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Issue Date: Vol. 47, No. 2, February 2007, Posted On: 3/15/2007


Operators And Suppliers Work To Establish Higher Vend Prices; New Products Are Key

U.S.A. — Pricing is a tricky matter in bulk vending. While industry experts agree that prices of premium encapsulated products should move from 50¢ to 75¢ or $1, implementation of this strategy is causing consternation among operators and suppliers alike.

Already squeezed by higher fuel and product costs, operators are wary of investing money or taking risks to retrofit coin mechs to the higher price points. They also claim that a proven strategy has yet to emerge for making the pricing upgrade.

While some operators have raised prices on their routes aggressively, making the changeover as quickly as possible, others have adopted a targeted approach, switching out coin mechs in specifically selected locations.

Rack configuration strategy also presents a challenge to operators. Some advocate a switch to higher prices across the board, with all 2-in. encapsulated merchandise priced above 50¢ and merchandise in 1-in. capsules raised to 50¢. Others have maintained a selection of 2-in. capsules at 50¢, while adding 1-in. 50¢ capsules to their racks. But it seems that neither strategy has revealed a clear pattern of what locations and demographics are most accepting (or not accepting) of these pricing changes.    

“The shift to higher price points is inevitable, but the conversion process has been very slow across the industry,” said Jonathan Becker, president of L. M. Becker & Co. Inc. “Overall, we’ve noticed that operators are more apt to convert their 1-in. machines to 50¢ rather than taking the plunge to higher priced 2-in. capsuled product.”

According to Becker, several factors are hindering this pricing transition, but a prominent deterrent is the expense of purchasing the coin mechs capable of charging a higher price to establish the 75¢ or $1 vend. He explained that converting a 1-in. capsule vender from 25¢ to 50¢ is easier for operators, because many have 50¢ mechs sitting in their shops.

Tom Theisen of Theisen Vending Company (Minneapolis, MN) has experimented with higher price points in selected locations over the past year with mixed results. “We’ve raised the prices of vended 2-in capsules to 75¢ on our stands in certain locations, but not throughout all of our routes,” he explained. “What we found is that we had a huge increase in sales at the bottom of the racks with the confections, bubble gum, candy and other 25¢ merchandise. So, though we encountered resistance with the higher price points, total sales were ultimately the same.”

According to Theisen, he saw a revenue boost when he raised the price of children’s rides from 50¢ to 75¢.  “That increased our revenue across the board by approximately 20%,” he said. “We had much more success in raising our prices on kiddie rides to 75¢ than we did with our capsuled product.”

CUSTOMERS RESIST

Several industry veterans explain that there are two main factors in customer resistance to higher prices. The first is the perceived value of the merchandise offered. Many young patrons, particularly those in the teen and tween demographic, do not find the merchandise appealing at the higher price points. This is due, at least in part, to the elimination of certain toy fashion accessories from the marketplace. The lead crisis a few years ago severely limited a historically high-performing product category.

The second issue is that operators don’t seek out higher quality merchandise when increasing prices. Instead, they offer what was previously 50¢ product at a higher price. However, some operators claim there aren’t enough high-value items to keep in steady rotation. 

“There is great difficulty in finding good items that fit in capsules and sell well at the higher price points,” said Becker. “And it is costly for a company to purchase and warehouse a wide variety of higher priced products to a limited market. So in order to succeed with this transition, operators and suppliers need to work together and do their respective parts. Suppliers need to take the first step – the parts need to be available for converting equipment, and a variety of good-selling products need to be available for the higher price points.”

According to Becker, his company is taking steps to increase its inventory of premium products for 2-in. capsules. However, as suppliers like Becker begin amplifying their premium merchandise offerings, a few aggressive operators have taken the risky initiative of seeking bulk product from outside their established supply chains. Often this merchandise, sold at closeout prices, comes from dubious sources. And, according to at least one industry pro, many items have not been tested for child safety or lead content.

The risk involved in so-called “gray-market” goods was shown last year when a child’s death, caused by lead poisoning, was traced to a piece of toy jewelry purchased at a “dollar store.” A reputable company, which had contracted to have the toy made as a promotional item, was baffled at how this item made its way through overseas supply chains to end up in the “dollar store.” Details of a subsequent investigation by the company were not released.

Those familiar with the closeout industry explained that in the global marketplace, products that may not adhere to U.S. guidelines for safety can pass through several overseas channels before arriving on store shelves. 

SUPPLIERS CHALLENGED

The move to higher value merchandise has been difficult for suppliers as well as operators, and contracting with overseas companies to manufacture items capable of bringing a 75¢ or $1 vend requires a steep learning curve, manufacturers said.

Adam Dorfman of Allstar Vending said that sales of some higher value merchandise items were disappointing last year, though products aimed at the 50¢ vend, such as a line of licensed Simpsons wristbands, sold well.

“With higher value merchandise, the philosophy of ‘if you build it, they will come,’ was not holding true. For Allstar, this changed when we introduced the Tweety-figure collections in December,” said Dorfman. “We’ve had an overwhelming response from operators. Many said they have only switched to higher vend prices in the past two or three months; a few said that they saw this item as having the perceived value needed. I also think some operators avoided changing their prices because they needed time to work through their inventories. But currently, our best-selling capsule item is at a $1 vend.”

A final factor in the pricing equation could be a recent move by Coinstar Inc., the largest bulk and skill crane operator in the country, to initiate an increased pricing policy for its machines (see VT, October). Last year, the Washington-based company tested higher prices in multiple markets across the country with encouraging results, and the company said it planned to aggressively make the pricing change in both equipment categories.

According to operators and suppliers, if Coinstar aggressively adopts higher priced merchandise, the move will not only pull more of these items into the industry, but could establish a higher prices as the norm in the minds of consumers.

If, as experts predict, the change to higher prices is inevitable, the path to those prices remains unclear. What does seem clear is that during this transitional period, operators will need to adapt according to their individual routes, locations and customer bases.


Topic: Bulk Vending

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