Vending machine market in China poised for explosive growth

Vending machine market in China poised for explosive growth

Staff Reporter

2013-09-18

In early 2011, Huang Heng, a 24 year old from central China’s Hubei province, decided to leave his job as a migrant worker and profit from the summer heat by installing six automated vending machines inside the factory of Great Wall Motors in Baoding in northern Hebei province. The outcome of his venture far exceeded his wildest expectations as he sold 200 beverage cans on the first day, jumping to 300 the following day. Two and a half years later Huang now owns 120 vending machines, costing 30,000-35,000 yuan (US$4.900- US$5,700) each, while his total investment tops 4 million yuan (US$653,400). “I can recoup my investment for a machine in one and a half years on average,” Huang told the Chinese-language Global Entrepreneur magazine.The rapid expansion of Huang’s venture, though still small in scale, embodies the fast-growing vending machine industry in China. Currently, only 40,000 vending machines have been installed across the country, a small fraction compared to 5 million in Japan.

Ubox is now the leading vending machine operator in China, boasting one third of market share, but Unbox only entered the market in 2010. Wang Bing, chairman of the company, remarked that the next 10 years will be a golden period for the domestic vending machine market, as the nation’s per capita GDP has approached the threshold of US$5,000-US$6,000 and will support the explosive growth of the vending machine market.

The huge market potential has attracted major players from around the world, notably Japan’s Fuji Electric, which has seen the saturation of the vending machine market in Japan. Fuji initially entered the Chinese market back in October 2003 after teaming up with Dalian Refrigeration Co to form Dalian Fuji Binshan Vending Machine Co.

When vending machine operators first began to emerge in China, the majority of the machines were installed in public spaces. However, Wang said that factories are the best sites for the installation of vending machine, adding that factory workers are loyal customers and since factories are usually sited in remote areas without convenience stores, vending machines are extremely popular.

Factories are now the primary battleground among domestic vending machine operators. Wang, who has a background in the internet industry, is also keen to find a combination to tie vending machines with the internet. “The potential market for vending machines with internet access is huge,” he said. He added that the company’s trial in 2011 to install 100 vending machines with internet services proved successful. Customers were able to play online games via the machines and it sales grew by 30%, Wang said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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