Vending machines for drinks are common, but have you seen one selling ice cream? At the end of 2020, netizens spotted a vending machine for the trendy ice cream brand Zhong Xue Gao in Hangzhou.
Zhong Xue Gao vending machine
This "Zhong Xue Gao smart vending machine" was placed in a prominent location, visible right after exiting Hangfachang Station on Metro Line 2. The large screen on the machine played food review videos for Zhong Xue Gao and ads for AD calcium milk products, with the temperature displayed as -22°C in the top right corner.
The author tried it on-site. After touching the large screen, you enter the shopping page, where you can select up to three items. After confirming, you can choose "scan to pay" or "face recognition payment." The entire shopping process was smooth. We purchased an AD calcium milk ice cream bar on-site; the embossed "Zhong Xue Gao" logo at the end of the bar was clear, and the product was well-preserved.
Zhong Xue Gao products Image source: Zhong Xue Gao Tmall flagship store
It is nothing new for FMCG brands to deploy vending machines. Two FMCG giants that completed IPOs in 2020—Pop Mart and Nongfu Spring—have both made significant moves in the vending machine space.
Pop Mart's vending machines are now ubiquitous in mainstream shopping districts across first- and second-tier cities. Nongfu Spring has deployed nearly 60,000 vending machines in nearly 300 cities across China. Vending machines have become a "battlefield" that FMCG brands are vying for.
Beyond vending machines, in an era of increasingly expensive traffic, "returning to offline" has become a strategy every brand must consider. How to integrate offline retail models such as physical stores and unmanned shelves with existing brand operations is a question worth pondering for every brand.
Why are "online brands" like Zhong Xue Gao and Genki Forest expanding into offline channels? How can food brands effectively leverage vending machine channels? FBIF brings you an in-depth analysis.
-01- Online traffic is drying up; "Zhong Xue Gao" and "Genki Forest" must eventually face offline challenges
Practitioners in the food and beverage industry likely share this feeling: the era of online traffic dividends is gone forever. As various "small platforms" have sprung up like mushrooms, the battle for traffic has become increasingly fierce.
Research shows that in 2012, the average customer acquisition cost for leading Chinese e-commerce companies was only 68 yuan, but it has been rising ever since. The period from 2015 to 2016 was a key turning point, when the average cost exceeded 200 yuan, and officially surpassed the cost of offline traffic acquisition.
According to Gao Jun, e-commerce manager at Youkang Foods, currently, the customer acquisition cost for new ice cream customers is as high as 140-200 yuan. If repeat purchases don't follow, such sales are essentially "making a loss for publicity." The "first-mover dividend" that Zhong Xue Gao enjoyed by breaking through cold-chain logistics restrictions has been exhausted amid the "siege" of major brands expanding online.
After its founding in March 2018, Zhong Xue Gao initially focused on online channels. Starting in 2019, it began opening offline stores and entering convenience store channels such as FamilyMart and Bianlifeng. According to Zhong Xue Gao's official website, it has opened at least 11 offline direct-operated stores in first- and second-tier cities including Shanghai, Shenzhen, Hangzhou, and Chongqing.
Zhong Xue Gao offline store Image source: Zhong Xue Gao official WeChat account
The reason is that after experiencing rapid early online growth and opening up the vast market for "premium ice cream," larger brands such as Yili and Heytea have launched competing products. These brands have offline channel advantages built over years or even decades. Zhong Xue Gao, a new brand less than three years old, still has a long way to go, and expanding offline is their first step.
For example, Yili launched its "Xujinhuan" series, priced at 15 yuan per bar. The series' logo also uses calligraphy style, with a fresh and elegant overall design, targeting the "girlish heart" and "queen's heart" of the post-80s and post-90s generations.
Yili Xujinhuan ice cream Image source: Yili ice cream mini-program
New-style tea brand Heytea has also launched its premium ice cream series, priced at 18 yuan per bar, even exceeding Zhong Xue Gao's average price. The flavors include popular tea-based options like Duorou Grape, Milk Tea Bobo, and Mango甘露, and with over 700 offline stores forming a sales matrix, Heytea may become a formidable competitor for Zhong Xue Gao.
Heytea Mango甘露 ice cream Image source: Heytea mini-program
It is foreseeable that Zhong Xue Gao will face a collective counterattack from more brands of all sizes. Traditional offline channels compete on "jianghu" (networking) capabilities; building channels that integrate corporate culture and management strategies is essential, but this cannot be achieved overnight. Now, Zhong Xue Gao's deployment of vending machines marks a new step in its offline channel strategy.
Another startup "internet-famous" brand in a similar situation, Genki Forest, is also aggressively expanding offline. At the end of last year, Genki Forest founder Tang Binsen stated at a distributor conference that the company's offline channel sales target for 2021 is 7.5 billion yuan, a 257% increase from 2.1 billion yuan in 2020.
To achieve this goal, Genki Forest will deploy 80,000 smart freezers in offline channels, with all installations completed by April this year at the latest. These smart freezers are self-developed by Genki Forest and are all connected to the internet; sales data from every bottle sold is fed back to the company to aid in future product improvements.
With online traffic drying up and offline giants competing fiercely, it may be an inevitable choice for "Zhong Xue Gao" and "Genki Forest" to shift to offline channels like vending machines and smart freezers after experiencing rapid growth online.
-02- New entrants and giants increase investment How can brands reasonably use vending machines to expand offline channels?
"Vending machines" are not new; in the new retail sector, they have never been as prominent as supermarkets or convenience stores, but they are still a channel not to be ignored. Not only startups like Zhong Xue Gao value them, but traditional giants have also long been involved.
Two FMCG giants that completed IPOs in 2020—Pop Mart and Nongfu Spring—have both made substantial investments in vending machines.
Pop Mart's vending machines (which Pop Mart calls "robot stores") are now almost ubiquitous in mainstream shopping districts in first- and second-tier cities. According to its prospectus, as of the end of 2019, Pop Mart had deployed 825 vending machines in 57 cities across China. In July last year, the number of Pop Mart vending machines officially exceeded 1,000.
Pop Mart robot store Image source: Pop Mart official WeChat account
Pop Mart has successfully built a market channel system of "vending machines + experience stores + private domain traffic + online platforms," creating a "moat" for its business model. "You can't open an experience store in every complex, but you can place a vending machine in every complex."
Nongfu Spring, on the other hand, not only bought all the equity of its vending machine business from Yangshengtang for 95 million yuan, but also deployed nearly 60,000 smart terminal retail devices in nearly 300 cities across the country, gradually building a matching team, information system, and delivery service model.
Nongfu Spring vending machine Image source: Weibo @莫问guo事
However, vending machines are just a form; the key to a good channel strategy is to develop one that aligns with the brand's positioning. So, how can brands use the "vending machine" channel to expand their business?
1. Form a community of interests with distributors and use them to expand brand influence
For brands that have already deeply cultivated offline channels, mobilizing distributors to build a more detailed offline network is a natural step.
For example, Nongfu Spring currently has two policies for community grid cabinets and regular vending machines. For regular vending machines, distributors typically identify good locations, pay a deposit, and get the machine for free. If a distributor returns the machine, Nongfu Spring will buy it back at a depreciated value.
Nongfu Spring smart retail terminal Image source: Weibo @灵魂光头鸭
For premium locations such as schools and scenic spots, the headquarters will evaluate and share the location fee with the distributor. Nongfu Spring's strategy is to ensure every machine is profitable. Community grid cabinets, on the other hand, are a company-cultivated project, with the company providing the equipment and location fees, while distributors handle restocking and maintenance.
Another super giant, Coca-Cola, adopts an almost direct-operated model, handling everything from machine procurement to location expansion and sales operations itself.
2. Combine self-operated and franchise models
Developing franchisees is also an effective way to quickly capture market share.
In 2017, snack giant Want Want made a high-profile entry into the vending machine field and vigorously developed franchisees. According to Want Want's official website, it attracts franchisees to deploy vending machines through various incentives such as "zero rent for machines," "advertising revenue sharing," "location fee subsidies," and "direct supply of branded products."
According to Want Want's official website, it has deployed over 5,500 vending machines nationwide, and as of October 2019, consumer usage had exceeded 10 million times.
Want Want's support policies for vending machine franchisees Image source: Want Want official website
3. Leverage existing channels to expand influence
For conventional beverage companies, there are mature operators in the market, and it is common practice for brands to enter the market through these channels.
For example, the comprehensive vending machines commonly seen in subway stations are a common means for many manufacturers to expand offline channels. Large vending machine operators still focus on "whether the product sells well"; if it doesn't, they generally won't sacrifice a product lane. If a brand needs exposure, it often has to pay a lane fee.
Hangzhou Fengxinzi Industrial operates over 600 machines in Hangzhou, covering major scenic spots. If a brand wants its products to appear there, it must pay a certain lane fee. According to Li Da, general manager of Hangzhou Fengxinzi Industrial Co., Ltd., the fee generally ranges from 20 to 200 yuan per month depending on the quality of the location.
-03- Conclusion
With the rise of the new retail concept in 2016, a large number of "office unmanned retail cabinets" emerged. China's vending machine industry has broken free from the fate of Japan's "drink machines," giving the FMCG industry many more options. More importantly, with the development of domestic internet technology, vending machines have evolved from traditional "selling goods" and "advertising" to "digital" sales channels.
Zhong Xue Gao's deployment of vending machines is certainly not the end; more brands will follow, using various methods to knock on the door of offline channels. FBIF will continue to follow this trend.
Source: FBIF Food & Beverage Innovation (ID: FoodInnovation), Author: Xiao Hu Who Doesn't Pass
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