Vending reacts to shifting economy
January 15, 2009
Want to know where the economy is headed? Look at vending sales, say industry experts. While the extent of last year’s slowdown took some by surprise, vending operators who service business and industry (B&I) locations saw signs of trouble long before they appeared on Wall Street.
“For years, we’ve known that vending at B&I is a leading indicator for the economy,” says Brad Bachtelle, president of vending industry consultant Bachtelle and Associates, Tustin, Calif. “We saw an accelerating economic situation happening a year and a half ago.”
Vending is one of the first retail outlets to react to layoffs, declines in overtime hours, or financial tensions that cause employees to brown bag their lunches or forego snacks to save money, he says.
Last year, vended beverage sales in the United States brought in almost $9.5 billion, according to Euromonitor International, Chicago. By 2012, that number is expected to increase to $10.4 billion. The company foresees a slight increase in volume through vending machines, from 4.5 million liters in 2007 to 4.6 million by 2012, indicating that most growth will come from price increases rather than more products sold.
But increasing prices in vending, even just to bring them to up par with other on-the-go retail channels, is a challenge, Bachtelle says. Vending prices must incorporate sales taxes and bottle deposits, for example, which are added at the register at other outlets and often go unperceived by the consumer.
In addition, vending has been slow to incorporate new products or find ways to communicate the breadth of products available in vending machines. Most beverage vending machines feature graphics of primary or flagship brands only, Bachtelle says.
“That creates an issue with vending machines that have a full-front graphic of a single brand â€” how do you let consumers know there are energy drinks in there? Or that Mountain Dew is in there? Well, you put a little 2-inch sticker on the flavor selection panel and hope that the consumer finds it,” he says.
“Clearly you get very strong benefits from the graphic of the primary brand. Unfortunately though you also get very weak graphics of the secondary brands.”
And that can be a problem in a market where consumers are clamoring for variety. Glass-front vending machines are one solution since they can vend a range of products from traditional soft drinks to energy drinks to ready-to-drink teas and coffees. In addition to being able to vend a wider array of packages, consumers can actually see the products in the machine. While they can cost more than traditional machines, glass-front vendors have been shown to sell more product at the same location due to better secondary brand availability and visibility, Bachtelle says.
High visibility inside the machine also means operators have to stay on top of out-of-stocks, as empty spirals can be perceived as an empty machine, even if the machine actually has plenty of inventory.
“There are certain software technologies for glass-front machines that are not fully being utilized yet that automatically rotate products between spirals with similar items. This will help operators create the perception of better service â€” even though the machines are already being serviced correctly and they have adequate inventory. It’s just that any empty spiral makes the machine look partially empty,” Bachtelle says.
A cashless world
Another technology vending operators expect to boost sales is cashless vending. Younger consumers have embraced debit cards, in particular, and more consumers use plastic for everyday purchases.
“Cashless is necessary,” Bachtelle says. “Everybody knows what cashless has done to fast food and virtually every channel that it has gone into … It’s a huge portion of total consumer purchasing power in the United States. Conversely, you look at the use of the dollar bill and its overall usage is down. It’s down in every single channel.”
Chuck Reed, marketing director, Americas and Southeast Asia, for MEI Group, West Chester, Pa., agrees that the industry is heading toward cashless, though there are hurdles in its way.
“We’re all anxious for cashless to take hold in the market, and I continue to say it’s not a matter of if, it’s a matter of when … The problem is that the costs associated with cashless really just eat up any profits that exist at a price point of $1.25 or less, which unfort-unately is what’s in vending,” he says.
At a $2 sale price, cashless payment systems begin to deliver a return on investment, he says.
The industry is working with the credit card companies to find solutions to the high fees, he points out, perhaps including a fee structure for vending that is different than other retail outlets.
MEI has developed cashless payment systems for vending, as well as solutions for larger bill denominations. It introduced the Cash Flow Series 2000 VNR (vending note recycler) that can accept bills as high as $20 and give change in $1 or $5 bills. The VNR has a 30-note capacity and can be installed on existing machines.
“In the past [consumers] might have been hesitant to put in a $20 bill, even if it would take it, and then get $18.75 in quarters,” Reed says. “Now I can take that $20 bill, pay back three fives and a couple coins. So I’ve now broken the $20, given back fundamentally what you want, like in a retail outlet. I’ve given back mostly paper, so you’re more predisposed to a purchase from that machine.”
The bill recycler also can be designed with cashless and contactless payment capabilities. “It’s kind of the ultimate in terms of an unattended payment system that we expect the industry to really pick up on, particularly with most of us going to an ATM and getting larger denomination bills,” Reed says. “Now you can finally take those bills and not risk ‘changer starvation’ or risk the customer saying, ‘I just don’t want a heavy pocketful of change back.’”
Craig Lewis, payment solutions product marketing director at Crane Merchandising Systems, Stamford, Conn., says his company also is developing cashless and contactless payment systems and the ability to dispense paper money in its bill acceptors, as well as a new coin neck that holds up to six tubes of coins. As consumers use bills of higher denominations, the chances of running out of change before the machine runs out of product increases, he says. The larger change capacity, which is expected to launch early this year, is designed to ensure that does not happen.
Such issues of reliability should be top of mind, Lewis says. In a tough economy, “vending is out there on the leading edge, so we have to work the hardest to continue to earn our daily bread,” he says.
One way Crane is helping vendors maintain customer satisfaction is by working with wireless providers to speed processing times for cashless and contactless vending. “If you stop along a turnpike and swipe a card, it may take 12 to 20 seconds before it says your credit card has been approved. That’s an eon when you’re in a vending scenario,” Lewis says. “You want to plug your money in, get [your beverage] and get back in your car. We’re able to cut that roughly in half so it’s a faster process.”
The right mix
Along with reliability and easy payment, Bachtelle says vending operators would do well to think of their business as less of an operational or service-based channel and more like any other retail environment. That includes well-researched category management.
“Facings and inventory need to be balanced against throughput, pure and simple,” he says. “When products don’t deliver revenue according to either the facing share or the inventory share, something needs to be adjusted.”
Beverage vending can be challenged in this area because changes require taking products out of the machine, changing face plates and finding ways to let consumers know the machine contains new products. But it is an effort that results in incremental sales, Bachtelle says.
In addition, many companies skip the vending channel in new product rollouts, which could be a mistake.
“Think about it, why do people buy from vending machines? Because vending takes product where consumers are as opposed to requiring consumers to go where product is,” Bachtelle says. “What better place to accelerate consumer sampling than in locations where consumers are restricted to eight total beverages.”
Snack vending, he says, has proved new products sell well through the vending channel. “Every time you rotate the products in a snack machine you get a hit on volume,” he says. “There is a very high trial rate on new products.”
Snack machines’ design makes them easier to add new products, he admits, since a new product is normally back-loaded, or loaded with new product right behind the old. Stack vendors cannot be back-loaded because the selection buttons will not accurately reflect what’s in the machine.
“So there are some challenges,” Bachtelle says. “… We just have to find the things that work and make them happen and execute them effectively within vending. Improved vending merchandising will drive additional location sales â€” and additional operating profits.” BI