Vending Machines Get Smart to Accommodate the Cashless

Vending Machines Get Smart to Accommodate the Cashless

By Olga Kharif August 29, 2013

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More than 40 percent of U.S. adults say they can go a week without paying for something with cash, according to a survey conducted by Rasmussen Reports last year, but most of the roughly 5 million vending machines in the U.S. still accept only coins or bills, even as prices rise. Vending industry sales fell 18.3 percent between 2007 and 2011, to 1990s levels, before recovering slightly last year, to $19.3 billion.To boost sales, vending companies are installing new machines that accept credit cards and mobile payments and feature digital screens, video cameras, and smartphone charging stations. Machines that accept plastic can lift sales 25 percent to 30 percent, estimates Michael Kasavana, a professor at Michigan State University who studies self-service technology. Kasavana says revenue per transaction rises 15 percent to 20 percent when the machines can prompt consumers to buy a Snickers bar along with their bag of Doritos. “The vending industry has had to respond to the change in consumer preferences in order to remain relevant and profitable,” says Brad Ellis, president of Crane Merchandising Systems (CR), one of the largest makers of vending machines.

Market researcher Frost & Sullivan says there were 500,000 to 700,000 so-called smart vending machines in operation last year and estimates there’ll be as many as 2 million by 2018. Coca-Cola (KO),which runs its own vending network, says it plans to roll out tens of thousands of machines this year that accept smartphone payments and track users’ purchases to offer an occasional discount or free drink. Coke has spent a year testing 200 machines in Austin, Tex. PepsiCo (PEP) is using a handful of malls to test machines with screens that allow customers to play video games with free drinks as rewards; the screens also run soda ads that feature actress Sofia Vergara. Sales at vending machine maker ZoomSystems are growing more than 25 percent a year, with its machines selling products from Apple (AAPL),Best Buy (BBY), and Proactiv at airports, hotels, and casinos. The Wittern Group is pushing its machines into hospitals, to dispense items such as scrubs.

Web connectivity can cut vending operators’ logistics costs, allowing them to track inventory online and centralize decisions about when to restock and what to put in each machine, rather than sending trucks to check each one. Some operators can reduce their truck fleets as much as 40 percent, says Mandeep Arora, chief executive officer of Cantaloupe Systems, which sells networking services to machine operators. “We can send an SMS if there’s a jam or a machine loses power,” Arora says. Cantaloupe charges $10 to $15 a month for each of the 100,000 new machines it networks and monitors, while rival USA Technologies (USAT) charges about $10.

Retrofitting an older machine to add Web connectivity can cost as much as $500, and a new smart machine can run over $10,000, more than double the price of a conventional one. For some operators, that’s a deal-breaker: Many own fewer than 20 machines and have thin margins. Still, operators need to upgrade to survive, says Dennis Hogan, CEO of Canteen Vending Services, which manages more than 200,000 vending units in the U.S. “The industry is going through some consolidation,” Hogan says. “Those companies that are willing to invest in technology are thriving.”

Vending machine operators are likely to pass those costs on to card-swiping consumers. While large operators could take as long as six months to manually change prices on older machines, networking allows instant price changes. As fuel and chocolate costs rose, vending machine candy prices jumped 87.6 percent last year, according to Automatic Merchandiser magazine. Editor Emily Refermat says: “Vending operators historically were nervous to raise prices, and now they are realizing they have to—to stay in business.”

The bottom line: Vending machine operators are turning to networking and digital screens as they struggle to reclaim cashless customers.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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