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Issue Date: Vol. 41, No. 12 / October 25, 2001 -November 24, 2001, Posted On: 10/25/2001


Vendors Profit From Proliferation Of Cold-Drink Choices


By Tim Sanford and Emily Jed

U.S.A. - Cold beverage vending has gone through distinct stages as it has evolved. Full-line vending initially met the high-volume demands of its core industrial clientele with cup machines; bottling companies vended bottled beverages, because they had systems in place for retrieving, sterilizing and refilling the empties.

The advent of canned soft drinks in the early '60s made it easier to vend packaged beverages, and the great changes that overtook the American workplace in the next decade made cans an increasingly attractive alternative to cups in a market increasingly made up of smaller locations. The lack of multi-price cold drink venders gave rise to a juice segment based on 5.5- and 6-fl.oz. cans, and a larger soft drink segment vending 12-fl.oz. cans.

Whether the vendor was providing cold drinks in cups or cans, one cola selection was the dominant seller; the remaining choices were "flavors," and four or five of them were enough to satisfy nearly every vending patron. That changed when improved low-calorie sweeteners moved "diet" soft drinks from their narrow niche into the mainstream, a quarter-century ago. Juice drinks also were finding wider favor, and became available for vending in 11.5- or 12-fl.oz. cans.

The last decade saw an unprecedented proliferation of "alternative" beverages, innovative packages of widely varying sizes, and vending machines with the pricing flexibility, selectivity and programmability required to merchandise them appropriately. Ready-to-drink teas, including novel flavored varieties, vied with sports and energy drinks as well as small-package bottled waters, including flavored varieties, for public favor. And the major soft drink companies began promoting 20-fl.oz. plastic bottles as a way to satisfy perceived public demand for larger portions and a reclosable container, while increasing profitability.

All of these developments have increased demand for cold beverages, while enabling operators to generate sales from every column. At the same time, they have imposed new logistical burdens, and have compelled the vending industry to improve its sales analysis and improve its understanding of an increasingly segmented market.

Bill Smolensky of Houston Southwest Vendors (Missouri City, TX) has operated four full-line routes for the past 20 years, in a market that fully appreciates cold drink vending.

"Houston summers are so darn hot that our sales are astronomical during those months," he said. "But beverages are always a huge part of our business, all year round. I think volume has remained the same for the past several years, but variety has grown to meet the demands of more consumers."

Canned beverages still represent 95% of Smolensky's overall beverage sales. He believes the appeal of cans is primarily driven by price; his customers, by and large, simply prefer to pay 50 to 55 for a can rather than 90 to $1 for a bottle.

"When bottles first came into vending, the bottlers recommended placing a bottle vender next to a can machine, because it wouldn't cannibalize can sales," Smolensky recalled. "And that's true. I may lose 5% to 10% of can sales to bottles. But in an account with 300 people, with a can vender and a bottle vender side by side, cans still outsell bottles four or five to one."

Some of Smolensky's clients, including a concentration of those in high-tech businesses, favor bottles because they are resealable, which protects desktop computers from spills.

LOCATION MANDATE

"One of our clients banned coffee and cold beverages at desks altogether, because too many people were spilling their drinks into their computers. So our patrons either sit in the break room and consume a can, or drink a portion of a bottle, close it up, and save what's left for later," said Smolensky.

The operator added that while many industry observers believe that the bulk of bottle sales is made to male patrons, he has found that women are the principal purchasers of bottled cold drinks. "I've stood and watched, and I see more women buy bottles than men. They'll drink half, seal it up, and put it in the refrigerator for later," he commented.

As water sales have taken off, bottle venders continue to widen their niche and attract more patrons in Smolensky's market, especially during those hot summer months. But water patrons' enthusiasm for the larger containers has not carried over into the soft-drink segment, the Texas operator reported.

"Bottles have their place, but I don't see cans going away. It's like the market for LSS chips. They're cheaper to produce, so I think the manufacturers have tried to force the market. I'm sure there are markets where patrons love them, but 99% of my customers prefer the small vend bags," commented Smolensky.

Smolensky owns all of his 85 beverage machines, most of which are eight- to 10-select Dixie-Narco machines. They are multi-priced to accommodate a wide variety of juice, which is in high demand and sells for 75. The operator also retrofits his canned beverage machines to accommodate smaller bottles of water, which also vend for 75.

Houston Southwest Vendors recently switched its juice offerings to Welch's 12-oz. cans, along with "Florida's Naturals" not-from-concentrate orange juice cans, and Smolensky has found them to be a winning mix. Orange juice is a very popular morning beverage; and the top sellers in the afternoon hours, by far, are Apple Cranberry and Pineapple Orange. Also offered in Houston Southwest Vendors' machines are 100% Grape, Fruit Punch, Ruby Red Grapefruit Juice, 100% Apple Juice, White Grape Peach and White Grape Raspberry.

Smolensky placed a few glassfront bottle venders when the novel equipment first came to market and, as impressed as he was with the sales through the machines, he discontinued using them because he felt they needed further tweaking.

"The bottles hung up so often that it was very frustrating; one account got so mad that they broke the glass out of the door!" he told V/T. The design has been greatly improved since then, he said; "I'd get back into them if a customer asked, because they do well when they work. Customers like the variety."

Having learned that increased variety was well received, Smolensky moved the 16-oz. juices and waters into his food machines when he pulled the early glassfront machines, and relocated the sodas into a bottle vender.

"I think if you put a glassfront beverage vender in the right place, beverage sales will go up," said Smolensky. "It's the same theory as a glassfront snack machine; it makes it more like a convenience store, and people can find what they want instead of looking for it elsewhere."

Smolensky has always used box-body vans on his routes, so accommodating bottled beverages has not been an issue; he simply reconfigured the shelving inside. "Box vans are great because you can work standing up; they're easier and faster. I know people who use cargo vans, and they have to use every square inch of space for product. If they've got to carry 20 to 25 cases of bottles, well, some of them won't do bottles at all, because they can't handle the weight," he commented.

Every Houston Southwest Vendors machine features "Coke," "Diet Coke" and "Dr Pepper." "Beyond those selections, we ask the location," said Smolensky. "They usually have a '7Up' or a 'Sprite,' and we've been getting more requests for 'Mountain Dew' , maybe because they've been doing more national advertising. One location requested the new 'Mountain Dew Code Red,' and they've been drinking quite a bit of it."

Smolensky stocks a large variety of flavored soft drinks, including Orange, Grape and Strawberry, as well as caffeine-free colas and several diet beverages. "If they want all 'Coke' in the whole machine, it's fine with me; if they want 20 rows of 'Cheetos' in a snack vender, that's fine, too, as long as they buy it. I get accounts that call me to tell me their vendor won't put in the things they want," commented the operator.

In many locations, Smolensky rotates in certain strong sellers during the summer months. These include "Country Time Lemonade," "A&W Root Beer," "Lipton Iced Tea" and "Hawaiian Punch."

The operator added that there are large numbers of Hispanic employees at many of his accounts, and he has tuned into the beverage preferences of this clientele. Predominantly Latino locations tend to favor sweeter juices like "Welch's" Pineapple Orange or Fruit Punch and "Hawaiian Punch," noted Smolensky. "We have Hispanic drivers, and I've learned from them that they incline to prefer 'sweet.' In our coffee area, the cream will last forever, but they go through sugar like you wouldn't believe."

"Coke" is a best-seller in Mexico, according to Smolensky, and a favorite among all his customers regardless of national origin. "The Southwest is 'Coke' country," said Smolensky. "Half of our beverage sales are 'Coke' and 'Diet Coke.'"

Smolensky is a firm believer in owning his beverage machines to ensure that he can meet customer demands, unhampered by contractual restrictions imposed by bottlers on the equipment they lease to vendors.

And the ability to customize the fronts of the company's cold drink venders has helped business. "Retail-oriented businesses, like car dealers, sometimes want a custom front, like the 'Dodge Ram' emblem on the front of the machine, to present their own image to the customers," Smolensky told V/T. "Recently, one car dealership said it doesn't want any wording at all, not even the generic 'Cold Drinks' front. I removed the plexiglass and replaced it with black vinyl, and I took the lights out. They wanted a black box with buttons that was low key to blend into their decor. That's something you can't do with a 'Coke' or 'Pepsi' machine," he pointed out.

Smolensky's accounts are primarily workplace environments with 150 to 350 adults, and he believes that this rather narrow focus limits the extent to which he can experiment. "I tried 'Starbucks Mocha Frappuccino' at $1.25 a bottle, but it's such a small bottle, it wasn't a big mover for that price," he instanced.

Similarly, he doesn't see a place for dedicated milk vending on his routes. "I see that working in a large plant with 1,000 workers, or if you have a school contract. I don't have accounts like that," he commented. "Our driver will put seven or eight milks in the food machine on Monday, Wednesday and Friday, and they won't sell out. We go through 20 to 25 units of milk a week, which isn't much incentive to spend $5,000 on a machine stocked with 400 units a week , not for the type of accounts we have."

STAYING TUNED

Studying patron preferences and sales patterns works as well in California as it does in Texas. Teresa and Kent Alcorn of Advanced Vending have run a small route in San Bernardino, CA, since 1992, and attribute their success thus far to paying close attention to optimizing sales from each and every machine before placing another.

"We're very particular about where our machines go, which is why we've grown very slowly," said Teresa Alcorn. "We know we can go to sleep at night and not worry about where our machines are, or what people are doing to them. We know all our locations personally; my husband and I are truly 'mom' and 'pop.' We can't all be Canteen or Pepsi, but we can all go out and do our best."

Advanced Vending's 13 locations include credit unions, car dealerships, nursing homes and manufacturing facilities. "We still have the first location we got nine years ago. It's been through three administrations, but they all have kept us; we're part of the furniture," she said.

Currently, Advanced Vending only offers its customers can venders, but the Alcorns plan to expand into bottles or multiformat can/bottle venders by the end of the year.

"At the beginning, we started with cans because we could get them most easily; we could run out between deliveries and pick up a case," Alcorn said. "I don't think the profit is as good with a bottle as it is with a can. Our cost for a can of soda is 27 cents and we sell it at 65 cents; that's a nice profit. Our cost for a bottle is 80 cents; that's not much profit if you sell it for $1. Luckily, not having bottles hasn't kept us out of anywhere."

In fact, sticking with cans has gotten business for the company. One of Advanced Vending's locations recently bought a second piece of property, and the management team from the acquired site opted to leave its existing vendor and contract with Advanced Vending. "That location wants us because the other vendor only offers bottles and they want cans; they don't want to pay a buck a bottle," said Alcorn. "Price seems to be a big reason why our customers opt for cans."

This does not mean that the Alcorns are averse to adding bottle venders. They mean to do so, as Smolensky has done, to accommodate bottled water.

"There's a lot of money to be made from water, and demand is growing. We can't be part of it until we have the right equipment, " Teresa Alcorn said. And, of course, bottle venders provide more space for other popular beverages including bottled "Gatorade," ready-to-drink teas, and juices, which are likely to have devoted followings among Advanced Vending's customers.

In the San Bernardino market, "Pepsi" is the number one seller overall, Teresa Alcorn told V/T. "People still want juice and healthy snacks, but they buy 'Pepsi' and 'Snickers'. I think most people figure, why pay 75 cents for juice or 95 cents for 'Gatorade' when they can pay 65 cents for soda?"

At the few locations in which juice is popular, the Alcorns have been pleased with "Welch's" as their brand of choice, as has Smolensky And, again like the Texas operator, Advanced Vending purchases all of its own beverage vending machines, in order to offer customers full latitude in product mix.

"All of our machines have 'Pepsi,' many have both 'Coke' and 'Pepsi,' but not all of them have 'Coke,'" reported Alcorn. "It's a big selling-point for us that we can offer either or both. We've gotten calls from people who want to replace their vendor because they won't give them their brand of choice."

After "Pepsi," Advanced Vending's best sellers are "Dr Pepper" and "7Up." Alcorn determines the rest of the mix in each machine by listening to customers.

"We have one place where 'Mountain Dew' sells very, very well, and then there are places, like a car dealership we serve, that want no 'Diet Pepsi' in one area and no 'Diet Coke' in another," said Alcorn.

She has become attuned to the variations among account types, which has helped her adapt machine menus accordingly. "I read years ago in one of the trade magazines that the lower the income of the staff, the more they buy from vending machines," she recalled. Work schedules also are determinants of vending purchases, Alcorn added; "For example, the staff in a nursing home may only get a 30-minute break, so soda, chips and a candy bar becomes their lunch," she instanced. "In offices, where they have an hour for lunch, they'll take the time to go out and get a salad or a hamburger."

Office populations consume more diet than regular soda, eat more chips than candy, and enjoy pretzels more than other workforces do, Alcorn observed. In car dealerships, mechanics tend to be fond of "Gatorade," while salesmen are big on caffeinated sodas.

While Advanced Vending does all it can to accommodate its customers, some special requests simply are not practical on economic grounds. "A couple of people have asked for milk machines, but they also want sandwiches , in an account with 20 people!" said Alcorn. "I can see a dedicated milk vender having its place, but not in the size of accounts we have right now."

Alcorn keeps her finger on the pulse of the industry by attending trade shows and reading industry magazines, so she is up on the latest products and equipment, and prepared to act when the time is right to expand.

The vending market looks different when viewed from northern Illinois. Jim Schoolfield, operations manager for Park Vending (Aurora, IL), sees bottles as the wave of the future. Currently, bottle venders comprise 50% of the beverage equipment run by the 35-year-old, nine-route operation, which is headed up by Jim Goodwin.

"Bottles seem to be the preferred package. Customers favor the convenience because the package is resealable, and there's perceived value in the cost per ounce; it's price-competitive with other retail channels," Schoolfield told V/T.

The vending company has been converting to bottle machines, primarily in response to specific customer requests for this kind of equipment. "Many are offices that just like the resealable bottles for the convenience. We have one forging location that doesn't want soda to get into the forging equipment, so they want resealable tops. We also have a corrections facility that wants only plastic bottles, because cans can be used as weapons," shared Schoolfield.

While "Pepsi" has always been the biggest seller in Park Vending's can vending machines, Schoolfield told V/T that an interesting phenomenon that he can't explain is that "Coke" is, by far, the most popular choice in 20-oz. bottles.

WATER, WATER EVERYWHERE

Water is third in line after "Coke" and "Pepsi"; and "Diet Coke" is the next beverage of choice behind water. According to Schoolfield, customer preference is evenly split between the two brands Park Vending offers, Coca-Cola's "Aquafina" and Perrier's "Ice Mountain."

Schoolfield said that cans represent a shrinking segment of overall juice sales, too. The company has shifted primarily to 16-oz. "Veryfine" bottles, which make up only 4% of total beverage sales.

"Gatorade" is one beverage that performs extremely well in certain lsites. Park Vending has found a niche for some 25 dedicated "Gatorade" bottle venders in schools, fitness centers and some large manufacturing sites.

"In the hot summer months at some big factories, management will hand out coupons for the 'Gatorade' vender to employees, so they subsidize the drink to help keep people cooled down and hydrated; to revitalize them," said Schoolfield. "Many of them traditionally have offered bulk 'Gatorade' coolers, but they've moved away from that to be more sanitary. The coupon for the vending machine is nice, because it lets them subsidize one drink and if the employees want another, they can buy it on their own. It provides control."

Park Vending has scaled back its cold cup machines over the past several years, but has found success in some large industrial sites that subsidize "Gatorade" through the postmix machines. "It's easier for them to put cold cup machines on free vend for a specific day or period of time, and patrons can't carry off as much as they could with cans, so it doesn't cost the location as much.'

Moreover, "Gatorade" is so popular in Park Vending's glassfront "Beveragemax" machines that the company offers as many as four varieties in locations where sales are especially brisk.

The transformation of the cold-beverage market that took place during the last decade of the 20th Century, and that continues today, is a prime example of the often-discussed growth in demand for a wider range of choices that has accompanied more widespread affluence, the more cosmopolitan tastes fostered by the telecommunications revolution and the mass media, and the increasing cultural diversity of the population. Vending's ability to adapt to and profit from this transformation is the result of concurrent advances in vending machine design.

Operators who listen closely to their patrons, and then watch what they actually buy, are benefiting from this broader spectrum of tastes. As new analytical tools provide faster access to more detailed sales information, the vending industry increasingly has the power to maximize sales from each machine by fine-tuning menus to the precise desires of the people who patronize it.


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