At 11 a.m., on the first floor of the 37 Games Building on Baihe Road, Tianhe District, Guangzhou, employees wearing uniforms from eight catering companies, including "Zhen Gongfu," "Ducheng Fast Food," and "Guang'an Noodles," are skillfully placing boxed lunches into transparent compartments arranged neatly like mailboxes. Meanwhile, two staff members on site are checking the status of each compartment on a computer and verifying quantities with the delivery personnel. An hour later, a crowd surges in. They use an app on their phones to open a designated compartment and retrieve the lunch they ordered earlier that day or the day before. This six-story office building has over 1,000 employees, and about 80% of them solve their lunch problem here. During this period, you have to be careful not to get bumped into because there are so many people. ▲ The "canteen" on the first floor of the 37 Games Building This is not an employee cafeteria. The thousands of neatly arranged compartments are actually 20 vending machines, more precisely called "Ubox Convenience Stores," operated by Shenzhen Ubox. If you happen to visit Beijing's Yintai e-commerce office or the Civil Aviation Information Center at noon, you'll see the same method of buying "Hehegu" fast food from vending machines. This scene looks very different from Japan, the most developed vending machine market. We recently reported on the power of Japanese vending machines, and a reader commented: "In Shizuoka, at one intersection (within a 50-meter radius), there were 15 vending machines. I felt surrounded by robots." As of last year, Japan had 5.03 million vending machines, meaning one for every 25 Japanese people. Vending machines are ubiquitous in Japan, and despite the abundance of convenience stores, they still have their own space. But in China, most vending machines are in places you don't see. Over 50% are in factories, about 28% in schools, and the rest on streets, in subways, and office buildings... Vending machine operators like Ubox also include Shanghai Miyuan, Guangzhou Yichu, and Beijing Youlihui. Since the first vending machine appeared in China in 2000, after 15 years of development, there are still fewer than 100,000 units. Ubox, founded in 2010, accounts for about half of them, with 38,000 units according to its data. The "Ubox Convenience Store," composed of multiple vending machines, is a new format launched by Ubox in 2013, targeting corporate clients like 37 Games: mostly tech companies or customer service centers, which share characteristics of frequent overtime, relative isolation, and few nearby dining options. In short, this is quite different from the "flourishing" Japanese vending machine scene we imagine. "Using a 30-year-old Japanese office worker as a benchmark, the cost of one vending machine is equivalent to his monthly income. A vending machine costs 300,000 yen. If you hire a person, that's equivalent to buying 12 vending machines a year," Huang Ronghui, Ubox's operations director, told QDaily. This calculation is a bit crude, but vending machines are undoubtedly a better choice compared to Japan's high rent and labor costs. Huang Ronghui explained this as one reason for the popularity of vending machines in Japan. Additionally, Japanese law stipulates that 60 square centimeters under the eaves is private property, so you'll see many thinner vending machines "attached" to the outside of many Japanese houses. Besides drinks, Japanese vending machines sell everything from rice balls and hot udon to underwear, totaling over 6,000 products. But the rise of mobile payments and the strong O2O atmosphere have made Ubox feel it's a great opportunity for big development. However, it's not about providing a new shopping place on the street; rather, they hope to continue occupying factories and schools in third- and fourth-tier cities. In their updated vision and plans, there are also: placing a vending machine in a hospital infusion hall to sell self-paid medical devices, and placing a machine in entertainment venues for self-service scanning and ordering. In other words, it may still not make you feel they're everywhere. In July 2015, Ubox received 530 million RMB in financing from the Carlyle Group, the largest investment in China's vending machine industry to date. "For us, this means vending machines in China are beginning to gain recognition from global capital markets," Ubox CEO Wang Bin told QDaily. This is seen as a signal of a turning point for the industry. In 2014, Ubox's revenue approached 1 billion RMB, though it still lost over 30 million, mainly due to management and R&D expenses, and that figure is decreasing year by year. This narrowing loss curve is also why Carlyle was willing to invest. They also believe this is a good business for the future. Vending machines actually combine trendy concepts and new forms: convenience; eliminating labor costs; unlimited product possibilities—these all seem like reasons for them to take off. But in the Chinese market, there never seems to be a tipping point to make them truly popular. Why is that? And the biggest player in the Chinese market seems to be steering it in another direction. What's causing this?

Is a new opportunity coming for vending machines in China?

"When per capita GDP reaches $10,000, demand will explode. Currently, 7 of China's 35 provinces and municipalities have reached this level. Ubox, which holds the largest market share, has multiple smart vending machine patents, focuses on the O2O model, has profit potential in interactive advertising, and a franchise model that can be quickly replicated. Ubox has created a unique retail + internet advertising model," Gui Zhaoyu, managing director of Carlyle's Asia buyout team, once told the media. This is an important reason for their investment in Ubox. During last year's Taobao "Double 12" event, all vending machines with Alipay functionality in subway stations, hospitals, campuses, and office buildings participated in the "buy a drink for one cent" activity, including 18 vending machine brands such as Ubox, Miyuan, and Yichu. "The vending machine (market) is definitely going to take off; a new technology has arrived," said Wang Bin, Ubox's CEO. In his view, this new technology points more to mobile payments (as detailed later, you'll understand its disruptive significance to the entire industry). Take Ubox as an example: their mobile payment partners include WeChat, Alipay, Baidu Wallet, and even telecom operators like China Mobile and China Telecom participate through points redemption. When these big companies are striving to allocate resources to O2O business, the originally closed offline purchase channels are rapidly transforming. The strong mobile internet atmosphere has broadened everyone's imagination, and traditional industries like vending machines have found new directions. In addition to front-end purchasing changes like mobile payments, Ubox has developed a smart interconnected system built into the vending machines to improve operational efficiency. It can monitor the quantity and variety of products in the machine in real time, allowing restocking staff to check backend data directly instead of relying on experience as before. Consumers can also view or purchase products through a companion app on their phones, which provides more interaction opportunities with the machine. Ubox can use incentives like rebates to gather more consumer demand data and provide more feedback to beverage suppliers. Networked vending machines with touchscreens are not just for show; they also allow a machine to better function as a "medium," introducing interactive advertising and promotions. According to Mintel data, 500 new beverage products were launched last year, and these new products often rely on offline retail channels for trial distribution to test consumer reactions—compared to convenience stores, vending machines are a lower-cost channel.

Why is the Chinese vending machine market different from what we imagined?

"Global Entrepreneur" once reported on Huang Heng, a 24-year-old from Hubei. In early 2011, he left his job in Guangzhou and started a vending machine business. He bought six vending machines and placed them in a factory workshop of Great Wall Motors in Baoding, Hebei—remote and hot, but enough to support this small business. A vending machine is like an unattended shop; the most important thing is location, known in the industry as "point position." Factories and schools are places with dense populations but low commercialization, relatively closed consumption venues, which is why most vending machines in China are placed there. One possibly negative result is that the industry relies too heavily on data from these "point positions" for successful experiences. Li Shu, Ubox's marketing director, said they once tried doing business targeting office workers, "but lost heavily." The reason behind this might be applying factory-style operational thinking directly to office buildings, where the demographics are different. Huang Heng might have used connections to get his business into that factory, but once the business grows, finding new point positions becomes extremely difficult. Rent discounts disappear, and pressure from logistics and machine purchase costs follows. According to industry insiders, a machine takes at least three years to become profitable in China, and even the most experienced delivery personnel make unnecessary trips during peak seasons. "This industry is strange. Making a few dozen or a hundred machines is very profitable, but once you exceed 500, you stop making money," Wang Bin said. Nankai Gode, the first pioneer in China's vending machine market, died from scale. Fifteen years ago, they deployed nearly 30,000 machines across dozens of cities in three years, raising nearly 1 billion RMB. But the company gradually became burdened by huge financial obligations, employee management costs, and low execution efficiency. In the later period, they even calculated depreciation over eight years to create the illusion of slim profits to deceive investors. "The Chinese market is very deep. There are first-, second-, third-, fourth-, fifth-, and sixth-tier cities, with too many areas to develop. Unlike Japan, which has just two: one is the Kyoto capital region, called the Keihin commercial belt, and the other is Kansai, the Hanshin commercial belt. Seventy to eighty percent of Japan's population is there, so once you develop those two areas, you're basically done," Huang Ronghui explained. Such a vast market makes unified management of vending machines more difficult. Another important reason a machine struggles to recoup costs is the failure rate. In university dormitory areas, subway stations, and street corners, you can still occasionally see people kicking a machine, with painful expressions. Chinese consumers are mostly used to vending machines swallowing coins. Because most vending machine operators are too small, imported machine manufacturers like Fuji Ice Mountain (a joint venture of Japan's Fuji Electric in China) are unwilling to cooperate with them, leading to domestic machines dominating the early market. "In 2004 and 2005, we bought domestic equipment. Basically, we did nothing else all day but deal with malfunctions. If a drink got stuck, several customers behind couldn't buy, and that's how losses occurred," Huang Ronghui said.

Why do Chinese vending machine companies feel "powerless" compared to Japan?

In Japan, the best-selling size for a beverage vending machine is 500ml bottled drinks, typically selling for 150-180 yen. From 1970 to 1980, Japan's vending machine industry experienced a golden decade, with numbers jumping from 1 million to 4 million units. This was driven by many factors—rising per capita income (the working time needed to buy a can of drink dropped to a few minutes), government support for self-employed individuals (small businesses were almost tax-free in the first few years), and the involvement of beverage manufacturers. Currently, of Japan's 2.56 million beverage vending machines, over 70% are owned by beverage manufacturers like Coca-Cola. For them, eliminating middlemen in the channel yields more profit. "Coca-Cola treats vending machines as an essential part of global channel management, largely because of the success in Japan, which led the U.S. headquarters to re-understand and redefine this channel," Huang Ronghui said. That's why you see Coca-Cola doing a lot of vending machine-related marketing globally. The development of vending machines has allowed Coca-Cola to have over 100 beverage products in Japan, while the U.S. market has far fewer. In April 2014, Japan's consumption tax rose from 5% to 8%, and Coca-Cola immediately announced a 10-yen price increase for some drinks sold through vending machines. To cope with the surge in demand for 10-yen coins, Japan's Ministry of Finance increased coin minting by 36% in 2014. Meanwhile, major soft drink manufacturer Suntory also announced "increased 10-yen coin inventory for vending machines starting in April." A policy change with significant industry impact was quickly resolved. Li Shu, Ubox's marketing manager, also lamented: "If China issued a 5-yuan coin, it would be a huge help to the industry." Japan has six coin denominations: 500, 100, 50, 10, 5, and 1 yen. But in China, if you insert a 20-yuan note into a vending machine to buy a 3-yuan Coke, you get 17 one-yuan coins in change, which is very frustrating. For Chinese vending machine operators, completing a few such transactions might cause the machine to stop service due to lack of change—a machine's coin inventory is limited. Another issue is that sometimes your 5-yuan note is too old for the machine to recognize. There are many examples like "coins" that seem small but pose huge obstacles to the industry. The vending machine industry is built on "standardization," and the drinks sold in machines are no exception. You'll notice that Japanese drinks, despite their diverse packaging designs, have similar bottle sizes. This is to facilitate product distribution through vending machine channels. But domestic drink bottles come in all shapes and sizes, and only a limited number truly fit the vending machine's product lanes. Some uniquely shaped ones can't be sold, like Nongfu Spring's funnel-shaped "Da Nai Cha" (milk tea), which tends to get stuck if forced. These oddly shaped drinks share common traits: they were launched in recent years, priced above 4 yuan, mostly juices and teas, targeting the white-collar market. The industry consensus is that drinks over 4 yuan basically don't sell in vending machines. Carbonated drinks and juices account for 90% of sales and distribution volume. Li Shu, Ubox's marketing director, revealed, "You might see many types of products in the machine, but the number of lanes behind Coke bottles might be several times that of other drinks."

Why is the future form of vending machines in China different from traditional ones?

Earlier this year, Ubox opened franchising. According to them, the goal is to "turn former competitors into partners," renting or selling machines at the lowest prices to those who have point position resources—the profit from machines is minimal; Ubox is really selling software. On Ubox's official website homepage, among the six banner ads, the first three are about franchising. One says, "Must-Read for Franchisees: In-Depth Analysis of WeChat Store Monitoring." This WeChat store monitoring is actually the backend system Ubox calls "Smart Operations," which monitors vending machines via mobile phones, providing real-time inventory rates, coin shortage status, and restocking needs. The benefits of data-driven management are clear: you can choose "reasonable times" to restock, saving costs. When a delivery truck's monthly beverage volume increases from 60,000 cans to 70,000 cans, the average output per machine improves. "We've made the vending machine foolproof, turning it into a replicable business," Huang Ronghui explained the significance of technology R&D. "In half a year, a newcomer can do almost as well as someone with ten years of experience." Wang Bin is also quite proud of this system. "Japan's vending machine industry (operations) is actually very traditional. Next month, the Japan Vending Machine Manufacturers Association is inviting us to exchange ideas; they want to introduce our technology." This is the biggest difference between Ubox and other vending machine brands, and what Wang Bin sees as Ubox's most competitive advantage. They've invested heavily in this software system. According to Wang Bin, the company's R&D spending last year was around 100 million RMB, with this system accounting for a significant portion. ▲ The app developed by Ubox Currently, Ubox positions itself as a technology-centric company, eager to bring more people on board to place machines in more locations. "We're still doing system development, modularizing everything, so it'll be easier to integrate various things in the future." Regarding the company's future direction, Wang Bin hopes to become a light-asset software platform, and "once the platform is big, I can attract advertising. An individual with eight or ten machines can't do advertising." The purchase data generated by these online payments allows Ubox to provide more feedback to beverage manufacturers and even develop targeted advertising push services. "This year, our advertising revenue will be around 100 to 200 million, which was unimaginable in this industry before," Wang Bin said. So now you can probably understand the scene described at the beginning of this article. Compared to traditional vending machines, new-style vending machines are a completely different thing. Looking back at the success of Japanese vending machines, industry insiders like to mention the 1970 Osaka World Expo as the tipping point. It set a record of 64.22 million visitors, meaning one in four Japanese people attended the event. It effectively introduced vending machines to all of Japan. But at that time, purchasing power, technology, and demand were all in place. In 1970, Japan had already become the world's second-largest developed country, with per capita GDP of $1,996. Now, in the Chinese market, these elements may all be present. It looks like a good business for the future. Cities like Beijing, which lack convenience stores, need upgrades in both office buildings and residential areas. Rising labor costs in China also present an opportunity. Despite Carlyle's backing, the tipping point they hope for may not have arrived yet. (Graphics by Lin Yuyao; Liu Ximing also contributed to this article)