Autonomous retail took off during the Covid-19 pandemic. Now that the virus is largely contained, it’s only getting bigger. 

We use the term “autonomous retail” for the labor-light, technology-heavy retail segment that encompasses unstaffed stores, vending machines and unstaffed shelves. The sector is expected to continue growing as consumers pursue faster, more convenient ways of shopping. 

However, it is important to note that autonomous retail businesses still require some staff. In many “cashier-less” stores, such as the Tencent-backed Bianlifeng, there are staff members present at all times to keep an eye on the store, while customers check out using automated registers. Even at vending machines and unstaffed shelves, workers continue to regularly replenish stock, clean, and attach RFID tags to products. 

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Deborah Weinswig is CEO and Founder of Coresight Research. Additional contributions by Eliam Huang.

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In the long run, we expect the unstaffed stores will truly realize its unmanned feature with the advancement of technology.

Why it matters

China’s autonomous retail sector is estimated to grow to RMB 48.5 billion ($7.1 billion) in 2020, a multiple of its RMB 18.8 billion level in 2017, according to research company iResearch. The estimate was made before the pandemic. To be sure, compared to the total retail market size in China, which Coresight Research projects will reach RMB 38.9 trillion in 2020, the slice of automated retail business remains modest, accounting for roughly 0.12%. 

China’s autonomous retail sector market size has more than doubled in four years (billions RMB)

Estimate is based on increasing number of vending machines; number of registered enterprises that sell unstaffed shelves in China and its penetration rate; the number of mid- to high-end neighbourhood compounds, and the penetration rate of unstaffed stores. Source: iResearch (Image credit: Coresight)

But the number of users for autonomous retail business in China is expected to balloon to 245 million in 2022 from 6 million in 2017, according to research firm Qianzhan. This represents a compound annual growth rate of 110.0% during the five-year period.

Autonomous retail customers expected to pass 200 million in 2022 (millions)

Source: Qianzhan (Image credit: Coresight)

 Covid-19 accelerates unstaffed retail

Unstaffed stores in China emerged in 2016, and developed rapidly as RMB 4.3 billion flowed into the sector in 2017, according to data aggregator IT Juzi. However, the frenzy cooled after only one year due to unsatisfactory customer experiences and meager profits. Some unstaffed store operators merged—for example, Bianlifeng acquired Lingwa. Another prominent unstaffed store operator, BingoBox, which had raised RMB 180 million over two rounds of financing, reportedly laid off (in Chinese) around 80% of its employees to stem severe losses. GoGo Xiaochao shuttered its business entirely, while Xiao’e Weidian pivoted from an unstaffed shelf business to the vending machine format partly due to high “shrink rate”—it simply lost too many products before they were sold. The shrink rate for some underperforming players, such as GoGo Xiaochao, reaches as high as 10%, according to smart retail company 37Cang.

But when Covid-19 struck, it reversed the sector’s fortunes. Unstaffed shopping operations suddenly became the safest option for consumers aiming to avoid physical contact with others. The number of unstaffed related businesses in China has accordingly begun to rebound. In the first five months of 2020, 1,827 unmanned retail-related enterprises were registered, according to the business registrar, a jump of 37.3% compared to all of last year. The business registrar did not specify whether these 1,827 enterprises are unstaffed store operators or businesses that provide support to stores.

Unstaffed stores at a glance

F5 Future Store, currently active only in Guangdong province, plans to open 60 stores this year throughout the country. The company employs robotic arms to serve customers through separate ordering terminals for three categories of products: freshly made food, freshly brewed beverages, and packaged consumer goods. Customers line up at the respective terminals to buy the items they want. Fresh food accounts for more than 60% of the company’s total gross margin, said co-founder Lin Xiaolong in an interview last year.

(Image credit: F5 Future)

Diners use digital screens to select and pay for food, which are then served by robotic arms at the pick-up counter. After making their purchase, customers can dine on-site at self-cleaning dining tables. When they’re done, diners push a button above the glass table and the table surface opens up to swallow the trash.

Bianlifeng also has plans to open new stores. The retailer opened its first new store since the pandemic in Guangzhou in June 2020, with plans to open around 10 more locations in Guangzhou in the near future. Bianlifeng said it had more than 1,000 stores across China as of September 2019.

Consumers can process their transactions on their own by scanning mobile payment QR codes at the store’s point-of-sale terminals. Bianlifeng uses electronic price tags that feature dynamic pricing. When products approach their expiration dates, price tags turn from black to red and display updated discounts.

The staff members who remain on hand in these stores are in charge of manual duties like serving prepared foods, restocking items, and accepting cash payments when necessary. 

Advantages and disadvantages

Reduced labor costs are one of the major benefits of unstaffed stores— as little as 3%-5% of sales, compared with10%-12% of sales at traditional convenience stores, according to financial firm Huatai Securities. A single staff member can usually supervise 10-20 unstaffed stores, taking care of manual managerial tasks.

The autonomous retail sector’s gross margins average around 20-30%, similar to a regular convenience store, according to Huatai. But the fresh-cooked food category typically enjoys a higher gross margin than packaged foods among unstaffed stores, and it is difficult for unstaffed convenience stores to offer fresh-cooked food without having the personnel to prepare it.

One challenge for retailers who may wish to transition into more autonomous operations is shrink rate. Unstaffed stores are more vulnerable to shoplifting compared with staffed stores. The shoplifting rate when customers use self-checkout kiosks to pay for merchandise is also higher.

Additionally, some consumers are unable to use self-checkout kiosks without staff support, whether because of discomfort with the technology or technical issues. 

While some stores are adopting facial recognition payments, allowing customers to pay simply by walking out of the store with products, these are not yet widely adopted, so the majority of unstaffed stores still use RFID tags and self-checkout kiosks. Consumers still need to line up to pay. The maintenance costs of cameras and sensors in the more advanced tech-equipped stores can also be significant.

Also, unstaffed stores are not a must for consumers, as all of their products are typically available in traditional manned stores. In fact, automated stories usually offer a smaller selection, due to limited store size.

Conclusion

Autonomous retail in China, including unstaffed stores, have seen post-pandemic growth, with a few players even opening new unstaffed stores. The sector will continue to grow given its labor-light, technology-heavy feature. At the current stage, unstaffed stores still could not achieve fully unmanned status: staff are still required to carry out manual tasks, such as restocking items. We expect this sector will grow further with technology advancement. Furthermore, unstaffed stores will have to increase their SKUs to compete with typical convenience stores, as well as working on lower shrink rates.

Deborah Weinswig

Deborah Weinswig is CEO and Founder of Coresight Research, a research and advisory firm that provides future-focused analysis and consulting on the intersection of retail, technology, and fashion. Deborah...