ORLANDO, FL - The rapidly evolving milk vending market and its potential as a new avenue for profits was in the spotlight during a seminar held at Automatic Merchandising Association of Florida's recent VendSouth trade show. The session, "Got Milk?" was presented by Dixie-Narco's Ron Barnes, director of sales, and Mike Hammons, sales manager.
Hammons updated the crowd on the milk vending test currently underway as a cooperative effort between Dairy Management Inc., MilkPEP (Milk Processor Education Program), and Dixie-Narco's parent company, Maytag. Five vending operators in different regions across the country (Los Angeles, Austin, Miami, Omaha and Boston) placed dedicated Dixie-Narco glass front milk venders in schools last December. The test just wrapped up with the end of the school year, and preliminary results indicate that milk vending machines and schools are a lucrative fit.
"I don't think there's any operator participating in the test who's not buying the machines that we placed in the schools," said Barnes. "Everyone was quite pleased with the results." Detailed results of the study are being readied for release as V/T goes to press.
Anecdotally, Hammons reported that sales of the 16-oz. single-serve PET milk containers from Dixie-Narco's dairy-modified "BeverageMax" glassfront venders were, for the most part, incremental to milk sales on the cafeteria line. Many students, given the choice, chose milk over soft drinks , to the surprise and pleasure of many observers.
The operator in Austin, TX who participated in the study placed 20 venders in schools for 10 days and had to purchase 22,000 units of milk to keep them filled. The Los Angeles vending operator found it difficult to meet demand by filling machines only three times per week.
"We haven't really been able to bring milk into the industry until recently because the cartons were always very messy in the old 'Dairy-marts'. The introduction of PET containers has given us a neater, more visually appealing product that is ultra-pasteurized with a longer, 30- to 45-day shelf life," said Hammons.
The speaker cited the VENDING TIMES 2000 Census of the Industry, which indicated that total 1999 vended dollar volume in all vending categories was $36.6 billion. In 1999 cold beverage sales, including canned and bottled soft drinks, juice and other alternative beverages , and milk , totaled $18.76 billion, or 51.2% of all vending machine dollar volume. During 1999, single-serve vended milk volume was $408 million, representing just under 2.2% of cold beverage sales and only 1.1% of all vending volume.
Looking at the three-year growth trend, vending dollar sales are up 10.1%, cold beverage sales have risen 11.3%; but milk sales have declined 8.6%. Why is milk falling by the wayside in vending?
"People have to bend over to see a carton of milk in a food machine; most operators only offer cartons of white or chocolate milk, and only in refrigerated food venders," said Hammons. "The 'Lexan' front of a cold drink machine won't work for milk, even with the new containers, because the consumer can't see the product, the date, the freshness."
Enter Dixie Narco's glass front "BeverageMax" as a dedicated milk vender.
"It's a new avenue to bring milk to the consumer. Now you have a c-store, a mini-grocery store dairy cooler, right there in schools, universities, healthcare, factories, white-collar and blue-collar locations," he said.
Hammons emphasized that vending is the perfect retail channel for milk, and this is a point Dixie-Narco is driving home to the dairy industry. Vending can stay open 24 hours a day, 365 days a year; it provides full-margin revenues; it takes advantage of the consumer's impulse to buy; and it opens new channels of distribution for the dairy industry at non-traditional points of purchase. New packaging and equipment are sparking the interest of the dairy industry, and it's beginning to take a new look at the powerful potential of vending.
NEW PACKAGE OPTION
Barnes added that a recent development in vending is the 8-oz. PET milk package, created by the dairy industry in response to vending operator feedback that the price point of larger 16-oz. packaging is too high for some account populations. Innovative flavors such as banana and cappuccino, all ultra-pasteurized to offer extended refrigerated shelf-life, are a huge draw at vending machines as well.
According to Barnes, 16-oz. PET milk containers were vended at the $1 price point across the board in the recent school vending test; operators purchased the milk for 60¢ a unit.
An audience member commented that, as much as the idea of milk vending intrigues him, he fears that for every six bottles of milk he buys of such a perishable item, if he has to throw away four, he'll make no profit.
"Operators who are participating in the test were skeptical at first, too," Barnes replied. "Accent Vending in Austin only loaded the columns three-deep on the first Monday of the test. By Tuesday morning, the machine was empty; they thought they'd been robbed!" The following day, the vending company's route driver loaded the machine three-deep again, attributing the volume on the first day of the test to the novelty of the product and equipment; and once again, nearly the entire machine sold out. The next day, the machine remained empty because the vending operator failed to coordinate for a dairy delivery in time, never having expected to sell out his supply so quickly.
Dixie-Narco's dedicated milk machine cabinets in the field test are emblazoned with pop culture icons sporting "milk mustaches" for added appeal, and Barnes believes the images played a strong part in drawing young patrons. "Kids are intrigued with the powerful 'Got Milk?' campaign and the celebrities attached to it. They think of milk as being 'hip' and 'in,'" commented Barnes. "Kids like the screw top; they like to walk the halls holding a container of milk. It's a wonderful phenomenon that is presenting a huge opportunity." And there are impressive precedents for this sort of attitude shift, Barnes reminded the operators; "Four or five years ago, did you think you would be selling water?"
He added that there is definitely enough demand not only in schools, but in white-collar and blue-collar workplaces, to justify placement of dedicated glass front milk venders. Patrons will drink more milk if given the opportunity. "If I'm a milk drinker, I'd better get in at 8:00 AM or those six or seven milk items in the food machine are going to be gone. Forget about it if I want some milk in the afternoon with my cookies," Barnes stated.
Despite some skepticism, according to Barnes, not one vending operator participating in the milk vending test encountered a problem with product going out of date in the milk-dedicated machines; it moved much too quickly for freshness to be an issue. The majority of operators had to fill the machines twice a week, and some more frequently than that.
"It's tasty, with all kinds of new, delicious flavors. Kids are willing to try it as an alternative to 'Mountain Dew,' because it's just as accessible to them. Before, it was only available in a carton on the cafeteria line. The 'BeverageMax' is a multi-package convenience store and dairy case right there in their school," said the speaker.
SOMETHING FOR EVERYONE
Barnes said that the "BeverageMax" warrants six to 10 SKUs for maximum visual appeal, but that chocolate and strawberry milk generally comprise 70% of sales no matter what the flavor mix.
"I guarantee that you will sell milk in schools with this machine," added Hammons. "Beyond schools, one of our customers sells 150 pints a day in a 2,500-person factory."
A seminar participant expressed concern about the logistics of getting milk from his local dairy. Barnes, who has been on the road advocating vending as a viable and often overlooked retail channel at countless dairy industry meetings, said that he is finding that dairies, for the most part, want to increase their points of availability to the consumer and, in general, are extremely receptive to working with the vending industry to help attain this goal.
He agreed that there are logistical concerns for the operator, some of which he's experienced first-hand. "We have 1,200 employees at our plant in South Carolina, and I wanted to set up a milk vending machine," he recalled. "So we had to find a way to get milk delivered. We had to buy $75 worth, minimum, at a 77¢ price point per unit. Then there was the issue of where to store it, once delivered; so we added refrigeration. There are different issues with milk than with soft drinks."
According to Barnes, dairies are so intrigued with the glass-front concept that they are buying their own vending equipment and placing it in schools, but many don't have the infrastructure to effectively operate the machines. "So many of them are partnering with hard-working vending operators like you," he said.
Barnes said that school board members and dairy industry representatives are so used to the image of "lunch ladies" handing milk to students that it's tough to get them to think outside that box. "They need help with vending distribution; it's something that, very often, they have no experience with," he stressed.
Barnes added that he emphasizes at all of his meetings with the dairy industry and schools that the beauty of vending is its convenience; the immediacy of being able to have it "now"; and the variety of products available. He also stresses that up to 50% of vending machine purchases are made on impulse.
Touting the benefits of Dixie-Narco's glassfront milk venders, Barnes added that they provide higher package capacities than traditional beverage venders; 45 possible selections for greater beverage variety; the flexibility to accommodate future package designs; a space-to-sales feature that ensures "first-in, first-out" product delivery; health-control equipment; and International Dairy Federation of America-approved cabinet graphics.
Barnes explained that, by force of habit, most customers will select the "A1" slot for, say, strawberry milk, even if the top two shelves are filled entirely with strawberry milk. For this reason, the "BeverageMax" controller can be programmed to alternate vends among all slots filled with the same selection. For example, if every customer who wants strawberry selects "A1," the first vend will be delivered by the "A1" slot, the next by "A2," the one after that "A3," and so on, right through the last slot carrying strawberry milk. The controller then reselects "A1" and the cycle starts over.
AUTOMATIC VEND ROTATION
Alternating vends in this manner draws down the inventory evenly, keeping the machine looking full, Barnes said. "Part of merchandising is keeping shelves full; they look ugly with the 'A2' and the 'A7' slots sold out, even if the same product is in all the other slots on the top shelves," said Barnes.
Other features include health timer lockout programmable for each selection on every shelf, so only perishable items in the machine cannot subsequently be selected in the aftermath of a power failure and consequent loss of refrigeration. Another useful feature is that Health Department inspectors can check the health timers from the outside of the Dixie-Narco machines.
"We can retrofit any 'BeverageMax' that you already have with a health timer for $23," added Barnes. "I view this machine as a convenience store that you can roll into a school, an office, or an airport. People like to see what they buy; they love the glass-front concept."
"The machine gives the operator another chance to get into schools and counteract the negative image associated with soft drinks," said Hammons. "The beauty is that milk is not a beverage; it's a food item. In hospitals, factories, and roadside rest areas, this machine will work. The only way to know that is to try it."
Single-serve flavored milks at retail, Hammons added, experienced a sales increase of almost 200% from 1998 to 1999, thanks to the appeal of the increased shelf-life and innovative new flavors and brands. Single-serve containers, he added, have an average sales price equivalent of $6.50 per gallon.
"We must either manage change or let change manage us," emphasized the speaker. "We must recognize the opportunity and capitalize upon it. Changes require taking risks and investing capital. And changes will initially create operating issues, but they will create new business opportunities and profitability."
An operator in the audience commented that his local dairies are unwilling to do business with his vending company unless they are delivering a truckload of milk. "Obviously, just starting out, I'm not going to buy a truckload," he commented.
"With the school test, one operator had 22,000 containers of milk go through the machine in a half a month. That opened the dairy industry's eyes to the potential of vending," Barnes responded. "You'll be able to use the results of this test to sell the vending industry to the dairy industry. It's all very new; you have a new and different piece of equipment. Work with your dairy; tell them 'I have this 'dairy case' to place on location and these types of location to put it in.' See if they're willing to increase the points-of-purchase for their milk."
Another vendor in the audience said that his dairy supplier also has a minimum order requirement that determines where it is willing to deliver; but he has found that, if the volume is there, the dairy industry is eager to form new partnerships with vending operators. He added that milk is a non-taxable item, which means 7% additional revenue in the operator's pocket, adding to its appeal for vending operators.
"Many of you stress the difficulty of getting the product; remember, though, this is all new," said Hammons. "Dairies are starting to come around; we're seeing some movement. You need to get out and talk to your dairies and get them involved. A lot of operators have had great success going directly to their local dairy, and I think the distribution pipeline will continue to improve."
Barnes said that he foresees the International Dairy Federation of America conducting more vending tests in the near future, and added that the United Dairy Farmers Association also is planning to undertake vending market research.