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Issue Date: Vol. 45, No. 12, December 2005, Posted On: 12/7/2005


Experts Review Technology Outlook At NAMA National Expo Symposium


Tim Sanford
Editor@vendingtimes.net

ATLANTA — The present status of vending industry technology was the topic for the VendTec panelists during the National Automatic Merchandising Association’s 2005 National Expo here. This was the second full-scale VendTec session presented by NAMA, following the well-received inaugural panel discussion at the NAMA Spring Expo.

The present grows out of the past and holds the potential for future developments, said panel moderator Michael Kasavana, Michigan State University. He and panelists Craig Lewis of MEI and Jim Turner, USA Technologies, offered operators an overview of the state of the art and the prospects it holds for the vending industry.

“Technology has changed dramatically over the past 10 years,” said Dr. Kasavana, who is the National Automatic Merchandising Association Endowed Professor at MSU’s School of Hospitality Business. “When was the last time you saw a desktop adding machine, or a television set with the controls on the front panel?”

The Internet, in fact, represents the convergence of telecommunications and electronic data processing, the key technologies of the post-industrial revolution. And it is, among many other things, “the world’s largest vending machine,” Prof. Kasavana observed – the consumer makes purchases without the mediation of another human being, and cannot touch the product before it’s delivered. He suggested that a workable definition of “vending” might be “automatic retailing with non-automatic replenishment,” and that describes much online retailing too.

The objectives of NAMA’s VendTec education program, he explained, are to clarify the role of technology in providing a competitive edge, improving productivity and enhancing profitability. At present, the developments attracting the most attention in this regard are the vending industry data transfer standard (usually called DEX, after the Uniform Code Council’s DEX/UCS – Direct EXchange Uniform Communications Standard protocol from which it was derived) and the Multi-Drop Bus internal communications protocol (MDB/ICP). These have greatly simplified the task of implementing practical, economical cashless transaction processing, as well as wireless data transmission to automate remote machine inventory-taking and collection auditing. Collectively, all these things move the vending industry closer to the efficient, responsive self-service retailing medium that Prof. Kasavana calls “v-commerce.”

The successive developments that have advanced vending technology to its present state are described in two White Papers authored by Prof. Kasavana for NAMA. Understanding MDB, DEX and DTS deals with the standards and protocols whose adoption makes possible “plug-and-play” interoperability among vending machine controllers and selection interfaces, pricing/credit devices, power supplies and satellite venders, and communication with data transmission and collection systems. Cashless Vending describes the evolution of hosted internal (closed) payment concepts, which have ranged from tokens to prepaid media, and external (open) systems that allow purchases with major credit and debit cards or cellular telephones.

In following this evolution, Prof. Kasavana said, it is useful to think of four generations of equipment design. By the late 1970s, electromechanical vending machines and satisfactory multi-price coin changers had been perfected. The changer had become “intelligent,” serving as the brain of the machine, and its instructions to the vender were sent over proprietary interfaces.

SMART CONTROLLER

In the mid-1980s, the electromechanical model had been succeeded by successful electronic designs; the “intelligence” now resided on the vending machine controller, simplifying the addition of new payment options like bill validators. The controller received inputs from the payment system through a serial interface.

As the new millennium approached, a decade and a half later, “enhanced electronic” machines were being manufactured. The new multi-drop bus allowed the controller to interact with a wider range of peripherals, not just the pricing/credit module but everything from the vender’s refrigeration system to an adjacent satellite dispensing module. The controller board also could capture detailed transaction information, for retrieval by a handheld computer, a local-area wireless network accessible from a route truck at curbside, or a wide-area network giving the operator online access to the data from a remote office.

At present, the trend toward true open architecture is accelerating, and new capabilities such as energy management have become simple to implement. These are appearing on the fourth generation of equipment.

A hot topic over the past several years has been cashless vending, Prof. Kasavana observed. The benefits of enabling customers to make vending purchases without depleting the cash they have on their persons have long been understood: augmenting the convenience of purchasing always boosts sales, and patrons are more likely to make multiple purchases. Operators know that the price sensitivity traditionally attributed to vending patrons is, to a great extent, a function of the need to insert cash into a machine; and vending never has had an efficient method for implementing odd-cent pricing – a potent promotional tool in most other retail channels. Removing cash from vending machines “on the street” reduces costs and tightens control. And all of these benefits bolster the bottom line with increased revenues and lower operating expenses. In summary, he said, “without cashless payment capability, no cash meant no sale; with that capability, no cash is no problem.”

Over the past several decades, the American consumer has shown a consistent preference for cashless payment options, in all retail venues from department stores to fast-food restaurants. Thus, an operator’s ability to offer cashless convenience can be a valuable bargaining chip when negotiating with accounts, the speaker added.

Operators today can choose between “closed” and “open” cashless payment systems, Prof. Kasavana reminded the audience. The “closed” model is based on a proprietary payment medium that the location and the operator issue to the clientele; its advantage is that there are no transaction-processing or other service fees, and the system often can be customized to meet specific account objectives.

“Open” cashless payment systems can be based on the credit and debit cards that consumers are accustomed to using for all kinds of retail purchases, or on cellular telephones (the mobile or “m”-commerce model). Other traditional open-system payment media include checks, coupons and vouchers; the application of some of these in vending is problematical.

In the spotlight at present are contactless credit/debit instruments with embedded transponders that can be read by a short-range radio transceiver; these “RFID” media are being extensively promoted by major card issuers for small purchases, and such a system is easy to implement in vending.

The advantages of an “open” system are that it permits customers to use an instrument with which they’re thoroughly familiar, and that most of them carry all the time. On the other hand, the need for remote verification, transaction recording and electronic funds transfer imposes costs that take the form of network and processing fees.

Cashless payment systems available today can link to a location database – a business-and-industry client’s payroll software, for example, or a college’s meal plan or other student-accounts computer – and to a loyalty program, if desired. It can allow hotel guests to use their room keys to make vending purchases; it can enable an employer to implement cost-effective incentive programs. And it can provide efficient transaction analysis.

The technology that has widened vending cashless payment options also has made remote machine monitoring increasingly practical, Prof. Kasavana continued. In fact, remote monitoring is evolving into “remote machine interactivity,” whereby operators not only can determine a machine’s inventory and functional status from a remote computer, but also can modify machine functions from a distance.

ELECTRONIC METER

Operators traditionally have regarded collection auditing as the highest-priority feature of a transaction recording system, and the most basic such system is a meter in the machine that is incremented with each vend. The first electronic data capture devices performed the same task as the meter, but the readings were transferred to a portable data collection device and brought back to headquarters for reconciliation.

The industry’s adoption of a data transfer standard, DEX, put the cash meter on the controller board, and captured the transactions in a standard format so the information could be retrieved by readily-available handheld computers. The connector that allows a handheld computer to be plugged into the controller board also can link the controller to a modem or a network interface device, so the captured information can be read at a distance.

But DEX can do more than rationalize the collection of audit data. The standard allows for “line-item” sales recording, so every payment can be matched up with the delivery of a specific stock-keeping unit. This not only permits immediate settlement, but also enables remote inventory-taking. A driver can determine exactly what products are needed to replenish the machines in a location while still in the route truck outside. Machine inventories also can be taken from headquarters, allowing more efficient truck loading and, ultimately, streamlining the entire product purchasing task.

Prof. Kasavana pointed out that, at present, an obstacle to taking full advantage of this sales tracking capability is the weakness of the “product mapping” function. A machine cannot determine what specific item, nor even what category of item, has been placed in one of its columns. Therefore, each SKU must be assigned a code in a central database, and that database must be updated continually with information recorded by drivers as they follow the load instructions presented to them by their handheld computers. Operators with well-designed and carefully implemented planograms do not have a great deal of trouble with this requirement, but it does absorb a good deal of administrative overhead.

Many engineering advances have accompanied the overall movement toward integration of individual vending machines into networks. Among those attracting attention at present are “coin manager” changers that monitor the number of coins in each tube, replenishing them as needed from coins inserted for purchases; “product assurance” sense-and-feedback circuitry that detects the delivery of an item and takes appropriate action if the item is not delivered; and “dynamic scheduling,” in which the frequency of service is adjusted according to the percentage of machine inventory depletion. Considered together with the increasing practicality of remote machine interactivity and cashless payment, Prof. Kasavana said, all these developments have brought the industry closer to the ideal of “v-engineering.” This will make each machine fully transparent to the operator, optimizing selectivity and enabling sophisticated category management while assuring customers that the vender is filled and working.

The moderator concluded by reporting that investment in information technology by the hospitality industry at present is around 5%. The comparable figure for vending is just over 1%, and there is a real need for improvement here.

He introduced MEI engineering manager Craig Lewis, a 20-year industry veteran who explained that MEI’s parent company, Mars, is a family-owned business with a billion-dollar vending business worldwide. MEI’s mission is to provide the solutions needed to help self-service businesses thrive, he said, and this involves a broad market that includes not only merchandise vending but also amusements and other enterprises with a need for automated payment systems.

The challenges that confront vending include the need to deal with cash and, increasingly, cash equivalents, as well as products, and to do so in a secure and efficient manner. Lewis pointed out that these classic challenges, imposed by the nature of the business, also can be seen as opportunities, since operators who succeed in mastering them will enjoy real competitive advantages.

Cash and cash equivalents today include coins (in the coinbox and also in the changer inventory), bills, tokens and coupons, major credit and bank debit cards, and “closed-site” prepaid media. Each presents its own problems, he said.

The cash component of vending always has entailed the difficulty of accounting for missing money. Not only must the shortage be detected promptly, but it then must be explained. Losses might be traced to the route driver, the service technician, the supervisor, or an outsider who has come into possession of a key that was lost, stolen or sold.

Because vending machines (and route trucks) also contain product, the accountability requirement is complex, Lewis noted. It is possible for a mischief-maker to substitute products in a machine, and skim the corresponding payments from the collection. A more sophisticated scheme involved “arbitrage,” in which value is moved from higher- to lower-volume machines, with the mover taking a cut along the way.

The industry’s ancient first line of defense has been the meters in the machine, usually a non-resettable one that sometimes is supplemented by another which can be reset to zero on each service. The meter readings must be matched to the collections, after the cash has been counted in the money room.

When a shortage is detected, the traditional next step is to read the route ticket against the corresponding collection, the speaker pointed out. The ability of a DEX system to capture every transaction provides a more accurate picture and far tighter control. No transcription of paper tickets is required; the process is “blind” (the driver can’t see the meter reading); there is much less opportunity for tampering, and the whole procedure takes very little time.

THE CHANGE BANK

Another difficulty operators have with cash is the need to maintain a supply of coins in the machines’ changers, Lewis continued. That money, of course, can be pilfered too, and so it has to be accounted for. There should be no discrepancy between the inferred and the actual amounts in each changer, but until recently, there has been no way to determine the actual level without physically counting the coin. There are real benefits to a changer that can determine and report its coin inventory automatically.

Product adds to the difficulty, the MEI executive pointed out. While good manual tracking systems were developed during the full-line vending revolution of the 1960s, the best they could do was to record product movement by category; detailing the performance of the exact product put into every slot was too time-consuming. There was widespread recognition that “line-item” sales analysis would be used to increase per-machine sales, but the ability to capture information at the product level awaited the development of the vending industry data transfer standard.

When fully implemented, a DEX system records sales by SKU, Lewis observed; it is able to specify exactly what’s needed to restock the machine. To take full advantage of this capability, the operator’s management software should offer route drivers the ability to “back up” a column. For example, if a column should be filled with 15 bags of regular M&M’s and there are three bags remaining, and if the driver doesn’t have enough stock, it is customary to substitute peanut M&M’s to make up the difference; the handheld route computer should allow the driver to record this substitution.

Above all, product-level sales information empowers fact-based marketing. “Technology should make your life easier,” the speaker emphasized. A good system of management controls will record the arrival of product in the warehouse, its transfer to truck inventory and subsequent movement into the machine, and its ultimate removal from inventory in exchange for cash. Along the way, the software should keep track of all the relevant units – the pallet, the case, and so on – with a single data entry. Software also can minimize waste, especially in food vending, by keeping track of returns, specifying what’s needed and determining what’s popular.

An important part of making life easier is enabling the route driver to work more productively. Thus, Lewis said, the purpose of upgrading to handheld devices that maintain electronic route tickets and automatically upload DEX data is not simply to tighten accountability, but also to increase per-machine sales and speed up machine service. The electronic system should provide more and better information, and it also should save time.

In this regard, the MEI executive observed, it can be very helpful to eliminate the need for a “first walk” past the machines in a location by enabling the driver to take inventory remotely, from the truck. This can be done today with a low-cost transmission system for the machines, based on a short-range wireless link very similar to that of a cordless telephone or wi-fi wireless local-area network. Knowing exactly what products to pick before leaving the truck can save the driver enough time to permit adding stops to the route, and so to make more money with less effort.

This curbside inventory technology involves low-powered transmitters, limited by the Federal Communications Commission to 1000 mW, Lewis explained. Depending on the conditions imposed by the location, this may make it necessary to equip most of the machines on the site to relay their data to the one best situated to punch a signal out to the truck. This usually entails some sort of daisy-chain or “bunny-hopping” network. Results also may be improved by replacing the standard broadcast antenna with a directional one, which emits a stronger signal by concentrating the energy into a narrow beam.

It is worth doing, the speaker emphasized. “One of our operator customers in New York City has found that eliminating the ‘first walk’ is saving his drivers an average of two hours per day,” he reported.

Today’s technology not only can get the driver in and out of each stop more rapidly; it also provides a means to redefine a route so more machines can be serviced from one truck. At present, Lewis said, 90% of the vending industry continues to use “calendar” scheduling, with locations slated for visits on a regular frequency (twice a week, for example). If carefully designed, frequently reviewed and revised when necessary, this can work adequately for locations with predictable populations; its defects are most evident in sites where the traffic varies randomly from day to day.

Available alternatives include “forecasted” scheduling, in which a continually updated sales history is used by software to predict inventory depletions and forecast the date on which service will be necessary. Over the course of a year, this can provide real savings in vehicle use and driver time. Finally, machines equipped for remote inventory-taking can be scheduled for service “dynamically” – a stop can be scheduled only when it’s known to be needed. This is especially valuable in locations with widely variable daily populations.

Lewis explained that there are many options for the remote monitoring that enables “dynamic” scheduling. In the simplest, machines are polled once a day, usually during off hours. The most sophisticated allows real-time observation of machine activity. In most cases, the cellular telephone network can be used to link machines, equipped to transmit cellular packet data, to the central computer; other network options are available. In any case, the speaker said, the starting-point for the operator is to set performance objectives – the most important one is arranging for fewer visits with no increase in out-of-stock conditions – and then design a system to attain them.

Loading route trucks also is a challenge, the MEI executive observed. To devise a system that makes the most efficient use of the vehicles and the best control of inventory requires answering a number of questions: who places the orders? Are returned items properly accounted for? Which items ran out before the truck finished its run?

A “dynamic” system, based on inventory data retrieved remotely, allows the truck to be loaded with only the items required to stock the machines on the route that day. In many cases, a “forecasted” system can come close to this ideal without the need for remote monitoring; advanced algorithms can be applied to the sales history to predict machine inventories with great accuracy.

The benefits of rationalizing the truck loading process include not only making most efficient use of load space (i.e., maximizing the number of machines that can be serviced without returning to the warehouse) but also eliminating the time wasted in unloading excess merchandise. Even a modest increase in efficiency, such as reducing the space required for “safety” stock from 50% to 15%, is worth striving for.

Implementing today’s technology also can tighten security, Lewis emphasized. The overall object of a good security system always has been to eliminate temptation, keeping honest people honest and discouraging the potentially dishonest. The ability to balance cash and inventory every day, ideally before the drivers go off duty, goes a long way toward building this kind of system.

Thus, technology can increase sales while reducing costs. And it can do more: it can enhance the operator’s ability to get new accounts while increasing customer satisfaction and account retention.

Making effective use of computers can give operators the information they need to negotiate realistic prices and commissions, Lewis noted. Accurate and timely sales information allows machines to be placed and stocked for optimum revenue generation, minimizing out-of-stocks and maximizing variety without losing sales.

Another way to look at the benefit is to consider what can be lost by effective use of technology, the MEI executive added. That loss is customer frustration, and losing it is extremely valuable in building the business.

Much of the frustration that people associate with a vending machine involves the payment system, Lewis emphasized. For this reason, every operator is well-advised to keep track of what equipment works and what doesn’t, and to value reliability in completing the sale above lower acquisition cost. Customers are annoyed by sold-out and exact-change conditions, by limits on currency acceptance, and by jams.

“How do you know when a machine isn’t working? The location can tell you, or the machine can tell you,” he said. “Clients are impressed when you send a technician to repair a machine before they ask you to.”

The most reliable way to upgrade an operation with the best available technology is to address individual “modules” and make improvements in bite-sized increments, keeping the existing system in place until the new one is well-understood and working, the industry veteran recommended. When an innovation doesn’t work, it’s important to learn why it doesn’t.

Operators who have experienced difficulties in implementing something new generally tried to do too much too fast, did not arrange for adequate training, compromised a critical “legacy” system before the new one was fully functional, or did not conduct sufficient testing before bringing the innovation on line, he reported. These difficulties all can be overcome by good planning, and the basis of this planning is a want-list. “You want ease of operation, reliability, adaptation to your changing needs – ‘scalability’ – and the right functional breadth,” he summarized. “And you want excellent support and training.”

Next to speak was USA Technologies’ Jim Turner, who began by enumerating the principal problems confronted by most operators today. These include demands for “healthier” products, higher product costs, escalating operating expenses, and the ongoing need for faster, more accurate settlement and more detailed accountability.

“Historically, when you raise the price of a traditional item, volume drops,” Turner pointed out. “For example, if you’re selling a 20-fl.oz. cold drink for $1 and your margins are getting tighter, you know that going to $1.25 will result in a loss in volume.”

Vendors long have been aware of this apparent price resistance, the USAT executive recalled. The phenomenon is not simply explained by the consumer’s aversion to paying more. “They’ll pay more in a convenience store,” the speaker observed. The reason is that the consumer accustomed to paying $1 for a vended product must deal with the need to come up with, or receive, change when the price goes to $1.25. Convenience stores offer more flexible payment options.

“The good news is consumers will use cashless systems,” Turner reported. “The quick-service restaurants found that out.”

Today’s market favors more and better products, a preference that has benefited Starbucks, Red Bull and Tombstone Pizza, he instanced. Consumers are willing to pay the price; all they ask is that these premium items be easy to purchase.

“Consumers want more opportunities to buy from vending machines; we live in a ‘24/7’ society,” the speaker observed. This favors non-traditional vending applications, widening the niches for such specialties as golfball and suntan-lotion venders and self-serve carwashes while opening the door to new concepts like self-service digital photo printing machines.

TAPPING IN 

The untapped potential of vending has not gone unnoticed by the major credit card associations, Turner added. American Express, MasterCard and Visa recognize vending as a virgin market for their services, and they know what expedites changes in consumer purchasing behavior: education and promotion.

“Cashless transaction processing is part of ‘intelligent vending’; it helps you sell what your customers want, including healthier, higher-priced items,” the speaker explained. Convenient payment, now including use of the new contactless smart cards, not only drives overall machine use, but also makes all transactions visible to the operator, whether made with cash or a noncash medium.

Moreover, Turner added, doing away with total reliance on cash makes vending machines less attractive to larcenous vandals and generally reduces operator exposure to theft.

The strategic argument for “intelligent vending” involves benefits to the location, the operator and the consumer. Vending is “all about the account,” and an operator prepared to offer today’s best technology can improve relations with existing clients while offering a very attractive package to new ones.

There is a cost associated with all of this, and Turner suggested that operators begin by developing a pro forma profit-and-loss statement (by account, not by machine) for each client and prospect. The goal is to calculate the expense and the effect on sales, taking into account the ability to upsell with new, higher-priced products, improve equipment reliability and functionality, and provide better service. New customers often want new technology, he added, and laying out the costs and benefits can be very helpful when drafting a proposal.

The benefits to the consumer include, of course, speed and convenience. A good cashless payment system can make it simple to purchase a beverage and a snack in a single transaction. Consumers also enjoy access to a wider range of products, including premium branded items that have been difficult to fit into traditional vending price structures. Perhaps most important to the end-user, although hard to quantify, is greater confidence in the vending machine, and increased willingness to purchase a wider range of products.

Operators who are succeeding with cashless payment systems have started with good-working equipment, stocked it with appropriate products including carefully chosen new items, and delivered excellent service, the USAT executive reported. This is by no means a new approach, he added; good operators have built their businesses on the “clean, filled and working” promise for half a century. Today’s business-and-industry accounts, recognizing the potential of vending to improve staff morale and productivity, often assign less weight to commissions and more to outstanding service than their predecessors.

Early experience has suggested that the easiest locations in which to implement cashless vending are those in which the population already is making extensive use of credit and debit cards. These include travel venues like airports and railroad stations, as well as hotels and convention centers. Cashless vending has also enjoyed quick success in recreational and entertainment sites, from movie theaters to theme parks, zoos and aquariums.

Machine placement and the daily rhythm of location traffic also can be important, the speaker added. For example, machines in airports should be situated behind the security barriers, and naturally will receive greatest use when other concessions are closed.

On a somewhat longer view, Turner believes that B&I accounts can be the most profitable locations for cashless venders. The most attractive candidates are those in which machines are averaging more than  $100 per week. Again, in making this calculation, it’s best to deal with the vending machines as a group, rather than individually. Locations with manual cafeterias in which electronic cash registers and merchant terminals can accept the same payment medium as venders are especially appealing.

When considering a cashless vending venture, it’s important to make sure that the chosen platform can accommodate both remote monitoring and payment processing, the speaker concluded. And the starting-point is a payment system that accepts today’s prevalent magnetic-stripe cards, while providing sufficient flexibility to accommodate newer media.

Prof. Kasavana then invited questions from the audience.

One operator wondered whether, in view of the added cost of processing a cashless transaction, it’s possible to charge more for a cashless purchase.

“No,” the moderator replied. “Federal law prohibits that.”

“What’s the cost of equipping a machine for cashless payments?” another audience member wanted to know.

“The hardware cost is around $400,” Lewis replied.

Turner added that it’s realistic to expect a monthly transmission cost of around $10 per machine, and a fee of about 5% for each transaction.

Lewis reported that colleges, which have been early implementers of cashless payment systems usually based on multifunction cards with “electronic purse” prepayment features, usually don’t keep much value on the card. “For that reason, the machines need to accept both cash and cards, and a revaluing terminal should be nearby.”


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