CHICAGO - The environment for workplace refreshment services in the short and long term was the subject for an innovative "Leaders' Forum" at the annual meeting of the National Automatic Merchandising Association, held on the first day of its 68th National Expo here. The session was designed to suggest a context for the ensuing educational programming and the trade show.
The Forum was conducted by a panel of industry notables moderated by NAMA president and chief executive officer Richard M. Geerdes. Panelists were Craig H. Hoskins, Vistar/VSA; Douglas C. Huffer, Dixie-Narco; Robert C. Maurer, The Standard Cos.; James H. Terry, Coca-Cola North America; and Richard L. Wyckoff, Aramark Corp.
Setting the stage for the forum was a summary of current tendencies that condition market response to vending, presented by Andrew Cober of Wirthlin Worldwide (Reston, VA). Wirthlin is a leading market research organization whose mission is to identify "strategic imperatives" for its clients.
Cober led off by noting that the industry is growing in a number of nations, and some applications overseas are more advanced than anything yet implemented in the United States. "This will help us," he emphasized.
While vending always has served people away from home, socioeconomic developments are strengthening some definable groups of patrons. Hotel guests, for example, are an important audience, and they are starting to experience a wider range of vending choices. Business travelers, a group overlapping with hotel guests, similarly have access to a greater variety of automated services that extend, or blend into, vending. "Many groups are waiting for you to solve their problems," the market researcher said.
Especially promising is the youth market, Cober said. Today's youngsters embrace technology, and they represent a consumer group that's growing in size and influence. Vending has a head start because of its offer of automated convenience, but the speaker warned that operators must be sure to offer high quality. Young patrons prize ease of use and admire technical sophistication, but they recognize value and demand quality.
"Familiarity breeds favor," Cober suggested. "The greater trust you inspire in your consumers, the more willing they are to try new things you do.
"Technology is in demand," the researcher summarized. "Consumers tell us that vending machines have become more reliable and convenient to use."
This is a promising situation, but it also represents a window of opportunity that may not stay open indefinitely. "The expectation today can be stated as, 'Someone has understood my needs away from home, and will meet them,'" Cober explained.
And vending, like other technology-dependent businesses, runs some risk from a sort of revolution of rising expectations. For one thing, microelectronics has made possible the development of "life management tools" such as mobile phones and personal digital assistants. Consumers have adopted these eagerly, and are hungry for more. "They're not really satisfied with the level of technology available today," he warned. "What they've been given is fine, but they want more: they want intelligence."
For another, several generations of improving quality control and industry-government oversight has reduced tolerance for risk. People demand safe products in a secure environment, the speaker observed.
The great strides made by the food and beverage industries over the past quarter-century thus have their downside, Cober explained. An example is the current public discussion of obesity. He cited a University of Baltimore assessment of state "success" in addressing this issue that equated effective action with the passage of legislation. "And there are 114 pieces of legislation that would affect vending now in state legislatures," he added.
Still, Wirthlin's studies have determined that a majority of Americans do consider themselves primarily responsible for their own wellbeing. Asked to rank how much responsibility each of six entities has for overall health, using a 10-point scale, the average of all respondents rated "you personally" at 8.1, "schools" at 6.9, "expectations created by the media" at 6.0, "food and beverage companies" at 5.9, "government" at 5.8, and "fast food restaurants" at 5.0. And 64% of respondents said that they themselves are "most responsible," with government placing second at 14%.
The public prizes government-industry cooperation, Cober reported. It also values communication, and communication must be understood as both rational and emotional.
Wirthlin's studies strongly suggest that coffee service confronts a situation similar in many respects to that faced by vending. In particular, the demand for convenience and quality, and the sense that "someone understands my needs and will address them," has all but eliminated the lowest-cost-provider model that predominated during the 1980s. "People expect a high-quality coffee service," Cober reported. "It's essential to avoid 'commoditization,' to emphasize value in daily life."
With the stage set, moderator Geerdes asked the panel to comment on demographic factors important to vending.
Coca-Cola's Terry replied that the continued increase in the number of working mothers and the growing demands on everyone's time has made traditional family meals a thing of the past. And the rise in the number of Hispanic consumers has strengthened the demand for fruit-flavored cold beverages; Coke's "Fanta" line, for example, is a strong performer in Mexico.
An important consideration in demographics, Terry observed, is that Americans are living longer, and expect to live longer; this has extended concern with health and fitness into younger age cohorts. Consumers thus are more interested in products offering enhanced energy, lower caloric content and other benefits. Coca-Cola is keenly aware of these shifts in demand, and is addressing them.
Vistar's Hoskins added that, as product suppliers have been reformulating popular items and vending operators have adjusted the product mix in their snack machines to respond to the growing interest in diet as a key component of good health, the public has taken notice and the media have responded positively.
"How do clients see vending? They look at rising healthcare costs, and ask how vendors can help. What can we do to contribute to a solution?" he asked.
Turning to the increased enthusiasm for new technology, Geerdes asked Dixie-Narco's Huffer about the manufacturers' coordination of technological possibility, marketing "sizzle" and final cost in designing new vending machines. "Have we reached the limit for practical application of new technology to equipment?" he asked.
Huffer replied that new technologies certainly are available, and manufacturers are aware of them. Vending often has appeared to be slow in taking advantage of technical advances, he explained, because the principal question for operators always is, "Where's the return on investment?" It's a reasonable question to ask, the industry veteran said.
Manufacturers, like operators, need to see a return on capital investment before they commit to new technology. "It is coming, but not as quickly as you might like," Huffer predicted. There has been promising movement in transaction technology, he pointed out, and this can be expected to continue as America continues its long transition to a service-based economy. There also has been considerable progress in the adoption of new lighting systems that require less maintenance and consume less energy.
Dixie-Narco has defined one goal of machine design as "vendertainment," he said; a machine that's fun to use gives patrons more reasons to buy things from it, rather than from a competing retailer. The company is, historically, a manufacturer of can and bottle vending equipment; it continues to study the market, and is prepared to respond to new opportunities. "We, as a manufacturer, buy the way you do," he told the operators. "We ask, 'what does this piece of machinery cost, and what does it do?'" And manufacturers, like operators, change their equipment mix when there is a sound economic reason for doing so.
Geerdes asked Maurer what impact technology, and consumer enthusiasm for it, is having on coffee service.
The Standard Coffee executive replied that the answer must be put into perspective. "When we compare our 'same-store' sales for 2000 and 2004, we see a decline of about 8%," he said. "Of course, there have been fewer people in offices during the recession; but they're also leaving offices to buy coffee outside. It's the 'coffee-house phenomenon.'"
This appears to validate Cober's point about the increasing importance of quality, and Standard has taken action. "Our manufacturers have been helping us to improve the quality of our coffee," Maurer explained. "So 'we deliver the coffee-house experience.' The equipment needed to do this used to be complicated and expensive."
That's changing, the panelist reported. "I'm excited by the cartridge-based systems, like Flavia's and Keurig's," he said. "They've helped us persuade people not to go across the street for coffee."
Still, the cost has been high for lower-volume sites. "For that reason, the new coffee pods are exciting," Maurer pointed out. "They require lower-cost assets, so we can 'deliver the coffee-house experience' to smaller offices too. This is a new incremental business for us." The sudden proliferation of pod-based brewers at the 2004 NAMA National Expo was the first act of what Maurer believes will be 18 months or so of swift change in the coffee service industry.
Geerdes asked about the effect of the obesity issue, considered against the background provided by the Wirthlin Worldwide study.
"Our industry faces a number of opportunities , and challenges," said Aramark's Wyckoff. "The economy has been sluggish, fewer jobs have been created, and fuel and healthcare costs are rising; all of this has been tough on us." Many operators grappling with the problem of running faster to stay in the same place have had little time to deal with media attacks accusing them of contributing to a national obesity epidemic.
"We've become the lightning-rod for what's wrong with American lifestyles," the industry veteran observed. "The problem comes in two parts, diet and activity, and most people are only talking about diet." The reported increase in the incidence of childhood overweight and obesity can be correlated with the continuing decrease in regular, scheduled exercise in schools. Wyckoff pointed out that Illinois is the only state that still mandates physical education in its schools.
"How can we be part of the solution?" he asked. "We have to increase consumer awareness in order to strengthen education; and we have to offer consumers a choice."
This is where NAMA's new "Healthy Balance for Life" program comes in, Wyckoff emphasized. Slated for official launch before year's end, the program is designed as a sweeping national educational effort involving a wide range of communications media, from vending machine graphics to advertising in public education magazines and a website for youngsters. Wyckoff reported that National Football League Hall of Famer Lynn Swann, who heads the President's Council on Fitness and Sports, is working with NAMA on this initiative.
Geerdes added that Bally's Fitness Centers also has tied in with the campaign. He asked Hoskins to comment on shifts in vendible product sales traceable to increased demand for wellness-oriented snacks.
The Vistar executive reported that, for the past two years, sales of nuts and of meat snacks have "skyrocketed," and he thinks that this phenomenon was a precursor to the current climate of opinion. "Now is the time for suppliers to invest; to look at vending as a retail channel, and to stop saying 'oh, yeah, you too'," he recommended. "It's also time for operators to look at their slots, at pricing and velocity, and to start working to change patron expectations. We have to educate consumers to the fact that the products are there; we have to do more point-of-sale on the machines."
Geerdes asked Terry what he regards as the next growth area for cold beverages.
"We think it will be health and diet-oriented products," the Coca-Cola North America executive replied. "'Flavors' and extensions of popular lines also have good growth potential."
Coca-Cola markets about 80 products in North America, and approximately 300 worldwide, Terry explained. There is ample opportunity for growth in both new and traditional categories.'
Geerdes asked Dixie-Narco's Huffer whether he could predict the nature of "the next 20-fl.oz. bottle."
"Ask Jim (Terry)!" Huffer quipped. "In fact, the 20-fl.oz. bottle was not originally a vending package at all. But it's been good for us.
"We see a lot of beverage packages from all over the world," Huffer observed. "The challenge is to be able to vend any package people want."
The moderator asked Maurer what specific steps OCS operators can take to focus on value.
The great opportunity is to take advantage of the enhanced perception of coffee that the specialty revolution has created, the Standard Coffee executive replied. "The coffee houses did take some business away from us; but they also have give us permission to go to our clients and say, 'There are real differences among coffees! It's not just 'hot and black' any more."
Better coffee will keep valuable employees on site and productive, Maurer emphasized. Office coffee service is a low-cost employee benefit that improves morale and enhances performance, he said; "We have to embrace choice and offer flexibility."Somewhere between 57% and 60% of employers provide coffee, Maurer continued; "and this means that about 40% don't. They haven't recognized our value proposition: that good coffee is a benefit, and great coffee is a reward. We offer a service to our clients, and the value that service is the area in which we need to compete."