Automatic Merchandiser

APR 2015

Automatic Merchandiser serves the business management, marketing, technology and product information needs of its readers including vending operators, coffee service operators, product brokers, and product and equipment distributors in print.

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machines or refrigerated cooler doors. Daily operations will change dramatically. No more hauling the weight and bulk of packaged cold drinks. That leads to smaller vehicles in your feet. Service times will be much faster since bottles and cans won't have to be merchandised in machines or on shelves. Route techs will be able to service more loca- tions each day. If single-cup brew- ing revolutionized the hot beverage categories, imagine the impact of cold single-cup drinks in the $50 billion+ cold beverage business. Cashless: Many, maybe all, locations will stop accepting bills and coins. Payments will be dominated by pay-by-phone or from other smart devices. Odds are that credit and debit card payments will have a much smaller share of transactions in all retail channels. › What does this mean for us? Daily operations and accountabil- ity will be simplifed. Fewer bills and coins to handle — maybe none. Security and theft issues will be, hopefully, minimized (maybe elimi- nated). Daily transactions at locations might increase just because people can complete transactions faster than dealing with bills or coins. Again, route techs will be able to service loca- tions at a much faster pace — meaning real productivity gains for operators. Private label products: This is diffcult for me, because all of my experience, insights and beliefs come from branded products. But, and it's a tough one, the huge retail brands and the convenience retail brands are headed towards a greater emphasis on "own label" business models. These products will be much better than 'cheap, poor-tasting prod- ucts in drab packaging.' Expect to see really good products and highly- appealing packaging. › What does this mean for us? Club store giants have successfully established their own brands across many product categories. Some con- venience store chains are offering branded snacks and beverages in single-serve packages. Recent data from syndicated market tracking ser- vices shows that retail private label is increasing marketshare in many product categories. The real test in our industry will be in the cost/margin/ value/taste framework. If operators can acquire credible products, they can offer these products at "lower" price points, a better value versus branded products. My advice? Watch the convenience store channel. What happens there will be a signal for what we should expect in the future. Why our industry tends to be slower to innovate: The broader industry we are in, which is foodservice — or food-away-from home — is similar in being somewhat slow to innovate. There have been four primary factors holding back the pace of change: • Heavy investment in "sunk costs" for the assets we have deployed. Con- sider our "hardware" — the vending machines, peripheral devices, OCS brewers, foodservice equipment and merchandising display racks at our locations. Today's equipment has more functionality, more features — far more versatile than what we used 20 years ago. • Similar sunk costs for the companies supplying our industry. Think about the factories which manufacture all of the equipment and devices we use. That's a lot of "metal, wires and electronics" to be produced and assembled. Today's equipment is more reliable — longer useful asset life — versus what we used 20 years ago. • The products and packages we sell are essentially unchanged for de- cades. This is not a negative. Until recently we've been limited to selling products which must ft in a vending machine. That is a tough packaging constraint for product suppliers. While there have been changes in pack- aging — sizes, shapes, and net weight/volume — we still sell bottles, cans, bags and some boxes. There have lots of line extensions — some have become hugely successful. Micro markets have changed our prod- uct mix in ways few expected. • Our time perspective must change. We tend to look backwards, perhaps a year or two to see how we are progressing, better or worse, versus the most recent trend line. When we look forward it's not much beyond the next year. Like the restaurant business — tomorrow morning is risky for us. For a restaurant manager, the day will be bad if the produce order does not come in or if the staff does not report as scheduled. It's similar in our business — we're in trouble if the next product delivery is late or if the warehouse or route personnel are not in that morning. That 'tomor- row morning-time hurdle' is critical for us on a daily operations basis. We need to raise our eyes and look a few years ahead to see what we must do to survive and prosper in the future. An excellent quote describes the challenges we face. The source, (the late) David Carr, who wrote in The New York Times about technology and media, said, "…a legacy industry will default to legacy assets and ride them down to the bitter end." The question we must answer is "Will our legacy assets be adequate for our industry to succeed in 2020 and beyond?" 40 Automatic Merchandiser VendingMarketWatch.com April 2015 I N D U S T R Y O U T L O O K

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