Vending Enhances Capabilities To Maximize Consumer Convenience: Vistar's Pat Hagerty

Posted On: 4/24/2017

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TAGS: Performance Food Group, Pat Hagerty, vending, Vistar, vending technology, glassfront vending machines, National Automatic Merchandising Association, NAMA chairman, category management

Pat Hagerty, vending, Vistar
Pat Hagerty
ROCKVILLE CENTRE, NY -- As the head of the nation's leading distributor of products for vending machines, micromarkets and coffee service operations, Vistar chief executive Pat Hagerty, is well positioned to keep a finger on the pulse of the market. His vantage point provides a panoramic view of the fast-changing food and beverage preferences of today's away-from-home consumers that, he reports, are driving an SKU explosion. That insight, coupled with his leadership in advancing the distribution giant's infrastructure in pace with evolving supply needs, positions Hagerty as a driving force in keeping the industry on trend with the most in-demand products flowing swiftly and efficiently through the pipeline.

Hagerty has served as senior vice-president of Vistar parent Performance Food Group, and president and chief executive of Vistar since September 2008. Previously, he was vice-president and chief operating officer of Vistar after serving as vice-president of merchandising. He joined the company in 1994. Earlier in his career, Hagerty was director of general merchandise for Cub Foods, a division of Super Value.

Hagerty also serves as current chairman of the National Automatic Merchandising Association. With his one-year term coming to a close on June 30, Hagerty shared his view of the industry's present state and future prospects with Vending Times in a recent interview with senior editor Emily Jed. He also provided a detailed look into Vistar's approach to broadening its array of products and accelerating its shift toward fresher foods with shorter shelf-life, driven by the advent of micromarkets and consumer perceptions of "healthier" food.

Vending Times: We saw the typical vending warehouse go from 20 (or fewer) snack and confection SKUs to 150 or more when the market demanded greater variety and glassfront machines became available to meet that demand. Micromarkets permit the operator to offer many more. Where will the operator keep all that inventory? How does a distributor provide the necessarily small quantities with enough speed and at low enough cost to keep the pipeline full?

Hagerty: It's been many years since a typical operator has had fewer than 150 SKUs. We currently have more than 150 SKUs from both Green Mountain and Mars alone. Most operators have migrated to higher SKU counts as consumer needs have changed.

Today, the typical Vistar warehouse carries more than 6,000 SKUs with some carrying as many as 8,000 SKUs.

The consumer expects us to carry gluten free, high protein, low sugar, low fat, small sizes, large sizes, peg pack, etc. As the consumer changes, a successful operator or distributor must change with them.

As recently as eight years ago, our average warehouse was less than 100,000 square feet. Today, we are building warehouses that are more than 250,000 square feet, with more high-density racking to allow for more SKUs. Ten years from now, I would not be surprised if we carried twice as many SKUs in our warehouses.

The consensus seems to be that micromarkets are most attractive and popular when they offer a wide variety of fresh food. Some operators have commissaries to supply their refrigerated machines, and others have found a local sandwich house that is willing to boost its volume by producing vendible items. But the ones who haven't, for one reason or another, will confront a new level of difficulty. What might the distributor do to help find a solution?

We are working diligently to expand our fresh offerings. Many of our divisions already have fresh sandwiches, salads and cut fruit. We are working to expand those offerings into all of our divisions.

Typically, we make deliveries on a weekly or twice-weekly basis. Deliveries to smaller customers or those in remote areas are never more than once a week, which makes it difficult to distribute a quality fresh program effectively. Many strides are being made in packaging that will give products longer shelf-life, which will benefit our fresh programs. In the future, in areas where we have strong customer density, we hope to use smaller delivery vehicles to make the secondary deliveries, but we are not yet to that level of critical mass.

As wide-area networks have become more affordable and popular, some segments of the food industry have adopted standardized "efficient customer response" techniques in which a management information system forecasts demand, keeps track of sales and withdrawals from inventory and places orders with the distributor automatically, based on those forecasts and that tracking. Fully ramified, these systems also might link the distributor to the manufacturer, allowing "just-in-time" delivery of the desired items to each level of the distribution chain. Might vending and micromarket operators, working in conjunction with product distributors, make use of a system like this? Could NAMA play a role in adapting existing standards to this industry requirement, as it did with DEX?

We have already tested these opportunities with certain customers, and have built orders based on sales data sent directly from the machine itself. We do this today with our theater customers and the Coke Freestyle machines.

Theoretically, we could do the same for vending machines, but not all of our customers have the capability or the desire to provide us with machine-level sales data. In the coming years, this should become more prevalent in vending, but we are still a long way from implementation.

We know that technology will continue to develop in our industry and NAMA will play a role in coordinating standards. NAMA has a technology taskforce operating today with representatives from operators, industry technology companies, micromarket providers and machine manufacturers. They are working together to set industry standards on product data exchange and to standardize both vending management systems as well as micromarket system integration standards.

The vending industry also makes increasing use of computerized management systems for category management. Most initiatives, to date, seem to have been undertaken by product suppliers working with software developers. Is there a role for vendible product distributors in this task?

We do provide rudimentary category management information based on what is sold to customers in many of the segments within which we operate, based on sales into specific channels and specific geographies. I think the level of sophistication of true category management requires more than what is sold to an operator. It also needs to have data on what is sold through individual locations based on the demographics of those locations. We would not have that level of sales granularity. In this case, operators will need to use their sales data and work with software providers to get to true category management.

On a longer perspective, what is the outlook for the vending industry as a distinct retailing channel? Historically, vending was an attractive proposition for people with a mechanical flair and good selling skills. How has that changed?

At NAMA, we have been aggressive in coining the phrase "convenience services" rather than referencing the industry as "vending." The industry is no longer dependent upon a mechanical dispensing device to do business. Much of our growth has come from micromarkets and microkitchens, single-cup brewing systems, water filtration and many other convenience-driven opportunities of which there will be many more in the future.

Although there is still a need for vending machines in public locations, the majority of our business is still conducted in more private locations such as the workplace and schools. Our industry is the predominate retailing channel in these areas. In my 21 years in the industry, I have never been more optimistic about our growth opportunities.

] Although the classic full-line model, which evolved primarily to serve large industrial concerns, had begun to fray around the edges by 1975, new equipment was coming along and more decentralized, more modern industrial firms were opening. This led to another influx of new operators. Over the past decade, a new contraction has set in. On the other hand, many of the technical innovations that have come along in the same time period might give a decided advantage to a newcomer with a good grasp of computers and telecommunications and, of course, some mechanical flair and good selling skills. Has Vistar seen any signs that something like this may be happening? And what might NAMA do to encourage such people, if they exist?

In every maturing industry, contraction exists. We are forced to become more and more efficient; the efficient companies will prosper and the less efficient will dissipate -- it is part of our free enterprise system. In every industry, there is always room for new entrepreneurs with fresh ideas that serve the needs of a consumer better.

Innovation (which technology is a big part of) is the key, which will allow smaller companies to break in, prosper and compete against the larger, more efficient companies. That is what drives the evolution of an industry. Redefining vending to "convenience service" is a big step in opening up new opportunities for people breaking into our channel. Education and knowledge of consumer trends is the key to breakthrough ideas. NAMA supports this substantially through our partnerships with different universities, most notably Michigan State. We also do this through our trade shows and educational materials.

Vistar's Good To Go is prominent in Vistar's marketing efforts as healthy lifestyles have become a mainstream consumer focus. Can you bring us up to speed on any new developments? What exactly does the program offer operators? Are there different ways in which Vistar is leveraging NAMA's OneShow in April than in the past to promote the program?

Today's consumers are moving toward healthier snack and beverage choices and this trend will continue to grow. Our industry has a longstanding commitment to being part of the nutrition solution. NAMA was well ahead of the curve in 2005 with the launch of Fit Pick, a nutrition program for consumers that provides easy-to-understand nutrition information right at the point of purchase.

Vistar, along with the entire industry, provides an extensive variety of products designed to meet consumers' needs for "better for you." Never before have we seen so large a number of new items due to consumer eating habits. What is healthy for one person might not be the same as it is for another.

In our industry, we are seeing that the traditional "power" items are declining in sales and are being replaced by a variety of new products. Millennials are driving much of this change, but even older consumers are jumping on the "healthier for you" bandwagon. OneShow sets records every year with the number of suppliers who participate because they now see our industry as more than just candy and snack opportunities.

In your opinion as outgoing NAMA chairman, what have been the association's greatest accomplishments over the past year?

I believe the rebranding and the redefining of our industry to "convenience services" has been key to our overall future growth. Micromarkets have obviously exploded. They have allowed operators to meet more of the consumers' needs by offering a wider variety of items that lean towards fresher and healthier alternatives. The microkitchen or free vend environments have been picking up momentum, and NAMA has been there, teaching operators how to take advantage of these new opportunities.

What, in your view, are the opportunities and challenges that lie ahead for NAMA and the vending industry as a whole? What will the focus be moving ahead to keep the industry on its upward trajectory?

I believe the biggest challenge is getting the smaller operator to have the confidence to invest in technology. The world is changing rapidly, and many of our smaller members are not changing at the same rate. If they don't change or invest, the more progressive operators will leave them in the dust. I don't want to see the smaller family-run companies exit from our industry, but at the same time, I do want the standards and progressive image of our industry to continue our positive momentum.

I feel strongly that smaller operators can be successful by identifying their niches and continuing to broaden their level of service to the changing consumer. I hope that all boats will rise with the growing tide, and I truly believe our industry has a very bright future.


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