During the National Day holiday, Aning ordered takeout at a hotel. The delivery person informed her that the order had been placed in the hotel lobby and would be delivered shortly. A few minutes later, the phone in her room rang, and an AI voice prompted her to open the door. Aning opened the door, and a robot was standing there with a display screen that read, 'Press the button to get your order.' After she took the takeout, the robot left. While checking in, Aning also noticed that there were robots in the hotel lobby cleaning the floor.

She wondered if hotels in non-first-tier cities had robots now. Had robots become a standard feature in hotels?

In 2021, capital investments in AI robots surged, turning the field into a hot spot for investments. Dozens of service robot companies received new rounds of funding, and the leading hotel robot company, Yunji Technology, completed its IPO consultation for the Sci-Tech Innovation Board in 2022.

Also in 2021, well-funded companies began to expand their business, and the 'contactless delivery' that emerged during the pandemic made hotels one of the primary application scenarios for commercial service robots.

However, in the latter half of last year, many commercial service robot companies reported layoffs and losses. However, fewer financing announcements have been made in this field this year, showing the industry is slowing down.      

Industry insiders understood why the industry contracted in 2022. Many startup companies, previously darlings of investors, chose to expand blindly and initiated price wars, increasing business risks. When hotels began using robots, several issues arose.

As the industry stopped expanding, companies not only need to control costs and seek profit but also need to provide real value to hotels. With the hotel and restaurant business booming after the end of the pandemic in May 2023, will this industry rebound?

The four types hotel robots

Today, when you open a local life and travel app, most hotels and restaurants are marked as “offering robot services.” By function, robots can be roughly divided into greeters and guides, delivery robots, and cleaning robots, among others.

So, which companies are involved in hotel service robots? With the maturation of robot applications, more and more players have entered the field, and it can be categorized into four groups.

The first group consists of companies backed by hotel management groups and property companies, such as Excelland AI, Marsmarch, and Sparkoz. These companies are backed by hotel chains like Home Inn, H World Group, Dossen, and real estate companies like Country Garden. The founders and executives of Marsmarch's parent company also have work experience in the hotel and travel industry.

Hotel management companies add a technological sheen to their operations, and robot companies gain ready-made customers. The collaboration between these two sides has resulted in mutual benefits in the field of robots.

The second group comprises companies that have received investments from Online Travel Aagency (OTA) platforms and local life platforms, such as Yunji Technology, Keenon, Pudu, and Gaussian Robotics. These companies have the backing of OTA platforms like Ctrip, Meituan, and Eleme, which provide supply chain resources and end-to-end application scenarios. These robots also offer outdoor delivery services.

The third group of players received investments from internet companies such as iFlytek, Tencent, and Cheetah Mobile, which, while developing large-scale models, can not only provide integrated hardware and software solutions but also guide them internet strategies.

The fourth group consists of startups that have gained traction through a combination of resources and technology, such as Chuanshanjia, which originally started with hydraulic equipment and later transitioned to service robots. They have an advantage in industrial manufacturing and stable mass production capability. Another example is M.R.Robot, co-founded by former executives from Sunac and experts in the field of artificial intelligence and robotics at Beihang University.

The primary focus of these four major groups is on delivery robots and cleaning robots, with prices ranging from 20,000 to 80,000 yuan. Delivery robots are more prevalent because they mainly operate indoors, have relatively lower technical difficulties, and have higher sales volume compared to cleaning robots, which require stricter corner cleaning capability and adapt to changes in hotel floor layouts and ground materials. In contrast, delivery robots have lower prices than cleaning robots.

In July of this year, IDC, the IT market research and consulting company, published the 2022 report on the Market Share of Commercial Service Robots in China, indicating that Keenon and Gaussian Robotics collectively occupy about 50% of the overall market share of commercial service robots.

Most of these companies were established between 2016 and 2019. The reasons for their growth include policy support and maturing technology.

In 2015, the government announced the full implementation of the two-child policy, reflecting changes in China's population structure, which led to a promising future for the service robot industry. The aging population in China accelerated, and the supply of eligible labor force decreased. Robots were needed to fill the labor gap. Driven by changes in the population structure, Yunqi Partners made an investment in Keenon in October 2016 based on the logic of 'low price and easy operation lead to a large market.'

Meanwhile, the technology used in commercial service robots, such as SLAM (Simultaneous Localization and Mapping), multimodal human-machine interaction, sensors, smart chips, and chassis technology, started to mature in recent years. One of the main costs for these companies is technological investment, which varies depending on self-developed technology and different procurement technology.

In 2021, the industry witnessed remarkable growth. From the perspective of financing, almost all mainstream companies received more than three rounds of funding, and in 2021, they secured tens of billions of yuan in financing. Some companies reached Series D financing, and with the support of capital, the industry gradually moved towards maturity.

The boom in the field brought hot money and created a bubble. In just one year, most of these companies stopped their financing activities. In February 2022, Yunji Technology announced that it had completed its consultation filing for the Sci-Tech Innovation Board, but in the second half of the year, there were reports of layoffs. Companies like Pudu, Keenon, Gaussian, and other industry leaders also reported layoffs during the same period.

In the past year, the race cooled down, and stability became the keyword for service robot manufacturers in 2023.

Can hotel robots actually reduce costs?

Over the past three years, hotel service robots have gradually become standard equipment partly due to contactless delivery during the pandemic. Another reason is the increasing labor costs in hotels, particularly for positions like housekeeping, which face challenges in recruitment and high turnover.

However, the hotel robot industry has cooled off, primarily because robots have not met the expectations of reducing costs and increasing efficiency in hotels. Many salespeople often mention that the overall cost of purchasing a robot is lower than hiring a human, as robots can reduce labor costs for hotels. Additionally, robots can work 3-5 years, while they pay off after two years.

The reality, as seen from the perspective of hotel industry professionals, is not as optimistic as it might seem. First, the primary duties of hotel housekeeping staff, such as changing linens and cleaning rooms, cannot be easily replaced by robots. Second, when robots are tasked with cleaning hotel lobbies or corridor floors, they struggle to handle emergency cleaning and cleaning in corners and edges, still requiring human intervention.

According to Xu Yuan, who is in charge of hotel robot procurement, hotels do not have dedicated delivery personnel or single-area cleaning staff. Robots can only replace

some repetitive and mechanical tasks, reducing the workload of employees, allowing them to focus on other tasks. However, whether having robots can reduce head counts or not varies from one hotel to another.

"The advantage of hotel service robots is that, at the same cost, robots perform tasks in a more standardized and stable manner," said Li Yuhao, the founder and CEO of M.R. Robot. For instance, hotel lobbies need cleaning seven to eight times a day. Humans might get lazy or be in a bad mood, but robots won't. Aside from their charging time, robots can work 24 hours a day.

Current hotel service robots can increase efficiency and bring convenience to hotels, but robots can only assist, not replace, humans. It's widely accepted in the industry that robots are a supplementary workforce, and human-robot cooperation is the key.

In situations where the return on investment (ROI) is not desirable, hotels use service robots more for the sake of providing differentiated services. Having service robots can enhance the technological sophistication, quality, and uniqueness of the entire hotel. It also adds a sense of novelty for guests when they experience robot deliveries and automatic cleaning.

Aning observed that after delivering a meal, the robot would actively inquire if a photo is needed. Many users post on social media that they stayed in a hotel with robot service, inadvertently promoting the hotel.

However, many hotels that purchased and experimented with robots found several problems. Some robots had specific and limited functions, primarily focused on one-way delivery and cleaning services. The maintenance and technical support costs were high, and the robots had weak system integration, making it challenging to fit them into the hotel's information system.

Additionally, deploying robots in hotels involves more than just purchasing the machines. It comes with certain costs, including achieving full Wi-Fi coverage, modifying slope or staircase routes, adapting to elevator controls, and integrating with in-room intelligent terminal systems. Many robots can't identify glass revolving doors and glass walls in hotel lobbies, making them susceptible to interference from laser radars.

Several entrepreneurs also noted that the robot industry is currently a buyer's market, in part because hotels can always choose to rely on human workforce. However, Li Yuhao believes that hotels have a demand for high-quality robots. It's just that the industry hasn't reached that level of quality yet.

Only the price war to blame for the decline of the industry?

So, why did the industry cool down in 2022? One major reason is that to increase hotels’ interest in purchasing robots and gain market share, some companies started price wars.

Some industry insiders noted that some competitors engaged in price wars not only against their rivals but even with themselves through different channels, a practice that they found puzzling.

Xu Yuan said that there are two pricing models for hotel robot procurement: one is based on the number of rooms, and the other is based on the complexity of room layouts. In general, one robot serves 50 rooms, with one robot deployed per floor. The robot brands he has encountered used to price robots at around 70,000 to 80,000 RMB per unit. However, these prices have now dropped to around 20,000 RMB and the robots have a lifespan of three to five years The substantial reduction in prices may be due to manufacturers simplifying the robot's functionality or selling at a loss to gain market share.

In 2022, OrionStar, an intelligent service robot company, publicly listed some industry "oddities". Some companies, after raising significant funding, expanded their sales teams, initiated price wars, used aggressive sales strategies to boost their sales figures, and relied on agents to boost performance. They even shipped goods with a down payment of as low as 10% or 20%.

As the industry veered toward price wars, players’ profits dwindled, and some emerging manufacturers started producing simplified versions of existing products, adding to market confusion.

Chen Yu pointed out that overly low-end products lack competitiveness and viability. The more products are delivered, the more problems arise, leading to deteriorating reputations. Large companies have a competitive advantage due to their scale, allowing them to control costs throughout the supply chain, whereas vicious price wars only disrupt the market.

The reasons for price wars may be linked to the fact that some investors were not concerned about losses, but the current capital market is focused on profitability.

Li Yuhao cited himself as an example, saying that when product and technology are not mature, companies can afford strategic losses. However, as products are mass-produced and technologies mature, they must find ways to lower costs, achieve reasonable gross margins, and offer customers higher value.

According to EO Intelligence, the annual shipment volume of terminal delivery robots in 2021 was in the tens of thousands, with a projected five-year compound annual growth rate of 34.8%. In contrast, the annual shipment volume of commercial robots in 2021 was in the thousands, with a projected five-year compound annual growth rate of 50%.

This suggests that there is still significant room for growth in terms of the penetration rate and shipment volume of hotel robots. What the industry needs are mature, stable products and players with the ability to mass-produce and provide full supply chain resources.

Furthermore, hotel robots can add more value by expanding their functionalities. For example, they can include safety patrols, fire safety inspections, or assistance with food delivery, coffee making, and intelligent linen handling.

"This path is similar to Tesla's approach. Customers buy a piece of hardware that can receive additional features at a relatively low marginal cost," Li Yuhao explained.

What's the next step for hotel robots? While it may seem like the future is promising, the hotel robot business faces challenges.

One awkward fact is that the entire commercial robot industry has barely achieved overall profitability. After the funding frenzy in 2021, the industry expands blindly at the cost of losses, followed by layoffs and fundraising difficulties in 2022.

While some players engaged in price competition and inefficient growth, they recognized that this was a vicious cycle. In the next two to three years, the priority should be improving efficiency, achieving profitability, and expanding sales. "In the next three to four years, leading companies have the opportunity to go public.", said Chen.

This might mean that the technical, design, and funding competitions in the commercial service robot industry have come to an end, and the focus has shifted to product mass production, cost control, and a better understanding of product usage scenarios.

Beyond profitability challenges, the barriers within the commercial service robot industry are not high enough.

Wang Sheng, founding partner of Innoangel Fund, who has studied this field, stated that the industry had some technical barriers in its early stages, but it could serve as retail terminals, which is essentially a supply chain. When robots are deployed in hotels, once they reach a certain volume, each robot becomes a small convenience store. Relying on the advantages of the supply chain and product selection, they earn service fees rather than just sales

In order for this chain to come to fruition, it requires sufficient market penetration and market share. Given the limited usage of hotel robots, guests have not developed the habit of shopping in hotels, and the technology chain of service robots isn't quite intelligent enough, making the barriers to entry in this industry not very high.  It has become a business reliant on distribution channels.

"Each player may carve out a piece of the market, but the main body of commercial real estate in China is relatively dispersed. Additionally, there is intense competition due to the homogeneity of products, and the costs of sales are high. Therefore, domestic top companies are embarking on a transformation towards the high-end," explained Wang Sheng.

Li Yuhao believes that commercial service robots are essentially about the square footage. The ratio of commercial square footage to residential square footage in China may be 4:6. Under the same square footage, the cost of commercial cleaning is higher than that of residential use. In other words, the commercial cleaning market is much larger than the residential market. However, whether the maturity of products and cost control can meet market demand still needs time to be validated.

For the players who have remained in the game, they have gone through different stages: from product demos in 2016-2017, to small-scale production by top companies in 2018-2019, to the industry's boom in 2020-2021. The industry has entered a period of unregulated expansion. The advantage is that the market is rapidly gaining awareness, and the concept of service robots is penetrating various industries. The downside is that in 2022, the industry encountered a downturn as hotel and restaurant offline formats began to shrink. Companies shifted their focus to international markets, making 2022-2023 the year of international expansion, as mentioned by Chen Yu.

Currently, commercial service robot manufacturers are rapidly expanding into global markets, including Europe, Japan, North America, the Middle East, and Australia, which are their primary markets.

Li Yuhao explained that, labor costs are higher in developed countries overseas, and there is also a noticeable labor shortage in the service industry. Abroad, if robots can replace half of a human, hotels may be willing to foot the bill.

In addition to expanding internationally, diversifying product lines and usage scenarios is also a way forward. Some top companies have gradually expanded from the restaurant and hotel sector to industries such as healthcare, supermarkets, agriculture, education, and elderly care. The key challenge here is to understand customer needs in these areas.

In the long term, most entrepreneurs and investors remain optimistic about the industry. As the hotel and restaurant sectors make a comeback, the service robot industry is expected to rebound.

When people born after 1960s enters retirement, there will be a significant labor supply shortage, and service robots are likely to become a necessity. However, in the short term, the entire

industry will face significant pressures, including costs, funding, products, quality, customers, and profitability, according to Li Yuhao.

Wang Sheng believes that there are no problems with the development direction and prospects of robots. In the future, the world will undoubtedly be filled with many robots, much like it is now filled with cars. However, at the current stage, many business-end robots are far from being intelligent entities, merely satisfying single functions.

In the future, robots will integrate emerging technologies, such as cloud computing and embodied intelligence. Only then will the curtain on the era of robots be officially raised. For companies to reach this so-called future, their current focus is on survival and contemplating which robot usage scenarios are worth investing in for costly intelligent upgrades.

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