Originally posted – May 30, 2013
Emily Jed is senior editor of Vending Times magazine, the leading trade publication providing information to operators within in the vending industry. She’s been a journalist for more than two decades, most of which has been spent in her current position. Prior to joining Vending Times, Ms. Jed served as an editor for a business trade magazine covering the field of accounting.
Can you give me a quick snapshot of today’s vending industry and its different segments?
“Full-line” vending companies operate a mix of snack, cold drink, refrigerated and frozen food, and hot beverage machines in business-and-industry, institutional (healthcare and education), government and public sites. Many vending operators, however, choose to limit their services to packaged confections and snacks and packaged cold drinks.
Another distinct segment of workplace refreshment providers concentrate exclusively on office coffee service (OCS). They supply and maintain the brewing equipment (which ranges from conventional glass pot or airpot brewers to single-cup systems like Keurig as well as coin-operated systems). OCS operators sell the locations they serve coffee, tea and allied products like creamers, sweeteners and packaged soups, along with other breakroom essentials like paper goods and janitorial supplies. Many OCS operators also provide water coolers and point-of-use water filtration systems.
A growing industry trend in recent years has been a convergence of the segments to provide “total refreshment service” by providing not only vending but also office coffee service.
The bulk vending segment consists of bulk-loaded machines that typically dispense gum, nuts, hard candy, capsuled toys and novelties. Included in the segment are machines vending flat merchandise like temporary tattoos and stickers. These machines are generally placed in public sites.
The coin-operated amusement and music equipment segment is another distinct category, but a good many operators provide both merchandise vending and amusements to locations.
Vending machines are also becoming popular merchandising tools for people not primarily in the vending business, e.g. purveyors of cosmetics and consumer electronics. Their idea is not really to use the vending machine primarily as a profit center (though it may be profitable), but rather to treat it as an advertising medium and conversation piece.
What are some of the major industry trends?
In general, vending has been hit by the economic downturn that began five years ago, and by the shrinking of the American workforce that became apparent in the 1990s. Vending still largely relies on sales in workplaces for most of its revenue, and when workplaces shrink, vending suffers.
Vending, like the coin laundry industry, has been moving toward cashless sales. “Mobile” payments are a hot topic in vending, but the transaction processing infrastructure to support them still is being built.
Another trend is that vending operators are making use of telemetry devices in their machines, which enable information like mechanical malfunctions and out-of stock alerts to be transmitted instantly to the home office and/or field service personnel. Telemetry solutions can also deliver detailed data on the sales performance of individual units in real time.
Management information systems can work seamlessly with telemetry systems sending sales and audit information from machines in the field, offering even greater forecasting accuracy. This makes drivers much more productive, allows for the use of smaller vehicles and tightens inventory control.
Touchscreen displays are engaging vending customers in new ways, such as enabling them to interact with products “virtually” by manipulating 3D images to bring up and read ingredient and nutritional labels and even to play games right on the front of the machine. Operators can also earn incremental revenue from third-party advertising on these high-impact LCD displays.
Micromarkets, or self-checkout miniature convenience stores, are creating quite a buzz in the industry. One of key benefits to this fast-growing retail model is a much wider tolerance for odd package sizes and shapes. A micromarket also offers patrons the ability to pick up the product, examine it up close, and read its nutrition label and ingredients before making a purchase, which is something vending customers can’t do. Operators running micromarkets also typically merchandise a larger number of SKUs through them than they do in vending machines.
What key issues are currently impacting vending companies?
One key issue is the need to find new locations and to develop new service methods that will permit them to keep serving their existing, downsized sites profitably.
Another is the continued upward trend in commodity prices, leading to higher cost of goods.
In addition, increased local, state and federal regulations are impacting what foods and beverages can be sold through vending machines. Additionally, the industry is anxiously awaiting final nutrition-labeling rules that will require companies with 20 or more vending machines to disclose the caloric content of vended food and beverage products prior to the point of sale. There’s still no word from the FDA on when these rules can be expected.
Location management is also increasingly focused on “healthier” vended foods and beverages. This is generally a good thing, since most operators find providing a more diverse range of products that better meets consumers’ growing wellness demands pleases existing customers, draws new ones who never patronized vending machines and often lifts sales. Many operators also lead with their “healthy vending” programs when pitching new accounts.
The problems arise when a location (the trend is most prominent with local and state municipalities) restricts the types of products that can be sold to the exclusion of top-selling vending favorites that provide a well-rounded selection. Customers respond by going elsewhere to purchase what they want, sales become unsustainable for the operator and the location loses sales and the location loses the benefits that vending provides to keep employees onsite, along with commissions.
What are some of the hottest new products on the market?
Items perceived to be a “healthy alternative” to traditional snacks and candies – whether it’s low-fat, whole grain, high-protein, low-calorie, all-natural, etc. Energy drinks and vitamin-enhanced beverages with perceived functional benefits are also in high demand.
Currently what are the top-selling vended candy and soda brands?
Generally, the top big-name brands from the leading manufacturers in single-serve packages that are top sellers in other retail channels are identical category by category.
“Healthier” items are gaining momentum and demand for them is growing. Every operator today should be providing a selection that meets the demands wellness minded consumers.
For laundry owners, what is the cost of placing vending machines into their stores?
Vending machine prices vary widely, just as machine types do. Prices for a new mechanical or small-site electronic machine can range from $500 to $1,500.
The cost of a basic new, full-size ambient-temperature snack machine begins somewhere in the $3,500 range, depending upon its features. A more sophisticated refrigerated machine that has two temperature zones – one ambient and one refrigerated – can cost $6,000 or more. And payment systems and other peripherals, like telemetry devices, also add to a machine’s price.
Used equipment can be substantially cheaper; as with anything previously owned, the condition determines the price. There is a lively vending aftermarket, offering everything from fully remanufactured, state-of-the-art machines to older venders in ‘” as-is” condition, priced accordingly.
Bottlers are also often willing to put in a beverage machine at nominal or no cost, on the condition that the location owner buys a certain number of cases of product per month. The bottler’s driver just delivers the merchandise; the location owner fills and collects.
Some of our members lease their vending machines, while others purchase them outright. In your opinion, what are the pros and cons of each strategy?
The logic is similar to leasing or buying a car, with pluses and minuses to either option. It may pay to lease if you plan to upgrade in a few years. Then again, many of today’s machines can be easily and economically upgraded.
One benefit of buying a machine outright is that you’re likely to get a better price.
Laundromat operators for decades have installed simple, rugged, inexpensive mechanical venders dispensing products like detergent. The same, or very similar, machines can vend a limited selection of candy and snack items. Their limitation, however, is the mechanical payment system, which limits pricing flexibility and often is inconvenient for customers.
Machines with electronic pricing systems break those barriers, but are a good deal more expensive. The most basic sort of full-size glass-front snack machine could be stocked with laundry detergent while devoting the rest of the capacity to candy and snacks.
Another economical alternative is to shop for refurbished last-generation equipment from reputable manufacturers.
Beyond cost, what other key considerations must laundry owners think about before adding a vending element to their stores?
Customer service is the critical factor in vending machine operation. Laundromat operators who put in a vending machine must be aware that the machine will influence most customers’ opinion of the establishment: if it is “clean, filled and working,” it will make a visit to the laundromat more pleasant than it otherwise might be. If it does not work reliably or is sold out of popular items, it will detract from the experience.
In laundries with attendants, the attendant should be empowered to resolve customer problems with the vending machine. In smaller, unattended sites, frequent visits by a supervisor are important.
It’s also important that machines be merchandised with what customers want. Ask them what they like when they’re in the store, or leave a questionnaire for them to fill out. Put in different products and watch what sells and modify the menu as their demand dictates. If you put 10 of an item in and come back and nine are there, it’s not what you want to sell. And if something flies out of the machine, double face it!
What are some common mistakes laundry owners should avoid with regard to their vending operations?
The biggest mistake is ignoring a machine after installing it. Clean the glass-front regularly and have supervisors and technicians perform routine preventive maintenance. Revisit what’s merchandised, and change it up to keep the mix exciting for regular customers, but make sure the top sellers are always in the machine. Know the necessary service frequency to ensure machines never sell out and are always “clean, filled and working.”
What’s the best advice you could give an owner who is thinking about adding or expanding vending in his or her store?
Start by doing your homework, deciding what you want the addition of vending to do for you, studying how best to set it up to do that, setting benchmarks to see whether the objective is being met, and keeping a watchful eye on it. Keep close ties to the end user, listen to what they have to say, and act on it.