Pre-packaged food and beverages are currently one of the least impacted sectors by e-commerce among various consumer goods in China. In 2014, online FMCG sales accounted for only 3.3% of total FMCG consumption, with maternal, infant, milk powder, and daily chemical skincare products alone making up nearly 59% of online sales, still lower than other consumer goods. However, the entire FMCG industry grew only 0.1% in 2014, while online sales surged 34%, indicating that the internet's impact on traditional industries persists, though perhaps not as visibly as in other sectors.

Trends in Pre-packaged Food and Beverage Retail: Pre-packaged food and beverages are characterized by a broad age range, wide geographic coverage, high consumption frequency, and high convenience, which dictate that they require strong distribution capabilities and extremely convenient consumer touchpoints. The lower the consumer's cost, the better.

After over 30 years of development, China's pre-packaged food distribution channels have evolved into a coexistence of multiple business formats. The current convenience of retail has basically met the consumption needs of Chinese consumers, but this does not mean the internet has no room for transformation. The rapid spread of the internet and rising labor costs are gradually impacting traditional retail, with main issues including:

  1. Rising labor costs in channel operations, with many channels reaching unbearable levels.
  2. B2C, C2C, and other online e-commerce significantly impacting traditional retail, reducing retail channel profits. Standard and non-standard high-margin products with longer consumption cycles are shifting channels, while low-margin products struggle to support high channel costs.
  3. New business ecosystems brought by the internet, such as same-city delivery, fresh O2O, and micro-commerce, pose significant threats to traditional retail.

The slowdown in China's FMCG market growth varies across sales channels. With declining foot traffic, hypermarket (KA) sales growth halved from 7.9% in 2013 to 3.7% in 2014. Meanwhile, smaller formats like supermarkets, small supermarkets, and convenience stores maintained relatively stable foot traffic. External and internal challenges affect traditional retail, but this does not mean it will disappear. The direction is for traditional industries to transform to the internet, but the transformation must first evolve toward improved operational efficiency and reduced operational costs. For standard packaged goods like food and beverages, the internet-based approach is not just about marketing evolution; sales methods will also improve. As discussed earlier, the future mainstream sales entities will be convenience store chains (CVS) + smart vending machines (VEM) + hypermarkets (KA).

Today, we focus on the opportunities and prospects of smart vending machines in the transformation trend of food and beverages:

First, let's discuss the advantages of vending machines: They can operate 24/7 without dedicated staff, requiring only part-time restocking/maintenance personnel, resulting in lower labor costs per unit compared to traditional retail. Additionally, they occupy small spaces, offer flexible placement, and have low overall operating costs, giving them a significant advantage in selling high-frequency standard products.

Disadvantages (also reasons why vending machines haven't been widely adopted):

  1. Due to varying development levels across Chinese cities, most commercial areas' population density and foot traffic cannot support the turnover of vending machine products.
  2. Currently, the factory price of a single non-smart vending machine in China ranges from 15,000 to 30,000 RMB, requiring substantial capital investment to achieve economies of scale.
  3. Current vending machine placements are mainly strategic investments by brand owners, with limited product categories and single functionality.
  4. Strong retailers have not strategically entered this space.
  5. They have not solved consumers' core pain points: price, ubiquity (convenience), cold chain, variety, and payment methods.

Opportunities: a/ No market leader has made strategic investments. b/ The proliferation of the internet, big data, and new payment methods have greatly improved operational efficiency and significantly reduced maintenance and management costs.

Solutions for popularizing vending machines:

  1. Companies can use internet finance to quickly spread hardware investment and use capital subsidies to rapidly increase vending machine penetration.
  2. Cross-industry mixing brings new gameplay and potential new business ecosystems.

Here, we focus on cross-industry thinking using internet mindset to popularize consumer behavior: Traditional vending machines offer limited functionality, providing only a limited range of products, lacking user engagement, with convenience being a primary value driver. If we change our approach and transform vending machines, which rely on convenience and have a certain coverage density, into interactive terminals that engage consumers, their value would go beyond mere convenience.

Let's explore some new gameplay:

  1. Consumption points and rebate model: Consumers use mobile payment at the vending machine, and after purchase, the backend provides rebates to registered users. The rebate cash is converted into consumption traffic directed to other platforms (same-city fresh e-commerce, local services, etc.).

For example: Spend and get rebates: As long as consumers spend on the terminal, based on product profit and the strategic importance of the location, a certain rebate rate is applied. The accumulated amount from single purchases earns corresponding rebates, stored as electronic coupons or vouchers, which can be used for discounts on designated online malls or offline designated service merchants. After users redeem, we subsidize the merchants with a portion of the cash based on the user's book balance.

  1. Free WiFi service: Shopping provides free WiFi (applicable at bus stops, stations, hospitals, etc.), driving traffic through WiFi.

  2. Free model: Cross-industry cooperation: Companies provide additional consumption subsidies to direct traffic (app downloads, ad clicks, etc.).

  3. Targeted product sales under big data.

Backend analysis: The main profit models for VEM are:

  1. Profits from economies of scale;
  2. Profits from cross-platform local traffic directed to online platforms;
  3. Profits from corporate cooperation (advertising/listing/payment terms/commissions);
  4. Cost subsidies from cross-industry cooperation.

The above profit sources require all products to be high-margin branded products. To address inventory pressure, products should be on consignment or obtained at discounted factory prices. All shelf positions should be sold through display and sale. At the terminal management level, leveraging networking and big data analysis reduces personnel deployment and maintenance, lowering labor costs.

Smart vending machines, through the internet, create a new value chain model that will inevitably force channel reform. In the future, most terminal retailers will soon be disrupted by VEM's high efficiency, low cost, and diversified cross-industry marketing and operation models. Similarly, this also brings possibilities for new business model changes for FMCG distributors.

Additionally, cross-industry changes in consumer behavior will also provide new solutions for related same-city O2O.