supply chain players is a turning point in unattended markets.

Originally, many unattended markets believed they would manage the point of sale and outsource their inventory. It would be a win-win cooperation. But as companies providing logistics and infrastructure learned to create an unattended market, they forced small players in the position of becoming self-reliant.

Mature businesses that explore the unmanned store model are supplementing an existing business. These companies have more capital, and unmanned stores are part of their long-term strategy.

Take Miss Fresh for an example. Its fresh e-commerce site targeted at consumers at home, while unmanned markets could be placed to serve office staff and corporate users.

Offline supermarkets are sluggish, and e-commerce is also facing bottlenecks. Convenience stores beat supermarket and e-commerce in terms of timeliness. But for Bianlifeng, a newcomer to the convenience store industry, it takes time to establish an offline store network. Unattended markets can help it solving the problem of insufficient stores.

Small players’ dreams are nothing compared with strategic significance, and the fierce market competition has no time for imagination. The only question is when most unmanned stores will be driven out of the market.

Guarding against theft is another necessity.

Since unmanned shelves first launched, the most serious problems have been damage, theft and users who just forgot to pay. Several unmanned markets reported a damage rate of around 2 percent to 3 percent, but the industry consensus is that the damage rate is far greater.

Loss during restocking, theft and forgotten payments are a reminder that businesses built on the honor system are difficult to execute. In order to control loss, the industry fought hard for good locations to limit the chance of a shop being vulnerable to theft.

Goods at room temperature in unmanned markets are in a similar situation. Usually these are packaged snacks priced between 10 yuan and 15 yuan. Although unmanned market operators know that goods with a higher unit price bring a higher profit, they don’t dare to try because of loss rate.

The failure to guard against burglary makes unmanned markets a low-margin business and limits where they can be viable.

Intelligent containers have merged with unmanned markets. Equipped with RFID tags, visual identification and other anti-theft guards, these containers have more placement options, such as in office buildings, subways, restaurants, movie theaters, communities and schools.

Shen Bohui, the COO of CITYBOX, told TMTPOST he found that the the unmanned markets with the highest sales were not located in offices, but in schools. So far, its machine with highest sales was located in a school and generated daily sales of 2,268 yuan.

All smart containers upload operational data to the cloud, so there is less pressure to operate them and it’s easier to track and offer various goods. Smart container companies can analyze local consumer preferences based on operational data and offer different products for different scenarios. They can supplement and adjust goods quickly. For example, some containers provide shampoo and protein powder in gyms, and other provides sandwiches and soy milk in the subway.

Unmanned market operators are aware of the importance of such anti-theft mechanisms, but their priority was market spread instead of loss prevention.

On cost, a common unmanned market is far cheaper than a smart container. Most consumers choose unmanned markets where they can pick up goods directly rather than using the container, where they need to sweep a code and wait for the door to open. Unmanned markets ran to the forefront of the industry by neglecting costs and reducing barriers.

But as the competition draws to an end, winners are faced with the problem of profitability. Anti-theft mechanisms are bound to be the future trend of unmanned markets. Some have started intelligent upgrades, such as unmanned markets operated by JD Go and Lingwa.

The fierce market competition is coming to an end. Unmanned markets still fueled by dreams alone will be driven out one by one.