Recently, Youbo Online, a NEEQ-listed company, announced that it signed an investment intention agreement with Shanghai Yunxin (a wholly-owned subsidiary of Ant Financial under Alibaba) on November 19, 2018. According to the agreement, Shanghai Yunxin intends to invest a total of 1.2 billion RMB in the company through a capital increase, with the investment price set at 9.5 RMB per share. Undoubtedly, this is a significant event for the smart vending machine and unmanned retail industry.
01 Vending Machines – Pioneers of Unmanned Retail Seven years ago, Youbo, the protagonist of today's article, was still tucked away in a 30-square-meter office in Gaolan Building on Liangmaqiao Road, Beijing. Despite numerous obstacles in equipment customization, these cross-industry internet entrepreneurs had already embarked on a long journey with the vision of "connecting vending machines to the internet and developing value-added internet services."
In addition to vending machine operators like Youbo, traditional FMCG brands such as Nongfu and Wahaha have also begun to vigorously develop their own vending machines, proving that this field never rose merely because of a trend. In earlier years, we often saw Coca-Cola advertisements on TV, many of which featured vending machines. Indeed, the vending machine business has always existed alongside the circulation of goods and has been continuously growing. According to Kantar Retail's forecast, when per capita GDP reaches $10,000, consumer demand for vending machines will experience an explosion.
02 Speed, Profit, and Breakthrough Relying on its solid technology and operations, Youbo continuously expanded its market and attracted capital attention. Five years later, Youbo went public on the NEEQ. According to incomplete statistics, by 2017, Youbo operated 80,000 vending machines, accounting for more than a quarter of the total vending machines in China, making it the absolute market leader. From publicly available data, Youbo turned profitable in 2015, but as of the end of last year, cumulative data shows that Youbo has not yet fully recovered from its losses.
If nearly 1 billion RMB has been invested in the market and costs have not yet been fully recovered because it takes time, then in the long run, does this company, crowned as a representative of traditional vending machines, need something beyond capital? The answer is definitely yes!
Let's analyze several important investments:
In July 2015, Youbo received 530 million RMB from Carlyle Group, but the price paid was not just equity; it also included a betting agreement. The agreement stipulated that Youbo Online's profit before interest and taxes for 2015 must be no less than 100 million RMB, and no less than 200 million RMB in 2016. Although Carlyle is a well-known international investment institution, from the current perspective, the most valuable thing Youbo can obtain from this major shareholder is only money.
In 2017, Youbo once planned to merge with the hypermarket brand New Huadu, but the deal was canceled due to price disagreements. Presumably, Youbo's shareholders deeply understand that if they cannot play a key role in the company's development, they must at least sell at a good price. Therefore, when choosing future important partners, it is wise for Youbo to select a new retail leader that emphasizes data and technology.
03 You See a Vending Machine, Youbo Sees the Internet of Things Youbo has also been seeking self-breakthroughs in its long-term strategic development. In 2017, Youbo adjusted its business model and scope: on one hand, it launched a franchise and joint venture model; on the other hand, it enriched and developed entertainment consumption brands such as Youchang.
The franchise and joint venture model can significantly reduce cost pressure: the cost of a single vending machine is around 30,000 RMB. If the machine is sold, there is also recovery profit, and rental costs are avoided. Additionally, the franchise model can rapidly expand scale, generating more revenue, such as advertising revenue on the machine's screen and other income from acquiring C-end customers.
Acquiring Youchang, in Youbo's view, not only matches its own "unmanned self-service" gene but also helps enrich Youbo's product line in terms of content. Similarly, acquiring self-service wine vending machine Youjiu, self-service fitness equipment Urun, and self-service second-hand phone recycling equipment Youji follows the same logic. In the future, Youbo will not only be a large retail channel for beverages and food but also a main battlefield for O2O and interactive marketing. Youbo's broad prospects in the Internet of Things are its core value.
Youbo, born with internet genes, ultimately heads toward the internet. Choosing Alibaba, an internet giant, is not about docking but about leveraging momentum to take off.
04 Alibaba's Entry into Vending Machines is Also Part of Its New Retail Layout What has Alibaba done in new retail?
Currently, Alibaba has extensive layouts in offline retail, covering complex areas, which can be broadly divided into eight categories: brand digital upgrade main positions, home appliances and digital products, apparel and department stores, home furnishing and decoration, local life services, dual channels for urban and rural areas, FMCG supermarkets, and community store upgrades. Among these, the FMCG supermarket and community store formats are important parts of the FMCG distribution channel. Compared to investments in FMCG supermarkets and hypermarkets, investments in community stores are much smaller.
According to public data from recent years: in the channel share of China's FMCG market shipments, community stores in traditional channels still hold about 50% of the market share, followed by hypermarkets, special channels, and C-end e-commerce. Therefore, Alibaba has increased its investment in community stores.
Looking at the changes in community stores over the past two years:
- They have been transformed by many FMCG B2B platforms;
- They have been replaced by more modern chain convenience stores, specialty stores, and direct-operated stores;
- They have been eroded by scattered formats such as unmanned vending cabinets and unmanned supermarkets.
On the first point, Alibaba's FMCG B2B platform, mainly Retail Link, has been transforming community stores and has already taken the lead nationwide in scale. In terms of investment in community stores, Alibaba may continue to increase investment in points 2 and 3, as evidenced by the recent 2 billion RMB investment in 1919 Liquor Direct Supply. However, in the unmanned retail field, Alibaba has either made tentative or small-scale investments, such as the cooperation with Midea's small vending cabinet, which is more technical. Its self-operated unmanned supermarkets have not been rapidly expanded. Overall, Alibaba's investment in Youbo, as the company with the largest existing vending machine stock, will be a good supplement.
Alibaba's new retail strategic layout has three criteria: whether it can promote the development and innovation of the industry and market, whether it can stimulate the close integration of new technology and business, and whether it can enhance the user's consumption experience. Undoubtedly, unmanned vending cabinets will accelerate the development and innovation of China's community store market.
Wang Jun, a special new retail expert of New Distribution, commented:
Alibaba's logic for heavily investing in Youbo is clear:
First, choosing a vertical leading enterprise, hence the first NEEQ-listed unmanned retail company Youbo announced the investment.
Second, meeting the retail scenario layout:
We see that whether it's scale, scenario, or size, the layout is sequential, simple, and clear:
Hypermarkets (RT-Mart, Sanjiang Shopping) Fresh supermarkets (Hema) Chain convenience stores (C-store?) Franchise small stores (Tmall Small Stores) Unmanned retail (Youbo)
This is about getting closer and closer to consumers offline, with finer and finer granularity. Combined with Alibaba's powerful online matrix and underlying data and payment services, it builds a massive retail channel integrating online and offline, from retail to local services, creating the so-called new retail ecosystem. At this point, it is centralized; in the future, it will be platform-based.
Alibaba's layout in unmanned retail is certainly 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 those focused on operations. Similarly, Tencent has also incubated and invested in a considerable number of projects in this field. Those with impressive data have not yet emerged. This is about the layout of the track and the competition for underlying new retail technology.
Similarly, Youbo has gone through the 1.0 era of direct-operated losses selling goods, 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 platform layout (Youchang, Youcheng, Youcai, Youka). It has always lacked major leaps in scale and volume. Moreover, during the 2017 unmanned retail investment wave (unmanned convenience stores, unmanned shelves, smart vending cabinets), it stayed outside the trend but quietly delivered stable and increasingly better financial reports.
This time, Alibaba successfully acquired Youbo to lay out unmanned retail, which will not only bring strong endorsement and digital empowerment to Youbo but also provide sufficient ammunition to help Youbo 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?
Youbo's competitors are smaller in size. Perhaps the opportunity for rapid advancement is coming!
Also worth noting is the profit model of vending machines. From Youbo's financial reports, it can be seen that its core profit items are paid display and advertising.
Alibaba has just invested in Focus Media, the largest offline advertising platform, which owns 320,000 screens mainly in buildings and elevators. With strong advertiser resources and distribution networks, this is undoubtedly a mutually beneficial strategic resource for Youbo, which has nearly 100,000 screens. It means more advertisers and richer distribution channels. This will also provide mutual support for Focus Media, which has begun to try screen-user interaction and new value-added service revenue: one is watching ads while interacting, and the other is interacting while watching ads.
Baidu, which relies on advertising as its core revenue, recently led a 2.1 billion RMB investment in Xinchao Media, which owns 600,000 elevator screens offline.
In summary, in the form of unmanned retail, whether it's traditional vending machines or the popular unmanned convenience stores and smart vending cabinets, the essence is retail points. Their core competitiveness lies in core technology, operations, franchise and point expansion, product selection and supply chain, all of which are indispensable.
What do you think about Alibaba's investment in Youbo?
Feel free to leave a comment at the end of the article to share your thoughts!
You can also scan the QR code below to join the WeChat group for discussion and exchange. We look forward to sparking new ideas with you.
Star: New Distribution
You won't miss any messages!
-END-