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Business Trends

Automated shops spread in China as mobile payments take off

Alibaba and JD.com ride staffless wave into restaurants and beyond

A shop in Hangzhou has robots make and serve bubble tea. Its prices are a third of competitors'. (Photo by Daisuke Harashima)

HANGZHOU, China -- A retail revolution is sweeping China as companies like Alibaba Group Holding use their ubiquitous mobile payment platforms to spread unmanned systems and help brick-and mortar stores shave growing labor costs.

Workers could be seen jamming their way into a branch of Wufangzhai, a 97-year-old Chinese restaurant chain that is popular during the lunchtime rush here. But there was no sign of any staff to greet them. Instead, customers looking at their smartphones simply headed for a row of about 40 lockers after five minutes each. When they touched their phones again, the lockers popped open with their steaming hot meals inside.

Wufangzhai reopened the restaurant in January after introducing an automated ordering system from Alibaba subsidiary Koubei, which provides ancillary services for restaurants. Customers order and pay by reading QR codes with the Alipay app on their smartphone. They will even get a notification when their food is ready.

The restaurant has cut staff to just six employees from 13, and its annual labor costs have more than halved from 600,000 yuan ($94,740). Added efficiency has also sped up customer turnover, boosting sales by 40% since the system was introduced.

"Before the line was out the door, but now there is no need to wait," said a 27-year-old office worker who comes here once or twice a week.

Koubei began building on its success at Wufangzhai last month by introducing its system to other businesses. It opened two fast-food locations at a highway service area in Zhejiang Province and plans to open 10 staffless stores such as bakeries, dessert shops and hotpot restaurants in cities like Beijing, Shanghai and Shenzhen this month.

"We will expand based on consumer demand for each business and area," said a Koubei representative.

The race to go staffless in China began heating up last year. The main players were initially startups, but larger companies like JD.com and Suning.com have also entered the field. Automated convenience and clothing stores continue to open in major Chinese cities, and the country already has 30,000 unmanned karaoke rooms.

Alibaba recently opened a shopping center next to its Hangzhou headquarters with unmanned registers that accept Alipay.

There are also more types of businesses being targeted for automation. One shop in Huangzhou has a robot serve bubble tea for 10 yuan a cup, about a third the price of typical stores. A hotel without a reception desk also opened in the central Chinese city of Chengdu. Guests make reservations by sending a picture of their identification online and check in using cameras inside the hotel.

Rents and labor costs continue to soar as the Chinese economy grows, expenses that store owners have had to pass on to consumers through higher prices. But the result is a loss of customers to relatively cheaper online shops, forcing cost-saving measures.

Staffless stores are considered one of the more promising cost-saving technologies. China's market for automated shops is expected to be 950 billion yuan in 2022 for retail alone, 30 times the estimate for this year, according to research firm AskCI Consulting.

Japan also has high hopes for unmanned stores given perennial labor shortage issues, but the technology remains in an experimental phase compared with China. The reason lies in the two countries' varying use of mobile payments and differing expectations for customer service.

Mobile payments in China totaled 39 trillion yuan in 2016, according to market research figures. In coastal cities, payments by smartphone can be made even at street stalls and markets. Some vendors express frustration with customers seeking to pay in cash.

Counterfeit currency remains an issue in China. Mobile settlements assure shopkeepers that they are getting real money, yet they open consumers up to fraud since these payment apps are linked to banks. Many Chinese now have separate accounts for these apps to mitigate risk.

But cash is still king in Japan, where mobile payments are just starting to grow, and consumers there favor staffed stores. Japanese shoppers place a high value on customer service, for which the country is renowned. Many people in Japan still choose to shop at nearby retailers rather than online for this reason.

Customer service in China is generally not a priority at shops and restaurants, and local consumers expect no better. Many feel that staffless stores therefore offer a better customer experience.

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