V-Engineering: For Vending Operators, Anticipating Change Is Crucial To Their Technology Adoption Plans

Posted On: 9/30/2013

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TAGS: V-Engineering, V-Commerce, smart vending machines, networked vending, office coffee service, Dr. Michael Kasavana, NAMA OneShow, Ron Spinella, Apriva, Lori Marshall, Byndl, Mandeep Arora, Cantaloupe Systems, Joanne Bethlahmy, Cisco Consulting Services, Brendan Kehoe, Crane Streamware, Rainish Maini, Intel, Doug Haddon, MEI, Mike Lawlor, USA Technologies, cashless vending, micro market, virtual store, SSM, Global System for Mobile communications, CDMA, Code Division Multiple Access

photo | VENDING: Dr. Michael Kasavana welcomes NAMA OneShow participants to panel session exploring ways to apply technology to the tasks of improving efficiency, reducing cost, boosting patron satisfaction and maximizing sales in a demanding market.

The cascade of new applications for today's data communications and processing technologies holds great promise for vending and coffee service operators who implement them according to a well-thought-out plan. Dr. Michael Kasavana, the National Automatic Merchandising Association's endowed professor of hospitality business at Michigan State University's Eli Broad College of Business (E. Lansing), recently led a panel that explored the promise and potential pitfalls of a world full of smart, networked machines -- and consumers.


Kasavana, who had coined the term "v-commerce" at the turn of the millennium to summarize the retailing power of networked vending machines, observed that the astonishing developments since then have created an opportunity for "v-engineering," a broader approach that supports v-commerce with an array of new tools ranging from online flat-panel displays to vending-oriented applications for smartphones, including a wider range of cashless payment options.

His panelists at this year's OneShow in Las Vegas, included Ron Spinella, Apriva; Lori Marshall, Byndl; Mandeep Arora, Cantaloupe Systems; Joanne Bethlahmy, Cisco Consulting Services; Brendan Kehoe, Crane Streamware; Rainish Maini, Intel; Doug Haddon, MEI; and Mike Lawlor, USA Technologies.

OneShow Panelists

MEI 's Haddon observed that more technology inevitably generates more data that must be managed if it is to be used effectively. That data also must be transmitted and received, and this must be done more quickly as volume increases. "Be prepared," he advised the audience.

Wireless networks are being upgraded to deal with the fast-growing demand from consumers, as well as commercial customers. Yesterday's "second-generation" (2G) networks are giving way rapidly to 3G systems, and 4G already has risen well above the horizon. Competition among networks developed from the original GSM (Global System for Mobile communications) and CDMA (Code Division Multiple Access) standards continues, as each undergoes development. With no clear winner in prospect, a system that depends on access to a wireless network must be designed flexibly, so future advances can be accommodated with minimum disruption and expense.

The concurrent proliferation of payment systems also calls for prudent system design, Haddon continued. Such advances as banknote recycling and cashless payment systems of all kinds continue to make the settlement process more complex. Again, operators are well-advised to assemble systems that are easily expanded or modified as new communication standards and services become prominent.


With the industry's continually increasing reliance on the automatic collection, retrieval and processing of data, it is important to keep in mind that these activities are not immune to error. "Understand the implications if, for example, some of your DEX data is wrong," Haddon urged. The ramifications of a data fault can extend all the way from the moneyroom to the warehouse, and it's advisable to make provision for detecting and rectifying errors.

"Operational process change should be governed by choice, not chance," the MEI executive emphasized. "So partner with your technology providers: you need one another, and you have common goals."

Not only must an operating company's management make a strong commitment to effecting successful change, Haddon continued; the company's employees must buy into it, too. Focused implementation is necessary to minimize the time needed for the transition and the disruption it can cause; and this calls for good management.

"Operators need to build successful, sustained relationships to meet their goals," he amplified. "Sell the vision, top down and bottom up. Cultivate the new skills needed to deal with things like video displays and telemeters. Dedicate the resources required to accomplish that," the speaker urged.

"Focused implementation," he explained, refers to remaining concentrated on the vision while proceeding step by step to get the processes right, and then automate them.

"And get your people set up for success," Haddon urged. "Sustain that success through continual training; partner with your technology provider." He reported that a recent survey found that, while 70% of operators agreed that ongoing education is important, 90% had not taken part in any for at least two years.

The speaker summarized the implementation process as a loop, which one enters by identifying a need. The next steps are to assign an "owner," develop and test a process that meets the need, apply technology to automate that process, measure the benefits and make whatever adjustments are shown to be needed by the measurements. The last step is to initiate another cycle by identifying another need.

Apriva's Ron Spinella addressed the changing communication standards for which operators must prepare when setting up equipment on wireless networks. He summarized the progress of the wireless art by recalling that the original cellular network was set up for radio pagers, and may be thought of as "0G." The early mobile phones prompted the deployment of an analog network as the first generation (1G), and the swift growth of the industry drove the development of today's digital "2G" cellular network.

"Most wireless payment systems today use the 2G network -- but 2G is going away," Spinella warned. "When you evaluate a new technology today, ask whether it will work on a 3G or 4G network."

Payment media also are evolving, the Apriva executive said. "Remember the original Diners' Club and American Express cards? They had embossed print on the front, and a magnetic stripe on the back," he recalled. This design also has proven very durable, but it, too, is on the way out.

The payment card industry today has turned to the EMV standard, Spinella explained, and plans to start rolling out the new cards this year and continuing through 2018. The EMV medium (originally a joint project of Europay, MasterCard and Visa) incorporates an integrated-circuit chip that cannot be duplicated; it is suitable for contact and contactless readers. "And the IC chip doesn't need to be in a card," Spinella added. "It can be built into a phone."

The new EMV medium is designed to accommodate PIN and/or signature authentication for larger transactions; the requirements for small payments vary. The speaker advised operators to make certain that their payment-system plans will support widespread adoption of EMV.

Mandeep Arora of Cantaloupe Systems observed that, when his pioneering remote-monitoring organization opened its doors, "We thought it would be simple: we'll connect the machines, and tell the driver where to go each day. But it's more complicated than that."

That model simply was designed to reduce the frequency of stops, which has proven a very valuable thing to do, he said; "but under the new model, you also can call your customer and say, 'We've identified a defect and corrected it.'" A scheduled route delivery is costly -- about 20% of a vending company's expense is route service -- and an unscheduled service call is expensive, too. So Cantaloupe set out to minimize both kinds.

A traditional vending operation could identify accounts with reasonably steady demand and set up a service schedule that usually would avoid out-of-stocks, at the cost of refilling machines whether they needed it or not. "Suppose you're servicing a machine every seven days," Arora instanced. "If you can push that out to eight days, it's better." In fact, detailed information about the depletion rate of each product in each machine allows menu modification that avoids selling out while reducing the frequency of service.

And the conventional method of carrying sufficient inventory on the truck to accommodate the maximum anticipated sales of each machine necessarily results in "bring-backs." Carrying just enough stock to meet the actual demand of the machines on the route reduces product handling, the speaker pointed out.

Equipment repair has always been a priority for operators who know that an out-of-service machine not only sells nothing, but erodes patrons' confidence in the reliability of the vending service. The best traditional systems for dispatching a technician depend on the dispatcher's receiving a call from someone at the location to report an out-of-order machine -- "but you don't want your customers to be your quality assurance department," Arora emphasized. "They usually don't call you promptly, and you lose sales." A machine equipped with diagnostic circuitry and a means of sending an alarm when a malfunction occurs enables the operator to be proactive, and to take the credit for staying ahead of problems.

Merchandising is another area in which remote monitoring can have a strongly beneficial effect that was not anticipated in the early days of developing the concept, the Cantaloupe executive added. "Traditionally, operators watched what sold out, and then added more on the basis of guesswork," he recalled. "With real-time monitoring, you see what sells out first -- and what people then buy instead, so you know what to do."

He reiterated Haddon's point about the need for management changes when new technology is added. "He's right," Arora concurred. "You don't need mountains of data; you need the right tools. And you don't have to connect every machine; one that's doing less than $100 a week doesn't need it."


Byndl's Lori Salow Marshall noted that software, and the context in which it's used, evolve, too, often in conjunction with hardware advances. "For example, in the old model, users occupied distinct 'silos' containing the software they used: salespeople used customer relations management programs, operations people used enterprise resource planning software, financial people used financial programs. There has been steady progress away from those 'silos' to software suites allowing free association among functions, following prescribed rules."

Other advances have included the proliferation of "software as a service," a concept that allows the user to subscribe to a software application available through a secure website, rather than buying the program, installing it and keeping it up to date. This proliferation has proceeded in parallel with tremendous improvements in mobile devices and the consequent surge in demand for them. "People like mobile data," Marshall said, "and you can be a connection-point for them."

In the past, product suppliers, payment companies and coupon program providers occupied "silos" of their own, she said; "We need free association here, too." Byndl has set out to facilitate this with a flexible mobile payment and rewards application that can work with vending machines.

The speaker reported that 59% of mobile users today are comfortable with mobile advertising; "they don't hate it, and you can gain from it. Vending operators and digital service providers can work together."

Crane Streamware's Brendan Kehoe observed that convenience stores and supermarkets have become proficient at engaging their customers, attracting attention and influencing behavior. "How can vending do this, too?" he asked.

Kehoe noted that discount pharmacy chains at present are trying to lure business away from competing retail channels by running loyalty and rewards programs. This kind of consumer interaction now is available to vending operators, he said.

The starting-point here is the new generation of flat-panel video display screens, available in a variety of sizes from diverse sources, on new venders and for retrofitting to existing ones. They communicate with vending patrons using images as well as text.

"Screens can present advertising, promotional and nutrition information," the speaker observed. "With a screen, you can create a user experience."

The rise of e-commerce over the past decade has produced a good deal of information about what works best in encouraging people to make unattended purchases, Kehoe said. Among these findings are that using a "shopping cart" metaphor and always asking whether the customer wishes to buy something else are effective ways to put the patron in charge of the process and thus maximize sales. A video screen working as the user interface on a vending machine can do these things.

The technology developed to connect vending machine screens and controllers to a central server also can be used to extend the appeal of vending to patrons' mobile devices. It should be possible to engage consumers who are away from the machine, and encourage them to visit it, the speaker said.

And the bidirectional nature of interaction through a screen, coupled with advances in pattern and gesture recognition, has opened the door to sophisticated behavior analysis, Kehoe continued. This should permit marketers to obtain detailed information about how consumers react to a message or an offer, and suggest improvements that will elicit a more favorable response.

In considering all of this potential, the Crane Streamware executive concluded, it is important to keep one's priorities straight and to use common sense. "You don't use technology for technology's sake alone," he reminded the audience. "And remember that your customer is likely to say, 'I don't want an experience -- I want a cold drink, and I want it right now!' So be careful."

Joanne Bethlahmy, director of Cisco Consulting Services' Internet Business Solutions Group, retail and consumer packaged goods, observed that her organization has been conducting "thought experiments" in applying technology to retailing. The fusion of vending's unattended payment systems with the use of automatic product identification scanning, which has given rise to the micromarket, has just begun to show what it can do, she said.

Three trends that attracted the Cisco researchers' attention are innovations in vending, some of which also are affecting other segments; the development of micromarkets, which to date have had the greatest impact on business-and-industry locations; and the "virtual store," an idea which has been around for a while but which has demonstrated its practicality in the Republic of Korea. A "virtual store" houses information displays that provide product photos and specifications, and payment terminals at which to place orders for delivery.

"We thought, why not combine these concepts?" the speaker reported. "Why not apply them to creating branded digital destinations in high-traffic venues?"

[Editor's Note: Bethlahmy described this concept in more detail at a OneShow micromarket seminar, covered in the August issue.]

In a resort hotel, for example, guests might stroll through a series of attractions, starting with a "remote concierge" kiosk. Other opportunities would include shopping at a digital mall, buying refreshments from vending machines, playing games, patronizing a micromarket food court and interacting with experts by teleconference. All of these technologies exist today.

The promise, she summed up, is of an immersive consumer experience that can yield valuable business intelligence. The requirements are for secure connectivity and payment processing, and capable back-end systems and support.

"How to do it? A 'consolidator' or organizer is needed, to design pilot programs and conduct them to test their viability. Then the successful ones can be translated into a scalable business model," Bethlahmy summed up. The versatility of the micromarket concept is worth keeping in mind when evaluating market potential and choosing equipment.

Intel's Raj Maini observed that vending (of a sort) was invented two millennia ago, but at present, the revolution in digital media threatens to bypass the vending retail channel. "We need to address this," he said.

"And it's not about vending, nor about providers of digital media," the Intel executive reminded the audience. "It's about the consumer. Consumers want this or that product when and where they are. Vending can deliver those products, and the machines can be transformed from passive dispensers to interactive retailers."

The interactivity made possible by intelligent, networked vending machines offers a great many benefits to operators and patrons alike; and one of them can be entertainment value. "Today, you can use a vending machine to send a gift to a friend in another state," the speaker instanced. "I can play a game. I can charge my phone."

Intuitive, appealing user interfaces supported by open standards and remotely managed are drawing attention to vending machines in high-traffic public locations in many lands. The behavior of the people who are attracted to them and invited to participate is being studied by means of anonymous video analytics. "The machines are remotely managed and they convert behavior into data," the speaker explained. Video analytics, for example, can determine the distribution of age and gender among viewers, and track the total number of people who stopped to look at the machine, whether or not they chose to participate in the promotion.

These "intelligent vending" initiatives suggest ways in which the capture and interpretation of patron behavior in front of vending machines can increase their revenue stream and decrease their cost of operation, the Intel executive summed up.

USA Technologies' Mike Lawlor recalled that he has been speaking at NAMA's technology seminars for the past 12 years, describing the power of cashless payment to increase vending sales and profits. "Operators have agreed that it's exciting," he said. And excitement has been needed; since 2000, vending profit has declined 70%, the speaker reported, and 75% of Americans use vending machines less often than once a month -- or never use them at all.

USA Technologies has been following the penetration of the vending industry by cashless payment systems, and assembling detailed information about their performance into a knowledge base. Lawlor observed that this continually updated historical record demonstrates that expanding customer options and pricing flexibility does have a substantial positive impact. Moreover, the benefits are obtained from additional volume, not by "cannibalizing" traditional cash sales.

The speaker showed a graphic representation of vending sales over a 12-month period following the adoption of cashless payment systems. The sample was 9,729 machines doing a total of about 70 million transactions. In the first month, cash sales averaged $549, compared with only $77 for the new cashless alternative. By the 12th month, cashless sales had increased to an average $134 -- and cash sales also had risen, to an average $571. Cashless had most effect on higher-priced items, Lawlor noted; the average cash sale was $1.16, while card sales averaged $1.51. "Higher vend prices encourage card use," he explained.

"There is a cost associated with cashless payment," the USAT executive continued. "After taking that into account, we see an average $700 incremental profit."

The conversion of a vending machine into a node of a wide-area network, allowing it to handle cashless-payment authentication and recording over the Internet, also allows it to take advantage of remote machine monitoring, Lawlor added -- and vice versa. Used in conjunction with a capable vending management system, this further augments profitability.

He described a pilot project conducted by an operating company on one route of 75 to 125 machines yielding $7,000 to $8,000 per week. Under test was a five-point plan: machines would be fitted for telemetry, and the top 25% of them also for cashless vending. The remotely transmitted data was used to rationalize route scheduling, optimize menus and streamline order picking.

The results were dramatic, and the program was fully implemented. As a result, the operation enjoyed 12% organic growth while consolidating its routes from 14 to nine. These routes are run by trucks with 12-ft. bodies, rather than the larger 16-ft. vans used previously. Two-tier pricing was added on the cashless venders. "As a result, the operator has realized a total benefit of $785,000," Lawlor concluded.

During the question-and-answer period that followed, an audience member raised the question of high-security buildings, whose management often opposes introducing third-party networked equipment.

"The problem is that they see your device as a 'hole' through which data can leave their building," Spinella explained. Cantaloupe's Arora recommended that operators ask their suppliers for assistance if this objection is raised.