Tools unlock merchandising strategies for vending

What is merchandising in vending? Jim English, CEO of Sprout Retail, a partnership designed to use technology to improve operational efficiency and develop interactive consumer programs, defines it as follows: “The art of balancing service frequency, assortment, pricing, sales rates and inventory to deliver the maximum gross margin every time you visit the machine.” He further notes: “The real challenge is that optimizing any one variable often sub-optimizes the others. Striking a balance is a tricky process, but with the right tools, it can be achieved.”

I agree with this definition and assessment. In talking with operators, two objectives come up:

  • Putting the best selling products in the machine to maximize sales.
  • Increasing space for best selling products to lengthen service intervals.

These are the twin goals of merchandising in vending. One operator summed it up by saying there are two types of machines: high volume machines that should be optimized for increased sales, and low volume machines which should be optimized for the longest service interval to reduce costs.

Before considering which strategies to use, an operator must have the tools necessary to implement them. The ability to merchandise effectively is directly tied to an operator’s technology capabilities.

Technology determines capability

With item level tracking capabilities – enabled with technology coupling DEX reporting and software solutions – operators are now able to actually understand what products are being sold in each machine.

The advent of pre-kitting and dynamic scheduling are tools from these software solutions that allow the operator to understand item level sales at the machine level and create operational processes that achieve the desired results.

The bottom line is that your level of technological sophistication has a direct link to your capabilities to effectively merchandise.

The table at right shows how your merchandising capabilities relate to your technology situation.

If you are not using any software that is capable of tracking item level sales, your only real option is to try and give planogram guidance to your drivers using account demographics like blue collar, white collar, school, etc.

While it can be valuable to utilize the demographic profile of the account, nothing is better than having the actual line item sales data for each machine. A machine in a white collar location may perform more like a blue collar machine based on the individual buying preferences.

When I first worked on developing a merchandising tool for vending, I focused on increasing sales. I was working with a vending operator who was using dynamic scheduling supported by wireless remote machine monitoring.

A fortuitous discovery

After reviewing the company’s data, the greatest benefit we uncovered was not in the sales gain as much as the productivity gain.

When we reviewed the sales data, it became clear that a few products were driving the dynamic schedule. The schedule was based on a threshold of two sold out products or three sold out columns in a snack machine.

By simply allocating two columns from poor sellers and doubling up the best sellers, the service schedule could be extended to nearly twice the original schedule, saving a ton of money on service costs.

The big discovery: merchandising impacts not only sales, but productivity.

Let’s look at how different levels of technology affect merchandising strategy, starting with non-glassfront, stacker cold drink machines.

If the machine supports flexible space to sales programming, you can allocate variable amounts of space to each product button.

If you are confident in the products in the machine, oftentimes determined by the bottler that supplied the machine, your goal should be to efficiently tune the space to sales to lengthen the service intervals while maximizing selldown.

Of course, before doing this, you should analyze the sales and see if any products should be removed and replaced.

MEI software reports provide an example where small space to sales adjustments are able to save services in a space to sales enabled machine using simple reporting. (See figure 1 on page 26).

In this example, the MEI report shows that allocating an additional column to Coke Classic will save three deliveries a year, and extend the service interval from 27 days to 36 days.

The modern glassfront beverage machines like Crane’s BevMax 4 are capable of many programming options that can manage merchandising and space to sales. Since machines like this can vend many product sizes and prices, options include offering selections like energy drinks and healthy drinks with higher margins.

One feature that many don’t know about is the “even sell down” configuration that allows the machine to be configured to sell down an entire shelf, evenly.

As an example, if the first two shelves are allocated to Coke or Pepsi, the machine can be configured to treat the entire “block” as one, and no matter what selection is made, the machine will manage selling the product out of all columns. The advantage here is that the machine won’t look empty because most consumers chose the first selection, “101”.

A general strategy for merchandising these machines is as follows:

  • Consider offering higher margin alternatives when the contract allows it.
  • Analyze the space to sales allocated to each product. There will likely be some products or space that is not performing well.
  • Create a new planogram for the machine, and if possible, program the even sell down feature.

Glassfront snack machines provide the best example of where vending can learn from retail. There are huge opportunities for improvement for operators without major machine configuration changes.

Most operators over or under service these machines. Optimizing the schedule frequency and rotating in new products is a big profit opportunity.

The first thing you need to do is find selections that are underperforming. This is easy to do using a merchandising software tool, or even a basic sales ranking report for the machine.

Once you identify these underperforming selections, the question becomes what to do with them. What you do depends on a lot of factors.

Snack Machines: what to consider

In snack machines, the best selling products outsell the others by a huge margin. If you can add a column or add more space to the two top sellers, you can often double the service interval for a machine.

Once that is done, the focus should be on replacing other poor sellers with new products. There are two options here:

  • Look at your own data and make sure that each machine is stocking good selling products that might not be in every machine. For many operators, some of the best selling products are not in all machines.
  • Consider placing new products in each machine to replace the poor sellers. Many times, a new product will initially sell well, and then slows down. It is important to continuously monitor results.

Figure 2 provided by Crane Streamware on page 28 illustrates how Streamware’s merchandising tool deals with a typical snack machine.

The tool has several aspects, including analyzing category performance and pointing out what saving would be made if a recommended change were made. In this case, the tool shows that the space allocated to each category is already well balanced.

The tool also shows the difference between the best selling and worst selling products in the machine and recommends several changes.

Here are a few items still to consider:

  • Price sensitivity is always a factor, and because of existing contracts, adjusting prices may or may not be an option. Studies have shown that lowering prices increases sales and makes up for margin. There are some accounts where testing lower prices may be an option, but prices are already low in vending. A better option is offering high priced/high margin alternatives like energy drinks and healthy snacks where allowed.
  • The DEX protocol allows for handheld and remote monitoring solutions to change prices automatically in your machines. Many software providers are experimenting with this option, but it only works when you do not have prices printed on the machine labels. In one study I know of, taking the prices off the machine actually increased sales. In this case, the machine is configured to suggest “enter a selection to see the price.”
  • Some merchandising tools have an option to lower par for products that are not selling well. In other words, the column can hold 15 candy bars, but you will save inventory costs by only stocking it with seven. This is a good idea, however, make sure your existing review process or software have some option to automatically increase the par level if that product starts selling out.

Establish a basis for new capabilities

If we look to the future, it is likely that touchscreens and modern electronics will be used to enhance merchandising opportunities in vending. When this happens, there will be greater opportunities to conform with government regulations around calorie and nutritional information, advertise products, offer promotions, and administer and promote loyalty programs.

The challenge in making these programs work is that the vending machine will need to know which products are in each spiral. Companies using advanced software and/or remote monitoring solutions can do this today.

In closing, make sure you have a strategy for tracking item level sales, and approach merchandising as a way to increase your profits.