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NAMA Leaders Explore Developing Chinese Vending Industry

Posted On: 10/19/2006

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SHANGHAI, China -- China, with one of the world's fastest-growing economies, has only 400,000 vending machines on location and, as such, is a market with the potential for extremely rapid growth. That's one of the conclusions reached by NAMA president and chief executive officer Richard M Geerdes and senior vice-president and chief operating officer Dan Mathews, who attended the recent China Vending Exposition in Shanghai as guests of the show's sponsors.

"The vending community is global, and NAMA and other industry organizations are playing a vital role," Geerdes observed. "Long established in Europe, Japan and many countries around the world, vending is now gaining a foothold in China."

The Shanghai trade fair, open only to industry professionals, included a three-day exhibition that attracted 4,160 visitors including 1,100 from their countries. It was sponsored by the All-China Federation of Industry and Commerce and by China Tongyuan Corp., administered by Shanghai Gehua Exhibition Service Co. Ltd.; Changhai Tiansheng Exhibition Service Co. Ltd., and Shanghai Highlights Business Management Consulting Co. Ltd.

Among leading international industry associations that supported the show were the Worldwide Vending Association, the European Vending Association and the Japan Vending Machine Manufacturers Association as well as NAMA. Geerdes, who is on the board of WVA, delivered a keynote address at the China show, as did Catherine Piana, secretary-general of the European Vending Association and chief executive officer of WVA, and Takashi Kurosaki, director-general of JVMA.

Geerdes noted that the nascent Chinese vending industry must address some challenges if it is to realize its extraordinary potential. Among them are small convenience stores located almost everywhere, and large manufacturing establishments that provide low-cost (or no-cost) cafeterias as well as transportation for their employees. And, as with any new vending industry anywhere, China's must make sure that its equipment works reliably and that machines are protected against counterfeiting and other forms of fraud. At present, too, there seems to be a less than optimal spread between product cost and the prices that vendors can charge.

Mathews added, "Because the industry is in its infancy, machines on location are limited, revenues are low, and economies of scale in product purchasing are slim. For example, a cola product costing 1.15 Chinese yuan renminbi (about 12.6¢) is sold for 1.75Y or less in convenience stores, so operators are hesitant to charge more in vending machines."

Asked to compare the typical operating costs for a NAMA member operation with those faced by operators in China, Mathews replied that for the typical NAMA member, costs for product and equipment are lower than those borne by the Chinese operation. However, the Chinese company has the advantage of lower payroll and support operating costs.

Equipment costs in China at present are especially daunting, Mathews added; U.S. operators typically expect to devote 5% of expenditures to vending machines, while a Chinese operation may devote as much as 50% to equipment purchases.

Geerdes and Mathews joined their fellow international association executives in recommending cooperative action as a key to the development of the vending industry in China. "NAMA and WVA strongly recommended that industry leaders in China form an association to help educate operators and guide the industry through the early stages of development," said Mathews. "The WVA offered to work with volunteers to help establish a Chinese Vending Association, and NAMA offered to provide 'Vending 101' training, including basic P&L management."

He and Geerdes also visited an independent vending operator in Hong Kong, and had the opportunity to see one of his larger accounts, a 24-hour shopping center. There they witnessed one of the world's most advanced payment systems in action: the "Octopus" card.

Millions of people use their "Octopus" instrument to pay for purchases from a wide variety of retailers, as well as public transportation. The card is contactless, so no swiping is required and transactions are very fast. Because it's so popular and ubiquitous, "Operators do not take cash in vending machines, but only use this cashless system," Mathews reported. "The processing fee is 5%, a small price to pay for the convenience."

Geerdes observed that the Chinese showgoers seemed most interested in relationship building, networking, product demonstrations and education. Talking with representatives of the foreign vending associations appeared to be a priority; "They had many questions about how to effectively operate and grow a vending company in China," the NAMA president said.

"The visit to the China vending show and to the vending operation in Hong Kong were well worth while," he summed up. "The door was opened for many international visitors and new exhibitors at NAMA Expos and WVA events, and many new payment systems, vending machines and technologies were noted. Modern travel and communications technology continues to shrink our world and make it possible for NAMA and WVA to work together for a better future for our industry."