Click to read the original article for details. In 1993, second-hand vending machines imported from Japan, the United States, and South Korea appeared in Guangzhou, Shanghai, and other places. These machines, which dispensed items when coins were inserted, sparked local residents' interest in vending machines. 26 years later, China's retail landscape has undergone tremendous changes, and vending machines now appear in shopping malls, subway stations, schools, and scenic spots in major cities. Moreover, FMCG giants such as Nongfu Spring, Wahaha, Uni-President, and Master Kong have all set their sights on China's vending machine market and are vigorously developing vending machine businesses. But "setting their sights" on the vending machine market doesn't necessarily mean they can do well! After 26 years, vending machines still account for the smallest share of the entire retail industry in China. With the burst of the unmanned retail bubble in 2017-2018, vending machines have become the last stronghold, barely surviving. According to incomplete statistics, in Japan, there is one vending machine for every 20 people. But why is it that in China, there isn't even one vending machine for every 2,000 people? Previously, a research company expressed the view that "when per capita GDP reaches $10,000, vending machines will experience explosive growth." But now, instead of an explosion, we see a mess! Is China's "soil" unsuitable for vending machines? Or are there other hidden reasons? Regional Differences: Different Population Distribution Japan's land area is 377,972.28 square kilometers, slightly smaller than Yunnan Province, with a population of about 100 million, mainly concentrated in the Kanto and Kansai regions, resulting in high population density. In contrast, China's population is 14 times that of Japan, but it has a land area of 9.6 million square kilometers. Due to geographical conditions, China has many cities with varying economic levels, with major cities mainly concentrated in the Pearl River Delta, Yangtze River Delta, Beijing-Tianjin-Hebei region, and the Bohai Rim. 2019 National Population Ranking by Province It can be seen that vending machines are currently mainly concentrated in coastal areas. The Yangtze River Delta and Pearl River Delta are the regions with the widest penetration and most mature market development, with about 60% of equipment installed in these areas. Main Distribution Areas of Vending Machines in China Social Stratification Differences: Different Levels in a Folded Society Due to the relatively concentrated cities and balanced economic development in Japan, by the 1970s, Japan had achieved a 90% middle-class level. It can be said that Japan is an "unfolded" society. In China, however, due to factors such as regional differences, resources, natural environment, and historical evolution, urban development levels are uneven. Based on population size and economic level, China is divided into first-, second-, third-, and fourth-tier cities, as well as county-level cities and towns, with significant differences in population density, per capita income, and age structure. 2018 GDP Ranking of China's Provinces (Top 17) According to data, the top 10 provinces by GDP in 2018 were: Guangdong (9.73 trillion), Jiangsu (9.26 trillion), Shandong (7.65 trillion), Zhejiang (5.62 trillion), Henan (4.8 trillion), Sichuan (4.07 trillion), Hubei (3.94 trillion), Hunan (3.64 trillion), Hebei (3.6 trillion), and Fujian (3.58 trillion). Most of these provinces belong to China's first- and second-tier city clusters. As a result, China has a wide variety of retail formats and diversified consumption habits. In first- and second-tier cities, consumers may prefer shopping at convenience stores, while in third- and fourth-tier cities or even towns, consumers may prefer shopping at mom-and-pop stores near their homes. In Japan, however, there are not many choices. Apart from convenience stores, consumers have to choose vending machines for daily shopping. From the perspective of region and social class, Japan's overall environment has become fertile ground for the growth of vending machines. But some may ask: "Data shows that when per capita GDP reaches $10,000, consumer demand for vending machines will explode. As of 2016, nine provinces in China had reached this level. Why hasn't China's vending machine industry entered a big explosion era?" Looking back at the background of Japan's vending machine boom: In 1970, the Osaka World Expo was held in Japan, with 64.22 million visitors. Since then, Japan's vending machine industry experienced a boom. In 1970, there were 1 million vending machines; by 1975, 3 million; and by 1990, 5 million. With a population of 100 million, there was one vending machine for every 20 people on average. If this ratio were applied to China, with a population of 1.3 billion, there should be 50 million vending machines. However, by 2018, the number of vending machines in China had not exceeded 300,000. Why has the development of vending machines been slow in China? 1. Low labor and rent costs mean vending machines have little cost advantage In Japan, the average monthly income of a salesperson is about 20,000 RMB. Since the cost of vending machines in Japan is very low, one salesperson's salary can be equivalent to the cost of multiple vending machines. In China, even in first-tier cities, a salesperson's monthly salary is only a few thousand yuan, but the purchase cost of a vending machine can be as high as tens of thousands. Clearly, labor costs in China are relatively low, so there is no need to replace human labor with machines. In terms of rent, high population density has driven up real estate prices in Japan for decades. Most Japanese urban residents live in small, expensive apartments, meaning they don't have enough space to store consumer goods. Japanese companies would rather install a vending machine on the street than open a retail store. In China, even though rents have generally risen in recent years, they are still relatively low compared to Japan. Considering labor costs and rent, vending machines do not have a significant advantage over physical retail stores. As Japan's population ages, human resources have gradually become a scarce resource, and the monthly wages of Japanese salespeople are much higher than those of Chinese salespeople. With severe population aging, Japan's retail industry has been forced to change, and unattended vending machines can provide 24-hour services to people. Although China is also entering population aging, it is not as severe as Japan. Currently, labor costs in China are still relatively low, so the store model remains the mainstay of China's retail industry. For example, convenience stores have a much higher number of SKUs than vending machines, and relatively low labor costs significantly reduce operating expenses. For chain convenience stores, scale operations can lower costs, while mom-and-pop stores, with their self-production and self-sales model, hardly need to consider labor costs. Under the pincer attack of convenience stores and mom-and-pop stores, there are not many scenarios suitable for vending machines. 2. Different consumption concepts under cultural differences Chinese people, influenced by Confucianism, are inherently good at communicating with others. This can be clearly felt in shopping. Many people judge a store by how crowded it is. In a store, consumers can feel warm service and can ask salespeople about promotions from time to time. However, vending machines cannot do this, even if they don't require queuing. Lifestyle habits and cultural differences affect the consumption habits of people in the two countries. In efficiency-oriented Japan, people prefer to spend time on things they like, and shopping should be as fast as possible. 3. Single product types, consumers don't buy it The vending machines we encounter daily mainly sell beverages, water, snacks, and adult products. In Japan, vending machines offer up to 6,000 types of products. Compared to Japan, Chinese vending machines sell fewer categories and are not competitive. Beverages of the same brand may even be more expensive than in convenience stores because of higher operating costs. Even in first-tier cities, unless consumers are in a hurry or there are no other retail stores nearby, they prefer to buy products in stores. Compared to Japanese vending machines with thousands of products, Chinese vending machines can only be considered deep coverage of retail outlets, without providing consumers with the convenience of more choices. 4. 6 million small stores and the Internet era Japan's relatively simple retail format gave vending machines room to grow. During the consumption upgrade in the 1970s, Japanese vending machines were equivalent to today's food delivery, meeting consumers' needs for quick consumption. In China, 6 million small stores across the country serve consumers within a 2-kilometer radius. No matter which city you are in, you can always see various convenience stores (small shops), restaurants, and pharmacies on the streets. In third- and fourth-tier cities, some small shops' business hours are almost as long as 24-hour convenience stores in first-tier cities. In addition, the developed mobile Internet provides Chinese consumers with infinitely extended consumption scenarios. For example, an O2O fresh food store can deliver within a 3-kilometer radius within 1 hour, which can completely replace vending machines. This brings us back to the previous point: relatively low labor costs. One might ask: Japan's convenience store industry is more mature and developed than China's, so why does Japan still have such a large vending machine market? First, as mentioned earlier, population, economy, and rent have provided fertile ground for the growth of vending machines in Japan. Second, advanced technology and manufacturing have continuously reduced the cost of vending machines. In terms of payment, Japanese vending machines mainly accept coins, thanks to Japan's rich variety of coins, which include denominations of 1, 5, 10, 50, 100, and 500 yen. Although mobile payment has entered Japan, consumers still prefer to use coins for purchases. 5. High operating costs As is well known, vending machines require a professional operating team to function well. Since most vending machine locations are currently scattered, operators need to pay high operating costs. The cost of the operating team is far higher than the wages of salespeople. At the same time, placing machines in locations also requires certain operating costs. It can be said that vending machines shift labor costs. 6. Economic foundation determines consumption patterns In 1970, Japan had already reached a 90% middle-class level. It can be said that from that time on, most consumers were not sensitive to product prices, and the emergence of vending machines provided Japanese consumers with a more convenient shopping method. This was the starting point of Japan's vending machine boom. In contrast, in China, by the end of 2000, per capita GDP was only about $800, which is at the level of a lower-middle-income country. Due to China's large population and uneven urban development, consumers at different levels still have different consumption concepts. Young white-collar workers in first- and second-tier cities are not sensitive to product prices but care about the shopping experience. Consumers in third- and fourth-tier cities, although their economic level has improved, still adhere to the concept of "good quality and low price." In these areas, people prefer to go to supermarkets or small shops near their homes. If vending machines were placed in third- and fourth-tier cities, probably few people would visit them unless the products were cheaper than those in small shops. 7. Sparse placement of vending machines Despite having a huge market, vending machines have not been widely promoted in China. An important reason is that a reasonable profit model has not been found. Many people believe that for vending machines to be profitable, they need to achieve economies of scale: the more machines placed, the more locations occupied, which can boost sales and reduce procurement costs. Dense investment in fixed areas can reduce average management costs. To a certain extent, large-scale placement can lower product prices by reducing procurement costs, thereby attracting sales. But from another perspective, the premise of large-scale placement is the placement of effective locations. Only in suitable places will consumers buy products through vending machines. In Japan, 5 million vending machines are mostly scattered on streets, and the government also provides convenience for restocking vehicles to park temporarily. However, in China, it is difficult to see vending machines on streets lined with shops. Everyone focuses on relatively closed scenarios, such as factories, schools, subway stations, and hotel lobbies. This results in fewer effective locations for vending machines in China. Whoever can seize these locations first will be the ultimate beneficiary. Due to social stratification, uneven urban development, and large differences in population distribution, vending machines are mainly distributed in first-tier cities. At the same time, the emergence and popularization of the Internet have driven the richness and diversity of China's retail formats. Vending machines will not become a main retail scenario like in Japan; they can only serve as an extension of retail scenarios. In the coming years, China's vending machine market will grow, but there are still many urgent problems to solve before it can surpass Japan in the short term. Wang Jun, expert in new retail: Unmanned retail should focus on the future This year should be the most pessimistic year for unmanned retail. In the previous two years, I often exchanged ideas with investor friends and colleagues in the chain retail industry about opportunities in unmanned retail. From the current situation, capital-driven unmanned retail has far from achieved the desired results, whether referring to vending machines in the Japanese market, QR code cabinets, or unmanned shelves that challenge human nature. But in fact, due to the popularity of QR code payments, unmanned retail devices closer to consumers are continuously iterating in more diversified forms in China. Japan's path is almost impossible to replicate; a new diversified model is the future. Everything is still being tried and explored: Interactive: Claw machines, gashapon machines, selfie machines, and lucky boxes have occupied corners of major shopping malls. Among them, online claw machines and lucky boxes have been rapidly replicated and promoted due to their high gross margins and borderline nature. On-site production: Juice machines, coffee machines, ice cream machines, noodle cookers, and fried rice machines will become more and more common. Specialty categories: Medicines, alcohol, lottery tickets, and even cigarettes have begun to be deployed nationwide as national regulations improve. Delivery self-pickup cabinets: Fresh food, express delivery, and meals. In particular, express delivery self-pickup cabinets have penetrated various residential communities. Essence: Occupy high-traffic locations and get closer to consumers. With the advent of the 5G era and the development of autonomous driving technology, the future of unmanned retail will be even more colorful! Car trunks, underground parking garages, and home refrigerators will all become shared platforms, and public vending devices will no longer be necessary. The inflection point for a big explosion lies in cost and technology iteration: Only when costs are reduced can there be core competitiveness. For example, cooling energy consumption and visual recognition. Recently, some projects have made initial breakthroughs. Occupying locations in advance still has important strategic significance: Nongfu Spring has a five-year plan and is trying to occupy garage and above-ground locations in all mid-to-high-end residential communities.