After the unmanned retail trend faded, Ubox accepted Alibaba's olive branch. With a massive 1.2 billion yuan investment, Alibaba injected a strong boost into Ubox.
Core Guide:
- As the leading smart vending cabinet company, why did Ubox partner with Alibaba?
- What is the current development status of the unmanned retail industry?
- Alibaba and Tencent are both laying out smart commerce; who will gain the upper hand in the underlying 'water, electricity, and coal' competition?
Recently, Alibaba, through its Ant Financial subsidiary Shanghai Yunxin, invested in Ubox, a leading smart vending cabinet company, causing a stir in the retail circle. In the signed "Letter of Intent for Investment," Shanghai Yunxin planned to invest a total of 1.2 billion yuan in Ubox Online through a capital increase, with an intended investment price of 9.5 yuan per share. This move is widely seen as another significant layout by Alibaba in the unmanned retail sector.
Notably, as early as July last year, Alibaba opened its first unmanned retail store, Tao Coffee. This heavy investment in Ubox undoubtedly further perfected its layout in fragmented offline consumption scenarios. But for Ubox, the leading smart vending cabinet company, beyond capital support, what deeper value and significance does partnering with Alibaba bring?
1. The Predicament of the Little Giant Ubox
Undoubtedly, vending machines have enormous development potential in China. Their flexible placement, no need for 24-hour manual staffing, and ability to meet immediate and convenience needs are gradually being accepted and recognized by more brand owners and retail enterprises. In Japan, the most developed vending machine market, there is approximately one vending machine for every 26 people, with a total of 4.94 million vending machines nationwide. In terms of product types, besides regular beverages and food, cigarettes, books, fruits, and fresh food are common in Japanese vending machines.
In contrast, China's vending machine industry is still in its infancy. Relevant data shows that China currently has only over 1 million vending machines, despite a huge population and growing consumer demand. This undoubtedly attracts countless entrepreneurs to this track, and among them, Ubox is undoubtedly the earliest entrant and currently the best-developed one.
In 2010, Wang Bin, former Senior Vice President of Sina, together with Shen Guojun, Chairman of Intime Investment Co., Ltd., and Ji Qi (founder of Ctrip, Home Inns, and Hanting), jointly founded Ubox. However, their impressive resumes did not bring smooth sailing in the market; instead, the harsh reality made the three founders feel the huge gap between ideals and reality.
(Ubox's revenue over the past five years, data from public online sources)
1. Self-operated Phase
Before 2015, Ubox adopted a fully self-operated strategy, with its main revenue coming from product price differences. In the early stages, Ubox gained good consumer reputation through full-process control. However, as costs for prime locations such as subway stations and core commercial districts rose, the drawbacks of the direct-operated model gradually emerged: limited development speed, leading to weak bargaining power with both equipment manufacturers and product suppliers. As a result, during this period, although Ubox's revenue grew exponentially, it remained in a loss-making state.
(Data source: iAnalysis)
2. Open Franchise Phase
In 2015, Ubox officially opened its franchise platform and adopted a platform strategy. Thanks to open franchising, Ubox significantly increased its nationwide placement count, and correspondingly improved its bargaining power in equipment procurement and product procurement on the supply chain side.
During this process, although product sales price differences remained Ubox's main revenue source, revenue from vending machine sales/leasing, product display fees, and screen advertising gradually increased in proportion. It was also because of the open franchise strategy that Ubox began to turn a profit in 2015.
3. Ubox's Platform Strategy
In October 2016, Ubox officially launched its self-service entertainment bar, Ubox Sing, which is widely regarded as the beginning of Ubox's platform strategy. Subsequently, Ubox launched other unmanned projects based on its business system, such as Youcheng, Youji, Youka, Youcai, and Youjiu, further enriching and optimizing its business composition and profit structure.
(Ubox's open strategy layout)
4. Impact of the New Retail Era on Ubox
While Ubox was experimenting with platformization and exploring new profit sources, it unexpectedly faced the impact of new retail.
In 2017, unmanned shelf trends surged, and many entrepreneurs flocked to the unmanned retail sector, naturally including smart vending equipment manufacturers. Capital support undoubtedly pushed Ubox into a more competitive environment. Compared with emerging unmanned cabinet manufacturers, which offer higher equipment flexibility, lower costs, and better interactive experiences, Ubox's equipment clearly lacked competitive advantage. Moreover, the large number of devices in operation in the market made it costly for Ubox to retrofit, significantly shortening depreciation time and further compressing profit cycles, which to some extent became a major obstacle on Ubox's transformation path.
It is worth mentioning that Li Minghao, a co-founder, left his post as Ubox President after Ubox was listed on the New Third Board and started his own business, founding 69 Space, a project selling adult products through unmanned stores. Unlike Ubox, which had been established for years without clear profitability, 69 Space achieved profitability in 80% of its directly-operated stores after one year of operation. This may to some extent prove the limitations of Ubox's business model.
2. Current Development Status of the Unmanned Retail Industry
1. Main Players in the Unmanned Retail Industry
A tiger cannot defeat a pack of wolves. In the unmanned retail sector, it is not another Ubox that has taken away Ubox's market share, but a large number of small players scattered across the national market. As a barometer of the unmanned retail industry, the 2018 China Unmanned Retail Exhibition attracted over 400 exhibitors, including industry leaders such as DeepBlue Technology, Bingobox, and Jumi Intelligence, showing the large number of industry participants.
2. Technology-Driven: The Price Killer Appears!
In addition, technological development has given many startups the opportunity to overtake on curves. RFID, gravity cloud recognition, artificial intelligence, and cloud services, while optimizing consumer experience, have also pierced the price defense line of traditional vending machines represented by Ubox. The price of vending machines has been greatly reduced; equipment that originally cost tens of thousands of yuan now costs less than 10,000 yuan, and some equipment prices have even dropped below 7,000 yuan. This has to some extent promoted the popularization of unmanned retail equipment, making it an increasingly important supplement to traditional retail formats.
3. Core Competitiveness of Unmanned Retail Enterprises
Looking back, let's examine the core competitiveness of unmanned retail enterprises. In the entire industry chain, different entry points lead to different corporate genes and development paths. But returning to the essence of retail, comprehensive factors such as technology, operations, network expansion, supply chain, and revenue still constitute the core competitiveness of unmanned retail enterprises, and each link is indispensable.
4. Core Profit Points: Advertising and Value-Added Revenue
In terms of profitability, the main revenue source for unmanned retail enterprises currently comes from product price differences. By extensively deploying points, they can effectively enhance bargaining power with upstream suppliers and reduce procurement costs. Additionally, as more enterprises implement franchise policies, franchise fees and service fees may account for an increasing proportion of revenue for unmanned retail enterprises. In this process, the accumulated data also provides greater imagination space for the revenue models of unmanned retail enterprises.
In the long run, when unmanned retail enterprises occupy a large number of points and have sufficient market coverage density, advertising revenue will become one of their main income sources. Therefore, the biggest competitors of vending machines with massive screens become Focus Media, invested by Alibaba, and Xinchao Media, invested by Baidu.
3. Alibaba's New Retail Layout and Tencent's Underlying 'Water, Electricity, and Coal' Competition
Returning to the other protagonist of this event, why did Alibaba invest heavily in Ubox? The intention is obvious: the ceiling of online traffic has made this internet giant see the value of offline traffic. Since the concept of new retail was proposed, Alibaba has never stopped laying out offline retail scenarios.
From large formats like RT-Mart, Intime, and Sanjiang Shopping, to small retail formats like convenience stores (Lingshoutong) and C-Store, to Ele.me, Alibaba has been striving to build a complete ecosystem. By connecting online and offline retail scenarios, it aims to achieve a comprehensive layout from surface to point within its ecosystem, thereby connecting and gradually improving its membership, payment, data, and consumer profiling systems.
When this layout is fully completed, it is now the turn of the smaller format of vending machines. If hypermarkets, supermarkets, and convenience stores are isolated points, then vending machines with relatively low point costs undoubtedly become the lines connecting these points, provided that the placement is dense enough. As the first stock in the unmanned retail industry, Ubox is undoubtedly Alibaba's most ideal target. It is known that Ubox's machine count nationwide is more than twice the total of the second and third market share holders combined. According to informed sources, Alibaba is also incubating numerous unmanned retail projects internally, which indicates that its investment in the unmanned retail sector will be a tough battle.
When two strong players compete, if one adds chips, the other will not sit idly by. In this arms race for offline retail resources, Tencent has bet on no fewer companies than Alibaba, such as JD.com, Yonghui Superstores, Bubugao, and Hongqi Chain. In terms of investment amount and number of companies, Tencent has even surpassed Alibaba. However, in the unmanned retail sector, Tencent has not yet disclosed any major investment.
But this does not mean Tencent is not paying attention to this track. On the contrary, as an important supplement to traditional consumption scenarios, new formats like unmanned retail will inevitably flourish in China. Tencent, which provides underlying payment, data, membership, and other 'water, electricity, and coal' infrastructure services to traditional retail enterprises, will certainly not miss this market in the future. In this case, emerging smart retail companies like Bingobox and Jumi Intelligence will undoubtedly usher in a new round of development dividend. In this regard, Wang Jun, an expert in the new retail industry, believes:
Alibaba's logic for heavily investing in Ubox is clear:
- Choosing a vertical leading enterprise, Ubox as the first stock in the unmanned retail sector is undoubtedly an excellent target;
- Satisfying retail scenario layout, building ubiquitous offline consumption scenarios for consumers;
We see that whether it is scale, scenario, or size, the sequential layout is simple and clear:
Hypermarkets (RT-Mart, Sanjiang Shopping) Fresh supermarkets (Hema) Chain convenience stores (C-Store) Franchised small stores (Tmall Xiaodian) Unmanned retail (Ubox)
Offline, Alibaba is getting closer to consumers, and the granularity of its layout is becoming finer. Combined with its powerful online matrix and underlying data and payment services, Alibaba is striving to build a massive integrated online-offline retail channel, from retail to local services, creating the so-called new retail ecosystem. At this point, it is centralized; in the future, it will inevitably be platform-based.
Alibaba's layout in unmanned retail is not limited to this. Alibaba has internally incubated and invested in nearly a dozen unmanned retail projects, including those focused on underlying visual technology and operations. Similarly, Tencent has also incubated and invested in a considerable number of projects in this field, but impressive data has not yet emerged. This is about track layout and competition in underlying new retail technologies.
Similarly, Ubox has gone through the 1.0 era of direct-operated losses selling products, the 2.0 era of franchise expansion, the 3.0 era of positive returns from advertising and display, and the 4.0 era of pan-retail platformization (Ubox Sing, Youcheng, Youcai, Youka), but it has never made a major leap in scale and size. In the 2017 unmanned retail investment wave (unmanned convenience stores, unmanned shelves, smart cabinets), Ubox remained outside the trend but quietly delivered stable and increasingly better financial reports.
This time, Alibaba successfully acquired Ubox and laid out unmanned retail, which will not only bring strong endorsement and digital empowerment to Ubox but also provide sufficient ammunition to help Ubox move toward the dream in its previous business plan (the number of vending machines in the Japanese market had already exceeded 5 million by 2016).
What does Tencent think about this?
Ubox's competitors are smaller in size. For Tencent, perhaps the opportunity for rapid advancement has already arrived.
Also worth noting is the profit model of vending machines. From Ubox's financial reports, we can see that its core profit items are paid display and advertising.
Alibaba has just invested in Focus Media, the largest offline advertising platform, which has 320,000 screens mainly in buildings and elevators. With strong advertiser resources and distribution networks, this is undoubtedly a mutually beneficial strategic resource for Ubox, which has nearly 100,000 screens: more advertisers and richer distribution channels for various scenarios. This will also provide mutual support for Focus Media, which is beginning to experiment with screen-user interaction and new value-added service revenue: one is watching ads while interacting, the other is interacting while watching ads. It is worth mentioning that Baidu, which also relies on advertising as its core revenue, recently led a 2.1 billion yuan investment in Xinchao Media, which has 600,000 elevator screens offline.
In summary, in the unmanned retail format, whether it is traditional vending machines or popular unmanned convenience stores and smart cabinets, the essence is retail points. Their core competitiveness still lies in core technology, operations, franchising and point expansion, product selection and supply chain, all of which are indispensable. The competition between Alibaba and Tencent is essentially a battle for offline consumption scenarios.
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