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Leveraging Technology: Networked Machines Sell More, Cost Less In Tough Marketplace

Posted On: 9/24/2012

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TAGS: Cantaloupe Systems, Cantaloupe Seed, vending, vending machine, vending technology, vending machine telemetry, vending business models, Imperial Vending, Lance Whorton, Paul Tims, Diversified Vending LLC, Pat Nuzzollilo Jr., vending route, healthy vending, cashless vending, remote vending machine monitoring, pre-kitting, USA Technologies, ePort, healthy vending, self-checkout micro markets

The high unemployment and corporate downsizing that became acute three years ago have given operators compelling reasons to implement business models made possible by converging telecommunications and information technology. One of these is remote monitoring of line-item sales, enabling swift and continuous refinement of vending machine menus to maximize sales while increasing route efficiencies. Another is cashless payment, which was predicted to boost sales and profits by increasing consumer convenience while removing the "ceiling" on maximum vend prices imposed by reliance on cash.

Operators who are implementing these new methodologies in a controlled and systematic manner are reporting good results and anticipating even better ones in the future, thanks to several emerging trends.

One is the willingness of patrons to pay higher vend prices for high-quality fresh food when they can pay with a card. Operators are responding by upgrading their offerings and equipping their food machines to accept cashless payments.

Likewise, many operators report they are attracting new patrons willing to pay a premium for better-for-you snacks and beverages. As with food customers, they are more inclined to do so when cashless payment is an option. And, while they experiment with upscaling their food selections and expanding their better-for-you menus, a growing number of vending companies are using telemetry to keep tabs on machine sales to ensure a mix of the best sellers and to minimize waste and staleage.

Imperial Vending of North Little Rock, AR, boasts the largest deployment of Cantaloupe Seed telemetry devices in the U.S. and the second largest in the world, with an installed base of 7,000. And the company's investment in that wireless infrastructure has laid the foundation for aggressive plans to expand its cashless capabilities.

Lance Whorton
Photo | GAME CHANGER: Imperial Vending's Lance Whorton says systemwide Seed deployment enabled his firm to consolidate 105 routes into 70, generating more business than it did before telemetry adoption. Wireless infrastructure has also laid foundation for cashless payments.

Like many vending companies, Imperial was prompted to invest in the technology when the economy began to turn down in 2008. Its founder, Paul Tims, and president Lance Whorton, recognized that greater operational efficiency would be vital to offset lower per-machine sales. The operators understood the role remote machine monitoring could play to help them achieve that goal.

"When the recession hit, the sales decrease was out of our control, but we knew we had to find ways to manage costs and reduce operating expenses," recalled Whorton. "We knew we could use remote collection of machine sales data to increase route efficiency and lower our operational costs by reducing the number of vehicles on the road and the related costs of fuel, maintenance and total labor, since drivers could visit more locations a day and spend less time at each." Whorton said the operational benefits his company gained through telemetry have far exceeded his expectations. He reported that it took Imperial two and a half years pay back its investment in telemetry through the cost savings it has realized.

Cantaloupe Systems' Seed platform gathers data from machines and transmits it wirelessly over the Internet, enabling optimized scheduling that delivers maximum route and merchandising efficiencies. By analyzing inventory levels, cash in the machine and geographic distribution, the Web-based application automatically generates efficient delivery schedule and pick lists based on real-time item-level sales data.

Among the most evident impacts of Imperial's systemwide Seed deployment is that its 70 current routes -- serving Oklahoma, Arkansas, northern Texas and southern Missouri -- were consolidated from 105 through the company's use of remote machine monitoring. "And our existing routes are tremendous, doing more business today than when we started with telemetry," Whorton noted.

Systemwide deployment of the technology took two years from start to finish. It began in early 2009 with a test of Cantaloupe Systems' Seed platform in 200 machines on three routes in the Tulsa, OK, area. Imperial's goal, to reduce them to two, was achieved, paving the way to extend the technology across its operation. Prekitting was high on Imperial Vending's list of priorities, once it had Seed in place. The company had experimented with prekitting product deliveries by forecasting with its vending management software, but found that its pick lists often did not match machine needs because sales can fluctuate unpredictably.

"The move to wireless technology immediately provided more accurate and up-to-date inventory data that made prekitting successful," Whorton observed. "The guesswork is eliminated for our warehouse personnel, because the wirelessly transmitted item-level sales data gives them orders to load based on the real-time needs of each machine."

Whorton emphasized that, with consumers increasingly accustomed to paying with credit and debit cards everywhere they shop and dine, developing a network to support card-based payment has been just as important as the operational efficiencies Imperial has gained through wireless remote monitoring. "We started with Cantaloupe telemetry, with a plan to migrate into cashless from there," he told VT. "As Cantaloupe launched Seed Cashless, we began rolling out their solution. It will be very important, moving forward, both to deliver consumers payment flexibility and to drive sales."

Imperial currently has cashless readers installed on 10% of its machines, but its goal is to extend that capability systemwide. "We are trying to understand costs and whether it's necessary to have cashless on every machine in the same breakroom," Whorton told VT. "Our initial goal is to make cashless available to all clients, and expand from there."

Enabling widespread use of card-based payments ties into Imperial's plan to expand its use of the Sprout prepaid promotion and loyalty reward card, which is available to members of the Vend Marketing Institute marketing and purchasing cooperative. "It's the first viable, scalable program of its kind in the market, and it continues to become more popular and attract more interest," said Whorton. "We know the move to telemetry is a good investment to make us more efficient and it's always dynamic, helping us continually improve. But we're also excited about the consumer opportunity, as consumers rely on cashless in their everyday lives, and our ability to offer promotions and rewards, which will continue to grow overall sales."

Imperial has seen a 10% to 12% lift in sales when it adds cashless acceptance to a machine, and that number tends to increase month by month. Cashless sales account for 20% of sales on average, and as much as 50% in some accounts.

Whorton sees card-based payment as an especially promising opportunity for upselling the company's commissary-prepared fresh foods in vending, which he emphasized has been no easy task thus far.

"The consumer will pay more with credit versus cash in a food machine, where it has been especially difficult to raise the price ceiling," the operator told VT. "We have tried, are trying and will continue to try to improve the food we provide, to deliver better value at higher price points."

Also working to vending's advantage is growing consumer demand for healthier fresh foods like salads and willingness to pay more for such nutritious selections, according to Whorton.

In addition to its refrigerated food machines, Imperial currently operates 40 micromarkets, which (among other benefits) have demonstrated the role cashless acceptance can play in boosting fresh food sales.

"It's been a side-by-side learning curve. There are things we've learned about fresh food in vending that we implement in our micromarkets, and aspects of the self-checkout model that we've brought to vending," said Whorton. "In vending, you can't touch and 'shop' as much; but one big takeaway we've gained is implementing micromarket foods into vending at a higher price point, and cashless payment has had a lot to do with that."

The biggest deterrent to implementing cashless acceptance is the fees associated with transaction processing, Whorton said. "It's up to each operator to develop a strategy or pricing structure in their own markets," he said. "We use a blended rate, or offer a discount for cash payments. I hope that, as cashless continues to grow more viable, we will work as an industry with processors and bank card issuers to reduce costs. Over time, as we grow the cashless piece, I hope the fee for the industry comes down."

Diversified Vending LLC (North Haven, CT) is another operation that has emerged more efficient and profitable from the process of implementing wireless networking, and sees it as a game-changer moving forward. Diversified is on track to achieve its goal of having Cantaloupe's Seed remote machine management technology and USA Technologies ePort cashless readers deployed systemwide by year's end.

Pat, Betty Nuzzolillo

Photo | SELLING THE SIZZLE: Pat Nuzzolillo Sr. (left) explains to prospective client how Diversified Vending uses remote machine monitoring to track machine activity in real time to identify the most popular items, minimize out-of-stocks and respond promptly to service issues. At right, Betty Nuzzolillo prekits products for the company's snack machines using sales data transmitted wirelessly in real time by Seed technology.

Diversified began the process two years ago, and saw an immediate impact on route efficiency and sales. It cut the number of routes in half by switching from a static service schedule based on average account and machine sales volumes to dynamic routing on an as-needed basis. Furthermore, weekly route sales prior to Seed were between $6,000 and $7,000. Its largest route now is grossing $17,000 a week on average, with an average of 30 machines serviced per day.

Pat Nuzzolillo Jr. and his parents founded the company 15 years ago as a part-time venture when he was in college. It grew over a decade to six routes, and became a full-time family business.

Two years ago, the operators, who had gained numerous operational benefits and controls by using the Compuvend vending management system for seven years, decided they had groundwork in place to take the leap to telemetry.

They sold two routes to fund their simultaneous investment in Cantaloupe's Seed platform and USA Technologies' ePort credit and debit card readers. Compuvend's software integrated seamlessly with Cantaloupe's Seed platform, making the transition a smooth one. However, Diversified recently switched to Cantaloupe's new Seed Office back-office software.

Wireless access to item-level machine data enabled the company to consolidate its four remaining routes into two by allowing it to dynamically schedule when to stock and service machines, rather than visiting locations on a set schedule.

Like Oklahoma's Imperial Vending, Diversified has employed Seed's remote machine monitoring technology to centralize control of machine merchandising and move to prekitting product in the warehouse for the next day's deliveries, based on up-to-the-minute sales data from each machine.

"It's about control over day-to-day sales," said Pat Nuzzolillo Jr. "When you think of all the little items that float around on the truck, in the warehouse and in the machines, they turn into cash when you gain control."

Nuzzolillo added that gaining the ability to track item-level data in real time to gauge what's selling, and ensure that the most popular products are fully stocked, has had a significant impact on lifting overall sales. "Our drivers are grossing close to three times more since installing the Seed devices. It's driven sales in a tough economy," he said. "We've seen close to 30% more in same-store sales by adjusting inventories and par levels, and by watching trends and responding."

The company pulls an item if it doesn't sell in one cycle, and moves it to another account. "We reinventory and reissue products to other customers in seven to 10 days; people are often excited to see a new item, and it may work better in that location," he told VT. "Having real-time knowledge of what's happening in the machine helps us eliminate outdated product and waste and grow top-line sales with the items customers want most."

Pat Nuzzolillo, Jr

Cashless purchases have also contributed to the sales increases, Nuzzolillo pointed out. "We have been able to vend higher-priced items, like peg candy, beef jerky and upscale dried fruit snacks," he said. "We are maxing out our price points at as high as $4. We couldn't do that without card readers."

In general, at machines where Diversified has added credit and debit card acceptance, cash sales have remained the same or increased, and credit card sales have been incremental and continue to climb.

Photo | NUTS, BOLTS AND NETWORKS: Pat Nuzzolillo Jr. installs telemetry equipment on vending machine before it's delivered to a location. Dynamic scheduling powered by technology has cut the number of Diversified Vending's routes in half and more than doubled average sales of each;its larger route grosses $17,000 a week.

"We have never seen numbers so staggering," said the operator. "From the beginning of the year to today, credit and debit sales have grown 50% to 60% and continue to grow. And they're additional sales we weren't making before. I think consumers have more faith in using machines when they see that the operator is willing to invest in card readers, and the blinking lights on the display breathe new life into the machines."

Nuzzolillo has found -- in line with Imperial Vending's experience -- that cashless payment is playing a growing role in its ability to improve the quality of its fresh food offerings so they will command a higher price.

Diversified currently operates seven refrigerated food venders, along with a 365 Retail Market micromarket it installed three years ago. The company prepares its foods in a single manual cafeteria that it operates.

"Food is always a challenge because of perishability and waste, but people's willingness to pay a higher price with cashless is making it a growing opportunity," said Nuzzolillo. "It can also be a great value for customers. Where food sells, you can make changes and upsell a $3 sandwich that's 5 to 6 oz. by upgrading it to a 7 or 8-oz. sandwich for $4 to $6. We try to sample our foods, and get people excited to try them. If the product tastes great and is presented well, and they have cashless as a payment option, we're finding more and more that it sells."

He added that the fresh food has been a big sales driver in the company's first micromarket. The up-and-coming retail model has been a valuable adjunct to Diversified's vending machines, prompting the company to develop systems to deploy more of the self-checkout stores.

Also growing in demand are wellness-oriented snacks, which have a place in all of Diversified's machines, and cashless vending is supporting the higher prices that accompany many of the selections.

The company recently installed its first dedicated "healthy" machine at a Yale University facility to great fanfare. Diversified created the look and menu for the machine when a national healthy vending franchise sold its client on an all-healthy vender, but then never showed up to install it.

"When it fell through, our customer asked if we could provide one," the operator told VT. "We had the advantage of having the item-level data on our best-selling healthier products from our growing list, so we could determine the best mix for the machine."

The end result was a menu of 28 of its top sellers, merchandised in a refurbished machine adorned with bold sunflower graphics on a bright green background. "And the Seed devices helped us track what has sold, and eliminate what hasn't, from the time we placed the machine," added Nuzzolillo.

The vending company inaugurated the machine with a tasting and sampling event that drew more than 300 employees. "We wanted people to know that it's healthy and tastes good," he said. "It has been quite successful, thanks to the data from the Seed devices and our ability to accept cashless payment."

Nuzzolillo said he plans to pursue this opportunity at more accounts. He also hopes to work with other local vendors on a consulting basis to help them replicate Diversified's success with its first dedicated "healthy" vender.

"We can help smaller operators without the resources, capabilities and staff through consulting, to build the industry's image by helping consumers realize that vending is a viable retail option for healthy snacks," said the operator. "If we work together and don't undercut each other, we can build a positive environment and better image."

Healthy Vending Machine, Before & After

Diversified Vending installed its first 100% "healthy" vending machine -- refurbished and adorned with sunflower graphics -- at a Yale University facility last month. Remote monitoring of line-item sales data from across its routes pinpoint the top-sellers and allows for swift modification of the machine menu to suit demand. Nuzzolillo plans to replicate the model and consult with smaller operators interested in his turnkey solution.