EDITOR'S NOTE: Information contained on this page is provided by MEI as a case study submitted for consideration. VENDING TIMES did not interview the parties represented in this article.
MANHATTAN, KS -- Five Star Vending's goal was simple: curb declining sales in its vending machines located on the campus of Kansas State University. Sales had been steadily declining at K-State over the past few years, so the operation decided to make a big change: go cashless.
Five Star predicted that swapping out its cash-only units for devices handling both cash and credit/debit cards would help improve sales by widening payment options. That prediction has proven to be correct.
Photo | SATISFIED CUSTOMER: Today's students, like this Kansas State University vending patron, carry little cash. Five Star Vending installed MEI Cashflow 4-in-1 validators (right) on its machines at the K-State campus, and has experienced a substantial increase in sales volume. The validator features a debris-resistant swipe reader for credit and debit card acceptance.
Five Star gathered information from students on campus and determined that K-State's 23,000 "twenty-somethings" were more likely to be carrying a credit or debit card than a $5 or even a $1 bill.
"We kept hearing over and over that students just don't carry cash," said Ryan Westerman, service manager of Five Star Vending, based here, which is owned by a local Pepsi bottler and serves seven counties in Northeast Kansas. "It was very likely that we were losing sales simply because the students couldn't use their preferred method of payment at the machines."
Once the university agreed to initiate a step-by-step, phased implementation of combination cash acceptors/card readers in some higher volume machines, Five Star turned its attention to selecting technology that would be reliable and offer the fastest payback. The company did its homework and narrowed it down to two vendors -- one of which was its current cash and coin validator partner, MEI.
"Reliability is always our top concern, and MEI had already proven itself tenfold in this area," Westerman said. "They were committed to making this retrofit work, and they worked with us to solve a network connectivity issue that was preventing us from going cashless."
Five Star Vending began installing MEI Cashflow 4-in-1 validator cash acceptor and card-reader bezels in blocks of 10 to 15 machines at a time. "We needed to prove to K-State that this was the right move and would increase revenue," Westerman noted. "In no time at all, we started recouping our investment and seeing a sales lift. The university was impressed, and even agreed to place machines in areas where there was higher traffic -- essentially awarding the machines better real estate than we had before, which was a huge win."
LOUD AND CLEAR
Having opened its doors in 1863, K-State's campus is dotted with historic buildings built with limestone walls a foot or two thick. While beautiful, they attenuate wireless signal reception and thus make the work of networking vending machines for data exchange challenging.
MEI solved this lack of a cellular signal with its Local Area/Wide Area (LAN/WAN) combination network. This technology clusters LAN-equipped vending machines together in areas that can't receive cellular signals so that transaction data from and to each vender on the LAN is relayed through a single WAN-equipped machine strategically positioned in an area that has weak cellular reception. And because these groups of machines share a single cellular connection to the wireless wide-area network, Five Star saved money on data services.
"The LAN/WAN configuration was a huge selling point for us, and really our only option," Westerman said. "MEI was the only vendor that offered this solution."
Five Star looked forward to increased sales volume from the newly equipped machines, but never expected the dramatically high levels of card usage that resulted. One machine had a card-usage rate of 76% during a weeklong period.
"I expected utilization rates of about 40%, but we are seeing some at 70% and rarely anything lower than 50%," Westerman reported. "We are gaining back revenues from incremental sales and impulse buys that we had been missing out on previously. This generation, as we have found, swipes a card for everything -- regardless of the transaction amount." (The average vend price at the K-State vending machines was $1.50).
Five Star also gained some extra, unexpected benefits from leveraging the data sent remotely to its new backend system. Executives are able to see trends throughout all machines, determining right down to the hour what is being sold. Five Star knows when certain machines will be busiest and can more efficiently schedule service trips to make sure they are stocked, and alternatively avoid wasted visits.
"We can see what products sell at particular hours of the day, so we can be a bit more strategic in our product selection," Westerman added. "And we can see when a machine is down" -- avoiding lost sales.
Last, and perhaps most importantly, Five Star did not compromise cash accountability. Drivers still collect cash and enter the information into their handheld computers; but Five Star now can compare both the cash and credit transaction records entered by the driver through a Web-based portal and the bank's deposit report.
Concern about transaction processing cost often has been a deterrent to the adoption of cashless payment capability by vending companies. Westerman explained how Five Star addressed this issue. "We share those costs with the university, and since they receive a commission from the machine sales, it's truly a win-win deal," he reported. "The incremental sales increase more than offsets the fees."
EARNING HIGH MARKS
Five Star and K-State report a return on their cashless investment in as little as two months on some machines, and no more than a year on all the others. Best of all, overall sales have jumped significantly with increases in card usage growing steadily at a clip of 10% a year, on average, since implementation in 2009.
MEI observed that, with numbers like those, it's no wonder that the number of cashless installations in the U.S. is growing swiftly. Cashless is quickly proving itself, earning high marks at campuses like K-State, as well as at hundreds of retail locations around the country.