U.S.A. - The continuing proliferation of cold beverages, both traditional and alternative, during a period of economic sluggishness has encouraged operators to weigh the relative advantages of increasing variety to capture additional sales, and of controlling menu expansion in the interest of operational efficiency.
The need for this analysis has been recognized since the start of the alternative beverage boom, more than a decade ago. Operators who perform it, of course, come to different conclusions.
One who continues to come down on the side of maximum variety is Frank Buccero, Vend-All, Inc. (Kansas City, MO). While canned soft drinks continue to represent the lion's share of his sales, he is keenly aware of the sales potential offered by today's wide range of beverage categories and package sizes.
"Can sales are still strong in the Midwest," Buccero explained. "And it's the standard 12-fl.oz. 'Coke,' 'Pepsi,' 'Diet Coke' and 'Diet Pepsi' that lead the pack for us. We introduced 20-fl.oz. soft drinks five or six years ago, as everyone else did; they sell strongly, but cans continue to represent the majority of our sales."
In Buccero's opinion, the advent of glassfront cold beverage machines greatly accelerated the movement of noncarbonated drinks into vending. These have proven very valuable marketing tools, he said, but their cost continues to be a concern, especially in a flat market. At present, Buccero uses equipment from his bottler suppliers, especially the proprietary "elevator" glassfront vender manufactured by Dixie-Narco for Coca-Cola USA.
They do build sales volume. "I guarantee that we will push more heavily with glassfront machines," he said. "Where we use them, we've doubled sales compared with traditional venders." One account, equipped with snack, ice cream, food, cold canned drink and glassfront cold beverage machines, produces an average $700 in sales, of which $300 comes from the glassfront drink machine.
"For alternative beverages to be successful, you have to merchandise them through glassfront machines," he noted, suggesting that this is because patrons are not as familiar with them as with the traditional soft drinks. When customers are not quite sure what something is, the ability to look at it is important to encourage trial.
For the same reason, Buccero added, "we feel strongly that the same type of packaging should be in any one vender, either all cans or all bottles. Otherwise, you confuse your patrons, even if they're familiar with the machine."
Two considerations affecting the speed with which glassfront equipment is adopted are the desirability of first-in, first-out loading and (again) the cost.
Vend-All's clientele is overwhelmingly business and industry, with no schools or hospitals. Buccero observed that the office and manufacturing demographics are different: 20-fl.oz. beverages are more popular with younger male customers, and sell well in factory locations. "'Mountain Dew' is one of our top 20-fl.oz. sellers," he reported. "Males at manufacturing facilities are the most likely to slam it down, for the boost from the sugar and the caffeine." By contrast, patrons in smaller white-collar accounts seem to be the primary targets of advertising for most alternative beverages.
Water is an increasingly popular selection, he added. Vend-All has opted to sell "generic" water, in view of the relatively high cost of "Dasani" and "Aquafina" from Coca-Cola and Pepsi-Cola. Switching to the unbranded product resulted in a unit volume decline of 10% to 15%, Buccero said, but the substantially higher margin has improved the category's profitability.
Buccero also is enjoying good results with "Nesquik" milk beverages, which Vend-All sells through its refrigerated food machines. "We were slow to start carrying 'Nesquik,' even though I read a lot about it," he recalled. "We're starting to move a fair amount of it, even though we have no schools."
ENOUGH IS ENOUGH
A rather more jaundiced view is taken by Vendrite Vending Corp. (New York City). While the company is alert to new beverage products with good sales potential, it is less eager than it once was to try everything new that comes down the pipe.
Operating in a major metropolitan market where a tremendous variety of beverages is available to a patron who simply walks out onto the street affects the salability of certain items in vending machines, said Vendrite's Allan Dubs. "For example, we sell 'Vitamin Water' , they came to us with it," he instanced. "It goes for $2 a pop, and it does sell through vending machines, but not well. However, it's very popular in delis."
Small-package water, in general, is a strong seller in vending, the company's Sid Greenspan added. "It's the hottest thing, and the fastest-growing," he explained. However, the proliferation of water variants poses a problem. "Forty percent of our sales are colas, from the first two slots; the other seven slots produce the remaining 60%," he noted. In most cases, it makes sense to fill those seven columns with a variety of beverages that will appeal to the widest range of tastes; offering different styles of water generally is not an efficient use of limited selling space.
Dubs noted that some things have never sold well in Vendrite's market area, such as the line extensions to the leading cola brands. 'We don't try everything any more," he told VT. "I usually wait for phone calls from customers before I order something new, and not from just one person. I say, let the C-stores try it first; if people like it, they'll ask me for it."
Still, alternative beverages continue to earn their way onto Vendrite's menu. Sports drinks like "Gatorade" and "Powerade" are important to some people, and they have sold well in schools, Greenspan said. Vendrite has not actively pursued the school market, for which it now is thankful, in view of Snapple Beverage Group's exclusive contract with New York City (see story on Page 38). For that reason, the company has not paid a great deal of attention to the new "plastic pint" milk packaging. Vendrite has had success with Hershey's 18-fl.oz. and NestlĂ©'s "Nesquik" 16-fl.oz. bottles, and also sells a substantial quantity of milk in traditional single-serve cartons; in all cases, through its refrigerated food machines.
Vendrite was a pioneer in the sale of "Snapple" ready-to-drink teas in vending, making its own column shims and front-panel graphics before the original Snapple organization had a vending program. "Snapple" remains very popular today, Greenspan said, and its new "Snapple Apple" seems a good idea to him. Vendrite also is interested in trying the "Snapple-a-Day" meal replacement drink in its food venders.
And, unlike many vending companies, Vendrite offers aseptically-packaged drinks, with good results. "The format is a good fit with vending," Greenspan noted. "It's compact and it's neat."
Also responding cautiously to many of the new alternative-beverage initiatives is Tip Top Amusement (Carson City, NV), a full-line vending, music and amusement company that has grown regionally, over its 31-year history, by tailoring its service mix to the specific needs of each of the three market areas it serves. The company was founded 31 years ago; Doug Minter is in charge of the principal business in Carson City, while his son runs a branch in Reno, and his grandson, one in Elko. The vending business is concentrated in Carson City.
The elder Minter reported that cans remain the predominant format in his cold drink business. "We've always bought most of our own equipment, so I can choose the mix of brands I offer based on what my customers want," he explained. "I am starting to buy more bottle machines now.
"I like the Vendo model with the 'live' product display, for vending bottles," he continued. "If an account wants bottles, it generally is happy with just bottles, so I don't need a machine that can hold all the different sizes and formats." The classic drink machines, whether selling cans or bottles, can be loaded much more rapidly than the new glassfront types, and require less frequent service. These economies, in Minter's opinion, more than offset the limitation on variety.
There are far too many products available to permit offering all of them, Minter pointed out. "We just pick the best of each of the top brands, and stock them to capacity in those Vendo machines," he said.
A number of factors contribute to the growing demand for bottles, the industry veteran pointed out. One of them is that the Occupational Safety & Health Administration now mandates bottles in mechanic shops, because they are resealable; open containers are deemed vulnerable to contamination.
Bottles are popular in their own right. "When we get new accounts, there are more requests for bottles than for cans," Minter reported. "But most of our customers who have cans are happy with them; there are a lot of people who think a 20-fl.oz. bottle is too much.
"By the same token, there are those who would be happy to get a 24-fl.oz. drink , which is something I might start handling, because the new machines can handle it," he added.
Tip Top's experience has been similar to Vendrite's in regard to soft drink line extensions. "The basic sodas sell much, much better than any of the new versions of them," Minter reported. And customers want both "Coke" and "Pepsi," he added; "people often are loyal to one or the other, and if you don't offer both, you lose sales." It is for this reason that the company buys its own cold drink machines, rather than leasing equipment from its bottler suppliers.
Location type certainly affects product preference, the veteran operator explained. For example, in hotels, "7Up" and "Coca-Cola" find favor with patrons preparing mixed drinks in their rooms. And Tip Top's policy is to respond to patron requests, then monitor the results. "We give the customers what they ask for," Minter reported. "If it's not selling, we tell them we'll have to take it out."
In the dominant soft drink category, the company orders two pallets of regular or every one of diet. Minter noted that diet sales have been edging up.
The real growth story, however, has been in alternative beverages. "We're selling a lot more non-carbonated drinks; for example, a lot of 'Snapple' through our cold food machines," the Nevada vendor told VT. "We use Coca-Cola's 'Dasani,' Pepsi-Cola's 'Aquafina' and 7-Up's 'Aqua' brands in their machine, and Costco's 'Kirkland' brand in ours. We sell it all at the same price.
"And we sell a lot of Lipton 'Brisk' iced tea," he added. "Some people are going away from the carbonated drinks with iced teas and juices. Still, soda accounts for 90% of our beverage sales , and, of that, it's the big brands, the basics, that sell the most."
This traditional taste has meant that Tip Top receives no requests for current trend-leaders, like energy drinks and chilled coffee-based beverages; thus, the company does not stock these. Similarly, it sells milk through its refrigerated food venders, and has not been asked for the new flavors; regular and chocolate are perennial patron pleasers. Minter pointed out that, in a market with no large industrial enterprises, few if any locations could justify a dedicated milk machine. The product would not sell through rapidly enough to avoid the problem of staleage.
Tip Top's location base includes factories, office buildings, casinos, motels, auto dealerships (which often want service not only for their personnel in the shop and the showroom, but for the convenience of customers), and a U.S. Marine Corps base. From the standpoint of cold-drink volume, Minter observed, the warm-weather months in Nevada definitely drive traffic. "In the summer, sales skyrocket," he said. "We had some 105°F days, and sales were huge."
In that kind of climate, there are companies that wish to offer free cold beverages to customers or visitors; and Tip Top is prepared to sell product to its clients by the case. Training sessions appear to be popular occasions for providing cold drinks on the house.
The economy in Nevada is down, Minter noted, but the slowdown has had little effect on his vending; game play has been much more severely affected. "People are going to keep on eating, if they do nothing else, so vending sales remain steady," he observed.
An area that appears to be suffering more severely is Eureka, in northern California. Dan Marchetti of Rendezvous Music Co. there reported that the local economy is heavily dependent on timber and fishing. Neither industry is healthy, at present.
Marchetti's father founded Rendezvous in 1949 as a music and games operation, then bought a vending business two decades later. Each side makes an approximately equal contribution to profit. The elder Marchetti, who owned the business in partnership with his son, has retired; "but he pops in every now and then to tell me what to do," the current principal quipped.
Rendezvous serves Humboldt, Del Norte and Trinity counties, all of which are predominantly rural. "And it's a very depressed economy," the second-generation vendor reported. Several large mills have shut down, and others have cut back. "It's a huge loss for us to lose a mill with 200 employees," he pointed out. "We had one mill with 1,000 employees that's down to 300. And those accounts are the bread and butter of our operation." The company also serves offices, schools, small retail outlets, college accounts and breakrooms of various sorts, as well as a state prison.
Because the area is on the coast, in giant redwood country, it does attract tourists in season. Motel and tavern business picks up in the summertime. "And the amusement side of the business is picking up a little bit, finally," he added.
Marchetti reported that demand in his area is moving in the direction of bottles, although the demand for cans remains strong. Rendezvous runs quite a few glassfront "bottle drop" machines, he said, and these have their advantages and disadvantages: "The variety is nice, but you have a limited number bottles in each column, so you need a lot of duplicate columns for the big sellers. The machines need frequent service, which can be a drag if you have to drive for an hour to get to a vender."
He is not persuaded that the current proliferation of cold drinks is going to continue as it is. "I think the market is oversaturated with drinks," he stated. "You can only carry so many, and people don't even want as much variety as is out there already. Most of our customers are into the basics."
Those basics are the old favorites, "Coke" and "Pepsi," as well as original "Mountain Dew." More recent variations and line extensions seem not to have built the same kind of devoted followings, Marchetti suggested , "the novelty wears off, and people go back to the old standards."
In Rendezvous Music's area, as in many markets, both Coca-Cola and Pepsi-Cola have built loyal customer bases. As an independent operator that can deploy its own equipment, Rendezvous can provide its clients with either one, or both, as the client wishes.
"We don't have a standard load," Marchetti told VT. "We put in whatever beverages an account wants. Some request energy drinks, like 'Red Bull'; some want juices and alternative beverages; others basically want 'Coke' and 'Pepsi.' The carbonated drinks are the most popular." And demand for diet beverages is strong, he added, "We have at least one diet selection in every machine." Diet drinks generally are more popular in offices.
Water also has become a strong seller. "We carry all brands, including 'Dasani', 'Aquafina,' 'Crystal Springs' and Costco's 'Kirkland,'" the California operator reported. "Some locations care about the brand, and some don't." The appropriate brands are stocked in brand-fronted machines; the customer can choose if the machine is owned by Rendezvous. All brands are priced the same, Marchetti explained; that price usually is lower in a non-commission account.
To date, Rendezvous has not experienced much demand for flavored waters, but it is prepared to respond if requests increase. The company sells milk in its school business, and results are satisfactory; milk also does well in cold food venders. "We use ultrapasteurized milk from a local dairy, as well as conventional half pints," Marchetti said.
In California, the veteran operator observed, schools are becoming a very large problem: "People can't take responsibility for themselves any more," he complained. "The state has to intervene." Youngsters will not buy what they do not like. And, while example and education can improve their choices, those desirable things are not always present. "It's apparently okay to bring soda and candy to school, and to sell sweets to raise funds for activities," he complained.
Christine Gatewood, Nationwide Gourmets of Arizona (Phoenix) is an office beverage service operator with packaged cold drink sales that are strong and growing stronger. The company does no vending at all, and covers the entire state of Arizona with seven full routes and a "miscellaneous" one. It also maintains a staff of three technicians and a fully-equipped service department to keep its brewing equipment in first-rate condition.
"We sell canned and bottled soda, juices, water, alternative beverages and some energy drinks to offices," Gatewood explained. "We have 16-fl.oz. and 24-fl.oz. bottled water, every kind of soda, juices from Ocean Spray, Tropicana and Veryfine, and even Starbucks 'Frappuccino'."
The most popular cold drinks for Nationwide Gourmets continue to be the mainstream "Coke" and "Pepsi" favorites, and lately, bottled water, too. "We sell at least 500 cases of water a month," the Arizona operator reported. "This is the dessert, so to speak." In aggregate, soda and small-package bottled water represent some 80% of cold drink volume, she added.
"A lot of companies give away cold beverages to their employees," Gatewood told VT. "I think a lot of it has to do with the weather; employers here offer free cold drinks the way they give away coffee in colder climates." And this practice is not limited to upscale companies, she noted; it occurs across the board.Like Tip Top Amusement, Nationwide Gourmets is finding that business has held up despite persistent weakness in the economy. "We haven't taken as big a hit as I would have expected," the general manager added. "Business has been pretty steady."