In April 2023, commercial cleaning robot company Sparkoz (Chinse: 汤恩智能科技) announces that it has raised CNY tens of millions in Series A funding jointly invested by Vision Knight Capital (Chinese: 嘉御资本) and GoHigh Fund (Chinese: 高和资本). In early 2022, Sparkoz also secured CNY tens of millions in angel and pre-Series A funding, with lead investment from Country Garden Venture Capital (Chinese: 碧桂园创投) and joint investment from WaveFront Ventures (Chinese: 创想未来资本).
Founded in 2020, Sparkoz has become the leading domestic provider of commercial intelligent cleaning robot services. Within three years of its establishment, Sparkoz has created a global presence with development layouts in Asia, Europe, and North America. It has successfully entered the prominent North American chain supermarket, 99 Ranch Market, building a trusted international image and becoming one of the representative Chinese enterprises in the field of intelligent manufacturing going global.
The following is part of the conversation between EqualOcean and Sparkoz founder and CEO, Danny Cui:
The transition of the commercial cleaning industry
EqualOcean: What do you view as Sparkoz’s competitive advantages? Which technologies does the company rely on to maintain its leading position in the domestic industry?
Danny Cui: Sparkoz chose to enter the specific commercial cleaning field because we believe it has stepped into the 2.0 phase. During the Industry 1.0 phase, products mainly focused on meeting people's imagination of robots in terms of technology or image. It was a stage of market cultivation and education, where the defined products pursued such a sense of image. In the 2.0 stage, the focus will shift to meeting the needs of a larger customer base in the market, such as cleaning companies, property management companies, and small-scale B-side scenarios. Throughout this process, these customers' demands for the product have evolved from seeking an image to practicality and durability.
For example, clients need cleaning robots that can work continuously for more than 5 hours in a single scene, and to work daily for five to even ten years. Currently, our company has two models targeting these professional B2B scenarios. These cleaning robots can cover over 90% of indoor hard floor cleaning scenarios. In the second half of last year, we established our own sales channels in both domestic and overseas markets. Currently, we have two wholly-owned subsidiaries in Germany and the United States. Based on these subsidiaries, we have formed localized operation teams to serve local customers in developed markets in Europe and America. We have also established long-term relationships with some benchmark customers who make bulk repurchases.
The choice of overseas expansion
EqualOcean: Why did Sparkoz prioritize US and Germany when going global? Besides these two, do you plan to enter other overseas markets?
Danny Cui: I believe that commercial cleaning is fundamentally about the matching relationship between demand and supply. The key factors determining the market size and penetration speed are related to the cost incurred by the demand side in existing solutions.
For example, in the case of the United States, specifically California, the supermarket customers we serve have an hourly labor cost of more than USD 25. In Germany and other developed markets in Western Europe, the average cost is EUR 25 per hour or higher. Ultimately, we believe that the market will only grow rapidly and in a favorable manner if the value we create for end customers, such as the cost savings in labor, is several times higher than the price we ask for. Therefore, we have given a high priority to the markets with the highest labor costs.
For example, take the vertical market of supermarkets and grocery stores in the United States as a case. The median size of a U.S. grocery store is 42,415 ft[1], and its monthly cleaning cost is probably over USD 10,000, with more than USD 3,500 related to daily high-frequency floor cleaning. The labor cost can be calculated by multiplying the previously mentioned USD 25 per hour by 5 hours per day and 30 days. This is the cost they currently incur. After we provide our solution, such as through a leasing model combined with our optimized supply chain capabilities, we can offer a better service at a fraction of their current cost. This enables rapid acceptance and penetration for them.
As for other markets like Southeast Asia, the Middle East, and our domestic market in China, there is still demand. However, from the customer's perspective, the incentive for penetration in these markets will be weaker compared to the developed markets given the cost base difference. We are currently also expanding into some other overseas markets, but the level of investment in local operational capabilities may vary across different markets. In certain markets such as Southeast Asia, Australia, and the Middle East, we are approaching them through local agents.
Building operational capabilities and sales channels overseas
EqualOcean: Are localized sales systems more efficient than distributors?
Danny Cui: I believe they can coexist; it's not an either-or situation. Building localized operational capabilities doesn't mean we operate completely independently. In this operational setup, distributors remain important partners within our ecosystem. This is because when it comes to reaching customers and providing services, whether it's building business relationships or delivering post-purchase services including maintenance, the distribution or agency model allows for faster market penetration and customer reach.
We will build such capabilities regardless of the market or region, but the emphasis is on localization. We only emphasize this more in developed countries because customers in these markets are more concerned about factors such as responsiveness and timely support. They are willing to pay extra for the assurance of prompt service. However, they expect to see the local support system justify the additional cost. Otherwise, customers will naturally perceive the risk as high if we enter a chain of supermarkets with hundreds of stores but lack local service capabilities.
Since autonomous cleaning is still an emerging technology, for the customers, adopting our cleaning robots means either discontinuing third-party outsourcing services or reducing their own headcount. But if the robot malfunctions and doesn't receive a response within 24 or 48 hours, the operation of our customers’ main business can be directly affected. Therefore, they are highly concerned about it. In markets where practicality is a higher priority, I believe building localized service capabilities is highly critical, but of course, it also requires balancing and trade-offs among other factors.
Thoughts on the future of Commercial robots
EqualOcean: What do you think will be the development trend in the global commercial robotics field in the next 3-5 years?
Danny Cui: I believe there will be a tipping point. Before 2025, I think we will start seeing repeat purchases from customers in developed overseas markets. Although there are many players in the industry and some companies have been in the business for a long time, the penetration rate in any single vertical market segment is not high.
The penetration is broad in terms of scenarios, but not high in each individual scenario. For example, unlike the hotel delivery scenario where you can see service robots in most hotels in China, the penetration rate for commercial cleaning is still relatively low.
So I think it will happen in specific overseas scenarios. For example, in supermarkets and grocery stores, we might see 40-50% of them equipped with robots by 2025 in the United States. The cost and supply capability in China can support this, but it might take another three to four years for the domestic market to catch up. Around 2025 to 2028, we will witness the true scale of the market opening in China due to the aging population and rising labor costs. Before that, we will see increasing demand, while the key turning point is when everyone can bring down the cost to a certain level.
About the Interviewee:
Danny Cui, the Founder and CEO of Sparkoz, possesses a remarkable academic and entrepreneurial background. Having graduated from the Special Class for the Gifted Young of the University of Science and Technology of China, he obtained his Ph.D. in Computational Neuroscience from the University of Maryland, USA. He worked as a senior research staff member at Numenta, a neural-inspired AI company in silicon valley. In 2017, assuming the role of a co-founder, Cui joined a robotic vacuum startup, applying visual navigation technology into the realm of household cleaning.