Specialty herbal tea pioneer Hung Fook Tong is harnessing AI to boost sales by predicting the perfect beverage for each individual customer.
According to the latest figures from the Census and Statistics Department (C&SD), retail sales in Hong Kong are up. But, although the first half of this year showed a healthy 13.4 percent increase over the same period in 2017, that doesn’t mean things are getting easier for retailers. Far from it! Listed company Hung Fook Tong Group Holdings Limited (HKSE:1446) has harnessed artificial intelligence (AI) to quench the thirst of consumers and investors with the launch of HUNG+ kiosks.
Research by the Ehrenberg-Bass Institute of Marketing Science suggests that the average online consumer spends a mere 19 seconds on choosing which brand to purchase. It’s even worse in stores, where consumers take just 13 seconds to make up their minds.
With such a narrow window of opportunity, shopkeepers have their work cut out when it comes to sizing up customers and making sales. Hung Fook Tong Group Holdings Limited (HFT) is rolling out intelligent kiosks that use a combination of visual recognition technology and artificial intelligence to identify what each customer is most likely to want, then offers them a choice of tea or healthy food product tailored to their particular tastes.
The new kiosks are smart vending machines fitted with cameras that are connected to the internet, part of the Internet of Things, in turn providing real-time reporting to HFT. A camera photographs the customer standing in front of them. The image is transmitted to an IBM cloud for instant analysis by a custom-designed model. Focusing on multiple factors—climate at the point of sale, and, with the customer’s consent, the customer’s age, gender, etc. —the model examines the data in real time, building a predictive profile that tells the relevant kiosk which drink or product a particular customer is most likely to buy. The kiosk can then make a “personalized” herbal product recommendation.
The new AI technology transforms the relationship the retailer has with the customer at the vending kiosk. What was previously an anonymous purchase has now become more personal awhere the prospective customer is now offered the most appropriate beverage, and most importantly an analytical approach of factors that enables targeted promotion at the point of sale. Beyond this is the ability to plot trends across time and kiosks by any of the variables. Kiosks will become an intelligent device and part of the HFT sales force and ERP architecture.
Dr. Szeto Wing-Fu, general manager and executive director at HFT said, “There are currently about 10 smart vending machines in operation, and a total of 20 smart vending machines will be launched during the year to cover locations beyond the current 117 stores, especially at commercial and office buildings. HFT will be investing in big data research, smart vending machines and the development of unmanned stores.”
HFT engaged IBM partner Tech Data in Hong Kong to develop the intelligence kiosk. Tech data is the world’s’ leading end-to-end distributor of technology products, services and solutions. In Hong Kong, Tech Data’s business model differs from the rest of the global business and operates as a systems integrator. Tech Data developed a face recognition API, leveraging IBM’s advanced AI technology to analyse each customer’s features. In addition to face recognition, the system can also factor in big data from a host of connected or IoT devices, such as point-of-sales data, membership information, inventory records and external factors like temperature and humidity to improve the accuracy of predictions.
There is more to Hung Fook Tong’s AI experiment than improving customer satisfaction—there is also an important strategic dimension. For example, the system can generate detailed sales breakdowns by a host of variables, and project the information on an easy-to-read dashboard for strategic planning or instant action. Sample data (see illustration) for Q2 2018 demonstrates that 15-30 year-olds generate the majority of revenue from the widest variety of tea options.
“Artificial intelligence is no longer emerging—it’s now a practical technology that can be applied widely in different industries and business operations,” said Alan Hui, general manager, Hong Kong and Macau, at Tech Data. “The new AI kiosks that Hung Fook Tong is rolling out in the retail sector are positive proof of how widespread AI has become and the impact it is having on everyone’s daily life.”
AI to increase shareholder returns at HFT
For HFT, the HUNG+ AI-enabled kiosks are part of a long-term goal to enhance efficiency and time to market. The capital expenditure for each new physical store of HFT is on average around HK$800,000. The kiosks cost a fraction of this and are 24/7. HFT currently owns 117 self-operated stores in Hong Kong, and it intends to roll out more kiosks across Hong Kong. The Group was able to report a year-on-year increase in total revenue of 10.1 percent to HK$391.9 million for the six months ended 30 June 2018. During the same period, gross profit rose by 6.6 percent to HK$237.6 million. HUNG+ is part of a focused strategy to get closer to customers and generate satisfactory returns for investors.