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Impact Of Technology On Vending Business Model Intensifies In 2005

Posted On: 1/10/2005

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U.S.A. - The potential for today's technology to make vending operations more secure, reliable and profitable is a likely focus of industry activity in the year ahead.  The increasing ease of coupling current-generation vending equipment with proven data communications systems may challenge the usual vending business model.

For one thing, it is probable that cashless capability will become widespread in 2005. Consumers increasingly prize the convenience of using bank debit or major credit cards for everyday transactions. According to the Federal Reserve Board, electronic transactions now exceed payments made by check. USA Technologies cited that report to demonstrate further that its "e-Port" cashless payment system for vending machines is positioned ahead of the curve, but the curve is catching up quickly.

The development of practical cashless payment systems for vending has been predicted for two decades. Their emergence from niche markets has awaited the small, reliable, inexpensive wireless communication devices that have become common over the past several years.

Somewhat less foreseeable is the recent reemergence of technology as the competitive edge in franchise opportunities. Franchising has a history in vending that predates World War II. Automatic Canteen Co. of America (now Canteen Vending Services) began offering franchisees proven operating methods, trademarks and a variety of services in the 1930s. This program is still going strong.

Tom Huston Peanut Co. (now Tom's Foods), which dates back to 1926, made branded snack vending machines available to entrepreneurs who purchased "Tom's" routes in the immediate postwar years, and the Rudd-Melikian organization offered its pioneering hot beverage venders to "Kwik Kafe" franchisees in the 1950s.

New Zealand's VTL Group Ltd., which as Vending Technologies Ltd. developed proprietary telemetry programs for wireless networks, is making its systems available to franchisees in the United States and elsewhere. And Grab 'n Go Express (Springfield, IL) plans to offer a franchise vending program with spring.

VTL's 24seven Vending (US) Inc. subsidiary has acquired two well-established full-line operating companies in the United States: Adolph's Vending Service (Dallas, TX) and MAB Services (Los Angeles, CA).

These acquisitions provide 24seven owner/operators with a fully operating "vending run" that provides immediate revenue, the company explained.

VTL Group specializes in franchising, technology and financing. Its franchise brands are represented internationally, in Australasia, Europe and North America. Its primary growth strategy for 24seven involves purchasing quality electronic vending equipment, installing its proprietary control technology, and building a network of franchised owner/operators.

The key to a successful franchise program is offering something of value that cannot be duplicated by competitors, and  both VTL and Grab 'n Go Express regard its remote monitoring technology and related management software in this light.

"In the past, call costs have always been a barrier to deployment of enhanced wireless services," said John Davies, chief technology officer for VTL. However, he noted, telecommunications companies  around the world have begun rolling out cellular data services such as GPRS (General Packet Radio Service) and CDMA (Code Division Multiple Access), which can carry network data traffic at low cost. "This enables us to offer services that involve monitoring remote locations for as little as $1 per day, opening the way for numerous new opportunities," Davies pointed out.

As VT goes to press, VTL has just concluded an agreement with All Seasons Services (Braintree, MA) which has the potential to spur its growth in the U.S. vending market. The accord is a conditional transaction through which VTL will acquire a substantial long-term interest in the New England-based vending company.

VTL has undertaken to invest NZ$5.67 million (nearly $4.1 million U.S.) in All Seasons. The interest is in the form of cash-redeemable preferred stock, which carries warrants for 18.9% of All Seasons' common stock.

VTL Group will sell All Seasons the shares in 24seven USA Franchising Ltd., which has a license to use VTL Group's franchise system, training methods, brands and proprietary technology.

As consideration, All Seasons will issue to VTL Group an interest-bearing note for approximately NZ$8.5 million (just over $6.1 million U.S.) convertible at any time within the next five years, at VTL Group's option, to 47.6% of All Seasons common stock.

If and when the warrants and convertible note are exercised, VTL Group will be repaid NZ$5.67 million, and will hold a total interest of 66.5% in All Seasons.

Due diligence has been completed, and VTL Group expects the residual conditions of the transaction to be fulfilled to both parties' satisfaction early in 2005. At that time, VTL Group joint managing directors Mervyn Doolan and John Hotchin will take up two of the six seats on All Seasons' board.

VTL will retain its existing subsidiary, 24seven Vending (USA) Ltd., which will continue to franchise its MAB and Adolph's vending businesses, in California and Texas, respectively. It acquired the well-established local operating companies in 2004.

"All Seasons Services is the fourth largest and one of the fastest growing vending companies in the U.S.A.," said VTL Group's Hotchin. He noted that All Seasons' service area encompasses about 60% of the U.S. population, and added, "It has an outstanding management team and a high caliber board of directors. To unlock the true value of those assets and capabilities, it requires a franchise system and the matching suite of technologies. That's what VTL Group can provide."

Hotchin added, "For our part, in terms of our business model, our stake in All Seasons represents a long-term investment in trading stock in the form of sited vending machines. This means we can scale our franchise business rapidly, without having either to raise additional capital or to grow our presence organically, contract by contract."


All Seasons has 39,000 machines in the field, he noted, "eminently suited to conversion under a franchise model, the company has the financial and management resources to drive a franchising model through its business , and ours is the only proven system that is backed by appropriate remote machine management technology.

"This deal demonstrates the value that the U.S. market puts on our business model and technology," the VTL Group joint managing partner said.

A further benefit, he pointed out, is the aggregate purchasing power represented by the two organizations. "With total combined sales from All Seasons and VTL Group in excess of NZ$330 million [about $235.1 million U.S.], we are well-placed to secure more favorable terms from global suppliers of snack foods, beverages and confectionery."

VTL Group will continue its ongoing research and development activities in Auckland, NZ, and All Seasons will enter into a supply agreement with VTL Group to acquire hardware and software for its machines. It also will pay a per-machine fee for ongoing maintenance and support, VTL explained.

In addition to the 24seven refreshment vending franchise business, VTL Group has been developing an automated convenience store franchising operation, Shop24. VTL manufacturers two versions of its "Shop24" machine, a free-standing outdoor model that's easy to move and install, and a through-the-wall style. Each kind has a footprint of 11.2m. (about 120 sq.ft.). At present, they're installed in seven European countries and have recorded over 60 million consumer transactions in 160 sites.

The franchising approach offers people who are attracted to an industry a turnkey  business, and today's technology makes this much easier to do.Touring the National Automatic Merchandising Association National Expo was Jeff Parsons of Four Seasons International (Springfield, IL), who founded Get 'n Go Express.

Parsons, whose Four Seasons business specializes in conducting temporary sales events across a 14-state territory, intends to franchise free-standing state-of-the-art vending machines in "Get 'n Go" indoor/outdoor branded enclosures, or in the franchisee's own suitable building. The modules can be set up quickly anywhere there is open space, such as in mall parking lots or along streets with heavy traffic.

As a demonstration project, Parsons constructed a "vending oasis" that houses 32 machines stocked with a wide variety of cold drinks, ranging from 25¢ "Olde Town" soft drinks to $1.00 "Minute Maid" products. He has since expanded the menu to include branded indoor/outdoor machines including "Hershey's" and "Pringles" venders , even a Tyson "Diner."

The company is engaged in setting up four more of these facilities, plus 12 smaller "Get 'n Go Satellite" modules housing 10 machines, in the Springfield area. With the experience gained by operating all of them through the winter, franchising is slated to start in April.

Since the pilot installation opened in September, sales have increased steadily, Parsons reported. Although some of this increase can be attributed to the addition of products to the mix, a good deal of it is based on growing familiarity with the convenience of "Get 'n Go;" it has become a destination.

The "25¢ Soda" offer was conceived as an attention-getter, and it has been very successful; sales are consistently strong, and it will be part of the franchise package. However, Parsons said, low price is not the only attraction.

"The question I had was whether people actually would stop their cars and get out, just to use the machines," he told VT, "They will. They know what's available and where it is, and they can get just what they want in a minute or so. It's a real time-saver, and today's consumers value that."

The "Get 'n Go" structure, which includes on-site product storage, is monitored by cameras allowing real-time Web viewing;  images are archived for 30 days.

The franchise approach, at base, "allows the franchisee to learn from our mistakes," Parsons pointed out. To maximize the value of this education, Get 'n Go Express is experimenting with new equipment (such as an indoor/outdoor temperature-controlled glassfront vender) and investigating new technology in a swift but methodical way. This includes wireless data communication, with Web-based access to inventory and status information. Parsons reported that he is working with Cantaloupe Systems (Danville, CA) on telemetry.

Remote monitoring, with software providing immediate access to inventory, audit and machine status information, offers real benefits to franchisee and franchisor alike, Parsons pointed out. Moreover, a franchise network offers real opportunities for setting up mutually beneficial promotional and new-product sampling programs with suppliers. Such an organization also stands to benefit greatly from cashless payment capability.

Get 'n Go's plan is to retain its Springfield operation as a test market for new products and programs. Parsons can be contacted at (217) 528-0656.