Channel Strategies: Vending ramps up new forms of payment
Bottled and canned beverages make up the largest portion of vended products globally. While beverages are expected to keep their stronghold of vending sales, growth in packaged drinks vending is expected to slow through 2013, says Euromonitor International, Chicago. Packaged drinks sold through vending in the United States accounted for $9.5 billion in sales in 2009, according to the research firm.
Through 2013, Euromonitor expects that product mix in vending machines will follow mainstream purchasing trends, with an increase in bottled waters, functional drinks, sports drinks and juices appearing in machines. Unfortunately these new categories are not enough to offset lower demand for carbonated soft drinks, which is slowing down overall packaged drinks vending growth, Euromonitor says.
In addition, the decline in vending sales directly is affected by the state of the economy.
“Vending tends to track with employment numbers, so when there are less people at work, then there is a less captive audience and less people traveling,” says Mandeep Arora, chief executive officer at Cantaloupe Systems, Berkeley, Calif. “So, I think as employment recovers, vending recovers.”
Those that have remained in their jobs have cut back significantly on their disposable consumption, says Chuck Reed, marketing director, Americas and Southeast Asia at MEI Group, West Chester, Pa. Consumers are opting to save money by bringing their own beverages instead of purchasing from vending.
“A jobless recovery is not going to help anybody,” Reed says. “If a jobless recovery is really going to happen here, the industry is going to stay soft.”
The good news is that vending is well established and widely accepted by U.S. consumers. Two-thirds of global vending sales are generated within the top two national markets of Japan and the United States, Euromonitor says.
Better payment methods
With vending acknowledged by consumers as a viable channel, new payment options are helping to break vending out of its downward slump.
One solution to help vending machines mimic the retail experience of other channels and drive more sales is the ability to take larger bill denominations, MEI’s Reed says. MEI offers the Cash Flow Series 2000 VNR (Vending Note Recycler) that can accept bills as high as $20 and pays back $1 or $5 bills as well as coins. An optional high-visibility bezel with bright, low-powered LEDs informs customers which denominations are being accepted.
“It allows a bottler or soda operator to finally take those higher denomination bills, and not worry about starving the change machine as well as, you, the consumer not getting back the equivalent of $18.50 in quarters,” Reed says. “... This is a product that now allows the machine to take the higher denominations that we all carry.”
The bill recycler also can be designed with cashless and contactless payment capabilities for additional convenience. The MEI 4-in-1 bezel can be installed, which allows the Cashflow VNR to accept cash, MEI coupons, credit card and contactless payments.
Cashless payment options make sense in the right environment like convention centers with higher prices, but vending machines in offices with lower prices would not necessitate the use of a credit card, Reed says. Cashless payment machines continue to enter the market slowly, he says.
“Probably less than 50,000 have a cashless payment system on them, so the penetration remains very light compared to what you might think it would be primarily because it’s still pretty darn expensive to take a cashless transaction,” Reed says. “The cost of equipment is higher than just the traditional bill validator, but as importantly, there are still a lot of fixed costs.”
Cashless vending requires communication costs to send transactions to credit and bank card companies, along with transaction fees associated with low-value transactions.
“Cashless is certainly where we believe the market will eventually end up,” Reed says. “We look at bill recycling as kind of a bridge to that.”
Crane Merchandising Systems, Stanford, Conn., also provides consumers convenient payment options for vending machines. The company offers a coin neck that holds up to six tubes of coins.
“The whole goal of it is that it can hold up to $325 of change, which is the same amount of change as a lot of dollar bill changers that you see screwed into the wall to make change for people using vending machines,” says Craig Lewis, payment solutions product marketing director at Crane.
The changer allows consumers to pay with change and bill denominations up to $20, and change can be returned in quarters or $1 coins.
“Vending is always an impulse process,” Lewis says. “No one says, ‘I couldn’t get this soda yesterday, so I’ll get two today.’ You either make the sale or lose it forever. The idea to support the changer would be to satisfy the consumer’s desire to consume right away.”
The changer also provides 50 percent more change than typical vending machines, Lewis says. “The idea is that your machine should run out of product before your coin neck runs out of change,” he says.
Crane also is in the process of launching a bill recycler that can accept bills as high as $20 and pays back $1 or $5 bills as well as coins. The system works by pulling the money into a recycling area, so when it needs that money as change it can dispense it out as change, Lewis says.
The ability to take different forms of payment is critical to keep vending profitable, MEI’s Reed adds.
“Everybody in the industry understands that we’ve got to start taking cashless,” Reed explains. “We’ve got to start taking higher denomination bills because we not only lose the immediate sales, but we might lose a full day’s sales from you. As that becomes more of a behavior change for you, I didn’t just lose today’s sales â€” I lost a whole week’s sales.”
Placement and reliability
While vending can be a very efficient route to market, vending also could benefit by the smart placement of new machines, Crane’s Lewis says.
“Depending if it’s bottles or cans, it could be 250 to 800 services in a machine, and it will sit there patiently selling your product,” he says. “We’ve kind of been using a shotgun approach of where machines are located as opposed to a rifle approach â€” making sure we’ve got the right brands for the right consumers. Increasing amounts of software will put the right brands in there for the right group.”
With the fragmentation of consumer preferences, glass-front vending machines provide one solution to offer consumers a range of beverages. In addition to being able to offer a wider array of packages and products, consumers actually can see the products in the machines.
Dixie-Narco, a subsidiary of Crane, is in the development process of BevMax 4, the newest addition to its line of glass-front vending machines. BevMax 4 meets the U.S. Department of Energy’s energy efficiency regulations for heating, cooling, lighting and more, Lewis says. In addition, the BevMax 4 keeps a more consistent temperature, and delivers a more controlled beverage experience for the consumer, he says. The BevMax 4 also offers more capacity than the BevMax 3, because the new machine includes an additional column and row.
In addition to the ability to offer variety and placement, the reliability of the vending machine also is important. Consumers who find a vending machine unreliable enough, will learn to turn to a different channel, Reed says. The typical soft drink vending machine tends to be around 13 to 14 years old, and on full line equipment, machines range up to 20 years old, he says.
“People have got to get rid of these old vending machines that don’t work very well, because when the store is closed you will go somewhere else to use your money,” he says. “If your store is closed more often than it’s open, then you’ll see changed behavior.”
In addition to new payment and display choices, new management technology is helping vending operators be more efficient. Cantaloupe Systems developed a device that goes inside a vending machine, and monitors processes including sales data, cash data, temperature, the number of products in the machine, power and alarms.
Its technology platform, called Seed, transmits all the information from the vending machines to Cantaloupe’s headquarters via cellular transmission. The Seed device can call in from a vending machine as often as a company wants, with most calling in about six times a day, the company says. Cantaloupe’s software analysis then allows bottlers the option to pre-pick based on historical and real-time forecasting, keep tabs on cash, monitor machine health and write reports. The company’s tagline for the system is “where to go, when to go and what to take,” Arora says. The system is able to produce a recommendation of where to send a driver the next day and what to put on the truck, he explains.
“Traditionally service people either go in with a full cart, or go in, write down what they need, walk back out to the truck and then fill their cart,” Arora says. “With Seed, you are able to pre-pack orders for each machine, so the service person is able to pull up to the location and they grab a kit that was already made in the warehouse for the machine in front of Safeway. They just grab their bin and walk up to the machine, empty the bin and then continue on their day. There is a big impact in driver efficiency as well as fuel usage.”
In the initial stages of implementation, Cantaloupe’s customers are able to reduce their fleet sizes by about 30 percent, and in the advanced stages of implementation some companies have seen fleet reduction in the range of 50 percent, Arora says. Some customers do not recieve any fleet reduction, though, but instead will see sales increase, he says.
“In vending, because we’ve had to guess when to go to the machine, some people end up over servicing â€” being there too frequently â€” and those are the people who get fleet reduction because they have been over doing it,” Arora says. “But some organizations have been under servicing their equipment, and those organizations, they won’t see a fleet reduction. They’ll see a sales increase because they have been at the machines too infrequently and have been having a lot of out-of-stocks at the machine.”
Since Cantaloupe’s Seed connects the machines to the Internet, the technology is built to expand its capabilities, Arora says. This year, the company anticipates adding credit card acceptors. The company also plans to launch a new version of its software called Seed Enterprise, which offers a number of new tools, including one called Dynamic Merchandising.
“Early on, we really focused on scheduling, getting service people to where they need to be when they need to be there, which is really the most obvious big win out there,” Arora says. “But in [Dynamic] Merchandising, we focused on ‘what do we put in the machines to reduce out-of-stocks to increase sales?’ You’ll find often times, especially in those 50 select snack and soda machines, that there are a lot of items in the machine that just don’t sell very well. It’s a lot of work to be looking out and figuring out and turning things over. Merchandising will be aiming to help utilize the shelf space better, looking at those top sellers and increasing stock of those to insure that your No. 1 selling item never runs out of stock and the first items to run out of stock is hopefully your fourth or fifth best selling item.” BI