Based on global retail market research, Kantar Retail has found that the demand for vending machines in China will dramatically increase if GDP per capita reaches US$10,000 in a certain area. As of 2015, regions with populations of at least 390 million in China met this standard. While the vending machine channel is still lagging, we estimate it will grow tremendously over the next five years.
The history of the vending machine channel in China dates to as early as 1994, when Suntory introduced the machines into the country. Two years later, multinationals like Coca-Cola and Pepsi brought their own machines to China. During that period, only cold drinks were available through vending machines, and it was not until 2000 that the channel entered a period of experimentation. With the machines performing more reliably, vending machine operators started to explore new payment methods. By 2013, the channel had blossomed with the advent of mobile payments. In 2015, it entered the era of “Internet+”.
Currently, vending machines offer a wide range of products, including snacks, drinks, skincare products, and even fresh food. Compared with physical stores, the machines normally take up less than 5 square meters and barely require human labour. In addition, they offer the benefit of 24-hour, nonstop service.
In 2015, China had approximately 150,000 vending machines, 15 times more than it had in 2011. In the United States, the ratio of vending machines to convenience stores could be as high as 30 to 1. By the end of 2020, it is predicted there will be 46,000 convenience stores in China. If we apply the US ratio, the number of vending machines in China could reach 1.38 million by 2020 (Figure 1).
Figure 1. Vending Machine Count in China, 2011-2020E
Source: 17vending.com, Kantar Retail research and analysis
Over the last five years, vending machine channel sales have increased more than 100% annually. Vending machine sales tend to be higher in regions with higher living standards. In those areas, the sales volume of one vending machine will be approximately 6,000 yuan, meaning the entire channel could generate 100 billion yuan in annual sales by 2020.
In terms of geographic distribution, more vending machines are available in coastal areas (Figure 2). The Yangtze River Delta and the Pearl River Delta have the highest penetration rate (60%). The number of vending machines in the Bohai Rim Area has also been increasing.
Figure 2. Vending Machine Distribution by Geography
Source: chyxx.com, Kantar Retail research and analysis
Vending machine operators have strong regional differences, and the channel itself is fragmented. Vending machine operator Youbao enjoys the highest penetration rate and most equipment. Likewise, Shanghai Miyuan Beverage Co. Ltd. is not only a leading vending machine operator, but also a food and beverage supplier. Its machines may be more ubiquitous than those of its competitors.
Kantar Retail predicts the following trends in China’s vending machine channel over the next five years:
1. Category expansion and a healthy lifestyle focus will be mainstream.
2. China will lead the world in smart vending machines and mobile payment.
3. Brand-exclusive vending machines will become the norm.
4. Vending machines will be used for product launches and brand marketing.
5. Vending machines will become omnipresent.
Kantar Retail Point of View
By saving space and labour costs and by connecting to intelligent devices, vending machines are bringing new vitality to China’s retail market. More importantly, due to its outstanding performance and potential, the vending machine channel has attracted manufacturers’ attention. However, owning these machines is not an all-inclusive strategy. Brand owners must fully understand the channel and keep up with the times to drive sales performance.
Source: Kantar Retail