Vending focuses on convenience features to compete with retail

Beverage vending operators face their biggest competition from the convenience store sector these days, and are struggling to bring price points and the consumer experience up to the retail level, say industry experts. In addition, locations that once were very profitable for vending operators have been disappearing, thanks to manufacturing plant shut-downs in the United States. As cold drink vending grows at a pace of a little more than 1 percent a year, the industry is looking to convenience features and retail-like product management to provide a boost.

According to Mike Lawlor, vice president of national accounts sales at USA Technologies, Malvern, Pa., margins on vended products have not kept up with other retail outlets. “When you look at the price of a beverage in a vending machine, you can find it 25 to 30 percent less than what a convenience store is selling it for.”

Raising prices to c-store levels will require vending machines to accept the more consumer-friendly forms of payment that convenience stores offer such as credit cards, debit cards and higher cash denominations.

“Cash and coin payment systems are good for products that are being sold for 50 cents or a dollar,” Lawlor says. “But once you start crossing over that dollar threshold, it becomes less convenient for the consumer ... The growth in the industry is not with CSDs, it’s really with the non-CSD products — waters, energy drinks, coffee drinks, sports drinks. Those are products that really should be priced at $1.50 [to] $2.50. They need to figure out how to incorporate those new beverages into their brand sets.”

Cashless vending is one way to accommodate higher-priced purchases, especially in today’s card-driven economy. Consumers are growing more accustomed to making small-scale purchases using credit and debit cards. Some payment options don’t even require consumers to swipe a card anymore. A number of soft drink bottlers, including Coca-Cola Bottling Co. United, Birmingham, Ala., and Philadelphia Coca-Cola Bottling Co., have put credit card payment systems on their machines that incorporate MasterCard’s PayPass contactless payment system. Swire Coca-Cola USA, Draper, Utah, also is testing cashless vending in parts of its territory (see page 50 for details).

USA Technologies offers e-Port, a credit card/debit card reader, which can be installed on existing machines and allows consumers to use their credit cards, debit cards and contactless cards. In addition, the company offers the e-Port Connect set of payment services.

“We provide the wireless service that connects that device in the vending machine back to us so we can process and settle those transactions for the customer,” Lawlor says. “We also provide extensive sales data or reporting services for the customers and then they can remotely track sales from the vending machine. They don’t have to physically go out and see what’s going on in the machine.”

Also offering cashless payment solutions, MEI, West Chester, Pa., has launched the Series 2000 4-in-1 Validator, which combines a cash and coin payment system with a credit card swipe reader and contactless payment option. The company says more payment options result in fewer lost sales when consumers don’t have cash on-hand. In addition, wireless technology, or the telemeter within the system, offers a number of vending management solutions. MEI offers the Easitrax remote data port, which allows vending operators to track machines sales from remote locations.

“What we're going for in our mind is for the telemeter to be the center of the universe,” says Chuck Reid, marketing director, Americas and Southeast Asia, at MEI. “If every vending machine has the ability to call out or receive a signal, then the telemeter would enable operational efficiencies. It would allow [soft drink bottlers] to do a better job of managing their installed base of 3 million machines and also allow the machines to be easily retrofitted for cashless.”  

Vending machines that can accept — and make change for — higher bill denominations also are more convenient for consumers to interact with.

“How do I start taking high-order bills — $5 bills, $10 dollar bills — and make change in a way the consumer finds acceptable?” says Craig Lewis, payment solutions product marketing director at Crane Merchandising Systems, based in Stamford, Conn. “[The] traditional vending approach has been to dump tons of quarters into the consumer’s hand ... The big thing we're looking forward to this year is paying out dollar bills. New state-of-the-art bill validators recycle dollar bills just like a clerk would in a store. It's much more acceptable than giving the balance in quarters.”

Lewis says vending presents a bit of a “fragile” sales proposition — if consumers don’t have the right change at the time of purchase, they are unlikely to return when they do. “If you’re able to take the payment the first time, you’ve got it; if not, you don’t,” he says.

The more flexible a machine is in accepting money and giving change in a preferred method, the more likely that vending machine is to get the sale. To help further ensure vending machines are able to give change in a preferred method, Crane’s new bill changers have three times the capacity of older bill recyclers. And Lewis points out, a bonus for route drivers is they don’t have to carry thick bundles of cash because the machines handle larger bills.

Competing with convenience and foodservice retailers also means offering a larger variety of products in vending machines, in a format that lets consumers “shop” the machine and see what they are purchasing.

New glassfront vending machines allow operators to stock many different sizes and varieties of beverages in a single machine, and are slowly making their way into the market. According to Automatic Merchandiser, nearly 119,000 glassfront vending machines were used in the beverage industry by the end of 2006. That compares to 1.8 million closed front can machines and 1.2 million closed front bottle machines. The rollout of these new machines is slow but could account for 2006’s 1.2 percent increase in cold drink vending sales — the magazine indicates glassfront machines generate 20 to 50 percent higher sales.

Crane’s Dixie Narco division offers the BevMax 3 glassfront vending machine, which allows products such as soft drinks, juice, bottled water, and even milk, to be vending from the same machine, all in multiple bottle shapes and sizes. The glassfront machines have more capacity than traditional vending machines, allowing for additional product facings, Lewis says.

Seaga Manufacturing Inc., Freeport, Ill., also offers glassfront vending machines such as the Premium Collection, which includes LED lighting for more vivid displays and energy savings. The line also features safety systems that protect the quality of perishable products.

A concept that comes from the retail industry and stands to benefit from the addition of glassfront machines is the idea of category management for vending. “Consumers are willing to pay a premium for beverages that cater to their preferences, so beverage companies and vending operators should have a good grasp of what the demands of the consumer are,” says Steven Chesney, president at Seaga Manufacturing. “Vending machine menus should be tailored to location demographics and demand.”

MEI’s Reid agrees with that idea, but says it is more of a concept than a reality these days. “For the most part, category management, spiral-level management of product, is a nice idea that hasn't been executed at the vending operator level,” he says.

Integrating the information provided by remote monitoring systems is one way to track sales through specific vending machines and find out what’s selling in certain locations. Using location-level information potentially allows vending operators to merchandise vending machines like any other retail account.

To get a leg up in vending, Reid says, “become experts at merchandising.”

Saving energy is on everyone’s minds these days, and vending equipment manufacturers are offering ways to make their machines more efficient. USA Technologies, Malvern, Pa., offers the VendingMiser system that can reduce the power consumption of a cold drink vending machine by as much as 46 percent, the company says. In addition, the VM2iQ is an “intelligent” system that controls the cooling environment and allows the controller electronics to stay on while the machine is in energy-savings mode.

“We have several hundred thousand of these out in the market, working with clients such as Wal-Mart and Kroger, where they’ve been implemented in the beverage machines because they have seen a savings on the energy associated with their vending machines,” says Mike Lawlor, vice president of national accounts sales at USA Technologies.

In addition, Seaga Manufacturing Inc., Freeport, Ill., says its Premium Collection vending machines with LED lighting run cooler than traditional vending machines and use less energy.

Coffee vending is about to get energized with the introduction of Starbucks hot vending machines. Nicknamed the “Hot Boss” by the Starbucks/PepsiCo North American Coffee Partnership, the vending program uses proprietary vending machines built by PepsiCo that will vend packaged hot coffee in hospitals, universities and other vending locations. The companies placed machines in test market last fall, and will launch more broadly this year.

NACP executives say the move is a natural extension, especially since the Pepsi bottlers that distribute the partnership’s drinks already are vending experts.

The line of six coffees will include Italian Roast Coffee with milk and sugar, Caffe Latte, Caffe Mocha, Caffe Mocha Light, Caramel Latte and Hot Cocoa. The vending machines will heat product on demand — to 140 degrees F in 47 seconds — and the products are packaged in 9-ounce steel cans with an insulated wrap and a lid on the top and bottom of the can to protect consumers’ hands from the heat.

The “Hot Boss” products will take advantage of the higher price points sought by today’s vending operators, and will sell for $2 for the Italian Roast variety and $2.50 for the specialty coffees and cocoa.