Thursday, January 18, 2018 | Today's Vending Industry News
UPFRONT: What Is It About A Vending Machine That Justifies Lower Prices?

Posted On: 5/10/2006

  • Printer Friendly Version
  • Decrease Text SizeIncrease Text Size
  • PDF

At the recent NAMA show, I had dinner with a manufacturer who expressed concern about the future of the vending industry. He explained that advances in technology made it necessary to charge more for his company's equipment. "Operators need more sophisticated vending machines, but they're not willing to pay more for it. What they really need to do is raise their prices. Vending operators and the way they merchandise  have not kept pace with modern technology."

Now, unless you've just awoken from a long slumber, you know this is not a revelation. It has been a hot topic in our industry for the past 40 years.

During a recent distributor open house, I had lunch with a local operator who cast some light on the question, from the operator's perspective. "Every time I raise my vend prices, my competitor lowers them," he said. "Why is it that the convenience store down the block can sell the same item for 5¢ more, but the vending industry can't follow suit?"

Good question. Why is that? What is it about a vending machine that justifies lower prices? And isn't a candy bar of a given size and brand the same thing, whether you purchase it out of a glassfront vender or from a 7-Eleven? If people will pay more for convenience at a convenience store, why won't they pay a premium for the convenience of having an on-premises retail outlet that's open around the clock, seven days a week?

So, what is stopping us from adjusting our prices to reflect current trends and desires in the marketplace? After decades of believing that you couldn't get more than quarter for a game of pool, amusement operators discovered that there wasn't as much price resistance as they had thought; today the average price is $1 per game. Might this not be true in vending?

Operators here and there have found that it is true. A very well-known and well-regarded vendor in southern California once told us that he got a location which already had awarded a coffee concession to an operator of espresso carts. That contract did not forbid coffee vending, but it did specify that anyone else selling coffee on the premises had to charge the same as the carts, $2 or thereabouts. Our operator friend accepted the challenge, installed a state-of-the-art coffee machine set to vend at that price, kept it clean, filled and correctly adjusted -- and sold a gratifying amount of coffee!

Many industries, maybe most, tend to become prisoners of their early successes. There's a widespread belief that this is the explanation for vending's long inability to break the $1 price ceiling. The idea is that the vending industry's mindset, its culture, was formed in the old industrial workplace. The factory worker demanded low prices; his employer demanded high commissions. With relatively simple, inexpensive machines, very high volumes and low operating expenses, vendors could meet those demands and still make money. The "smokestack" economy has passed, but the vending industry remains trapped in the web of operator, location and customer expectations woven in the 1960s. In its short form, this view might state that we found our niche as a "source of last resort" for people who couldn't leave the assembly line long enough to leave the premises, and a "last resort" never commands premium prices.

This view is held by many long-time observers, and it makes a lot of sense. But I don't think it's the whole story. I think many operators also have sacrificed retailing flexibility to avoid what they think of as excessive complexity. In the old days, everything in a  machine sold for a nickel, or a dime, or a quarter. This made for easy cash settlement: if you sold 50 items at 10¢ each, you expected to find $5 in the coinbox. If you found more, the machine was sometimes failing to drop the product (which got us the reputation of running "one-armed bandits"). If you found less, somebody was stealing.

In those days, machines imposed serious limitations on the size and shape of the packages they could sell. This resulted in the "vend size," which then was formulated to meet the price-point at which most machines would sell it. As digital electronics came together with versatile glassfront designs, equipment hit the market that offered wider selectivity, the ability to accommodate a much greater variety of packages -- and true multipricing capability. The vending industry moved toward the retailing mainstream, and knowledgeable observers foresaw that movement accelerating.

Here and there, it has. Operators have had good success with branded premium-product machines selling such things as energy drinks. The "large single serving" initiatives of the 1990s have had a positive effect. But, overall, vendors have not added the sort of upmarket items that you can find in most C-stores nowadays.

Most vendors also don't promote the way other retailers do. A great deal has been said about this, and indeed, there is a great deal to say. But no one argues with the criticism. 

Taken together, the reluctance to add more price flexibility and the reluctance to promote has deprived operators of the opportunity to take advantage of very well-financed advertising campaigns that tie limited-run variations of best-selling brands in with hit motion pictures -- and so on and on. The two limitations reinforce one another.

The operator needs the ability to change prices frequently -- and it can be done in both directions! We know a vendor who has become famous for always having one or two items in his snack machines that sell for less than any packaged product in the local C-store. He reports that he doesn't lose money selling them, and people get a kick out of seeing a bargain. That's merchandising, and it helps build a perception that pays off when he adds a higher-priced selection.

Operators and manufacturers agree that vending has a price problem. I've asked around, and I've gotten a number of opinions about it. Is it concern that drivers don't reliably match up the products with the appropriately priced slots? Is it reluctance to change the pricing on the controller, either because it takes too much time or because no one can be trusted to get it right the first time? Are we making the best use of planograms? Do we need more effective route supervision?

We all know that consumers are willing to pay more for items they regard  as higher quality. In fact, often times a consumer will perceive an item to be better just because it has a higher price tag. We've observed just about every retail category, from automobiles to cereal bars, so why not vending? We'll never know until we try.