$1 Vends Gain Acceptance Among Patrons; Changeover Costs Deter Operator Progress

Posted On: 6/14/2007

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U.S.A. -- It is no secret the bulk vending industry is in a state of what is politely described as "transition." Even as high-value, top-selling capsuled products become more difficult for suppliers and manufacturers to offer at traditional price points, operators are finding themselves squeezed by rising overhead costs. Even those in the industry who are not aggressively pursuing high price points and new equipment types agree that change is inevitable, eventually. It's just a matter of timing.

So, what's the delay? There seem to be a host of problems, both trivial and significant.  These include resistance by operators to make the investment required to change their coin mechs, potential resistance on the part of customers to spend $1 in a bulk vender and wary suppliers who may judge that an insufficient number of their customers are accepting of high-priced merchandise.

At first glance, the situation may be a lot like asking, "Aside from that, how did you enjoy the play, Mrs. Lincoln?"  However, the state of affairs is not that dire. There is plenty of evidence to suggest that the capsuled toy sector may emerge stronger and more profitable than ever before -- though not without some growing pains along the way.

According to industry pros, although moving to higher price points is not yet a sweeping trend, it is happening in a somewhat patchwork manner across the industry -- and this haphazard progression is not entirely unexpected. Operators experienced something similar more than a decade ago when prices for 2-in. capsules rose from 25¢ to 50¢. Resistance then was, and now is, largely due to the fact that bulk vending is unique in retail sales because a price increase requires a major investment on the part of the "retailer operator" to update equipment.

"The industry has to move forward; there's absolutely no question about it," said A&A Global's Phil Brilliant. "Today's vending operator can be broken up into three categories. The first is the operator who is not willing to change. The second is the operator who is currently making the change to higher prices and the third is the person who has already made the conversions. Interestingly enough, there are products in the market today for all three of those categories."

According to Brilliant, operators who have made the change to $1 are finding steadily more products suitable for this price point, in part due to demand, but lower price-point goods are still predominant and readily available. He also said that those who are starting to make the changeover to higher prices typically use a mix of products to ease the transition.

The problem of consumer resistance to higher prices is best described as lessening as the industry has grown adept at creating products with the necessary perceived value. Those with long memories will recall that it wasn't that long ago that bulk vending entered the mainstream of pop culture by applying high-visibility licenses and trends to merchandise. Though the industry has dabbled in licensed goods, dating back to the early to mid-1960s when items based on characters like Batman and the Green Hornet were big sellers, today's licensed products are both better made and tied to multimillion-dollar promotional budgets.

One example is Tomy Yujin Corp.'s summer lineup of capsuled toys, suggested to vend for $1. Selections based on "Ratatouille" from Disney's Pixar Animation Studios, "The Simpsons Movie" and "Transformers," as well as the big-budget blockbuster "Pirates of the Caribbean: At World's End," are available from the company.

"From what I've heard from our customers, there has been an increase in sales of $1 merchandise versus 50¢ merchandise," said TYC's Amanda Newhard. "I think the consumer is looking for the higher quality and finding it in the recognizability and quality we've always had in our products. I love hearing from customers who say that our $1 product is selling better than someone else's 50¢ product."

Newhard also points out the appeal of her firm's more venerable licenses that aren't tied to specific movies.  TYC's Peek-a-Pooh series, based on the literary characters of the Winnie the Pooh books and cartoons, is currently in its 13th series, with tens of millions of the figurines sold around the world. 

"If you have the right product, operators are more accepting of the higher vend prices. I definitely see them wishing for that $1 coin, but they are becoming accepting of the product and it's the product the customers want," said Newhard. "Right now, we have locations requesting our product and I get calls from operators who say that in order to keep a location they have to put one of our machines in."


According to many operators, end consumers are still resistant to the $1 vend in a way that isn't tied to perceived value -- they call it the "Four-Quarter Challenge."  The number of consumers carrying $1 in quarters, they ascertain, is significantly less than those who may have one or two quarters on hand. Thus, in many instances, the impulse that drives the purchase of a capsuled toy for $1 in change has to be strong enough to not only motivate the consumer to purchase the toy, but also enough to acquire change to conduct the transaction. 

This situation is made worse by the expanded use of credit and debit cards in key bulk vending locations, such as supermarkets, family restaurants and convenience stores. However, according to experts, a significant part of the Four-Quarter Challenge is met by an expanded demographic -- the high-priced products appeal to a wider range of consumers. Operators have also taken to adding bill changers to racks to make transactions easier, and manufacturers have started experimenting with adding them on their machines.

In the long term, higher vend prices promise significant changes for capsuled merchandise. They can draw different types of product into the marketplace, expanding the demographic and increasing profit margins.

According to Cutting Edge Industries' Michael Applebaum, his supplier, Top Notch Toys, with which CEI maintains close ties, is currently looking into new formats beyond the popular 2-in. capsule.  "Our plan is to have 3- and 4-in. capsuled products available for the U.S. market," he explained. "It's a part of the market that's growing, but is pretty much unattended to. These products would vend for $1 in the U.S. and $2 in Canada." Applebaum noted that TNT and CEI still plan to sell traditionally sized merchandise along with the larger-format products.

In order to support this new range of merchandise, Applebaum and TNT are bringing to market two new machines, the Giant Capsulator and Mini Crane (see story on page 80). Other manufacturers, such as OK Manufacturing, also have machines on the market capable of vending larger-than-standard capsules and accepting paper currency.

Currently, experts predict a shrinking percentage of merchandise for 2-in. capsules suitable for a 50¢ vend. However, even longtime industry pros are hesitant to predict just how quickly this will progress. It depends, they said, on how quickly operators make the coin-mech switch to higher prices on their routes and decrease the demand for the merchandise.

Another factor is that there really isn't a concrete model for what the industry can expect. In the vast majority of foreign countries, widely circulated currency equivalent to $1 or even $2 has made the changeover less painful. In Europe and Canada, for instance, merchandise selling for the equivalent of $2 is becoming increasingly commonplace. One thing that pros unanimously agree on is the fact that higher price points will become the industry standard in the U.S., and operators need to begin planning for the change.