Increases to the minimum wage, lower birth rates, and an aging population are leading to higher costs and labor shortages for retailers. Will automation save the day?
There’s a rather whimsical image of Taiwan floating around online. Entitled “Actual View of an Average Taiwanese Street,” it shows a few cartoon figures walking around a landscape filled with 7-Elevens and an OK store.
“Daedross,” the 23-year-old Belgian who posted the picture on social media site Reddit, said that having lived here as a student, this scene was his abiding impression. He has a point. Taiwan truly is, as he calls it, “a country of convenience.”
Taiwan has the world’s second highest number of convenience stores per person, after South Korea, according to the Ministry of Economic Affairs’ statistics department. It is even ahead of Japan, whose retail giant Seven & I Holdings Co. is the parent company of 7-Elevens around the world.
Figures from the Ministry of Economic Affairs show that Taiwan has more than 11,100 convenience stores, which represents a ratio of one store for every 2,125 people. Combined convenience store sales for 2017 reached a record NT$320 billion (US$10.3 billion) and were expected to be even higher for 2018.
Yet despite this rosy picture of a culture of convenience, the future for this sector of the retail market is unclear. Rents are rising, and annual growth in the number of stores has slowed to single digits. Furthermore, supermarkets are trying to take a slice of the action with a “hyperlocal” strategy of smaller stores, such as PX Mart’s iMart and 24-hour Carrefour Markets.
Even more significantly, Taiwan, like Japan, is facing a manpower crunch due to low birthrates and an aging population. This trend is having an effect on staffing at convenience stores, which are dealing with labor shortages by closing some outlets during the late night, early morning hours, abandoning the culture of operating 24/7, 365 days a year.
After an association of franchise owners appealed for a relaxation of rules that stipulated all day and night opening, Seven & I Holdings decided in March to set new business hours on a trial basis, allowing time to close the store to clean and restock.
There have even been stories in the local media that employers in Japan like 7-Eleven and FamilyMart are offering employment to Taiwanese jobseekers, especially if they speak Japanese or have experience working at a convenience store. The television channel SET News reported that partly as a result of this demographic shift in Japan, the number of Taiwanese moving there has doubled over the past five years to more than 10,000 people per year.
The difficulty of staffing convenience stores in Taiwan is compounded by increases in the minimum wage over the past three years that average out at 5% per annum. The lowest legal monthly wage currently stands at NT$23,100, representing a hike over the previous year from NT$140 to NT$150 per hour.
In 2017, amendments to the Labor Standards Law (LSA) mandated a five-day workweek and required employers to pay overtime if additional work is agreed to. At around the same time, a pilot scheme of mandatory health checks was implemented for Taiwan’s approximately 1.6 million nightshift workers, further increasing pressure on convenience stores not to stay open around the clock.
Meanwhile, the unemployment rate in Taiwan has leveled off, standing at 3.74% in June. It is expected to remain at about this level for the near future. The result is few if any extra workers available to man the tills, especially since the job of convenience store clerk is no longer seen as a desirable or stable occupation by most young people.
In March, the situation came to a head when the operator of 7-Eleven in Taiwan, President Chain Store Corp., announced that 400 of its 5,459 stores would no longer be operating 24 hours a day. After explaining that franchisers could apply to reduce hours and thereby save costs, General Manager Huang Jui-tien admitted in a Storm Media interview that, “Quite honestly, some stores haven’t been that successful because they are always open.”
Another factor in the mix is the worldwide trend of automation, with retail jobs at the highest risk of disappearing as robots and automated systems take over. The online database Occupational Information Network (O*NET) suggests that when the day comes, retail salespeople will be the first to be replaced, followed by food preparation and wait staff, then cashiers and office clerks. In comparison, teachers, nurses, sales reps, and software developers are more likely to keep their jobs.
The X-Store experiment
The future seemed to have arrived at the beginning of last year, when President opened its first unmanned X-Store, at its headquarters on Dongxing Road in Taipei’s Xinyi district. Another store opened nearby on Keelung Road in July the same year. Stocked with more than 900 products, it is open 24 hours a day. Facial recognition technology enables “Face in” entry to the store, with “Face pay” and “Face go” mechanisms for payment and checkout.
Among the innovations at the X-Store are smart voice interactivity, Internet of Things (IoT) systems, microwave ovens with scanners, and robot greeters and cleaners. Like any race, however, starting first is no guarantee of winning. The actual experience of shopping in the X-Store is more of a novelty than a solution. Certainly on the occasion when this writer visited, the “no line, no checkout” concept to buy a few groceries was more like a “wait-in-line-for-assistance-because-the-tech-isn’t-ready-yet” experience.
Over the course of an hour on a busy weekday lunchtime, the X-Store on Keelung Road denied access to a number of people, who got stuck in the doors and couldn’t get out. The only couple who did get in took more time to pay for a bottled drink than they would ever have done standing in line at a normal 7-Eleven.
An advertisement hyping the speed and convenience of the store featured a good-looking Caucasian couple, neither of whom would have been likely to have the Chinese-language skills or local identity-card number necessary to register for the iCash system.
Opposite the empty, neon-lit space of the X-Store was a traditional 7-Eleven, with hardworking counter staff dealing with hundreds of customers an hour, filling the shelves and handling inquiries. Eighteen months on from the introduction of the automated store, it is clear that a long road lies ahead.
The number-two convenience store operator in the country is Taiwan FamilyMart Co., which had 3,394 stores island-wide. It has chosen to take a different route forward by introducing digital technologies that reduce the workload or assist service staff, rather than replacing them completely.
It rolled out a cashless “My Famipay” app service in March. The electronic payment scheme works with credit cards and allows users to make purchases by scanning the product and using the smart phone app. Customers can also scan QR codes for prices and additional information about a product rather than look for the price label.
Aside from using smart technology, FamilyMart is attempting to diversify its offerings and find new niches in a saturated market. It has worked with other businesses enable customers to pay bills and send packages; buy fresh foods, frozen seafood and fresh bread. Some stores even provide laundromat services in which the client can check an app to see if there are unused machines or get an alert when the laundry cycle is completed.
Meanwhile, the Taipei-based convenience store chain Hi-Life is banking on Taiwan Pay mobile payments to compete with 7-Eleven and FamilyMart. Hi-Life is the third biggest operator in Taiwan’s convenience-store space with 1,350 stores and was the first to accept domestic mobile payments. It expects non-cash payments to increase by about 15-25% a year. In addition, it has been exploring the market for sales through vending machines and mini-stores, such as its HiStore in Taipei City Hall.
OK Mart, the fourth major player in the local market, with 902 stores across the country, is also big on mini-stores and smart vending machines at its OKmini outlets, such as the one by its office on Songde Road in Taipei’s Xinyi district. The company expects to have installed vending machines in 1,000 locations by the end of the year, with the stated aim of achieving maximum results with the least effort and cost.
This business plan dovetails neatly with a statement last year from Taipei City Government Deputy Secretary-General Chen Chih-ming, who said the rollout of vending machines to public institutions such as schools, hospitals, and government offices would intensify over the coming years.
Vending machines are relatively cheap to install and maintain. Also, they are now smart enough to provide decent service, especially if there is a choice of cashless payments. Inventory can be controlled remotely through IoT so that sales data can be easily analyzed.
X-Stores, in comparison, still don’t seem quite ready in terms of the necessary technology. It therefore wasn’t too much of a surprise when 7-Eleven did an about turn in March and put a temporary halt to plans for a wider network of unmanned stores. Like its smaller and nimbler competitors, 7-Eleven decided to start pushing smart vending machines in stores and office buildings. It currently plans to install 500 machines by the end of the year.
In a recent interview with CommonWealth magazine, the chairman of smart vending machine company TenLife Corp., Chen Lai-juh, predicted that Taiwan would follow the way of Japan, which now has one machine for every 23 people. The 5 million vending machines bring in total annual sales of more than US$60 billion and sell everything from live crabs to sake, porn, and umbrellas.
According to Chen, Taiwan’s previous focus on unmanned stores, led by 7-Eleven, has been superseded by the rise of the vending machine, which eliminates the need for a sales clerk. “Introducing unmanned technologies is not wrong, but it is too early and too expensive,” he said in the interview. “You need to spend only US$10,000 (NT$311,000) on a smart vending machine that can act as a miniature version of the O2O (online to offline) business model.”
Another factor in the equation is how advanced vending machines are now compared with, say, 13 years ago, when OK Mart worked with the Ministry of Economic Affairs to set up vending machines at “Smart Unmanned Q-Shops” on Taipei’s Civic Boulevard and Neihu district’s Ruiguang Road. This proved to be an idea ahead of its time, as the sensing technology was immature and credit card transactions frequently failed. The experiment ended after six months.
TenLife research determined that at least 27% of complaints about vending machines were related to coins getting stuck or the use of fake coins and tokens. Now with cashless payments, reduced crime because of CCTV surveillance, a high-density population, and labor shortages, vending machines have come of age. In addition, large touch screens are making it easier for consumers to receive loyalty points or coupons. The increased man-machine interactions make it possible for more data to be collected and used to target sales.
The Ministry of National Defense clearly thinks the technology is mature enough, as it has been working with OK Mart to install vending machines at army bases to sell 200 different kinds of goods, from dried noodles to shaving kits. The payments are cashless and there is a special emphasis on mobile phone payments, which the government is promoting heavily, aiming for 90% penetration among the general population by 2025.
Smart vending machines, according to experts like Li Shyh-jane, deputy director of the government-funded Commerce Development Research Institute (CDRI), are a kind of stopgap between retail now and the automated future. When vending machines become genuinely smart, they will interact conveniently with consumers, raking in information and crunching the data to create powerful new algorithms.
This information can then be used to more precisely target customers and create uniquely convenient buying experiences. At that point unmanned stores become a reality, rather than just the curiosity they are today.