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Buffalo Rock Teams Up With Apriva And MEI To Explore Cashless Vending Sales

Posted On: 4/20/2010

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Buffalo Rock, AprivalBIRMINGHAM, AL -- For the past three years, Buffalo Rock has closely examined cashless vending as a practical means to grow revenue and expand the razor-thin margins that plague the vending industry.

Buffalo Rock is the nation's largest single-family, privately owned, independent Pepsi-Cola bottling company, with a long history of soft drink industry firsts to its credit. The Birmingham, AL-based company expanded into full-line vending in 1985, and has grown into one of the southeastern region's largest providers of full-line vending and foodservices.

Buffalo Rock management clearly understood that the potential upside of cashless transactions centers on providing convenient options for customers, who might be willing to spend more money through straightforward card payments than with loose change and small banknotes scrounged out of their pockets or purses.

The challenge for the vendor wishing to offer a cashless payment option has traditionally been the costs of setting up the necessary infrastructure, of transmitting and verifying customer data, of incorporating the transaction fees levied by the banks for processing credit and debit card transactions, and of incorporating the costs of equipping machines with card-reading validator bezels.

"We studied the potential benefits of deploying cashless technologies very closely, and came to the conclusion that it is something that we needed to try," explained Dick Hanson, executive director of premise marketing and strategic selling at Buffalo Rock. "While there are very real expenses required to conduct cashless payments, there are also very real costs associated with supporting cash-only machines. The key factor in our minds is to determine what sort of lift we can get out of a cashless payment solution."

While the migration to cashless payments is appealing and logical to many operators, it is not a simple process. Correct deployment requires the precise integration of a number of elements, including credit card-reading hardware that resides on the asset, wireless transaction technology and secure links with card processing services, banks, and back-office reporting systems.

Buffalo Rock turned to Apriva, a leading provider of wireless payment solutions, to assist in leveraging cashless technology. In turn, Apriva enlisted the expertise of MEI, one of the world's foremost suppliers of credit card readers for vending machines, and FirstData, the global card-processing provider.


With a network of over 50,000 vending machines located throughout the Southeast United States, Apriva and Buffalo Rock estimated that, in reality, less than 10% are locations that are best suited for cashless payments at present.

"While some in the industry have indicated that cashless technology can be readily deployed throughout the market, we've discovered that in today's current environment it makes best sense in locations that fit a certain profile," explains Apriva executive vice-president Bill Clark. "The best locations are those that have a high degree of foot traffic, where customers are accustomed to paying for other purchases with credit cards. Airports, hotels, conference centers and sports stadium are just some examples of where cashless technology makes the most sense.

'In addition, as our study bears out," Clark continued, "facilities like military bases, medical facilities, and higher education institutions offer solid dynamics in support of cashless deployments."

To validate the benefits of cashless payments, Buffalo Rock identified about 60 locations to conduct the four-month trial. Machines were equipped with MEI's advanced "4-in-1" bezel, and Apriva's wireless transaction technology was integrated to transport transactional information with FirstData. The Apriva Back Office solution was used for sales and settlement reporting, using driver cards to manage fill-to-fill reporting.

The machines were geographically dispersed among sites including colleges and universities, medical facilities, military bases, shopping malls, and several recreational locations like bowling alleys.

The test machines carried products from several suppliers like PepsiCo and Dr Pepper Snapple (formerly Cadbury Schweppes Americas Beverages), along with private-label products from Buffalo Rock. Most machines carried beverages, but one location offered only snack food.

Buffalo Rock and Apriva felt that a four-month test "window" would be adequate to reduce week-to-week variances caused by seasonal schedules and buying trends.


In a difficult economic climate that is impacting vending sales across the board, the company was delighted to see an average revenue uplift of 22% at the cashless vending machines.

But what type of products work best in a cashless environment, and which locations offer the greatest potential? Buffalo Rock and Apriva wanted to test the elasticity of cashless sales for products costing less than $1, so two machines located in hospital emergency room waiting areas offered canned soda at 75¢ and 85¢. Most of the other machines sold bottled beverages priced between $1.25 and $3.

The vend price for each machine was set based on the profile of the location, and kept constant throughout the trial period. For example, the machines with the highest vend price were located in shopping malls.

Like all real estate decisions, the selection of where to deploy a cashless vending machine is an art, not a science. Still, as Buffalo Rock and Apriva learned, making intelligent choices based on an in-depth understanding of customer dynamics is essential for positive results.

"We've found that cashless performed exceedingly well in the higher education environment, while we were a little disappointed with the results from the retail space," explains Jim Jernigan, vice-president of administration, technology and strategic support for Buffalo Rock. "There are many ways to interpret the data, but overall, we felt comfortable with the concept that cashless -- in the right environment -- does indeed generate more than enough lift to pay for itself."

According to Buffalo Rock's findings, sales in the higher education segment climbed at a 48% clip over expected sales based on historical cash-only results. Shopping malls recorded an increase of more than 22%, while sales at military bases rose over 19%. While the data indicates less uplift on military bases during the study period, the expectation is that the lift will be more over an extended period because base populations fluctuate.

The test's organizers agreed that this is a very encouraging result, and is especially interesting because it includes sales of products with higher vend prices. Since a credit card is more likely to be used for purchases in premium high-traffic locations, the 22% climb in sales also represents a significant growth in margins -- always good news for vending operators.


The average charge levied by the bank or credit card issuer for unattended point-of-sale transactions is 5%. However, the National Automatic Merchandising Association is exploring ways to reduce these "interchange" rates to a level equivalent to the 2% to 3% levied on attended payments.

In addition to paying those fees to third party processors and banks, vending operators may have to contend with the inflexible remuneration terms imposed by some cashless vending providers. The resulting complexity can impact cashflow and margins for vending operators.

On the surface, the "cash versus cashless" argument appears to be simple. On one hand, sales go up because cashless is convenient for the consumer. On the other hand, there are the transaction charges and possible cashflow issues to consider when the revenue flows through a third party for processing and payment. Why go cashless if it increases operating costs? After all, operators get to keep all of the cash from a traditional machine.

But, as Dr. Michael Kasavana, NAMA Endowed Professor in Hospitality Business at Michigan State University, points out, cash isn't free: it imposes its own costs. Cash has to be collected, counted, bagged and taken to the bank, and the amount has to be entered into the company's financial system -- a cumbersome and expensive task. In addition, cash-only machines fail much more frequently than their cashless cousins. Also, the shrinkage issue that plagues cash-only environments doesn't apply in the cashless world.

While it's difficult to put a precise figure on the hidden cost of cash, Kasavana estimates that it is around 3% to 5%, or similar to that of cashless transactions.

"Getting the cost of cashless transactions down to the level of cash-only brings us, in essence, to the tipping point for deploying cashless technology," Kasavana said.

In addition to finding the right location, Buffalo Rock understood that the right technology partnerships can make-or-break the cashless environment.


For payment processing and reporting functions, Buffalo Rock relied on Apriva, the leading provider of wireless payment technologies in North America.

"Apriva has the product portfolio, skill set and expertise to deliver the reliability, security and flexibility we need," said Dick Hanson. "They have brought an ecosystem that integrates the hardware, processing platforms and back office needs into a single solution."

Apriva's solutions comply with all Payment Card Industry (PCI) security mandates. As a single-source solution, Apriva can tailor a program to meet the exacting needs of virtually all operators and bottlers.

"While other vendors can offer a cashless-only deployment, our relationship with MEI allows us to deliver payment technologies that can seamlessly perform both cash and cashless transactions at the same machine," said Clark. "We've found that the flexibility of our technology speaks volumes to operators and bottlers."


Vending is a very competitive business, and profit margins in general remain tight. While it is clear that consumers may find it convenient to make cashless purchases, the costs of implementing cashless technology may not translate into profits in every situation.

Finding the right location to deploy cashless vending machines is a prerequisite for success. High traffic from consumers accustomed to purchasing lower-priced items by card, is a critical determining factor.

The data that Buffalo Rock established as a result of this detailed trial showed that average sales were boosted by a healthy 22% over estimates, but, as Buffalo Rock discovered, the profit margin varies from one location to another, running the gamut from extremely profitable to just covering costs.

"Cashless vending makes sense for Buffalo Rock," Jim Jernigan summed up. "But it's not a magic bullet by any stretch of the imagination. Think about location, products and prices carefully. If you can work out this balancing act, the profits will be there."