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Issue Date: Vol. 50, No. 9, September 2010, Posted On: 9/25/2010

ALTERNATIVE AUTOMATED RETAILING: Emerging Innovation Might Be A Game-Changer For Operators

by Allan Z. Gilbert
vending, vending machine business, vending operator, Avanti Markets, Kevin Bailey, Steve Foley, Foley Food and Vending, vending times, alternative automatic retailing, Allan Gilbert, self-service kiosk, automatic merchandising, automated retailing, vending game-changer, vending industry news, coin-op news

I recently had a conversation with an old friend, Steve Foley of Foley Food and Vending (Norwood, MA). He was depressed because the recession was forcing operators to become more and more competitive in an effort to maintain share-of-market. He felt that locations were changing hands because operators were offering unrealistically low prices and ridiculously high commissions. As a result, Steve felt that it was becoming more difficult to earn a profit.

I suggested to Steve that in this kind of environment, he needed to find a "game-changer" to differentiate his company from the rest of the herd -- find a way to offer something that the competition is unable or unwilling to offer.

I went on to describe our response to similar economic conditions more than 30 years ago. We developed a commissary-supported manual cafeteria concept called The Lemon Tree that took the market by storm. Because the concept was so new, we were able to book millions of dollars in new business, before the competition even understood what we were doing.

Steve told me that they had a new concept called Avanti Markets, which had the potential to become a game-changer too. However it was not selling as fast as he thought it could.

Avanti Markets replace the traditional bank of individual vending machines with an installation in convenience-store format. Product is displayed on and in open shelves, bins, baskets and glassfront refrigerators and/or freezers, in an enclosed area of the location. The customer simply picks up what he wants and carries the item or items to a self-service checkout kiosk. The products are scanned by barcode, and the customer pays for all of his purchases with a single payment, using cash, a credit card, a debit card or a stored-value keytag. A keytag is a plastic card that uses a barcode to identify the cardholder and allows him to record cash values in the system. The customer can add value to his keytag identity by using cash, a debit card or a credit card at the kiosk. When the customer chooses to use his keytag to make a purchase, the value is subtracted from the keytag identity at the kiosk. It sounded really interesting.

Two or more surveillance cameras cover the area in order to prevent theft; the images are transmitted to the operator's office over the Internet, in real time. If theft losses are discovered, the operator simply reviews the surveillance recording to find the culprit. Although I could see the potential for theft problems in a transient location such as a sports venue, I thought it would work very well in a B&I location in which the operation serves the same customers, day after day. After all, nobody wants to get caught stealing at work.

As Steve continued his description of the system, I became even more intrigued. He referred me to the company's website, AvantiMarkets.com, and I learned even more.

Kevin Bailey, vice-president of marketing for Avanti Markets, told me that many blue-collar locations experienced a 50% increase in sales when they converted from vending. White-collar locations did even better; sales more than doubled. When per-capita sales increase at a location, it means that the customers are buying more. They do so because they are more satisfied with the value, the selection, the price they are paying, the buying experience, or any combination of the above.

It seems to me that it shouldn't be hard to sell a concept that produces happier customers. Let's look at some of the obvious customer benefits:

• There are no limitations on product size or variety of products. You can efficiently add three bags of a slow-moving product to the mix, such as health foods. In vending, you have to waste a whole column on a slow moving product, so it doesn't get offered. You can also offer such high markup, seasonal products as plush animals at Easter or Christmas, and fresh flowers, boxes of chocolates or cards for Valentine's Day.

• A customer can touch the product and read the nutrition information. And customers buy more when they trust what they are going to receive. It's tough to read a nutrition label when the product is still in the machine.

• There is more efficiency. Customers get served faster in a self-checkout line. If you buy a beverage, a sandwich and a bag of chips from a bank of vending machines, it requires three separate transactions, with three separate payments, at three separate machines. With Avanti Markets, the customer simply picks up the three products, scans them and pays once. If the vending machines offer debit or credit card service, the operator will be charged three separate transaction (swipe) fees, as opposed to one fee with Avanti.

• Self-checkout is now available at almost every supermarket and home-repair center. And customers are no longer afraid of it. In fact, many customers prefer to use self-checkout terminals because they perceive them to be faster.

And there are more benefits that appeal to operators and patrons alike:

• Fewer service calls, no "hung" products.

• More payment options: cash, debit and credit cards, keytags, etc..

• Odd-cent pricing capability should result in perceived lower prices.

With all of these benefits, I can't believe it is more difficult to sell than vending.

Let's look at some of the benefits that accrue to the operator:

• The ability to change prices remotely, and how it relates to odd-cent pricing.

Regular readers of this column will recall my discussing that one of the bigger benefits of going to cashless vending may be the ability to price your products in odd-cent increments. I'm not talking about charging 99¢ instead of $1, to fool the customer into thinking you are charging less than a dollar. I'm talking about the McDonald's approach to pricing, where the price for almost every product  ends in odd cents, such as $1.33 or $2.67. When you do this, the customer finds it difficult to remember the price you have been charging for each product. You have the ability to price different candy bars differently, based upon their cost. And when a manufacturer raises the cost of his products you can simply increase your price for that manufacturer's products. Similarly, when a manufacturer offers a deal, you can offer your customers a temporary special promotional price.

PHOTO: An Avanti Market is an enclosure equipped with the operator's choice of frozen, refrigerated and ambient-temperature cabinets, racks and shelves. All merchandise is barcoded, and the customer simply takes the products to a checkout terminal (shown at right) and scans them to complete the transaction. The terminal can Avanti Markets accommodate cash, credit and debit cards, as well as Avanti's own cashless medium, a barcoded plastic keytag. The system widens the variety of merchandise that can be offered, and allows odd-cent pricing.

When you spend your whole life in vending, it's hard to remember we are retailers. This is the kind of merchandising that is second nature to conventional retailers. To me, it seems criminal not to take advantage of this level of merchandising, particularly when you have the ability to do it by "remote control."

Picture how much money you could save on products that are about to go out of code date. If you knew that three cheeseburgers, five chicken Caesar salads and six submarine sandwiches were going to go out of code over the weekend, and you will have to throw them away when you restock on Monday, why not mark them down by 50% on Friday afternoon? You can do this remotely, from your office, and announce it on the display board of the kiosk during the afternoon coffee break. Whatever you get for them is better than the zero value they will have on Monday morning.

• Lower capital investment to equip Avanti Markets compared to a full bank of vending equipment.

• Advertising income from the kiosk screen.

Revenue can be earned from advertising on the kiosk's video display. Product suppliers, solicited by Avanti Markets, should be willing to pay for appropriate ads, so close to the point of sale. Also, the operator may be able to sell kiosk ads to other local retailers.

• Payment in advance for cash values put on the keytags.

Whenever a customer adds $10 or $20 in value to his or her keytag, you get the use of this money until it is spent. In addition, if the customer adds value to his keytag using a credit card, you wind up paying only one transaction (swipe) fee as opposed to a swipe fee for each transaction, if he were to use a credit card for each purchase. In order to keep swipe fees to a minimum, many Avanti Market operators "value price" these transactions. For example, they might offer $21 in credit to the keytag for every $20 charged to a credit card.

• Sales Taxes. Unlike a vending machine, in which each product price reflects the price of the product plus applicable sales tax, Avanti Markets add the appropriate sales tax, if any, to the transaction total. With odd-cent pricing, you can make it very difficult for the customer or the client to focus on your selling-price. This should give you more flexibility when it comes time to raise prices.

• Lower service costs. It takes much less route time to simply place products on shelves, bins or baskets, and in refrigerators and freezers, than it does to fill, inventory, collect and clean individual vending machines, particularly if the order can be pre-kitted. I wouldn't be surprised to learn that a typical routeperson who delivers to Avanti Markets could be responsible for twice the total dollar sales produced by the average vending routeperson. If that is the case, it means that the Markets will operate with half the direct labor, vehicle and supervision costs of a typical vending route.

While they may only operate well in B&I locations, where the same customers show up day after day, there are enough of these locations to support those operators who are willing to be adventurous. When you can produce higher sales per person, with lower operating costs, lower capital investments, and lower spoilage costs, you have to produce a higher ROI.

It sure sounds like a game-changer to me.

ALLAN Z. GILBERT founded New England Vending Corp. (Lowell, MA) in 1959, and led its expansion into a leading regional provider of full-line vending, coffee service and foodservice management. He founded Data Intelligence Systems Corp. (DISC), a computer software publisher and system integrator for vending, and Lemon Tree Systems Inc., which franchised a vending-and-cafeteria concept. He established Merrimac Financial Associates in 1984, and it made an initial public offering through the New York Stock Exchange in 1998. He became managing partner of The Merrimac Consulting Group in 1988.

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