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Vending Racks Bubble Bursts in China

Mar 8, 2018 by The Passage Team
Vending Racks Bubble Bursts in China

Burning money is tested not to be a sustainable business.

Mobile technology has helped China making corner overtaking, such as being a leader in mobile payment before its credit card market matures. Recently, some start-ups believe they can fill the gap of vending machines in China with cover-less vending racks, but the rush did not go far.

Since the middle of 2015, there have been 42 companies running vending racks across China,most in first-tier cities, such as Beijing and Shanghai, according to data compiled by tech media zhidx.com.

Last December, the front-runner Miss Fresh received 144 million US dollars series B financing.About 16 of other companies got more than 2.5 billion yuan investment in total before the October of 2017. However, the glamour did not last long.

During the first two months of 2018, several start-ups suspended operations and began to dismissed employees, including those who were regarded as promising players, such as Gogo in Chengdu, capital city of southwest China’s Sichuan Province, and Xinbianli in Shanghai.

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Gogo's vending rack (source: Gogo)

Why the new boom collapse overnight?

Simply put, earnings cannot cover their costs.

These vending racks are designed to offer snacks for white-collar customers in office buildings. They meet the needs, especially when vending machines are rare to see in China despite in subway.

However, unlike vending machines you have to pay before purchase, a vending rack is literally just a rack with snacks – customers pay by scanning the QR code, voluntarily.

Some racks are equipped with cameras but the damage rate is still high. Some customers even mistakenly regard the snacks as free-benefits from their companies.

In addition to hard-to-control damage rate, the business model is too simple to copy – a rack displayed with snacks and a sticker of QR code for payment. Unlike Amazon’s checkout-free grocery store Amazon Go, which uses facial recognition technology to let customers just grab and leave, the vending racks are just a simplified version of vending machine without innovation.

Therefore, when too many players ruches to the thin-profit industry, no one can have an easy life but have to expand as fast as possible, expecting to outpace their peers to reach more consumers.

For instance, Xinbianli is one of the most ambitious players. It set up 10,000 vending racks in three months as the end of 2017 and the number tripled as of January of 2018.

Si Jianghua, co-founder of Xinbianli with 300,000 vending rack, believes that this figure offer his firm a better position in such competition. Because more intensive sales network will effectively reduce operation and logistics cost.

However, a single vending rack, if take a freezer for drinks into account, may cost around 4,000 yuan to set up, according to estimation from retailing experts.

Equally, Xinbianli’s target of a 300,000 sales outlet network will cost 1.2 billion yuan before generating any profits. However, its total funding is 500 million yuan.

Hence, it is not a surprise that Xinbianli is reported to close all operation in all cities other than first tier cities and lay off employees in inner land cities such as Chengdu.

Even worse, China’s e-commerce giants are joining the game.

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JD's is joining the game. It's his vending rack brand Go.

From the second half of 2017, JD and Alibaba-backed food delivery company Ele.me both announced to set up their vending racks in office buildings and residential communities.

Compared with start-ups, these mammoths have mature logistics network and supply chain. And they have a most important advantage – more cash to burn.

Yang is a Beijing-based business news freelancer with experience in print/digital media, and PR industry.Believing that Internet makes the world more equal, she keeps a close eye on China’s Internet landscape and related policies. She holds a master’s degree of Intercultural Communication from University of Warwick (UK)

The Passage Team

The Passage is committed to creating in-depth content over technology industry across Asia with a focus on emerging startups in the technology, healthcare, education, food, tech, travel & mobility segments.

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