The continuing flow of innovative technology into the vending industry was sampled at a business session during the National Automatic Merchandising Association's recent OneShow in Chicago. Dr. Michael Kasavana, NAMA Endowed Professor at Michigan State University's School for Hospitality Business (E. Lansing, MI), moderated the two-part series of presentations.
Leading off the review and update was Mike Gron of Rougo Vending Management Software (Calgary, AB), who described the applicability of "cloud computing" to the vending industry.
Gron defined cloud computing as "the delivery of computational resources on demand," explaining that those resources can include not only software, but also infrastructure (including hardware) and a platform, e.g. for custom software development. The key is that the user of these services does not need to buy anything, nor expend time and labor in installation. "It offers total loss of ownership," Gron summed up.
Under the traditional model, an operator who sets out to computerize a business confronts the tasks of purchasing, installing and learning to use the computers and a suite of management software. As software upgrades become available, the user must download them and verify that they are working properly.
The "cloud" concept puts the hardware and software in a remote data center; the subscriber simply logs onto a secure website to use the system. Equipment maintenance and software upgrades and enhancements are the job of the host service provider.
Gron observed that "cloud computing" popularly refers to software as a service (SaaS), but this is only one implementation. The others include "infrastructure as a service," under which the user pays for access to whatever hardware is needed for local use, and relies on the host for the required resources and support; and "platform as a service," the development, maintenance and licensing of application software by a remote service provider.
Cloud computing services are widely available, Gron pointed out, and are finding favor with individuals as well as businesses. For example, there are many providers offering secure remote storage of data, including Rackspace Hosting, Amazon Web Services' Simple Storage Service and Dropbox. Platform-as-a-Service offerings include Google's AppEngine and Microsoft's Windows Azure. Popular providers of software as a service include Campaign Monitor (for email marketing), Salesforce's customer relations management programs, the Zendesk help desk service and Capsule's sales management tools, among others.
In the vending and coffee service industry, he continued, an increasing number of software developers are offering SaaS products. These include Cantaloupe Systems, MEI, Rougo and USA Technologies.
Next to speak was Ming Jung Tavella of The Kellogg Co. She discussed "relationship marketing," a subject that continues to gain traction as social networks become more prominent and widespread.
Tavella summarized the objective of relationship marketing as fostering customer loyalty and retention by focusing on needs. The approach works through methods for establishing two-way communications from the supplier to the consumer (B2C), and from the consumer to the retailer client (C2B).
As an example, the speaker explained that the company's consumer website at kellogg.com is a vehicle for providing coupons and other promotional offers. Customers are informed of these offers by a custom newsletter, tailored to the recipient based on behavior -- "you don't sell through email," the speaker emphasized.
She contrasted the traditional mass-market media approach, which passively displays messages to everyone, with the interactive possibilities offered by the Internet. As an example, she instanced Kellogg's text-to-win promotion, in which a code is imprinted on each package of Pop-Tarts; vending patrons can send the code as a text message to the game's website for a chance to win prizes, such as movie tickets. Kellogg also maintains a YouTube channel and a Facebook page. It runs specific websites for different categories of customer, including teens, moms and "superfans." Similarly, the Sunshine Cheez-It brand is supported by text-to-win games for vending patrons -- prizes are themed to Nascar, tailgating and other automotive interests -- and by a "fan of the month" contest. Cheez-It Colby crackers were launched after placing first in an online "Next Big Flavor" vote.
On-pack promotions involving patrons' sending text messages to the brand website are very well suited to vending, Tavella pointed out, since their execution is turnkey, requiring no expenditure of time by route drivers and involving no administration by operators. "This approach turns passive consumers into active ones," she explained.
The potential of the new self-service micromarket system was explored by Scott Phillips of Avanti Markets. This approach is based on a checkout terminal resembling the self-serve express lines in some supermarkets; any sort of merchandise can be sold from appropriate display merchandisers, as long as it carries an identifying code that can be read by the terminal's scanner.
The micromarket was devised to counter the ongoing erosion of vend revenues, Phillips explained. "Product manufacturers expect growth, and vending clients want innovation by operators," he said.
With that in mind, Freedom Shopping was introduced about seven years ago. Its checkout terminals read RFID tags affixed to the products, which allowed the sale of everything from bagged snacks to fresh melons. Today's systems use these RFID labels or conventional UPC barcodes, Phillips noted. In either case, product selection is virtually unlimited, as there are no constraints on package size or shape. "There are no more 'refund kitties' left with office managers," the speaker noted, "because there are no more machine malfunctions. Out-of-stocks decrease, because inventory is maintained in real time. Locations recognize that the service keeps people on site, and the operator enjoys increased sales. Price changes are dynamic, the payment system is flexible, and sales taxes and container deposits can be passed along directly to the consumer. It's energy-efficient, and customers like it."
Phillips reported that experience has shown the system to be practical in both blue-collar and white-collar workplaces; it works best in locations with populations of 150 or more and limited public access. It can be implemented in any available space.
"Over the past 18 months, more than 75 vending operators have adopted micromarkets," the speaker said. "On average, profitability is up 15%." Theft is manageable, he added, averaging about 1.3%."
AUTOMATIC ITEM RECOGNITION
Brent Garson of Vendors Exchange International Inc. then took the rostrum to describe a new vending machine accessory that can identify every facing by shelf and column. "In vending, implementing a planogram is tough," he noted. "Operators typically know the category, but not the specific item. How can you tell exactly what's in the machine?"
To answer this question, Vendors Exchange mounted a small digital camera on a mechanism that travels vertically to each shelf, then transports the camera horizontally to image every product in vend position. The images are analyzed by pattern recognition software that matches them against a database; the system can identify a product regardless of its orientation.
This technology holds great promise for operators, Garson emphasized. For one thing, it makes possible automatic price adjustment; each facing can be recognized, the appropriate price retrieved from the database and the controller adjusted accordingly.
"Operators need to know more than 'turns' -- they need to know what was vended," the speaker pointed out. The system also facilitates remote servicing by flagging product jams or hang-ups, and insures compliance with the planogram.
Consumers benefit, too, Garson continued. "It does away with 'line' pricing, in which the price of an item is dictated by the slot it's in," he explained. "And it assures accurate product data -- for example, the nutrition data for each facing can be displayed."
Automatic product recognition also can strengthen suppliers' relationships with the vending industry by providing a detailed record of the number of facings, the locations in which they're vended and the "end-of-the-line" price, the VEII executive summed up.
CASHLESS VENDING ADVANCES
The second session of the workshop offered updates on the progress of cashless vending. First to speak was Gene Ostendorf, founder of InOne Technology, who now heads up the Arrow product line for Coin Acceptors.
"'Cashless' is a terrible term," Ostendorf said. "We need a better one." But the concept itself is making swift progress, he said, noting that a large bottler experienced a 19% increase in sales by adding this payment option. The ease with which a patron can make one or several purchases builds loyalty, the speaker noted, and the ability to make purchases without expending bills or coins makes vending more attractive to markets like colleges and hospitals.
The Arrow system combines cashless transaction handling and telemetry, Ostendorf explained. The remote monitoring features include "Arrow Alerts" to flag functional problems and to provide accurate inventory information. This allows one driver to take care of many more machines every day by only visiting the ones that need service. One bottler was able to add 60% more machines on the same number of routes, the speaker reported. Service becomes proactive, not reactive.
And it enables whole new ways of doing business, the industry veteran emphasized. One operator offers an entirely cashless meal vending program; purchases may be made with debit and credit cards, and prepaid cards are issued for promotions. The average vend price is $7. Detailed reports, right down to hour-by-hour sales for every day of the week, are available; and "e-receipts" are issued for employer meal reimbursement, when required. "And there's no cash handling," Ostendorf concluded.
Stacey Finley Tappin of Apriva reported that Apriva Vend has been producing impressive results for operators. Apriva, working with MEI, offers "cashless coaches" to help operators get their machines online with minimum effort, and supports the National Automatic Merchandising Association's Cashless Solution program.
She reported that an operation in North Carolina, running about 600 machines on a traditional cash-only basis, concluded that this payment limitation was impairing profitability. The company was concerned about the cost of converting to cashless payment acceptance, and the possibility that cashless sales simply would cannibalize existing business. Working with Apriva, it devised a trial.
"We tested 50 machines in Charlotte, NC, and increased the vend prices in each by 5¢," Tappin explained. "Those machines registered a 40% increase in sales -- and the nickel price increase paid for the upgrade."
The company discovered additional benefits, she concluded: the machines required little maintenance, incurred lower operating costs while producing more revenue, and sales volume went up.
Brett Powell of Cantaloupe Systems reported that Cantaloupe, too, has dealt successfully with operator concerns: the expense of converting, the fear that the effort will not improve profitability (if it results in winning more accounts without increasing revenue in proportion) and the suspicion that the majority of cashless sales would have been made anyway, without the extra expense. Other such barriers include worry over the complexity of cash-and-cashless accounting and reconciliation reporting, of integrating cashless with remote monitoring and, in general, the sense that it is dangerous to get into cashless too early.
Cantaloupe has been addressing these concerns by identifying "cashless catalysts," steps that have been proven to get cashless vending off to a strong start, Powell explained. These include analyzing return on investment at the machine level, monitoring performance continually, and deploying an open solution with reconciliation and accountability functions already built in.
As cashless vending becomes more popular, it creates the conditions for ever wider adoption, the Cantaloupe executive observed. Greater interest lowers hardware costs, the expense of gateway access and processing, and interchange fees: "Competition drives down costs," he emphasized.
Cantaloupe, developer of the well-proven Seed remote machine monitoring system, offers a "Cashless Calculator for Profit Maximization" that uses Seed data to identify the profit-and-loss opportunity for each machine, in real time. "This can predict the profitability of a machine, so you can decide whether to add cashless," he explained. And, as the base of information increases, operators can plan in greater detail for enhancing their present eligible accounts or pursuing new business.
Cost considerations include the expense of hardware and wireless activation, and fees charged for services and processing, the Cantaloupe executive summarized. In selecting a product, he emphasized the importance of compliance with the requirements specified by the Payment Card Industry Security Standards Council (PCI) and of open architecture to assure interoperability with the widest possible variety of hardware and software. Other key features, Powell concluded, are integrated cash-and-cashless accountability.
Mike Lawlor of USA Technologies reported that 2010 was a big year for the company, and by the first quarter of 2011, its ePort-equipped machines were handling more than 4,230,000 transactions a year, representing annual cashless sales in excess of $6,283,000. As of August 2010, 27% of sales made by cash-and-card-equipped machines were cashless, he added -- an 80.6% increase over the 15% recorded three years ago.
Moreover, the speaker explained, the "average spend" per cashless transaction is 29% higher than that for cash purchases. He attributes this to the greater appeal of the cashless option for higher-priced merchandise, and to the ease with which multiple purchases can be made from a machine with a single cashless payment. For example, USAT's database shows that 20.1% of cashless sales were items priced at $1 or less, while 34.4% were products that sold for $2 or more.
And this is important to keep in mind, given current economic trends, Lawlor emphasized: "Costs are going to keep on rising, and you will need to raise prices."
For these reasons, more and more operators are adopting cashless vending. "It's gaining ground rapidly," the USAT executive said. "In general, if adding the cashless option increases a machine's sales by $1,000 a year, it's profitable. Cashless payment is boosting sales and profits and, as prices increase, its value grows. Consumers want it."
And operators need it, Lawlor summed up. "Between 2000 and 2011, vending's average net operating profit declined from 7.5% to 1.4%," he said. "That's an 81% reduction."
BUILDING FOR THE FUTURE
Brian Voigt of Bank of America Merchant Services agreed that market forces are driving vending's adoption of cashless payments. As Generation Y supplants Generation X and the Boomers, the demand by consumers for the cashless option becomes stronger and stronger. Operators must accept noncash payments sooner or later, since their customers want this amenity, he said. There are more and more options for doing this -- and for deciding what to do in the meantime.
"This is the time for making business decisions and forming strategic partnerships," Voigt emphasized. "Your choices today should prepare you for tomorrow."
Some trends to watch include the growth in "multifunction" cards -- which provide access to debit and credit accounts, or to a personal and a business account -- and mobile payments, the speaker advised; "this is coming very soon, and you want to be ready." Contactless cards are here already; waiting in the wings is the "near field communication" medium, already popular as a cellular telephone option in some parts of the world. Also assuming greater and greater importance is fraud protection.
The BAMS executive noted that retail employment of cards for promotional purposes, not just for payment, is growing rapidly. Applications range from "closed-loop" product like retail gift cards to "open-loop" incentive and rebate programs. Both concepts also can be used for loyalty programs.
Government also will have an impact on the cashless transaction field, the speaker added; the Durbin Amendment, which requires the Federal Reserve to establish rules governing card fees, still is under study by the banks. For all these reasons, Voigt said, operators should seek strategic partners able to offer guidance during an interesting and unpredictable future.
Following a brief question and answer session, Chris Lilly of Best Vendors Management, chairman of NAMA's Vending Data Interchange Task Force, offered a progress report on his group's campaign to insure interoperability among services and products from different suppliers as local and remote machine-to-machine data communication becomes more and more widespread in vending.
The taskforce was formed by NAMA to work against the possible emergence of closed systems, each able to communicate only within a limited family of host and client equipment. "Interoperability protects your investment in new technology," Lilly pointed out.
The first step was to develop a standard format for data received from a variety of new devices, so it can be read by present vending management information software without conversion. This task has been completed, Lilly reported. The second stage is the establishment of a device-to-server standard, so peripherals and machines from many manufacturers will be able to communicate with one another -- again, without conversion -- and with servers, including remote ones that host Internet "cloud"-based services.
Finally, the Best Vendors information technology expert said, the taskforce plans to work toward interoperability among cashless vending systems. "We've had preliminary discussions to define the problems," he said.